Wednesday, February 25, 2009

Dealing with drug use, and why legalizing and taxing marijuana is a bad way to get out of debt

California is considering legalizing marijuana so they can tax it to get out of debt.

Firstly, there are obvious ethical issues here. Making it easier to do something bad for you just so you can make money off of it is morally questionable at best.

On the purely fiscal side, legalizing marijuana requires a massive infrastructure for growing and testing that would eat up a lot of the short term gains.

It would also cost the state a lot of money in increased rates of car accidents, cancer, heart attack, stroke, job truancy, etc. These would presumably go up over time.

EDIT: so John brings up the most common argument for legalization. It goes as follows:

1) Banning drugs in the presence of a strong black market means high prices are available to a bunch of distributors who are criminals with associated criminal violence. There is no regulation of their drugs, so purity is an issue.

2) Illegal drugs fills up prisons with drug users. This leads to a) prison overcrowding, b) harder drug usage learned in prison c) less ability to become productive later in life with high recidivism and lower education

) US Drug policy in South America has been horrifying.

Legalizing drugs means that you put those criminals out of business naturally by stripping them of market power, and you leave open the possibility of turning users into productive citizens.

So the way I see it, the problems with illegal drugs reduce to 1) Crime 2) How to deal with drug users 3) Foreign policy

First, on crime:

High drug prices result in fewer new users, and low drug prices result in more new users. This is how it is with cigarettes, and adding in the legalization component should mean that this effect will be larger, not smaller, for drugs. I'll won't dispute the notion that amount of drug use by current users is pretty inelastic to price, because addiction (or, less alarming but still troublesome, habit) is a nasty thing.

So basically, that crime argument is founded on the notion that giving market power to the people who provide drugs in the presence of anti-drug regulation (the dealers referred to) hurts more people than the number of people who start using drugs because drugs are cheaper.

You have three outcomes:

1) Illegal drugs. Status quo. Fewest people start using, but the entire distribution system is corrupt, because it's illegal. Violent people have market power.

2) Legal drugs, taxed to very high prices. More people start using than with illegal drugs. Illegal people can stay in business because there are still high prices, so they can undercut those prices by a bit, remain highly profitable, and presumably violent. They may even get more violent as they try to discourage legal vendors from selling.

3) Legal drugs, not taxed to very high prices. Illegal people don't make as much money off of drugs and partially substitute to other illegal activities. More new drug users.

The substitution bit is an important one. You're still gonna have criminals, they'll just be doing different things (prostitution, loan sharking, illegal casinos, gun running, human trafficking, protection rackets, etc). I grant that none of those are quite as easy money as drugs (that's why they sell drugs in the first place instead of those other things), but there will still be substitution to all of those things. If they'll be violent to have illegal drug trafficking, they'll be violent to maintain prostitution rings or gun running rings. So you may not get rid of as much violence as you think.

Thus, 3 results in a) more users, b) not that much extra government money per user, and c) only a slight reduction in crime. It seems like a bad option.

In option 2, you have more users but more government money. Given how much the government spends on healthcare, the likelihood is that it's better to have fewer users and less government money. If the amount the government receives is larger than the increased healthcare costs and other costs associated with drugs, like crimes that link to drugs (DUIs, vandalism), then you consider option 2. I think this is unlikely. There's also the component that violence may go up as illegal distributors try to prevent legal ones from staying in business.

Drug use also has some MAJOR negative externalities in terms of breaking up homes, increased healthcare costs, higher insurance premiums due to health problems, vandalism and addiction treatment, and higher prison rates due to associated crimes. A decent argument for role of government is to say they should intervene where incentives aren't in place for a societally optimal outcome. Given these negative externalities, that's a decent moral justification for government involvement.

So if you're fighting crime associated with producers and distributors of illegal drugs, then you want it to be illegal. There's two components to that: enforcement and punishment. Enforcement of anti-drug policies is very expensive, and ramping it up is even more expensive. Make the punishment high enough, and you'll deter more people. The increased risk will mean more salary to the people most at risk (the on-street distributors) because otherwise they'll find other things to do. The increased salary makes it easier to catch them because spending has a trail. So economically, you want to make the punishment for drug dealing, producing or distributing EXORBITANT, while having just enough enforcement to make it a credible threat.

What I will agree with John on is a solution to the second problem, that of dealing with users. Use of pot, or even other drugs, may not warrant prison. A better solution may be to say that use or possession of marijuana is punishable by loss of driver's license for a very long time, lots of hours of community service and a very hefty fine (we're talking almost unreasonable numbers here - five or ten year's license, 1000 hours of community service, $10,000 fine kind of thing... bigtime.). You could even threaten to double that number if they don't turn in a dealer. That way you don't send people to jail to learn about worse crimes and drugs and avoid their education, you reduce prison overcrowding and you still have a very strong deterrent in place. As you catch people, you catch some increased number of dealers. That certainly could be a decent proposal.

What you don't want to do, however, is remove that deterrent, which Massachusetts just did by pseudo-decriminalizing possession without incurring major civil punishments.

Foreign policy around drug production is a strange beast, and one I may not be equipped to talk about in this context. Preventing drug production is a laudable goal, but it may be costlier and with worse side effects than going after the distributors or increasing preventive measures to stop new drug users in our own country. Somebody more knowledgeable on the topic (John?), I'd love to hear comments.

EDIT 2: Thought of a decent parallel. There are many more alcohol users today than during Prohibition, and many more people die of alcohol-related diseases and accidents than were killed by Al Capone-style gangsters during Prohibition.
A NY Times article on this from 1989:


  1. A lot of evidence (e.g. Ethan Nadelmann's work) suggests that legalization isn't really the first horseman of the apocalypse. Banning pot is a subsidy to producers and (especially) distributors; some figures put the pot "subsidy" at 60% of street value, others up to 80%. For Peruvian coke it's more than 98%. Let's kick the ballistics here: cutting down on crime, corruption, and violence from distribution would have massive short-term benefits and even larger long-term benefits as the chief industry of local gangs dies out. If regulated properly (and that IS a conditional statement), I think the legalization of pot (like the absence of a ban + taxes on tobacco) would eliminate the subsidy to producers, help crime problems, help the problems caused by crime and trafficking violence, and give the govt revenue from what some folks call a 20 billion dollar underground industry. That's got some benefits.

  2. I would go all the way up the drug ladder of badness with the same argument. Current policy on cocaine also sucks pretty hard. If the US spent on education/rehabilitation *half* of what it spends on enforcement -- i.e., fix our own kids instead of killing Colombia's would-be high-schoolers -- we could make some real inroads. The big problem with reporting coke prices and purity and claiming that we're winning on drugs is, of course, that higher coke prices -> higher crime through several mechanisms, both because we're increasing subsidies to the dealers (see above) and because coke users commit crimes to pay for coke. There's a lot of evidence that pot legalization would also decrease coke use: people who end up in prison for pot end up getting into harder drugs in prison (outside of prison, that's not true, or certainly not true in comparison).

    More later, but I think you're calling this one the wrong way.

  3. Oh - I'll point out that there are many more alcohol users now than during Prohibition, and alcohol related diseases kill MANY more people than Al Capone and other gangsters.