It's Very Hard to Deter Illegal Drug Production

See the table of annual death rates in the middle of this post. 

 The death rate for a Chicago crack dealer is actually higher than the death rate for a Texas death row inmate. About 7% per year for the crack dealer and about 5% per year for the death row inmate. That means it should be very hard to deter drug dealers, given that they are willing to pay (are indeed already paying) a very high cost to work at their job. If crack dealers are facing a 7% annual chance of death, presumably they’d laugh off a milder penalty, like a small chance of a long prison sentence or a fine of almost any conceivable magnitude. The penalty would have to be something comparable to what they’re already paying to have any effect at all (unless we propose there’s some weird cliff in the supply function). The penalty would have to be comparable to actually placing them on death row, and that’s after multiplying by the probability of catching them. Presumably this is less than 100%.

Sure, sure, pick nits. The data are out of date. But presumably the magnitudes aren’t too far off. Even if the risk of death comes down by an order of magnitude or more, that’s still a very large cost and it’s going to be very hard to deter that person. Or perhaps: Texas death row inmates all eventually get put to death, but crack dealers don’t face the same certainty. Fair enough, but let’s do a multi-year comparison then. Ten years as a crack dealer nets you a ~52% chance of death (under the 7% per year assumption). Twenty years gets you a 77% chance. That’s not 100%, but it’s still big. And I’d imagine some large fraction of death row inmates escape execution, even in Texas. I don't know what the fair comparison is, but you don't get away from "Drug dealers are willing to endure very large costs to keep being drug dealers."

Imagine someone is spending a million dollars a year to produce something, which he sells at a profit. You say, “Stop doing that! Or I’ll fine you $100!” He’ll laugh you off. “Okay, $100,000!” He talks to his accountant and decides to up the price a little to cover this fine, which he just considers a cost of doing business. “Okay, $1 million!” Now you’re hurting him a little, because presumably he’ll have fewer customers if he raises his price to cover the cost. But he can still raise the price to nearly cover the cost you’re imposing on him. If what he’s producing has very inelastic demand, as many drugs do, the price will rise high enough to recover most of the additional costs. 

The legal penalties for drug production and distribution are very high, at least in the United States where I live. I consider them draconian, downright evil in fact. But compared to a 7% chance of death per year? Good lord!