Instead of demanding more crime fighting services, we as a country would be better served by demanding less government intervention in the free market.

In my November 27th article, I pointed out how Senators Gillibrand’s and McCarthy’s new anti-gun trafficking bill will be a dismal failure.

The question of course remains as to how to eliminate gun trafficking, or trafficking in any perfectly legal product such as cigarettes.

In the case of cigarettes, the root cause of the illegal cigarette trade is high taxes. The government continues to increase taxes to the point that in some areas of the country, the actual selling price is more than two times the actual retail price without taxes.

The manufacturer’s suggested list price of cigarettes in January of 2009 was approximately $2.84 per pack. In some locations it is not uncommon to see cigarettes selling for $6.00 a pack or more. The level of taxes is an incentive for illegal sales. In California it is estimated that 20% of all cigarettes consumed are illegal, meaning they have circumvented the tax system.

To remove the incentive for illegal sales of cigarettes is a simple matter. Simply remove the taxes. Overnight, the contraband in the market becomes essentially the same value as retail cigarettes with the exception of sales tax. Sales tax, as of yet, is not enough incentive to engage in illegal sales. The margins are simply not high enough. The other element that has driven the price of cigarettes is litigation. It is estimated the actual list price of cigarettes by removing the price of litigation is somewhere under a dollar a pack. Litigation encouraged and initiated by government entities and individuals who are somewhat ‘surprised’ that cigarette smoking causes health problems have created artificially high prices as well.

Firearms are a different matter. Anyone who has purchased firearms routinely over the last 15-20 years will say without hesitation that the price of firearms has risen dramatically. The price rise is combination of things. The rise of materials and labor are expected over time. However, it is clear handgun prices have rose far in excess of the rate of inflation. Most of the price increases have come from governments intervening in the sale of firearms at both the wholesale and retail levels.

This is a direct result of litigation and restrictions imposed on sellers of firearms.

In recent years, government entities, both political and regulatory, unable to impose strict bans on the sale of firearms, have sought to litigate the firearms industry out of business or, at the very least, severely restrict sales by driving the price of firearms out of the reach of the average American. This has been done not only by government entities, but by private organizations and individuals encouraged and supported by government entities.

The support to individuals and private entities by the government ranges from as little as encouragement and statements in the press to providing funding for the cases. The funding is certainly not direct, but indirect through government grants. Additionally, government entities have and do provide direct legal support in the form of advice and amicus briefs filed on behalf of the litigants.

The type of lawsuits range from accusations that the firearms industry, at the manufacturing, wholesale, and retail level have colluded to arm criminals, conducted illegal firearm sales, up to and including being directly responsible for the cause of crime and in some instances the cause of death of individuals murdered by criminals using a firearm. The depth of the lawsuits has been extensive leaving no one untouched in the firearms manufacturing and selling chain. This has placed a significant financial burden on the firearms industry as a whole causing the litigation to be financed through the increase in the retail price of firearms.

Additionally, government regulations requiring extensive documentation and record-keeping of firearms sales and transactions starting at the manufacturing level, and passing through to the wholesale and retail level adds an additional financial burden on the industry.

In California additional costs have been added by requiring extensive testing and as well as adding certain design requirements driving up retail prices. While other states sell firearms that are perfectly legal, California bans certain firearms that do not meet the criteria established by politicians in the state legislature.

All of the legal, political and regulatory requirements for the firearms industry have artificially increased the price of firearms, particularly handguns, far in excess of the rate of inflation. It is not uncommon to see firearms that once sold for $300 10 to 15 years ago now sell for $800 to $1000 or more. The artificially induced price increases have created a black market for cheap firearms through theft of firearms domestically, and smuggling of firearms into the U.S. from foreign countries. Approximately 354,000 firearms thefts were reported in 1995. In 2005 in excess of 500,000 firearms were reported stolen.

The theft of firearms revolves obviously around the need for criminals, most notably drug related syndicates and the gangs of inner cities who provide the final distribution system for the sale of drugs. The root of the problem is control over the distribution of illegal drugs.

It goes without saying that when government intervenes and restricts sales of perfectly legal products by artificially increasing the price, by any means, illegal activities such as theft, robbery, and black markets will follow to fill a need of lower prices. In response, the government increases its law enforcement activities to combat the problem that they themselves created in hopes of reducing the criminal activity. This has been a tried and failed process which we should have learned 80 years ago during prohibition. Illegal smuggling, theft and the sale of products deemed as legal will never be eliminated. The response of the government to increase law enforcement activities in an attempt to reduce crime in these areas only encourages further criminal activity as the profits continue to rise.

The only reasonable solution is for the government to get out of the business of restricting access to legal products through high taxation, regulatory restrictions or by encouraging antagonistic and harassing litigation for the purpose of driving up the retail price beyond its normal market value. Anything that is done to excessively drive up prices does nothing but encourage criminal activity when certain price barriers are achieved, regardless of the product. If the government got into the business of driving up the price of cars to levels double or triple what they are today to discourage driving, criminal activity would ensue to offer cars at substantially lower prices.

That is the nature of the black market. It matters not what the products are, but wholly dependent on the actions of the government. They are the creator of crime, the sole decision maker on how they will combat the newly created crime, and ultimately how much of your money they will expend and take in the future to fight crime where none previously existed. Instead of demanding more crime fighting services, we as a country would be better served by demanding less government intervention in the free market.