Cheaper cannabis in Canada doesn't have to bankrupt BC's farmers and derivative producers. How we reach an equilibrium where consumers are paying less for their medicine, but BC farmers are seeing higher returns, is fairly simple. Known in economic circles as “deflation,” this is how an economy actually grows. (It's got nothing to do with “GDP” and “good consumption numbers”.) If we legalize correctly, then the cannabis industry will be an example for the rest of the economy to follow. But government regulation and crony-capitalist cartels are the antithesis to liberty. Understanding cannabis means more than reading about the endocannabinoid system or the plants history as a medicine. Learning about prohibition is enough to show the absurdity of government action, but one must take their reasoning further – even to radical and counter-intuitive extremes – if one is to truly understand what it means to liberate this plant.
Let's assume that cannabis was $1-a-gram because the Liberal Party won enough seats to form government and legalized. If Trudeau legalized on Day One, it would open up the recreational market to the licensed producers (LPs) who have been restricted to patients who don't want to use them (not to mention the production and delivery process is burdensome with costly bureaucratic requirements).
The problem, however, is that LPs
are conditioned to grow to scale. By instituting the Marihuana for
Medical Purposes Regulations (MMPR), Stephen Harper set the country up
for legalization – albeit a crony-capitalist legalization like in
Uruguay or Washington State. All Trudeau's legalization will do is allow
the LPs to capitalize on a consumer market that's ready to buy cannabis
from 7-Eleven; a market of consumers who don't recognize that this is
essentially like buying from the brand new Wal-Mart down the street when
the made-in-Canada hardware store has been around for decades and is
already struggling under fascist globalization.
If
we lived in a free and fair market, there would be no issues with LPs
such as Tweed selling to the recreational consumer. But this is not a
free market and Trudeau's legalization doesn't address that. The
“legalize first, fix it later” mantra doesn't make sense. LPs are in
every position to drop their prices to $1-a-gram because they grow to
scale. Meanwhile, as the LPs have been positioning themselves for the
commercial market, BC farmers are still limited by their illegality or
quasi-legality as designated growers under the old system.
What
we have right now is legalization for one group (the crony-capitalists
of the MMPR) with prohibition for the middle-class of cannabis farmers
and derivative producers. People act like this is Harper's problem, but
it's a systematic issue no matter which political party is in charge.
Crony-capitalism is rampant throughout the Canadian economy; it's little
wonder that the potential billion-dollar cannabis industry is not
exempt. Yet, this is our gateway to liberty.
Suppose
you have 10 grams and $10. What would be the price of a gram? It can’t
be $2 since there would be unsold cannabis, so the price would have to
drop. As well, it can’t be 50 cents per gram since people with money
would bid up prices. This would lead to an equilibrium where grams of
cannabis would be sold for $1. Now suppose we double the amount of
cannabis, so we have 20 grams and $10. The price will fall from $1 to 50
cents. Other things being equal, including the stock of money, the
price will be cut in half.
Suppose the production
cost of a gram of cannabis is 80 cents. The rate of return is 25
percent. But now suppose people hoard $5; the price of a gram will be
cut in half, falling from $1 to 50 cents. If input prices also fall to
40 cents per gram then there's no problem since the rate of return is
still 25 percent. But when have input prices ever fallen?
The
central bank in Ottawa thinks that input prices are “sticky”, and
therefore don’t adjust to output prices, so farmers will produce at 80
cents and sell at 50 cents. This leads to bankruptcies, unemployment,
and falling output, et cetera. To avoid this, bad economists would
advocate the government print $5, keeping the price of cannabis steady
at $1, and avoiding a deflationary-depression spiral in the economy.
Of
course, there are some major errors in this thinking. There is always a
certain amount of “stickiness” in input and output prices. You don’t
renegotiate your salary or wage on a daily basis, nor would you want to
constantly check on the prices for your favourite goods and services.
What's important is the lag-time between changes in output prices and
input prices. Successful entrepreneurs forecast output prices and then
bid for the inputs they need to make a profit. Government intervention,
especially money-printing by the central bank, makes everyone poorer and
on an unequal level. Some people get the new money before the others.
You can bet seniors on fixed incomes aren't the first in line.
So
a $1-a-gram only works if we already have deflation. That is, if the
costs of production are falling alongside the consumer price. This won't
happen so long as the Bank of Canada continues to keep interest rates
low and borrow from abroad from private banks at compound interest. And
of course, there are other factors, like electricity. How can BC farmers
produce more when their electrical costs sore under the provincial
Crown corporation, BC Hydro?
Cannabis
is a gateway to liberty. An immediate $1-a-gram price point would serve
the LPs while bankrupting the BC middle class of cannabis farmers and
derivative producers. But in an environment where the costs of
production are falling, that is, where the purchasing power of our money
retains its value or increases, then $1-a-gram is not only achievable,
but achieving it won't harm BC's middle class.
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