Monday, July 18, 2011

The real secret behind Texas' economic boom: Drug trafficking

Brilliant observation, and true: What's the secret ingredient to Texas' much-ballyhooed job creation boom that you'll never hear from Rick Perry on the presidential campaign stump? Drug Trafficking, says Joe Tone at the Dallas Observer's Unfair Park blog, offering this quote first reported by Tina Rosenberg in New York magazine:
Jack Schumacher, a recently retired Texas-based DEA agent, says that at least half the drug shipments coming from Mexico stop and offload in Texas. The product is repackaged in small units and resold at a considerable markup, with a share of the gross staying in the state. Even some of the money that gets expatriated to Mexico winds up back in Texas, laundered through Mexican currency exchanges. The state's relative security is the draw. "If you have a few million," says Schumacher, "would you invest in a war zone or a bank in San Antonio?" The DEA warns that traffickers are cleaning up their proceeds by buying businesses in South Texas. They also spend on guns, warehouses, security guards--and on luxury cars and houses. "In San Antonio, a high-dollar trafficker can buy a $2 million or $3 million place and exist for a long time," he adds.
Further, adds Rosenberg:
Mexicans in Texas are hardly new, but in recent years it’s middle- and ­upper-class families in Mexico’s north who have also made the exodus, bringing their savings and businesses with them. While most seem to be fleeing the kidnapping and extortion back home, one observer has a different take: “Some people, including me, suspect that some of these people come with funds from the drug trade,” says Michael Lauderdale, a professor of criminal justice at the ­University of Texas.
After all, picking up your money on the Texas side means avoiding the border checkpoints and customs officials altogether. The US-side infrastructure of drug cartels is a subject that seems almost willfully ignored by policymakers and the media. The Texas Department of Public Safety has maintained for years that "command and control" of much so-called Mexican cartel activity is actually on the US side of the border, and so is much of their money. Not just cartels but also mid-level distributors set up front companies that lose money as a practical matter but serve as vehicles through which they can launder drug cash, making it a lot easier to distribute either back to Mexico or to other stakeholders in the US. This is happening today on a fairly widespread basis and it means a lot more marginal businesses stay afloat - how many, no one can tell - to perform what amount to retail-level money laundering functions.

Then there's just the fact that rich people spend more money, including Mexican cartel thugs and others getting rich from drug money. Tone adds that "Last week's drug bust demonstrated some of that on a smaller scale. Dealers in Fort Worth ran a body shop with the proceeds, owned several homes and dumped truckloads of cash into their local bank (in just-low-enough amounts not to attract suspicion). Dallas's kingpins kept multiple residences, rented a storage space and, presumably, shoveled down copious tacos after doing hand-to-hands in the Lupita's parking lot."

It requires almost nothing to create a legal business structure in Texas - pay $15 for a DBA at the county courthouse and you can open a bank account and start to make cash deposits. Apply for a federal tax ID number and you can put employees on the payroll. Setting up a corporation requires only slightly more paperwork. Multiply that process by hundreds or even thousands of businesses backed by billions in liquid cartel capital, and it's no wonder the state's economy looks so much better than the rest of the country's.

There's an ironic sense in which it's a good thing for Texas' economy that "winning" the drug war is a senselessly impossible task - at least banking solely on a prohibitionist law-enforcement strategy. If it were ever actually possible to eliminate the flow of illegal drugs, our state economy would be like the dog who caught the car - lucky if not dead, much-disfigured, and walking forward into the future with a permanent limp.


Anonymous said...

All the more reason to legalize it all.

Anonymous said...

New York magazine is a big supporter of Obama. Looks like they want to go after anyone (such as Rick Perry) who they think may run against their hero.

Anonymous said...

I'm no Obama fan. Didn't vote for him last time, won't this time. But, Rick Perry wouldn't be much of an improvement. This is the guy who, regarding the Willingham case said "Even if it wasn't arson, he's still guilty." That's just plain dumb. He also said, regarinding Anthony Graves, that the case showed the system worked. Well, Mr. Perry, lets see you spend 18 years on death row and say the system works. The guy just doesn't have it intellectually. He knows how to cowtow to right wing conservatives but beyond that is a worthless piece of crap. His attempted cover up involving the forensic science commission shows he's a total sleaze with no integrity. Yet, many will be fooled, as the mindless voter sheep usually are and will vote for him thinking he's the most virtuous and righteous of candidates.

