The Great Antidote

Stan Veuger on the Dutch Farmer Protests and Cannabis Legalization

March 29, 2024 Juliette Sellgren
The Great Antidote
Stan Veuger on the Dutch Farmer Protests and Cannabis Legalization
Show Notes Transcript Chapter Markers

Stan Veuger is a senior research fellow at the American Enterprise Institute, with a myriad of different research areas including the political situation in the Netherlands, which he’s written about at The Unpopulist, and the “Implications of Cannabis Legalization for the U.S. Federal Budget”, a paper which he wrote with Alex Brill and Brian J Miller for AEI. 

Today, we talk about both. He explains not only the Dutch political situation, but the differences between Dutch populism and populism elsewhere. We talk pros and cons about the American system versus parliamentary systems of government and their ability to get us to the correct political outcome. Then we pivot to cannabis, talking about what the costs of legalization are and correcting the record of what’s to come on the road to legalization. We talk trade, healthcare, and more, Veuger explaining to us the different ways legalization could cost the government- and as a result, taxpayers- in the future.  

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Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliette Sellgren and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www Adam Smith works.org.

Welcome back. Today on February 26th, 2024. I'm excited to be talking about a few different topics that might not seem related, but the common theme is the man I'm interviewing and I'm so excited we're going to be talking about populism and cannabis. Obviously two very different topics, but I'm going to be inviting Stan Veuger or Voer in the American pronunciation. Learn two seconds ago that my mother has been pronouncing his name and other people, not necessarily right, not right in the original sense to the podcast. He is a senior fellow at the American Enterprise Institute and Studies. Oh, so many things. So I'm excited to get into it today. Welcome to the Podcast,

Stan Veuger 

Podcast. Thank you, Juliette. Delighted to be joining you.

Juliette Sellgren 

So first, what is the most important thing that people my age or my generation should know that we don't?

Stan Veuger (1.29)

Well, these are extremely difficult questions we're starting out with. Fortunately later on we'll talk about cannabis and hopefully things will get a little more straightforward. I had about two minutes to think about this question and the answer I've come up with. No, that's fine. The answer I've come up with fits in nicely with that limited time available because what I will say is I think something you don't fully realize when you're in your early twenties, or at least I certainly didn’t, is how limited your time on this world is going to be and how busy you'll be as your personal and professional lives progress. And suddenly it won't feel like the number of hours in the day, the number of days in the week is effectively limitless. The way, at least to me, it felt when I was about your age and instead many, many, many hours will be taken up by obligations that are difficult to avoid though, or that you should not want to avoid.

And instead you'll have a very limited amount of time left to do new things, to do the things you enjoy doing for their own sake. And so that's something I think I wish I had realized. That's right. But that's sense of the situation. I think your time is just limited and you've got to try to make the most, there are things you can start earlier to make things easier later on. I dunno, I had a child very late. I guess certainly by historical that's something that maybe in some ways it's easier later in life, but in other ways it's certainly a lot easier earlier on.

Juliette Sellgren 

What are some of the ways, and obviously this is going to look a little different for everyone, but what are some of the ways that you have made the most even knowing that there are these constraints?

Stan Veuger (3.22)

Well, part of it is I've just grown much more disciplined and efficient over time. It's very easy to spend a lot of hours watching tv. It's very easy to spend time doing things that other people can do better than you. I think between just sitting around doing nothing and effectively outsourcing activities, I think you can save quite a bit of time.

Juliette Sellgren (3.52)

So right now I'm studying math so that I can do, and I've learned to like math, but I think if I were to put an estimate on how much time it would take me to do a math problem compared to my math major peers, it probably takes me a good 10 times the amount of time it takes them. So I would say this is definitely not my comparative advantage. I'm not the, but this is not something you can outsource. 

Stan Veuger 

I guess not. If they do it, you don't get the result because the result is you understanding how to do the math or whatever, or at the very least you passing your math class and that's not something you can outsource. I don't think that's an area where it really applies.

