Another interesting example of drug economics is the cutting of cocaine with a drug called levamisole (first follow-up, second follow-up). Levamisole is a superior cutting agent because it passes most of the tests for cocaine purity and survives the conversion into crack*. It even appears to potentiate cocaine, so cocaine cut with levamisole is close in potency to pure cocaine. Unfortunately, levamisole is an immune modulator that occasionally causes user’s immune systems to shut off.

The cocaine industry used to be vertically integrated, so the same organizations handled the product from leaf to street distribution. Under vertical integration, it is most efficient to smuggle cocaine before cutting increases its volume and then cut right before distribution to customers who are not qualified to assess purity.

Law enforcement broke up the vertically integrated organizations into separate players at each stage of the supply chain. So the organizations that convert coca leaves into powdered cocaine increase their profit by cutting before sale to smugglers. Levamisole is the only cutting agent the smugglers can’t detect.

This is a good example of how mere decriminalization of cocaine, like Portugal has done, does not minimize harm to users (and does nothing to help supplier countries). Government should regulate the entire international trade, all the way back to the plantations (I’m guessing they already do this for medical-grade cocaine?). Then you could buy certified organic, fair trade, shade grown cocaine.

* Yes, crack is better for you than powdered cocaine cut with something toxic – welcome to the perverse world of prohibition.

My friend Celine recently pointed me to an editorial in the Vancouver Sun about degrowth. I believe that how you live now, you can’t even imagine what degrowth would be like:

Imagine that whatever your standard of living is now, that’s essentially how it will be for the rest of your life. If you don’t own a car or a house, you never will. I don’t care if you’re in your 20s and your “career hasn’t gotten off the ground” – most of the 3rd World’s lives haven’t gotten off the ground, and we’re going to need all the resources you thought you were going to gain to lift them up.

Imagine that you’ll keep all your possessions until they wear out, not just because they’re not fashionable or an upgrade is available. And you bought high-quality goods that can be repaired and will take years to fully wear out. Because your goods are so high quality, you can only afford a few basic necessities.

Imagine buying nothing on credit because you’ll never be able to afford the interest. Imagine getting a notice that your wage is going down. Imagine selling your house for less than you paid for it.

If you pay vague attention to the news you might have heard about the kerfuffle over America raising its debt ceiling. I’d like to talk about the game mechanics of the political economy at work here.

The debt ceiling is a traditionally-symbolic limit on the amount of money the US government can borrow. As a matter of course it is usually raised as needed — if the government needs $100 billion they give themselves permission to borrow another couple hundred bills.

Except, apparently, now, as the Republicrat false dichotomy self-devours. The Republicans seem to have found a no-lose position from which to assail the Democrats — either Obama gives in to their ludicrous demands or they force the country into ludicrous default.

Why would the party of the rich guys hold a proverbial firearm to the proverbial head of the proverbially free market — the foundation of their own economic and political power? Well, because no reasonable president will let the country default when he has recourse to subsection four of the fourteenth amendment (IANAL|CS). That clause could, broadly interpreted, allow Obama to bypass Congress to unilaterally force the payment of American public debt (since the Constitution is not a suicide pact). In the hyperbolic rhetoric of Washington this amounts to a “nuclear option”.

The Reporklicans aren’t really worried about the debt ceiling, because Obama can just route around their brain damage. But the cost of that will be tickling every “Obama is an Islamo-Fascist Communist Tyrant” nutjob in their funny places in the midst of Obama’s reelection campaign. This is also why he won’t grant a temporary extension — doing so would just make the political effects of his eventual decision more present in the minds of voters next November.

If you’re dispassionate about the actual results of this political maneuvering the strategy itself is actually a thing of Machiavellian beauty. It puts our boy O in a difficult place — he either kowtows to the Koch-ilk or he treads close to causing a constitutional crisis in an election year. A classic dilemma — the choice of goring horns (also ham-fistedly telegraphed by Mitch McConnell’s recent “escape hatch”, back-door double-veto “proposal”-slash-loss-of-bottle).