Looks like I may be voting libertarian again.

Anonymous said...

And, another he's saying that God may be calling him to run....give me a break.

I wonder how many people in history who did things we now regard as evil believed that they were doing God's work.

Gritsforbreakfast said...

Of course, even if NY magazine supports Obama, 1:58, that hardly mitigates the fact that the argument presented about Texas' economy is true.

Anonymous said...

Only one reason for the economic boom? Seems rather reductionist...

Anonymous said...

What economic boom?

Gritsforbreakfast said...

No, 3:20, not just one reason, only the unspoken one.

Anonymous said...

I think the article states:
"experts believe there's another potential factor helping prop up Texas's economy"

A potential factor.


Gritsforbreakfast said...

Right, 3:32, so you somehow think it possible that serving as the transportation hub for half or more of the drugs entering the United States might NOT boost Texas' economy? Pot-ent-ial-ly? Is that position even remotely plausible?

When markets and laws clash, markets usually win. Money doesn't care much about laws, it circulates according to the economy's own logic, not the political needs of Rick Perry, Barack Obama or anybody else. And when it circulates, for whatever reason, legal or illegal, it grows the economy.

Anonymous said...

I seriously doubt that drug trafficking made a significant difference in the state economy. If it did, where are the actual numbers to prove it? Was it as much as even one percent?

Now, saying that oil and gas exploration in the shale formations made a difference in the economy boom is a fact.

Anonymous said...

Grits says: "The REAL secret behind Texas' economic boom"

The article says: "a potential factor helping"

How do you square those two descriptions?? Yours would be slightly.....aggrandizing? Tone down the hyperbole, mate.

Anonymous said...

California also has a thriving drug business, and much of it is grown in State rather than imported. Why are they crying?

Gritsforbreakfast said...

4:40, The article also says:

"Texas dominates drug entry into the U.S., which means it dominates the wholesale drug trade. It’s a big business: The DEA’s rough guess is that $27 billion in drug proceeds flow back out of the U.S. to Mexico, Colombia, and so on. And another pot of money stays here."

That money gets laundered through legitimate businesses and a lot of it happens here in Texas. Between serving as a transportation hub and a major laundering center, that makes the state a central player in a multi-billion dollar international industry. I'll assert on my own without needing to reference New York magazine that that makes drug trafficking a bigger factor in Texas' relative economic success - coupled with the economic benefits from legal and illegal immigration - than anything Perry cites routinely on the stump.

4:42, California's problems go much deeper than we're going to resolve on this comment string!

Anonymous said...

At one time I did drug counseling for Federal Probation.

I was amazed when cocaine prices dropped after the arrest of Noriega. I am still baffled by the fact that most Texans want to believe that this wonderful state is not financed illegally by drugs.

Yes we need to legalize marijuana. We probably need to tax and control cocaine.

This article really has said nothing new.

Anonymous said...

But you better not drive without your seatbelt or get caught with 2oz or less cause the high sheriff will lock yor ass up!

Then tell the press we need more money cause we ain't got no more room at the inn.

Whooooo weee! Ain't we tough on crime!

Hook Em Horns said...

Actually Grits is on it. There was an article 5 or 6 years ago the estimated the illegal drug trade in the United States if stopped in it's tracks, would collapse our economy.

The article went on to point out much of what Grits suggests here and that is a ton of money that runs legitimate business is drug money.

Anonymous said...

I sure hope Obama doesn't read this article. If he gets the idea that drug smuggling is helping the Texas economy, he may actually secure the border! LOL

Anonymous said...

And that's not even taking into consideration the wealth from bonds that are created with arrests. Prisoner bonds are traded on Wall St and that's the real reason drugs cannot be legitimized.

David O'Niell said...

After 20 years fighting the ludicrous War on Drugs, I say legalize and tax domestically- produced cannabis. We still need to keep foreign products out of the country.
Treat addiction for what it is: a Public Health problem, not a criminal problem. There are millions of Americans who prefer cannabis to alcohol, and cannabis produces far fewer social costs as alcohol or tobacco (I would bet that State tax revenues and Medicaid end up treating most lung cancer victims; and the societal costs of alcohol are enormous, resulting in illness, lost production, domestic violence and highway deaths)

john said...

