I think that one of the biggest things that policymakers should keep in mind is that frequently, there is no good solution. There are only less bad solutions.

Take payday loans as an example. The entire industry is extremely exploitative and preys on uneducated poor people who are desperate due to bad circumstances and / or poor financial planning. Well-meaning activists have campaigned to "reform" the business and make it less scummy.

The result? Legitimate payday loan companies go out of business, as it's no longer economical to invest money in loaning to poor people, and the mob fills the void. Instead of getting a loan from Usury Inc, whose backers have pulled out and invested in something else, you're getting a loan from Cousin Vinnie. Now, the poor get exploited even more nastily by organized crime, which has absolutely no compunctions about getting its money back by any means possible, including threatening families, breaking kneecaps, killing people to get the rest of the debtors in line, etc.

The only answer is an optimization - you curb the worst of the abuses, and then accept the fact that the exploitation is a side effect of underlying causes and impossible to remove without making things worse. It's as good as we're going to get.

Same exact thing with the drug trade. Drugs destroy lives. It's a fact - heroin and other opiates are a scourge on poor communities, and it's not just due to the fact that they're illegal. After all, people overdose on prescription medication all the time, too[1]. But a lot of the enforcement that has been done makes things even worse - we still have addicts, and then we get all of the violence that comes from the enormous markup that's inherent in the black market. There is no good solution that makes everything better, but it's very easy to make things worse.

More nastily, it breeds what I like to call "contempt of the law" - if everyone in a community is breaking the law somehow, (smoking weed, buying black-market cigarettes, buying prescription painkillers, etc) then even worse crimes don't get prosecuted because everyone is preoccupied with the fact that the police are going after the people they perceive to be average Joes. As soon as people perceive the police as an occupying force that arbitrarily goes after average citizens for gits and shiggles, the people will stop seeing the police as guardians against the truly evil and dangerous people among them.

I think that the biggest issue that blocks action on this is that people are confusing legalization with approval. You can make something legal and still think it's horrible. It's legal to cheat on your spouse, even though most people consider it immoral, but the cost on society that would come from making adultery illegal (and enforcing it) would be far greater than keeping the government out of it. Similarly, you can make prostitution legal and still consider it horrible. You can make casino gambling illegal and still consider it exploitative of people who suck at math. And you can make drugs legal and still consider it exploitative of human weakness. The only criteria that we should be using is "Would government intervention actually make the situation better? If not, keep the government out of it." And at this point, I'm pretty doubtful that dispatching thousands of officers to go after heroin dealers will keep people from using heroin. I'm pretty confident that doing so will increase the money that's in heroin, increase violence, and breed contempt of the law.

<asshole> Oh. Also, if we make drugs legal, I'm investing like a motherfucker in Soma, Inc. Drugs sell themselves, and I'm sure that corporations will make a bundle if they can sell them to The Public. My retirement fund will thank the wonderful residents of Appalachia for their generous contributions. Whichever company is the first to make an oxycodone version of Joe Camel is the one I'm investing in.</asshole>

[1]http://www.cdc.gov/drugoverdose/data/overdose.html