The Economics of Legalization

Jeffrey A. Miron has been the leading economist in studying the fiscal effects of the drug war. Just in time for the home stretch on Prop 19, he has teamed up with Katherine Waldock and CATO Institute to publish a white paper: The Budgetary Impact of Ending Drug Prohibition

The report concludes that drug legalization would reduce government expenditure by about $41.3 billion annually. […]

Legalization would also generate tax revenue of roughly $46.7 billion annually if drugs were taxed at rates comparable to those on alcohol and tobacco.

Now that’s a set of numbers to get a little bit excited over. But it’s only a set of numbers — a realistic look at what could be, assuming full legalization, and taking advantage of all the resulting cost savings and tax revenue. That’s what this kind of estimates are about. It doesn’t mean that we’re going to see $88 billion.

The most intellectually dishonest of the prohibition enablers out there see numbers like this and then, finding a reason why we might not see all of it, irrationally act like they have disproved legalization arguments.

But Miron understands, as do all us reformers, that economic benefits of legalization are just one of many benefits, and that any portion of that $88 billion is a bonus.

The conclusion is worth quoting at length:

First, the total impact of drug legalization on government budgets would be approximately $88 billion per year.

Second, about half of the budgetary improvement from legalization is due to reduced criminal justice expenditure. But for this component of the impact to show up in government budgets, policymakers would have to lay off police, prosecutors, prison guards, and the like. Because such a move would be politically painful, it may not occur. It is certainly true that reduced expenditure on enforcing drug prohibition can still be beneficial if those criminal justice resources are re-deployed to better uses, but that outcome is difficult to achieve.

Third, only about $17.4 billion in budgetary improvement can be expected to come from legalizing marijuana in isolation. Yet the current political climate gives no indication that legalization of other drugs is achievable in the short term. So the budgetary impact from the politically possible component of legalization—marijuana—seems fairly modest.

None of these considerations weakens the critique of drug prohibition since that critique has always rested mainly on other considerations, such as the crime, corruption, and curtailment of civil liberties that have been the side-effects of attempting to fight drug use with police officers and prisons. What the estimates provided here do provide are two additional reasons to end drug prohibition: reduced expenditure on law enforcement and an increase in tax revenue from legalized sales.


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29 Responses to The Economics of Legalization

  1. Buc says:

    Jeff Miron is right up there with people I would love to meet, just for the opportunity to praise him.

    It’s great to see somebody as brilliant as him be as determined as he is in ending prohibition. A lot of times people will write a piece here or there, but he’s on the ball all of the time.

  2. Paul says:

    The Cato Institute is awesome.

    I wonder if their calculation included any impact on the economy of returning prisoners to society and to work? Their time in prison not only includes the actual cost of keeping them there, but the lost productivity to the marketplace because they can’t work.

    There are all manner of other costs that really can’t be calculated. What is the cost of growing up without your incarcerated father? How many people are directed from the legitimate economy to the black economy, where their productivity is lost to criminal enterprises? How much could we save with relaxed customs standards on inspections and on barriers to trade?

    The drug war has twisted and perverted all manner of societal institutions with vast and complex costs and consequences. I’m glad Cato was able to put a number on some of the expense, but it really is just the tip of the iceberg.

  3. Just me. says:

    but it really is just the tip of the iceberg.

    Yep and icebergs have tendancy to rise when 10% is removed. I look at cannabis prohibition as that 10%.

  4. kaptinemo says:

    Given that the effects of the Meltdown will be felt for years, the economic situation of this country is starting to look like Japan’s Lost Decade. The sooner we jettison unsupportable expenditures like the DrugWar, the sooner the government can concentrate on re-allocating resources for things the country actually needs.

    Since America worships Mammon, a.k.a. money, our side needs to hammer home again and again and again the fact that a trillion dollars have been wasted on this boondoggle, money that could have been used more wisely…and in kitchen-table terms.

    Winter’s coming, and it promises to be as much of a bitch this year as it was last; point out that the money spent on JP fuel for every FLIR-equipped helicopter flying around looking for grow-ops is costing poor families their heating fuel. Every dollar spent on imprisoning non-violent drug users is taking money from school lunch programs…not to mention schools, themselves. Every dollar spent on ‘foreign aid’ in service of the DrugWar is money that’s desperately needed right here. That sort of thing. The sort of thing that gets right to the core of most American family’s awareness.

