Tag Archives: drugs

The Economic Costs of Mexico’s War on Drugs

Earlier this week, online rumors surfaced about a raid on a Mexican drug cartel member’s home where $22 billion in cash was found, as well as exotic animals, an underground hot tub, and millions of dollars of stolen art. This news was perpetuated today as the Mexican government announced that it was successful in its Navy-marine raid of capturing Joaquin “El Chapo” Guzman, Mexico’s most notorious drug cartel leader. The billionaire cartel leader is famous for his storied rise from peasant farmer to head of the famous Sinaloa cartel. Many believe that the capture of El Chapo is huge news for Mexican President Enrique Pena Nieto of the PRI Party. The PRI party had long ruled Mexico until it lost power in 2000. Many criticize the party for its policies in the 1980s and 1990s that cemented drug cartels into the fabric of Mexico.

The successful capture of El Chapo signaled to many analysts the success of President Nieto’s anti-cartel efforts. Despite this, many citizens are still skeptical. Jose Careano, a 35 year old office worker responded to the news of the capture of El Chapo by saying, “They finally got him? It would be good for the country, but kind of doubt it. And if they have got him, they’ll let him go away. He’s untouchable.” (WSJ – Mexico’s Most Wanted Drug Lord Captured) The skepticism regarding the capture of El Chapo comes from previous occurrences where El Chapo was either captured and released by corrupt officials or barely escaped as military raids were suspiciously delayed by hours or days. This as well as El Chapo’s successful escape from a high security prison in a laundry cart make many Mexican citizens believe that he is untouchable.

Only time will tell if the capture of El Chapo proves to actually be a success, but what we do know is that the violence brought on by El Chapo and other cartel leaders has had grave economic costs on the Mexican economy. Violence in Mexico, has increased since the Felipe Calderon administration declared war on drug cartels. In 2011, there was over 50,000 drug related deaths in Mexico. The increased violence and uncertainty in the stability of the country has led to many businesses halting or pulling out investments.

In 2011, Mexico’s GDP grew at a rate of 1.84%, which was the lowest growth in over 20 years. It is hard to state the direct effects that the violence had on Mexico’s economy because 2011 was in the midst of a global recession. Despite the confounding variables, a study conducted by the World Bank stated that a reduction of 10 homicides per 100,000 produces an increase in GDP per capita between 0.7% and 2.9%. Another study showed that in 2000 violence in Latin America contributed to an overall loss of 14.2% of the regional GDP. Furthermore, an instrumental variable regression analysis conducted by Stanford showed that the increase in violence in Mexico contributed to a small decrease in average labor income and a decline in small business revenue. (Stanford – The Economic Consequences of Drug Trafficking Violence in Mexico) With all of this data, we can state the violence in Mexico has had profound impacts on Mexico’s economy. The successful capture of El Chapo would show that Mexico’s effort on the war on drugs is becoming more effective, and as shown by the data from multiple studies less cartel violence will ultimately lead to a more successful Mexican economy.


Heroin – Bigger Problem Than We Think

With the recent news about actor Philip Seymour Hoffman’s death (due to a suspected overdose), comes a very startling reality about this country and the world. The extent of drug abuse worldwide is staggering. The United Nations Office on Drugs and Crime published a World Drugs Report which revealed that in 2012, 230 million people took illicit drugs in the past year. Of course, not all of these are problem-users (addicts) – only 27 million are considered problem users (mainly with cocaine and heroin). But this figure suggests that 1 in every 200 adults is a drug addict. That’s quite significant, if you ask me. And way more than we should ever accept. The effect of drugs goes well beyond the obvious physical, psychological, and interpersonal effects they have on users. Most people don’t consider their economic impact – which, as you can imagine, is pretty significant.

For the sake of this post, I will narrow down the argument to heroin in the United States – which is what Philip Seymour Hoffman overdosed on. Heroin use in the US has increased 79% from 2007 to 2012 – with 669,000 people reporting they used the drug. And those are only the ones that reported their use. Clearly, we can suspect this number to be much larger in reality.


In 2011, a study by the Department of Justice’s National Drug Intelligence Center estimated that illicit drug use cost the US economy more than $193 billion in 2007. Considering the significant increase in drug use from 2007 to 2012, we can estimate that the cost today is much larger.And with the rising proportion of heroin use, its impact on the economy is growing.

This negative impact on the economy is seen through three distinct factors: health, crime, and productivity. Being one of the most addictive and dangerous drugs, heroin is easy to overdose on. Emergency room doctors at the Allegheny Health Network in Pennsylvania report that heroin-related visits have more than doubled in the past month. And this goes for hospitals across the country. With increased visits, come increased number of patients who default on medical bills, or claim Medicare/Medicaid. These are clear costs to the economy.


The next impact is through crime. More heroin use results in more efforts to stop it – this requires policemen and government resources. Not to mention the heavy costs of incarcerating those who are found guilty. This kind of cost on government spending is holding the economy back. Of course this cost is small compared to the whole of government spending, but nobody can argue that this money isn’t better-spent on productive things (such as education).

Lastly, the impact heroin use has on the economy is seen through decreased productivity. Heroin users have altered states-of-mind, emotional imbalances, and inability to focus as well as non-users. For this reason, they are not as productive. In fact, it is common to see addicts that are not capable of keeping a job. There is no doubt that productivity in the US would be better-off if those 700,000 users were to seek treatment and change their lives for the better (while maintaining a job).

One of the productive things the government could better-spend this money on, is rehab programs. Healthy people are better in every way, especially for the economy. I personally think this issue is understated in the US – as well as the world. If people are not inclined to do something because of the negative impact on individuals’ lives, then the economic incentive should be sufficient to persuade everyone.