Violence costs in Mexico
The violence in Mexico is generating significant negative externalties. Business Week reports that the violence related to the multiple cartel on cartel and government versus the collective cartels wars is having a significant drag on economic growth:
The violence is shaving 1.2 percentage points off the economy annually, Finance Minister Ernesto Cordero said today. That’s more than the government’s previous estimate of 1 percentage point….
Moody’s currently rates Mexico Baa1, the third-lowest investment grade rating. Mexico’s rating was cut one level by Standard & Poor’s in December and one level by Fitch Ratings in November after tumbling oil output and the worst recession since the 1930s swelled the budget deficit….
Violence is shaving 20% to 25% of potential economic growth in Mexico.
And that is before the cartels or any other non-state actors have started to target the Mexican governments’ hard currency cash cows of oil exports, light manufacturing exports, tourism and remittances. Most of the violence has been concentrated at the cartel versus cartel turf establishment and stealing level or the cartel versus government security force strategically defensive level.
We are starting to see signs of violence spreading out of the major drug cartel home bases and into Monterrey and other major manufacturing cities. Blockades and bandhs are being used to restrict movement, impose uncertainty taxes and channel security forces into predictable patterns in Monterrey. Foreign owners, consultants as well as highly skilled Mexican workers are under an increasing kidnapping for ransom threat. If there are take-downs of the electrical transmission infrastructure that moves power from the hinterlands to the urban core, Monterrey’s export engine falters. If kidnapping for ransom increases, the cost of doing business in Monterrey increases in comparison to safer locations like China.
The cartels have just begun to innovate and move into the deployment of effective improvised explosive devices. If they go the path of Sunni Arabs in Iraq, or MEND in Nigeria, they can hammer the internal fuel distribution network as well as elements of the oil export network. If that happens, both the industrial production of the north is hampered as oil prices spike due to the distribution premium and the Mexican federal budget goes south quickly as oil revenue makes up over a third of the budget. Car bomb and IED attacks against popular tourist towns would put a significant crimp on that revenue stream as well.
The cartels are already able to exact a fairly significant economic cost. I do not expect significant escalation from cartels that are relatively happy and successful under the current environment. However the cartels and other criminal/non-governmental armed actors that believe they are losing under the current rule set have significant and readily achievable escalation options that could inflict significant costs on the Mexican government, population and economy.
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$113 billion is spent on marijuana every year in the U.S., and because of the federal prohibition *every* dollar of it goes straight into the hands of criminals. Far from preventing people from using marijuana, the prohibition instead creates zero legal supply amid massive and unrelenting demand.
According to the ONDCP, at least sixty percent of Mexican drug cartel money comes from selling marijuana in the U.S., they protect this revenue by brutally torturing, murdering and dismembering countless innocent people.
If we can STOP people using marijuana then we need to do so NOW, but if we can’t then we need to legalize the production and sale of marijuana to adults with after-tax prices set too low for the cartels to match. One way or the other, we have to force the cartels out of the marijuana market and eliminate their highly lucrative marijuana incomes – no business can withstand the loss of sixty percent of its revenue!
To date, the cartels have amassed more than 100,000 “foot soldiers” and operate in 230 U.S. cities, and Arizona police are now conceding that parts of their state are under cartel control. The longer the cartels are allowed to exploit the prohibition the more powerful they’re going to get and the more our own personal security will be put in jeopardy.
Good luck on ending that prohibition. The real issue in the US isn’t pot, per se. It’s mostly the prison industry that profits. They aren’t going to give up their cash cows (prisons) w/o a fight. And of course there’s the national security part of it, & the foreign drug war part of it (Colombia, etc.) You can’t legalize at home while fighting it abroad. Well, you can, but that wouldn’t look good. There’s just too much money being made w/pot illegal. Hundreds of dead people are just the cost of doing business.