Juliette Sellgren 

Okay. Okay. So I mean I could choose not to take math class, but I guess I choose to take it for a reason. Yeah. Okay. So it's more…

Stan Veuger 

Don't try to get out of your math homework. That's not what I was trying to get you to do.

Juliette Sellgren 

So maybe hire an accountant… 

Stan Veuger 

Your mother is going to get mad at me…

Juliette Sellgren 

Hire an accountant but don't, yeah,

Stan Veuger 

Get your groceries delivered. That kind of stuff.

Juliette Sellgren 

Don't avoid doing your math homework if you actually want to get a PhD in economics.

Stan Veuger 

That sucks.

Juliette Sellgren (5.05)

No, that's a great answer. I wanted to start by asking you a few questions about populism and kind of what's happening in the world today. You wrote something recently at the Unpopulist and you've written for AEI about this, about the Netherlands and the political situation in Holland. It's an issue that you've been following pretty closely. So can you give us a quick overview about what's happening, and especially for listeners who might not be familiar with the situation, especially because in America we tend to be very America-centric. Can you give us an overview of the Dutch farmer protests and what triggered this widespread movement and what's going on with the recent elections and all of that?

Stan Veuger (5.51)

Sure. So the Netherlands, even though it's a relatively small country in terms of just the land area and a very densely populated one, has a pretty large agricultural sector, very high output per farmer, and one that uses basically all of the available non urbanized space in the country that is not a nature preserve. So because of the population density, agriculture is often very co-located with more densely populated areas. In fact, the first time my wife came to the Netherlands, we were at my parents' house wandering around the neighborhood in this little square with bars and restaurants, very European looking. We turn a corner and suddenly we're in this field and there are scouts right next to us. Those kinds of abrupt transitions, you don't see as much in the US and so that's important context to keep in mind as we go into politics. So the Netherlands, starting in the seventies, like all other western countries, has had a pretty active environmental movement.

And one thing that's quite specific to the Netherlands is that environmental movement has been very focused on nitrogen emissions from farming. And so the concern there is you use a bunch of fertilizer or you produce a lot of manure. Those products contain nitrogen that is harmful to biodiversity at the very local level. So there's a completely different problem from CO2 emissions with their global effects and whatnot. Here we're talking about the super local spillovers from agricultural wings onto nature preserves. So you have this movements pushed back against that designated ton of areas as protected nature preserves that in the eighties and nineties, then got funneled into European Union systems of nature preserves where the Netherlands really just designated a ton of parts of the country as nature. Now the Netherlands kept asking for exemptions from European Union rules and how to protect those areas, but that has in more recent years has gotten harder and harder as courts started pushing back against not completely abiding by restrictions on as a result. And here we got to the politics, the Dutch government has now seen itself compelled to pretty dramatically restrict nitrogen emissions. Now you can do that in different ways. One, you just dramatically reduce the size of the agricultural industry in particular where it comes to the livestock part of it. Two, you can try to get rid of some of the nature preserves; that's legally very difficult. And three, you can try to through technological progress or other abatement techniques, try to reduce nitrogen emissions.

The government has been trying to push for compromise between route one and really all three, they want to delay the reduction in nitrogen emissions and then combine route one and route three in the long run. So it's technological advancement, but also just paying a bunch of farmers to stop farming. As a result, the farmers have felt very threatened. They had a set of big protests, really not in the past few months so much that in particular in the run up to our most recent provincial elections, which took place last year. And in that election a new party, the former citizen movement miraculously became the largest party in the country. And so they now have a number of seats on provincial legislators and they're the largest party in the Dutch Senate. And so that is where the situation stood. About a year ago, we had a general election in November where the farmers did not do as well, but a different party from a very different movement within what you can broadly designate as the populist right field, [Geert] Wilders’ Party for Freedom, which is an anti-Islam party, anti-immigration party did extremely well.

