Download PDF

The average (or absent-minded) analyst is paid to be efficient at the expense of your destruction.

What do these 3 have in common?

• The United States’ War on Drugs
• Prostitution in Europe
• Kim Kardashian

Many analysts assume that if we destroy the supplier, we solve the problem (common sense dictates that you cannot buy what nobody sells).

I make no judgments here about the virtues/vices of anything; we will assume simply for the sake of argument that you have an incentive to reduce these three.

Is it easier to:

• Catch 1 illicit drug merchant or the 10-1000 users?
• Arrest 1 prostitute or the 10-100 “johnnies” (buyers)?
• Cancel a contract with Kim or ask millions of viewers/buyers to boycott?

Most interventions have focused on the supply side to be efficient. However, this efficiency has not yielded significant effectiveness (the social return on investment is egregious). We have yet to estimate effectively the incremental help from the 4-decades-running War on Drugs, though public perception is that 84% of American adults from a Rasmussen Poll believe we are losing the war. The overall cost of fighting the War on Drugs in 2011 had multiplied to 150 times what it cost in 1971 in nominal dollars (if we account for inflation, $1 in 1971 is about $6 in 2014, so real costs multiplied by about 25). Do you think we are 25 times better off in terms of drug abuse than if we did not spend on these programs?

Although programs do successfully arrest pushers and pimps, when demand is constant, it really is not that hard for another pusher/pimp/Kardashian to take the risk and enter. The input variable has an unforeseen “regenerative” property. If you killed 10 cockroaches, and 6 new ones hatched, then you really only destroyed net 4.

Nobel economics laureate Gary S. Becker and Kevin M. Murphy, both economics professors at the University of Chicago, write in the Wall Street Journal that in spite of cutting down supply, a constant demand would yield higher prices. This in turn either leads to new entrants tempted by the higher prices, or the incumbent drug gangs who can achieve higher profits get violent to avoid arrest.

While attacking supply seems efficient and common sensible, it often fails when the supply is regenerative and renewable.

[End Preview.  To read the rest, please Download the PDF].

The Taketa Takeaway: We Need to Stop this Bias for Efficiency and Focus on Effectiveness. We do this by Employing Experimenters/Doers and Not Just Thinkers.

Helan går!