This article argues that key aspects of drug policy, such as decisions about which substances to forbid and choices between incarceration and treatment of drug offenders, should devolve to state and local governments. It is contended that current policy is largely ineffective and may actually cause consumption patterns to shift in ways that exacerbate the personal and social costs of drug use. Furthermore, contrary to the claims of current drug policy advocates, it is shown that increasing drug enforcement can reduce rather than enhance public safety. The puzzling question is why the U.S. continues to pursue a costly and ineffective war on drugs when Europe and Canada are exploring ways to decouple hard and soft drugs and are decriminalizing possession of marijuana for personal use. Legislators are responsible for drug policy, but it is argued that they respond to formidable interest groups that push for an expansion of the drug war - police chiefs, sheriffs, prosecutors, and private companies who build and operate prisons. Asset seizure laws reinforce these interests because the police agencies actually profit from drug enforcement since they can retain the proceeds when confiscated assets are sold. The consequence is that police resources are shifted from combating crimes against persons and property toward drug enforcement. It is maintained that only by decentralizing drug policy will the U.S. be able to effectively explore the efficacy of drug policy alternatives. Under a federalist drug policy states could operate as laboratories of democracy that, when freed from perverse federal influences, would allow local jurisdictions to craft policies that are appropriate for the drug problems they experience. When state and local officials are responsible for the financial and intangible costs of drug enforcement, they are more likely to be held accountable for their actions. Only then are they likely to carefully consider the full costs of a largely ineffective drug policy.