And so now we're in a situation where those two parties, parties, I see it as pretty natural candidates to try and form a new government, which we in the process of doing and which is not going very well for a number of reasons. One, most other people don't really want govern with Wilders because he hasn't a 25 year track record of opposition to freedom of religion and just general hateful speech about Muslimism in the Netherlands and about immigrants from Muslim countries in particular. His party also only has one member, which is the realism himself. Then the farmers are a new party and so not clear who can staff a government coming from their side. There's not a party that did pretty well in November that's less populous but also new and they're not quite ready to govern. So it's all chaos. And now various people have been negotiating since November to form a new government.

They haven't succeed yet. I dunno if they will. The farmer protests have started warming up a little bit again, but this time in a broader European context, recently the highway connecting the South Netherlands to Nwrp was blocked by former protests that involved some violence. And I dunno that we are close to either finding a sustainable long-term solution for the nitrogen crisis or to a new government that brings on board some of these more populous parties that have had electoral success in recent years. So that was a very long answer. Happy to go into more detail or less detail on any of these issues.

Juliette Sellgren (12.16)

I mean a long answer was kind of called for because I asked you to unpack all of the political landscape and all of the recent events in one question. So you were very concise considering what I handed you. You've talked about how they intersect, what's going on intersects the themes of populism throughout Europe. So how is this different from other things that are happening in Europe or even in America, and how is it similar to what we've been seeing in other places?

Stan Veuger (12.52)

Yeah, so I think the key difference really between these Dutch farmer protests and populist movements elsewhere is that the policy questions that issue here are very longstanding and very local. So the policy debate really goes back 50 years by now. In fact, the current crisis got triggered when a Dutch environmental organization won a lawsuit forcing the Dutch government to start enforcing the nitrogen restrictions that they for years had tried not to fully impose. That organization was founded in the 1970s to protect a specific nature preserve from the spill outs of agricultural activity. So this has nothing to do with climate change, it has nothing to do with EU regulation per se. This is an ongoing fight over how much land should we use for nature, how much land should we use for farming? That really dates back to when the Netherlands self-regulated all of these things and before the debate over global warming or climate change had even really started.

And so that's I think one thing to keep in mind because in many of the populist parties that we've seen around the world tie into themes that I think are a little more global. It often is anti-immigration sentiment or when it comes to environmental policy, the climate change issues, the green transition, those kinds of environmental issues, not these super local issues per se. And so I think that sets it apart what I think the farmers have in common with other movements and one reason why they are happy to work with someone like Geert Wilders is distrust of the establishment, certain sense that they are getting victimized or at least or losing their social status. I think also just a broader comfort with politics that are right coded or at least cultural manifestations that are right coded. And so I think that's both a pretty key distinction on the policy level, but then some overlap on where you would place them on the political spectrum or who their most natural allies are and who they see as the enemy, which is much more aligned with most populous parties on their right.

Juliette Sellgren (15.44)

So okay, this might be a dumb question. Why is there, you kind of kept mentioning that they're in the process of changing their governance or redoing their government in any sort of way. And I look at this and then I look at the American Constitution and how old it is and how sure we have our problems, but within this system it seems to be a pretty long lasting workable system and I just think, wow, changing the government at a fundamental level sounds so chaotic and what is kind of the drive behind that? Why do they need to do that?

Stan Veuger (16.24)

Yeah, lemme clarify that. So the Netherlands has a parliamentary system and so in practice the way things work is that a Dutch cabinet needs to have the support of a majority of the members of Parliament. So that's different from the us but the president is just elected and then he's the executive, right? No matter who controls the house of the Senate. And so in the Netherlands, whenever a new parliament is elected, that means that the different parties in Parliament- of which there are many, because you get one seat when there's a general election, the compensation of parliament changes and the outgoing government may well lose its majority in Parliament as happened in November. Then we need a new cabinet. But that needs to have the support of 76 members of parliament. There's no single party that has that many members of parliament. And so different parties need to negotiate over policies, they agree on personnel they agree on, and it's not always easy to do that in the current situation, it is you'll need at least four parties basically to put together a majority in parliament.