It’s hard to see if Obama has a third option. I’ve been tweeting @ him to call the Republicans down and force them to implement their crazy anti-voter policies, but he hasn’t been listening. He’s not a lunatic. He’s not willing to destroy the bond markets and cripple the Republicans in a slightly-less-crippling act of spitefully nasal face mutilation.

It seems as if he’s opting for the optimistic strategy: educating the American people about the situation and its consequences. If it wasn’t super-polarized American politics we’re talking about I would call more education “the right decision”, but given my prejudices against the possibility of political consciousness in that country it seems to me like an almost-suicidal political risk.

Still, if O can make himself look like the savior of American credit in the face of Republican irresponsibility it might — might — play to the plebs.

Evidence-based drug policy should discourage use of dangerous, highly-addictive drugs. But the War on Drugs has provided economic incentives for the discovery and marketing of stronger drugs:

• opium → heroin
• cocaine → crack
• speed → meth

This continues with the growing popularity of desomorphine as a heroin substitute in Russia.

Opioid replacement therapy is an example of steering existing addicts to safer drugs; it is usually done with methadone in Canada, although other opiates are used elsewhere and there are good arguments for prescribing medical-grade heroin instead of a substitute drug. There is some evidence that cocaine users voluntarily switched to mephedrone until it was banned in the UK.

Drug policy should also prevent drug users from using the more dangerous drugs in the first place. New drugs and recipes are distributed using the network for existing drugs, and a diversified product line makes drug dealing more economically viable. Given the failure of prohibition, safer drugs, like marijuana, opium, coca leaves, mephedrone and speed, should be legalized with appropriate regulation (more on that in another post). Benefits include:

• fragmenting the organized black market
• discouraging legal drug users from gatewaying to dangerous still-illegal drugs
• bring abusers of the newly legal substances into the open where they can be treated
• reduce incentives for discovering new drugs
• reduce issues in opium- and coca-exporting countries

This is based on Jeff’s blog post on corporate tax policy.

Neoclassical microeconomics is all about supply and demand functions (often represented as curves). For a given good or service, the supply and demand functions map between how much quantity and for what money, given all the other things effort and money could be spent on. The sensitivity of supply or demand to price is called “elasticity”.

In a perfect market, the functions for every good and service will balance. If something like a tax or price controls comes along, it will be distributed between producers and consumers based on the elasticity of their functions.

Welfare economists say that the market isn’t perfect so functions generally aren’t balanced. Consumers are sometimes willing to pay more than it costs to produce something, but more producers don’t move into the market because of a market failure (such as a high entry cost). Smart business people are always looking for niches to exploit. Sometimes government intentionally creates market failure to incentivize certain activities, like patents for inventions.

Governments can regulate monopolies to try to prevent cost discrepancies but another option is to tax producers. If the producer is making excess of what they need to continue production, none of that tax should get passed on to consumers.

The debate whether to decrease or increase corporate taxes can be reduced to the question: is there more or less market failure? So much that indiscriminate taxing is preferable to trying to regulate away failure (which is notoriously hard)? Economists can’t agree on how much total market failure there is so this is an appropriate political question. I wonder if sector-specific taxes might work better than an across-the-board corporate tax rate with exemptions?

From my perspective, corporates are “people” only as a legal convenience: they are better thought of as devices that operate inside the economy. The economy takes in labour, land and natural resources; it spits out goods, services and pollution; money, in the form of wages and capital gains, flows around:

Concrete inputs and outputs are easy to tax. Money is abstract, but because wages and capital gains are attached to people, they can easily be taxed. Whereas corporate profits are an abstract thing that exists entirely inside the economy.

I feel like taxing corporations just adds friction to the gears of the economy – wouldn’t it be better to run at full steam and tax the interfaces? As Doug Saunders points out, large corporations are good at avoiding taxes (eg: Ikea and GE pay no taxes). Because corporate taxes are inside the economy, depending on elasticities taxes could ultimately be shifted to any part, including wages and consumer prices. For example, HST is a corporate tax cut, because it reduces the taxes paid between corporations through the supply chain, but it could result in lower prices and more jobs (nobody knows what its long-term impact will be!).

