When President Obama travelled to Mexico to meet with President Felipe Calderón, the alarming drug violence in our southern neighbor was the main topic of discussion. Unfortunately, neither leader seems to have a clue about how to lessen the carnage. Calderón's government apparently believes that the main answer is to have the United States tighten its gun laws, thereby (somehow) depriving the cartels of their main source of high-powered weaponry. Washington's panacea is to increase U.S. financial support for Calderón's military offensive against the traffickers-an offensive that so far has accomplished little except to intensify the violence.

The two leaders need to jettison such competing fallacies. Drastic policy changes are needed to neutralize the mounting threat to the stability of our next-door neighbor and the security of our own country.

The only effective strategy is to defund the drug cartels, and the only way to do that is to eliminate the multi-billion-dollar profit caused by the drug trade's black-market status.

It is not surprising that supply-side antidrug initiatives have failed in Colombia and other countries and are now failing in Mexico. The global trade in illegal drugs is a vast enterprise estimated at $320 to $400 billion a year, with Mexico's share thought to be anywhere from $35 billion to $60 billion. The United States is the largest single retail market, but U.S. demand is not the only relevant factor. Indeed, the main areas of growth are in Eastern Europe, the former Soviet Union, and some portions of the Middle East and Latin America. The bottom line is that global demand for illegal drugs is robust and likely to remain so.

There is more than enough consumption to attract and sustain traffickers. Since the trade's illegality creates a huge black-market premium (depending on the drug, 90 percent or more of the retail price), the potential profits are enormous. Supply-side antidrug campaigns are not only a futile effort to defy the basic laws of economics, but they also cause serious problems of corruption and violence for a drug-source country like Mexico. The brutal reality is that prohibition simply drives commerce in a product underground and allows the most violence-prone elements to dominate the trade.

Governments around the world seem to be awakening to the problems caused by a prohibition strategy. The Netherlands and Portugal have adopted decriminalization policies for possession and use of small quantities of drugs. In the Western Hemisphere, the leaders of Argentina and Honduras advocate reforms, and sentiment for liberalization seems to be growing in Mexico. The Party of the Democratic Revolution (PRD), the country's largest opposition party, has called for drug decriminalization, and even President Calderón has proposed to decriminalize the possession of small amounts of street drugs.

But such reforms, while desirable, do not get to the causal root of the violence that accompanies the drug trade. Unless the production and sale of drugs is also legalized, the black-market premium will still exist and law-abiding businesses will still avoid the trade. In other words, drug commerce will remain in the hands of criminal elements that do not shrink from bribery, intimidation and murder.

Because of its proximity to the huge U.S. market, Mexico will continue to be a cockpit for drug-related violence. Continued adherence to prohibition means that the United States is creating the risk that the drug cartels may become powerful enough to destabilize its neighbor. Their impact on Mexico's government and society has already reached worrisome levels. Worst of all, the carnage does not respect Mexico's northern border.

When the United States and other countries ponder whether to continue drug prohibition, they need to consider all of the potential societal costs, both domestically and internationally. Drug abuse is certainly a major public-health problem, and its societal costs are considerable. But banning the drug trade creates economic distortions and an opportunity for the most unsavory elements to gain dominant positions. Prohibition leads inevitably to an orgy of corruption and violence. Those are even worse societal costs, and that reality is now becoming all too evident in Mexico.

Abandoning the prohibition model is the only effective way to stem the violence in Mexico and its spillover into the United States. If U.S. leaders are reluctant to embrace the radical course of legalizing all drugs, they should at least begin with legalizing marijuana. That step by itself would strike a significant blow against the cartels, since at least 55 percent of their revenues come from marijuana sales. Even most drug warriors concede that marijuana is the least harmful of the illegal drugs. And if production and sale of that substance (as well as possession and use) were legalized, there would be more than enough domestic sources. Who would bother to deal with the Mexican cartels when a local producer could supply the product, or in many cases, consumers could grow it in their own back yards?

In his town-hall session a few weeks ago, President Obama was asked if he thought marijuana should be legalized. He responded with a flippant, half-joking "no." That response was most unfortunate. One would think that Obama, given his own youthful drug use, would be more receptive to moving away from the mind-numbing conventional wisdom about keeping marijuana illegal. There are ample domestic-policy reasons for changing that strategy, but with the awful violence the drug cartels are causing in Mexico, we now have a national-security imperative as well to alter course.

Ending drug prohibition would defund the criminal trafficking organizations while enabling honest enterprises to enter the business and be content with normal profit margins. Legalization would weaken the cartels more than any other step we could possibly take. The current strategy risks Mexico becoming a chaotic narco-state, with all the alarming implications that development would have for America's own security.

Ted Galen Carpenter, vice president for defense and foreign policy studies at the Cato Institute, is the author of "Troubled Neighbor: Mexico's Drug Violence Poses a Threat to the United States" (February 2009). He is also a contributing editor to The National Interest.