    Americans in the main don’t care about lost rights; most have yet to realize that the vast majority of those rights have been stolen long ago thanks to the DrugWar. But talk money, and the normally dull eyes take on a sharp gleam. That’s the tack we must take.

  5. claygooding says:

    The study is about impact on the budget for the government
    but does not give any information on the impact to our economy when billions of dollars quit leaving this country
    untaxed because American farmers and people can grow their own.
    Fortunately the CATO institute got a response from ONDCP or the GAO on how much of their 15 billion dollar budget is spent on marijuana,as compared to the other illicit drugs they chase,but never quite catch.

  6. darkcycle says:

    I totally agree, the savings estimates don’t reflect the total because of the many hidden costs. And the savings can be productivity, or reduction of man-years spent by large segments of society in cages.
    But I fear the drug war is too useful to them to give up. It has been the vehicle for consolidating control, expanding government power, and has provided the excuse for all manner of unconstitutional intrusions on our rights. More importantly, it keeps people who might otherwise be politically active on the sidelines out of fear. When your family and job and entire life as you know it can be taken away for a simple posession bust, a lot of people choose not to go out and be identified with a movement. I know, in the past I scrupuloulsy avoided public protests for just those reasons. Years ago, a single pot bust would have cost me my career, since a background check was required for every single position I ever held. My wife taught at that time in a small district elemetary school as well, and likely would have lost her job as well, had I been busted. Not to mention what the ghoulish local media might have made of it “Local child psychologist, employed by County youth services, and elementary teacher arrested in drug house”
    To this day, Darkcycle is a nickname, applied to a psuedonym. I stll can’t afford a legal issue.

  7. kaptinemo says:

    Darkcycle, you’re literally amongst scores of millions of like-minded, civilly-engaged citizens who care about their communities…but must remain off the radar thanks to their (rational!) choice of intoxicant. And yes, that’s exactly how the authoritarians infesting far too many of our public institutions like it. Keep the hoi polloi in check by threatening their economic survival – and therefore threaten, in this corp-rat-ly controlled economy, their physical survival. That’s really all that p*ss tests are for.

  8. darkcycle says:

    Bang on, Kap’n. The pillar of the police state.

  9. darkcycle says:

    I also expected to be excoriated for my cowardice. I’ve had other activists do that on line when I explained my reluctance to get involved at a local level. Fact is, even though one of my oldest friends is Vivian McPeak (organizer of the Seattle Hemp Fest), I can’t afford to be public. That is the story with uncounted others as well.
    I really think the intentional humiliation of prospective employees plays a part in the drug testing regime, too.

  10. malcolmkyle says:

    BlogDelNarco have posted a video showing the testimony of Sinaloa Cartel member Miguel Ángel Acosta Peralta, in which he relates that he works for Rolando Ricardo Valdéz Villaseñor, who has connections with El Chapo [Guzmán].

    I’ve translated the following to the best of my humble ability:

    He testifies that El Chapo is directly connected to the Mexican army.

    He describes the arms they use while also going into detail on security matters, vehicles and the proceeds of drug sales and extortion.

    He supplies names of high ranking officials of a particular prison, who are in control of extortion and executions of people on the outside.

  11. darkcycle says:

    Mexican Army involvement should be no surprise. The CIA has been funding black ops using the proceeds of narcotics sales since it’s inception. Governments from Columbia to Afghanistan are dependant upon the illegal drug trade.
    Yes, that’s the best part of legalization: the removal of the money from the world’s slimiest hands.

  12. kaptinemo says:

    To amplify on Darkcycle’s missive, here’s the definitive proof, which has been known about since 1971 with this book’s publication:

    The Politics of Heroin in Southeast Asia

    Professor McCoy had updated his seminal work on the subject back in 2003, but the story has remained the same. In order to fund international political actions (like destabilizing countries, assassinations, etc.) out of sight of Congressional overwatch,US intel agencies have been in cahoots with international crime syndicates involved in the opiate (and then cocaine) trade, which in the US’s case goes back to 1942 and the Office of Naval Intelligence using ‘Lucky’ Luciano as a source of intel on ports in Axis-occupied Sicily in WW2. It’s a real eye-opener.

  13. why is it called common when it is so uncommon says:

    The set of some numbers makes sense, common and fiscal. So look for the best government money can buy to do the exact opposite of a common sense approach.

  14. warren says:

    If they don`t want to lay anyone off let them guard empty cells, have mock trials,stage a few police chase-break-ins[Oh. big wet spot].If this isn`t realistic enough buy a few blow-up dolls for the cells and trials.