I know a man who lost some of his kids to a divorce deal gone wrong due to crooked judges in a southern county. He got one or two removed, but in the end they won. His ex's mom's family was flush in the drug trade. They owned the area. He had to go from Houston to fight it. Sometimes they claimed abuse and came up here and stole the kids; then he'd have to go down there to bring them back. Within a couple years, he was broke, but some of the kids remained here with him (he still had a job). What a wasteful travesty, an American horror story.
And good people, that was in 1985. Imagine the hi-tech strides they've made today to own courts, et al. WHAT BORDER???

Anonymous said...

Good point, John. What border? That is a seriously interesting theory.

Anonymous said...

You have not, in the original post or in any of your subsequent comments, provided any evidence for your claim that it is "the real secret" behind Texas's economic strength. The original pieces only said "a possible contributor" and "another potential factor". You irresponsibly inflated this to "the real secret" based on no evidence cited.

Yes, it "boost[s] Texas' economy". Yes, it "grows the economy". (Even one dollar spent on drugs would satisfy this argument.)

But that isn't what you originally claimed. You claimed it was "the real secret". THE.

And then there is this:

"I'll assert on my own without needing to reference New York magazine that that makes drug trafficking a bigger factor in Texas' relative economic success - coupled with the economic benefits from legal and illegal immigration - than anything Perry cites routinely on the stump."

Obviously you must know that assertion is not proof. To prove this, you would have to a) know the dollar value of the industry in Texas (impossible), b) know how much of this is not repatriated to Mexico or sent to other states, c) have a decent estimate of the multiplier for the remaining drug money (which requires a pretty detailed survey of drug dealers' spending habits), d) multiply b times c, e) represent this as a % of the state's $1.3 trillion economy, and then f) compare this to some estimated % of the effect of the business-friendly policies Perry cites (not sure where you would get this last number; that would be an incredibly difficult, detailed, years-long study by professional economists after which everyone would argue about it anyway). None of this is offered. The best offered is (from the Unfair Park blog) that "tens of billions of dollars" of drugs come into America, "more than half" go through Texas, and "a share" of this stays in the state. Sorry, not nearly good enough.

And I'm mystified why you think that citing a "rough guess" of the amount of money sent from the US (all 50 states) to "Mexico, Colombia, and so on" proves anything.

Gritsforbreakfast said...

10:39, take your focus for two seconds off a catchy headline and look at the big picture: The existence of a major, off-the-books multi-billion dollar industry centered in Texas contributes significantly to economic growth by any measure. You seem to agree with that but lament that I cannot immediately provide details (this is after all, just a blog post reacting to MSM reports). Yes, it's true there are many datapoints I can't provide you without more research. But even by the rough estimates in your comment, many billions of dollars in black-market capital is available to be laundered through (read: prop up) hundreds if not thousands of legitimate US businesses, a disproportionate number of which are in Texas.

Did Rick Perry's Enterprise Fund generate that much economic growth? Nobody in their right mind would claim so. If low taxes were the key, "Arkansas would have been an industrial juggernaut by World War II instead of the poorest, most undeveloped state in the land." Tort reform? The population and business boom predated it.

A great deal of the "Texas miracle" may be attributed to two things: The revival of the energy sector and the fact that our real estate bubble wasn't as big before it burst. The latter was because Texas' entire banking system collapsed after the S&L calamity, so for much of the recent real-estate boom our markets were still relatively stagnant. Beyond those two items, by any estimate you make drug capital is the biggest (and unspoken, hence "secret") major economic factor Texas has going for it that other states do not.

Cosmogenium's Convo said...

"There was an article 5 or 6 years ago the estimated the illegal drug trade in the United States if stopped in it's tracks, would collapse our economy." That's if there was no LEGAL drug trade to take up the slack. Legal drug trade of currently illegal substances, and the taxes thereon, would go a long way to solving the deficit problem and the overcrowding of prisons, to say nothing of the savings in social costs that come from not having to ruin the lives of non-violent criminals by locking them up for their addictions.