And so you have to find four parties that agree on enough things to govern together. And so that's the holdup. Now this is not unique to the Dutch system, it's also not unique to this election. It often takes a number of months for a cabinet to be formed. In this case it looks like it's particularly difficult, but in the meantime, the outgoing government continues to rule. So the prime minister who was the prime minister before the election, November is still the Prime Minister want to take if to pass new legislation. The outgoing government still needs to secure a majority in the new parliament, so they can't do much. They're a little more limited in what new policies they can pass. The other country that is well known for taking a while to form a new government after an election occurs as Belgium, which has I think holds the world record for how long that takes.

Something that's ironic is that often during these periods when the previous government is still acting a new government has not been formed is that they come up with way fewer new spending initiatives because of course there's lost their legitimacy that sometimes lost their majority. And so you'll see deficits close a little bit during these periods of acting government. I think in Belgium that's particularly frankly, there's no new spending programs and so that slowly makes the fiscal outlook marginally better anyway, so that's what's happening. We're not completely overthrowing the constitutional order, we're just trying to find a new majority of parties that can govern for a while, but it's not easy. And so you could have different combination of parties that have a majority. You could think of different ways in which parliaments can relate to the cabinet. So in Scandinavia, it's common to have minority governments where the parties that are in the government do not have a majority in parliament, but they will try to find support for specific pieces of legislation by reaching out to the parties that are not in the government. The Netherland does not have a tradition of doing that, but you could have a situation like that. You could also bring people from outside politics to form a cabinet and see if they can find support in parliament for their policies. That also seems complicated. And of course you can go to new elections. So unlike the US elections in most European countries are not automatically set on a date and there's some flexibility on when to call them.

If you're interested in a pop culture rendition of a system of proportion of representation like this, I would recommend Borgen, a Danish TV show, which is quite good and really shows you how these coalitions work.

Juliette Sellgren (20.33)

Wow, that's fascinating. I think it's also a great point of clarification that they're not completely redoing their system of government. I was a little lost. I guess from an economic, if we're using public choice to look at this, it makes sense that it's really difficult to get four parties to come together and agree on anything. So it kind of makes more sense now why it's taking so long and why this shift is chaotic even if nothing is necessarily happening. Maybe to put it in context, it makes me appreciate the way that in the US so much of our system, so much of the way each branch is run stays the same regardless of who's in power because then you don't get that. And I mean, I guess maybe there are benefits to both, but it is just something very uniquely grounded in the way that Yeah,

Stan Veuger (21.45)

One thing. So I think every system has to manage this, right? Because there's always going to be disagreement between different elected officials. I think one thing that in parliamentary systems, the idea I think is to resolve a lot of the disagreements ahead of a period of governance, right? In the UK system parties issue a manifesto that has pretty detailed plans for what they're going to do, and then usually there's a majority in parliament that then selects, and it's basically a single party system. The government just implements whatever it wants to do and has a majority that's not subject to a ton of checks and balances in the us. None of the disagreements are resolved before a new period of government commences, right? You have a house, a Senate, and a president, and if they don't agree with each other, then nothing happens and they're not particularly good mechanisms to resolve disagreement as we're seeing in the current situation where we have a possibility of a government shutdown, a partial one next week, and then the greater one two weeks after that.

We have long running disagreements over foreign policy, over retirement policy, all these issues that linger and there's no forcing mechanism to get the House and Senate and the president to agree on various policy questions. So that I think you could think of as a relative advantage of these parliamentary systems where you do have a forcing mechanism after each election, a majority that if it comes together can make pretty drastic changes to policy is compelled to come to an agreement on most important policy issues. Whereas in the US you can just have these years and years of no progress being made on policy disputes because there's no forcing mechanism. And I think in the US, particularly on the budget side, you do see that problems just don't get addressed. There's no immediate political gain for the parties involved in addressing, I don't know, future shortfalls in Medicare and Social Security. There's continue on without any forcing mechanism to come to a solution until there's a crisis. And so I think the downside of the deduction, other similar systems is that it can be difficult to reach agreements before a German office starts in the us The German office starts automatically, but you have no forms mechanism to reach agreement. I think it's going to be very contingent on what's going on to know which system I think works better in each case.

