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Bad Week: Why Walter White Tells Us as Much About Economics as Chemistry

The New Zealand Initiative’s Head of Research Eric Crampton breaks down the depressing drug market economics which drive Walter White to murder and mayhem. //

The most successful anti-methamphetamine campaign ever run in the United States came in 1995, resulting in a short-run tripling of the price of meth and a drop in purity from 90% to 20%: the Drug Enforcement Agency successfully threw a spanner into supply conduits.

Economists Dobkin and Nicosia documented the results in a 2009 article in the top economics journal: the American Economic Review. For a short while, meth-related hospital admissions halved. While felony methamphetamine arrests also halved, there was no evidence of any real drop in property crime or in violent crime. Within four months, meth supply was back to normal. Within 18 months, it was as though the Americans’ most successful anti-methamphetamine campaign had never occurred.

Here in New Zealand, the government decided to make life a lot worse for cold sufferers back in 2009: they made any cold medicine containing pseudoephedrine prescription-only. Knocking out the precursors to P would make it harder for meth cooks to produce their product, increasing price and reducing consumption.

Twice a year, The Department of the Prime Minister and Cabinet releases reports documenting the policy’s utter failure. In 2009, 1000 ContacNT capsules cost $12,000-$16,000. That price dropped to $9,000 by 2013-2014. It is now cheaper for methamphetamine producers to get ContacNT capsules for making P than it was before the government made it next to impossible for the rest of us to get them. And the price of P has held steady from 2008 through 2014.

It makes you wonder why the drug warriors bother; every bust simply makes room for the next supplier, like Walter White: chemist, high school chemistry teacher, and, when financial need called for it, meth producer.

Through a bit of poetic license with chemistry, Walter White was able to solve one of the perennial problems – that of ensuring quality control in illegal markets.

This is a vanishingly rare problem in legal drug markets. You can be pretty sure that the amount of alcohol in your beer is quite close to the advertised strength, and that tablets from the pharmacy contain exactly what they are supposed to contain. Producers in those markets are subject not only to standard consumer protection legislation but also to reputation effects: producers of adulterated products will lose customers.

In illegal markets, it can be a bit harder. End users tend not to have test kits for product purity, and reputation-based solutions are harder when a good reputation might make you more likely to be arrested.

Because Walter’s process resulted in both pure methamphetamine and meth of a particular shade of blue – which every chemistry source I’ve read insists is highly implausible – users could tell whether or not they were getting the real deal. The product came with its own sky blue guarantee of purity that relied neither on the dealer’s reputation nor on recourse either to the courts (or to Fair Go) in the case of bad product.

In Season three of Breaking Bad, White’s new meth lab assistant, Gale, explained that he was happy to make methamphetamine because if he didn’t make it, someone else would – and with more product impurities. Walter White’s clean lab provided the best way of providing a bad product.

Breaking Bad also nicely showed how participating in illegal markets can be a gateway drug for worse criminal endeavours. Because you cannot use contracts and the courts to enforce deals in illegal markets, violence becomes the alternative. If someone threatens to expose you to the police, killing him might well be the best available response. That’s because additional penalty if you’re caught for producing and dealing massive quantities of illegal drugs is not that much less than the penalty for doing that and also killing others involved in the drug trade.

Economists call this marginal deterrence. If the extra penalty for killing the guy who might rat you out is not that much worse than the penalty you’d get if he did turn you in, well, the calculus is pretty simple. Tough penalties for drug dealers then can make those markets even more violent than they otherwise would be. And so Walter White moved from a bit of home chemistry to murder, when the occasion called for it.

I’m really looking forward to the launch of Better Call Saul. With The Wire and Breaking Bad both long finished, I need to turn somewhere for my next hit. And if you can find me a New Zealand version of Walter White who turns P back into useful decongestant, please let me know – cold season is coming.

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Eric Crampton blogs about economics, policy and society at Offsetting Behaviour