Book of the Week: Narconomics

03 Aug 2016

Jesus told me to read Nacronomics: How to Run a Drug Cartel to learn more about the business. This book looks at the drug smuggling industry through the eyes of an economist. I learned that there are 3 types of countries. Countries that produce drugs, countries that traffic drugs and countries that consume drugs. You can think about cocaine grown in Colombia and consumed in United States via Mexico. Persuasion

The one way that criminal organizations can enforce contracts is with violence, which is why a capacity to intimidate and kill is at the heart of any drug cartel’s success.

Persuasion comes in the form of silver or lead. A bribe or a bullet. You can bribe top government officials to look the other way. You can bribe the police. Unfortunately Mexico has different layers of policing, so sometimes police get into shootouts with one another, accusing that the other is controlled by the cartel, which is true in both cases. Drivers leave space between cars just in case a shootout breaks out.

Murdering Zapata broke a serious unwritten Rule of Mexico’s cartels: never kill Americans, and especially not American cops.

The reason you don’t kill American cops is that they will come down with hellfire on you. They have the ability to apply more violence than the cartels. Violence can be very persuasive. Human Resources One of the biggest problems for cartels are recruiting. You are dealing with high margin profits and stupid employees. Cartels are racist and are usually divided up along racial lines. Racist, except that the use white women to smuggle drugs since they don’t get stopped at the airport as often. You’re definitely not going to use an Arab to smuggle drugs. An once you’re in a gang, you are in until death. If you want to leave, they’ll kill you. That and you’re easily identifiable by your tattoos, which also makes it hard to switch sides. This makes the labor market illiquid. A good place to recruit is prison since the inmates match the requisitions. If you can’t fine enough members, you can try outsourcing and using contractors. An anonymous driver can make $1,300 a day. Maybe some cartels use Uber now. I would. If someone is paying you a lot of money to do something, it is probably risky. Ecommerce First internet transaction was a sale of marijuana between Stanford and MIT people through ARPANET. These nerds love to get high. Drugs follow the increasing trend toward online transactions. About 31-45% of transactions by value on Silk Road, an online marketplace run by a boy scout who majored in physics, were business to business (B2B) transactions. People are willing to exchange large amounts of Bitcoin for large amounts of drugs. Before illicit drugs were an network economy. You only did transactions with people you know. When you can do transactions with anyone, it becomes a marketplace. Once you have competition, your reputation becomes important. You need to increase the quality of your goods and lower your price to avoid losing customers. Marketplaces are good for consumers. **Legal Highs**

The drug that he settled on was benzlypiperazine, or BZP. A boring looking off-white powder, BZP was initially developed in the 1940s as a worming tablet for cattle.

People keep coming out with new drugs, which are legal for a while and then get banned. You start with something that is safer, but then you get a little more dangerous. But you can always use drugs that aren’t for humans to get high. Those drugs are probably cheaper and easier to buy since you need them for your cow. The biggest impact is probably the legalization of marijuana. For drugs, there is a concept of therapeutic index, where you want a safe margin between lethal dose and therapeutic dose. Heroin has a slim margin. Nobody ever died of overdosing on marijuana. The medical marijuana grown is of higher quality than Mexican marijuana. Horticulturist with data driven setups are turning marijuana into an industry backed with money. Drug cartels will probably not be able to compete in that climate. Good thing they have other sources of income, like extortion and trafficking people. Purchase Narconomics on Amazon.com or check it out from your local library.