Juliette Sellgren (24.36)

Yeah, no, I think you're definitely right. Do you think that they're not being a forcing mechanism? Well, obviously it makes issues linger longer until there's a crisis and we do not like a crisis and the government shut down, which happens more often than in the parliamentary system. I feel like I can guess pretty validly. Do you think that there is an increased likelihood of reaching the right solution if you don't force a solution or do you think that, I mean, as you were saying that it just depends on what the issue is and what is happening in the country at the given time for one to get the better answer. And I guess there's no way to know what the better answer necessarily is in the long run. Yeah,

Stan Veuger (25.25)

I agree. I think there are issues that are just by the nature of the problem, easier to solve if you take action early on. I think that's particularly true for these, the various old age programs, whether it's healthcare or retirement, where changes you can realistically have consequences 30 years down the road. I think those are programs where forcing mechanisms are helpful. Of course for many other issues, the US system has the great advantage that you can sort of adjust as you go, and in many cases it's probably fine to not reach decisions until you're very certain what the right solution is. That of course, lets you avoid errors in the opposite direction where you think you've cooked up this prescient technocratic solution and it turns out to be a disaster. That is something you avoid if you follow the US approach a little more.

Juliette Sellgren (26.34)

Yeah, I mean you also have to be careful though when we say that, oh, you're taking your time and you're waiting and it's a little more thought through who is the one who's making the decision? Is it really more thought through or did it just take longer to get there? So there's a cost and benefit to both, which I think becomes clear here. Earlier when we were talking before we started the interview, you were mentioning that because I'm pivoting now to cannabis legalization,

Stan Veuger 

Not a very subtle pivot.

Juliette Sellgren (27.08)

No, no, I'm not one for subtlety. You were saying that a lot of the time when people talk about legalization, one of the main things they talk about is all the tax revenue, and that's nowhere near the full story. So I guess the first question on this line is why study the, and I'll introduce it, this paper, The Implications of Cannabis Legalization for the US Federal Budget that you wrote with a few folks at AEI. What was the driver for that and what are some of the main findings in the paper?

Stan Veuger (27.48)

Yeah, so the driver really is that I think there's been a pretty broad-based push to legalize or decriminalize cannabis production and consumption in recent years. We now have a bunch of states that have legalized medical cannabis, I think about 38 or so, so three quarters of the states effectively. And then about half of the states have legalized cannabis for recreational purposes as well. And then in addition, the Department of Health and Human Services in the current administration has recommended rescheduling cannabis from the category that it's currently in, which is the most restrictive category of banned narcotics to one where there's a little more leeway to at least do research and use it and to sell marijuana as a medical drug. And so I think that combination really is groundswell driven legalization effort at the state level and at the local level in some cases combined with the real possibility of federal action, I think makes it interesting to look at what the budgetary consequences are of this legalization.

And we decided to write this paper because a lot of the work people have done here, I think it often comes from the pro-legalization side. And so they naturally try to emphasize the positive revenue implications of legalizing cannabis. I think they often go overboard in emphasizing how economically beneficial it would be for two one. Those studies are often very focused on increased revenue and reduced spending, increased revenue, just some taxes on marijuana and reduced expenditures from law enforcement in particular, law enforcement and incarceration and the economic losses associated with that. I mean, that's all fine and well, I think those numbers are usually exaggerated. One because they basically count all of the activity in the cannabis industry is newly taxed, whereas if you think that this newly legal industry is going to be more sizable than the black market industry is now, a lot of that will just mean that people who are currently working in other industries or capital resources that are currently being deployed on other industries will move to the cannabis industry.

