Drug Markets, Fringe Markets, and the Lessons of Hamsterdam

The Wire is the greatest television series of all-time. Not only that, it is the most important. One of the most memorable story arcs from The Wire’s five seasons is the rise and fall of Hamsterdam – a quasi-legalized drug zone in West Baltimore. Stories are powerful teaching tools because they marry information and context. By seeing how the application of law affects characters we know and care about, we become more attune to the potential effects of legal decisions in the real world. The story of Hamsterdam – which is essentially an attempt to transform a black market into a fringe market – presents just such an opportunity. When considering the various dimensions of the fringe economy, life in Hamsterdam imparts three critical insights: (1) Markets arise wherever there exists market demand. Drug dealers exist because sufficient numbers of people desire to use drugs. When one drug dealer in The Wire is taken off the streets through incarceration or death, another drug dealer readily takes his place. Similarly, the fringe economy exists because enough people perceive a need for the services it offers. And where there is demand, there is supply. The lasting lesson is that the fringe economy is going to exist whether we like it or not. (2) Legalization and regulation, not prohibition, represent the best method for controlling the negative externalities of fringe markets. A key aspect of the Hamsterdam covenant between the police and the drug dealers centers on its mutuality of promises. The police promise immunity for all dealing within Hamsterdam’s confines; the dealers agree not to deal anywhere else. In essence, the dealers consent to submit to regulation in exchange for legalization. Prohibition, conversely, precludes this type of agreement because it drives drug dealers and others who trade in outlawed goods into the shadows away from law’s light. Black markets inevitably fill the void created by these outright legal bans, transforming a regulatory problem into a law enforcement problem. A rise in violence necessarily follows, as the suppliers of black market goods become responsible for enforcing their own norms in law’s absence. The lesson for policymakers is that regulating a fringe economy can often induce better behavior from questionable economic actors than the alternative of policing an underground economy. (3) Mustering the political will to provide legal sanction to the fringe economy is a difficult, if not impossible, task.Hamsterdam fails because Baltimore’s politicians fear that embracing its success will lead to electoral defeat. Regulation is a tool of nuance; prohibition is a blunt instrument. Even though the former promotes the greater good, voters better understand the latter. The Wire teaches that this reality presents a structural impediment to genuine reform. In a political world where courage is in short supply, the possibility of real change is illusory. The lesson is that innovative thinking in handling the problems created by the fringe and underground economies will likely meet significant resistance at the point of implementation. Good ideas will remain untested, and long-term problems will continue unaddressed.