The Politics and Economics of Dealing Drugs, Part II

Planet Money interviews “Freeway” Rick Ross, a former high-level drug dealer in LA. This interview offers another perspective on the drug business from the one we saw on Monday.

The basics:

PM: How much of the cost of the drug that you were selling was because it was illegal?

Ross: Probably… maybe 1000 times. You can probably get a kilo of cocaine in Peru for around $300…. The price probably would drop dramatically [if it were legalized].

This is probably an overestimate, but the “risk premium” for drugs is certainly real.

The money:

PM: Not all of the money goes to crime and bribes and shady stuff…. There were other expenses. Like, a huge expense: bail bondsmen. Guys in his crew would get picked up by the cops, and he would need to make sure that they would stay loyal to him, so he would do whatever it took to get them out of jail. And of course the criminal justice system knew that he was a big time drug dealer, so they set these bond prices really high.

And another group of people who were profiting off the big time drug dealer: lawyers…. They came into play when he would have these “interesting” disputes with the cops.

Ross: They had raided a couple places and there were large amounts of money and no drugs. They would confiscate the money, and we would go to court, and the lawyers would get the money back.

The cops:

PM: And they couldn’t prove that it was drug money so you got it back?

Ross: Absolutely. And they [police] got frustrated with that, so they started… bringing their own drugs and they would plant drugs. And that makes it tougher to come to court and say, “Your honor, there was $400,000 in there and now it’s missing.” Because know it was two keys [kilograms] in there too.

How Do We Define Risk?

Statistics are famous for their pliability, as anyone who has heard of Mark Twain will attest. Proponents on either side of a policy position often have”hard numbers” to support their view. When costs or benefits are uncertain, there must be some way to measure risk. Attitudes toward risk can have a powerful influence on which policy positions one finds acceptable.

One way that risk calculations become difficult is when there is a very, very small chance of a very, very bad outcome. Conservatives make use of this logic when they suggest that potential murderers facing a small chance of the death penalty will be dissuaded from their crime. Or, conversely, that a small chance of the criminal killing again is bad enough to justify execution. Liberals employ this same type of reasoning when they talk about potentially extreme consequences of global warming: even a small risk of the Eastern seaboard disappearing would be disastrous.

Humans are very bad at estimating probabilities, particularly when they are below 1 percent. Daniel Kahneman discusses this in his book Thinking Fast and Slow, where he gives an example of the difference between a 0.001% risk of death and a 0.00001% chance. To the human eye/brain the difference seems minuscule, but in practical terms it means 3,000 Americans dying or 30. Combine this with the fact that it is easier to recall vivid memories like September 11, and you have foolish policies that require Americans to remove their shoes and stand in a full-body scanner to reduce their risk of dying in a plane hijacked by suicide bombers from practically zero to slightly-less-than-practically zero.

Kahneman offers a quote from Paul Slovic that summarizes the discussion well:

Whoever controls the definition of risk controls the rational solution to the problem at hand. If you define risk one way, then one option will rise to the top as the most cost-effective or the safest or the best. If you define it another way, perhaps incorporating qualitative characteristics and other contextual factors, you will likely get a different ordering of your action solutions. Defining risk is thus an exercise in power. (original article here)

And until we get our philosopher-king, the ones who understand risk will likely not be the ones holding the keys to the kingdom. But we can at least be aware of when the small-chance/very-bad-outcome argument is being used to frighten us into irrationality.

Further reading:Risk and Safety,” Aaron Wildavsky¬†and Adam Wildavsky.