There's no reason to believe that that generates net new tax revenue, that's just corporate taxes being collected in a new industry or income tax is being paid by workers in the new industry that they were previously paying in their old industry. So I think on the tax side that that's a big source of overestimating the revenue impact. And then on the spending side, I think a lot of these guys are very focused on, oh, we're going to do less policing, less incarcerating. I think they underestimate potential for the federal government in particular, and this is less of a nature state local lab, obviously picking up a good chunk of the bill for cannabis consumption down the road in our paper and my co-authors, and I don't necessarily agree on where we think this will go, we talk about how certainly medicinal cannabis could well be paid for by Medicaid, Medicare and the VA to a significant extent.

And of course, if that were to become the case, then you would see a push to move more and more what I would think of as recreational use through those pathways as well. And so I think that's something that's very much underemphasized and I think something that's important to keep in mind, just as a back of the envelope calculation, if you impose, say you do a 10% tax on cannabis, that gets you say 10% of the market as revenue. And at the same time, the federal health programs pick up 10% of the cost of all the marijuana that's consumed in the country through their reimbursements of medicinal marijuana. Then they net revenue from those two sources of, so even if only 10% of the marijuana expenditure paid for the federal government, that could well offset a significant excise tax. Lemme stop there for a moment.

That's why we’re doing it just because we think the existing estimates weren't quite capturing what we think of as all the relevant dimensions. And it's an important, because there's been so much policy movement maybe as a small additional point there, the reason why it's important to have a good federal estimate of the budgetary impact is because that will often affect how willing people are to work policy change into a broader piece of legislation. Because if the revenue impact is very positive, it can offset new spending. If it's negative, you'll in many cases need to find other ways to offset the negative budget impact.

Juliette Sellgren (33.13)

And so what do you end up finding in terms of, do we still think that it would be positive for revenue or is it kind of unclear, but then this might be the way forward?

Stan Veuger (33.31)

Yeah, I think your description of unclear, and it depends on choices made is the right one. And so in the paper, what we do really is highlight a bunch of these other mechanisms that could change the budgetary impact in ways that people haven't always thought of. So especially through the health programs, you could also imagine that cannabis farmers will become eligible for farm subsidies. You could imagine that there'll be discussion on are you allowed to import cannabis, especially from Mexico. And so there's just a number of policy questions that have been resolved. But I think on the pure budgetary end of things, that could be the envelope that I sketched out to you earlier where you get some revenue from an excise tax or attacks on producers of cannabis or whatever. It's not impossible that that would be offset entirely by new health expenditure, maybe not in the next few years, but once you legalize cannabis, I would imagine it will become so normalized that it'll be very difficult to exclude medicinal cannabis from these public health programs.

And so I think eventually the federal government will end up picking up a good chunk of the bill for cannabis consumption, and 10% isn't that much. If you think of how large Medicare, Medicaid and the VA combined are in the healthcare industry or just in prescription drugs, they are responsible for a good chunk of the expenditures. And so it wouldn't be completely surprising that even a moderately sized excise tax, something like 10% could be offset entirely, but is health expenditures. I think that's really the key. For me, that's the key takeaway. And I don't think that's something people have emphasized.

Juliette Sellgren (35.26)

No, not at all. And what I think is super interesting about this is that it's something economists don't do often, which is look into the future and say, this is what we know about how markets operate, and we can kind of talk about how you estimate the market and how you kind of model this, which is also fascinating. But a while ago I talked to David Henderson and one of the things he mentioned was that once upon a time, there was an economist who actually saw into the future somehow and kind of thought, oh, well, epass, he didn't know the name of it because it didn't exist. He was like, this sort of thing is going to exist in the future. And he was right because he basically used what he knew about innovation and what people want and efficiency to kind of think forward as to what was possible.