It seems like we should cut corporate taxes with corresponding increases in taxes on land, natural resources, capital gains and pollution. But although corporate taxes may not work very well, they might be more politically viable than other taxes, and are better than no taxes at all – the federal Liberals and Adrian Dix’s BC NDP are both campaigning to raise corporate taxes. And there might be no point in unilaterally cutting corporate taxes lower than other jurisdictions.

I am currently reporting from a secret location somewhere in The Great White North. Without going into specific affiliations* my vote cannot determine the outcome of my local race, barring outlying events.

I’m left with a party vote — my candidate can’t win. I plan to cast for Federal funding so the candidate of my choice in the riding in which I eventually settle will be better able to undo whatever damage the Conservatives are able to wreak in this next cycle.

Essentially: when I vote GreeNDP in Toronto next time I want them to be able to afford signage.

Comments on this strategy? Make sense? I figure that we’re heading for another minority — what’s changed?

* (this election vote ABC — Anything But Conservative)

Check the ovation that lowering the corporate tax rate got.

Simon pointed me to the “cherry-picked” statistics in a hagiography detailing how Canada’s New Government has increased our standard of living even though nobody noticed. This is a response to a Liberal media campaign arguing that our standards of living have gone down during Conservative rule.

Ignatieff has cherry-picked some of his own statistics, but mostly he’s asking people to subjectively measure their own well-being. That’s like asking my grandmother whether the crime rate has gone down! My impression is that the middle class has become convinced they’re paying more taxes than they receive in government services, they usually tell the government to cut taxes so they can get ahead.

The correct response from the left isn’t to argue with the right about how to interprets economic measures, it’s to call for more meaningful measures. For example, Canada’s Human Development Index score has gone up 0.008 since 2005, which is a lower rate of growth than the average highly developed country, but doesn’t change our ranking. Of course, they need to justify the measures they’re proposing: for example, the weasel-worded Genuine Progress Indicator strikes me as a critique of economic development rather than a genuine proposal for an alternative.

The platforms of every left-wing party should propose a specific alternative to the GDP. If they form government, how will their success be measured relative to other governments and/or how will the measure be adjusted for factors beyond the Canadian government’s control? And if the data to calculate the measure isn’t available, how will Stats Canada be directed to ask the right invasive questions?

As any policy analyst will tell you: if you pick the right measures, the policy will implement itself.

Liberal leadership candidate George Abbott has proposed holding a referendum* on the carbon tax in conjunction with the initiative vote on the Harmonized Sales Tax (an “initiative vote” is indistinguishable from a “referendum” to everyone outside Elections BC). His proposed question is something like “should the carbon tax increase after 2012 or remain constant?” The public and media are jumping on Abbott as being “against” the carbon tax. However, as Les Leyne mentions in passing, the Carbon Tax Act only specifies the rate up till 2012, so remaining constant after that is the status quo!

Of course I’d like to see Abbott and the other candidates show some, you know, leadership and declare that they will raise the tax, no discussion. But I guess Abbott is torn: a lack of consultation on the HST forced Campbell out of office, but opposition to the carbon tax is what lost the NDP the 2009 election. I think holding a referendum gives the NDP’s new leader a chance to take the position they should have taken (and the irrelevant Greens did take) in 2009: the Liberals are wrong about the carbon tax because it’s not high enough!

There has been some talk that Vander Zalm’s BC Tea Party might be satisfied if the HST were lowered. Obviously with the budget in a deficit, some other tax would have to be raised to make up the difference. How about raising the carbon tax a corresponding amount? Less tax on things we do want (consumer spending?) and more tax on things we don’t.

The other climate change story is that BC is almost certainly not implementing cap & trade in 2012. North American cap & trade fell apart when Canada’s federal government said they’d do whatever the US federal government did and then Obama (who hates Mother Earth) failed to do anything at all. This interjurisdictional chicken & egg is one of the reasons why cap & trade is such a lousy alternative to a carbon tax.

* Oh George, please stop posting embedded PDFs: it makes you look clueless.