And I think especially from a free market perspective, when we're talking about legalizing things and opening things up and all of that, we don't benefit, then what could it actually cause more problems down the line? And that's not to say it's just something to be aware of and correcting the record is so important. So I think that this is super fascinating and we'll kind of talk about the trade aspect, which I also think is interesting, but I kind of first want to ask you about what obstacles did you have in kind of characterizing the market for weed, cannabis, whatever you want to call it. Weed is just the way I call it, the way my generation calls it, I guess the academic term is cannabis. It must've been super difficult because even now when it's legal in some places, it's still underground in a lot of places, even when it's legal and it's taxed, but the price of the underground is still cheaper, which I know is true in, I think it's Oklahoma. I might be wrong about it being Oklahoma. It's somewhere out west. How did you do that? What was difficult about doing that?

Stan Veuger (37.30)

Yeah, I mean obviously there's an immense amount of uncertainty around various aspects of this, in part because there is no market comfortable to the US where weed is legal, by the way, on terminology. So we decided at some point we're going to consistently use the word cannabis, but I can assure you we still on a regular basis have to do a fine number for marijuana. That word slips in here and there, we swap it out, the cannabis back in just because that's what we've settled on. But yeah, no good questions. So the market size estimate that we rely on, and it really is a key input because once you have the market size, it's not that difficult. I mean, still you have to make a bunch of assumptions, not that difficult to calculate tax revenue estimate, but the market is a black market or a gray market in some places, and so you have to rely on surveys and guesses to come up with a number. Then in addition, of course, legalization itself will dramatically change the size and nature of the market, for example, as the market professionalizes it, so to speak. Right now, many retail channels are very small scale or completely illegal. Production does not quite happen at the scale you would expect from other consumer products.

We don't really see the involvement of the large multinational corporations that are involved in other drugs or food products, if that's how you want to think of it. There's no Proctor and Gamble products yet on the market, and you don't see massive farming conglomerates really engaged in the production yet either. And so that's a reason to think the prices will come down. Now, of course, you will still continue to have this wedge between the legal and the illegal market. If you're in the black market, you can probably evade some taxes and regulations a little more easily. And so you may still be able to offer perhaps a slightly lower quality product, but at a lower price. And so I think even under full legalization, illegal market would not completely go away, especially if remains illegal. And so you could try to smuggle cheaper marijuana, Mexico. So those all things have to think about.

The other thing is that even if you were to know what the new prices would look like in the post legalization world, you still have to think about how consumers would respond to that. We have some estimates, elasticity of demand with respect to price in the cannabis market, but those don't quite come from this situation of full legalization either. And so it's not clear how they translate, because of course with legalization I think would come a pretty significant norm shift as well toward perhaps less stigma. People who, I mean, there's a lot of locations now including people's private residences where in many cases you're not allowed to use marijuana. Would that change? Maybe, maybe not, but certainly some of the stigma would, I think, disappear. Of course, if the stigma disappears, does that also make a subset of the problems you have to deal with when you come up with the market estimate? And so I dunno, hopefully what we did is reasonable, but part of the exercise also just to show which assumptions you have to make, where the uncertainties lie, et cetera.

Juliette Sellgren (41.52)

Well, so something I also think is interesting, which you kind of touched on, was that it's kind of dependent on, I don't want to say non-economic legislation, but if there's a regulation about where you can and cannot smoke because of the externalities of where it's going to smell, that is going to affect the way that consumers and suppliers and anyone kind of interacting with this market, it's going to affect the way that things go. And so what are some of the other assumptions you had to make and uncertainties that you kind of realized along the way?

Stan Veuger (42.30)

Well, a big one is we assume that after legalization, cannabis will effectively be legal everywhere. But of course, you can easily imagine a situation where many local governments or even state governments will basically make it impossible for retail establishments to pop up, rather. So that would pretty dramatically change. I think the situation, just like there are counties that are dry, you could have counties or cities or states that effectively least recreational marijuana. I think if there's medicinal marijuana that's DA improved, I think that would be harder to keep from being sold. But certainly recreational marijuana stores, I think local governments would've a lot of power to block. And so our baseline estimate assumes that that doesn't happen and that there's just going to be one national market, but I think that could really dramatically affect the development of the cannabis market post negotiation.

Juliette Sellgren (43.32)

And what about trades? You mentioned something interesting about if it's illegal to import it from other countries or even to export it, right? Maybe it would go the other way around. Who knows, even though maybe it is almost a guarantee that we would import it. How does the illegalization, the illegalization, is that a word I don't know, of trading with Mexico, for example? How does that influence what might happen in America in the future with respect to this? Or if we opened to trade on this front, how would that impact what happens?

Stan Veuger (44.13)

Yeah, so we mentioned in the paper briefly just because tariffs on cannabis would be a natural source of revenue, and you would expect that to be a tariff or a border adjustment. If there's going to be a federal tax cannabis, you accept the same that way. The question will very difficult to predict, but I would expect both import and exports is pretty major agricultural producer. If the US were to fully legalize, I think that would really change the dynamic for other countries as well. The US has really been, I think, a strong voice for more prohibitionist policies in the narcotics sphere than most other countries. Certainly in the Western hemisphere. I think there's a number of American countries that have been eager to move toward legalization, maybe not even just of marijuana, but more broadly. I think if the US flips, they would probably flip as well.

And so at that point, you have these two markets where it's legal. Are you really going to ban imports and export? I mean, maybe in the short run, but I find I find it difficult to imagine that that sustainable equilibrium, because you're going to have different varieties, you're going to have different prices, and so for sure would have some sort of illicit import and exports. But also it would be so strange to have this completely legal product that you've done not allowed to import and export. Maybe the cannabis pharma lobby would become so strong that we would effectively then import the way we do with sugar and a bunch of other products. But I don't know how that's going to happen. But regardless of exactly how it all unfolds, I think it's a consideration to keep in mind and one that people don't really think about, which is particularly strange in this context. But of course the international trade in narcotics is stock ship problematic area policy, and one that the US devote a good amount of resources on one. That's really the single largest public policy challenge that Mexico has to deal with. And so it just seems like something you should think about as you pond what to do domestically.

Juliette Sellgren (46.43)

So what did you believe before you embarked on this exploration of what could possibly happen and how has your mind changed or what is maybe the most important thing you've learned about this or changed your mind about throughout the process? And this is maybe ruining the next question I'm going to ask you, but on this issue specifically,

Stan Veuger (47.09)

I think for me, the thing I mentioned earlier about how easy it's for medical expenditures to offset any tax revenue, that's not something I had considered personally. And then secondly, just going through the potential budget implications in a somewhat systematic manner just shows you how many different facets of the federal government directly touch upon an industry like this. I think something, I mean that's probably true for most products, but it's just something I hadn't really put together for this particular one myself.

Juliette Sellgren (47.47)

Thank you so much for coming on the podcast. I could talk to you for hours and ask you a million different questions about both of these issues, but we are running up against the clock. So I have one last question for you. What is one thing that you believed at one time in your life that you later changed your position on and why?

Stan Veuger (48.05)

Let's see. This is the other difficult question that I know you like to ask every single guest, and this is I think, true for a lot of people in public policy of my generation. I don't think 15 years ago I would've come even close to realize how important the housing market is and how important housing policy is to basically every aspect of the economy and every aspect of people's daily lives. I think that's really an area where practically every Western government has made major self-inflicted mistakes over the past 50 years just by being much too stringent, much too aggressive and regulating what is allowed to be built and where I think it's also really a big cause of people's financial vulnerabilities, a big cause of afford to live where they would like to live or where their parents live or in reverse. People are stuck in places with very weak demand for housing, which in turn makes it difficult to continue to fund public services, makes it difficult to them to move to places that are more promising. I think that's really a policy area where the way in which I've changed my mind is really just about its importance and about these dramatic overregulation sector. I don't think that was on my radar 15 years ago, but it certainly is now.

Juliette Sellgren 

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to the Great Antidote Podcast. It means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at great antidote@libertyfund.org. Thank you.

(Cont.) Stan Veuger on the Dutch Farmer Protests and Cannabis Legalization

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