  15. kaptinemo says:

    “So look for the best government money can buy to do the exact opposite of a common sense approach.”

    I tend to agree, but the money is getting tighter all the time. Fiscal reality is arm-wrestling with ideology, and ideology almost always loses when it comes down to the bottom line.

    But that won’t stop the True Believer prohibs from making a ‘heroic’ effort otherwise, a sort of ‘last hurrah’ of sorts. All with our money, of course…

  16. Cliff says:

    “I really think the intentional humiliation of prospective employees plays a part in the drug testing regime, too.”

    It’s training you to pee on demand for your daily bread and to be a good slave who doesn’t question ‘authoritah’.

    I won’t give you a hard time darkcycle. You have to do what you have to do.

    As for myself, I had given my situation serious thought before making my own personal stand to unapologetically never pee for pay. I probably have sacrificed many thousands of dollars a year because I won’t pee in a bottle for a job which could be outsourced at the pleasure of those who want to test my urine.

    I have reached a point in my life where I don’t give two sh*ts about those who would punish, scold, ostracize or withhold a living from people who choose to responsibly use cannabis or any other mind altering substance for whatever reason. My life is far better for taking this stand and I sleep better at night too.

    To those who choose to forge thier own chains of bondage, I hold no ill will towards them. May thier chains rest lightly upon thier shoulders.

  17. darkcycle says:

    Ouch. I knew it was coming. Look, dude, I have a two year old adopted son. Think about it. That’s a chain I wear willingly. ITMT, I have money to give to the legalization movement, and I write under this psuedonym for Cannabis magazines (including High Times, watch the by lines), so what are you doing, besides sitting at home w/no job?

  18. claygooding says:

    An extremely good article at Opposing Views by the Reason foundation,with comment section.

    Prop 19 Won’t Make it Legal to Drive Stoned in California:

    If a driver can pass the existing DUID testing already in place in Ca law and performed daily by LEO’s,what needs fixing?

  19. mikekinseattle says:

    I don’t fault anybody for not coming out in the current environment. I am fortunate that I don’t have to pee into a cup to keep my job, so I don’t need to worry about it (yet). With less than 4 years until retirement, I’m hoping I can get out without having to do what one of my brothers did: he refused to take a drug test when his employer was bought out by another company that required testing, and lost his job. He’s been underemployed ever since.

  20. darkcycle says:

    I don’t have to pee, and I supposedly have what’s referred to as ‘academic freedom’, but I don’t have tenure (and at my institution, tenure may not spare you either, depending upon department).
    My resrvation only extends to activism under my real name. Funny thing about our authorities though; when they might hesitate to break up a biological family, if you are adoptive parents, you’ll likely never see your children again. If I’m arrested for any drug offense, my adopted son (a traumatized infant from a third world country, who can’t afford any more disruptions than those he has already suffered)would be immediatly transferred to the loving arms of the state, and a series of foster homes and temporary placements, whilst my wife and I futiley spend our life’s savings trying to regain custody before he turns 18, or permanant damage is done to his psyche. Simple math for a simple mind. It’s not about me, it’s about an African orphan, a victim of a war over oil, rather than drugs.

  21. darkcycle says:

    P.S. Everything I do currently in the legalization debate involves barely tolerable levels of risk (in my individual risk-tolerance schema) to people I have no right to endanger.

  22. Just me. says:

    And the beat goes on

    You would think this was the first time the mail has been used for trafficing the way they write these peices.

    Re Kaptinemo:Since America worships Mammon, a.k.a. money, our side needs to hammer home again and again and again the fact that a trillion dollars have been wasted on this boondoggle, money that could have been used more wisely…and in kitchen-table terms.

    Ya Kapt, you know its a sad time in America when truth and common sense is bought out by Mammon, also, what does that say about this nation when our people give up funding schools for a failed policy that does nothing but waste resorces and lives. Save the children! Ya right.

  23. martin says:

    PCIO is a sub of MJNA we love HEMP to the framer need to grow to.HEMP make’s oil food and more think about it.

    Marijuana, Inc. Comm (USOTC:PCIO)
    Last Price (USD) $0.0095
    Change â—Š 0.0 (0.00%)
    Bid 0.008
    Ask 0.013
    Volume 75,502
    Days Range 0.0095 – 0.01
    Last Trade 9/29/2010 3:50:57 PM

  24. David Marsh says:

    Re Dark: I don’t care what you call yourself or how you conduct your part of the counterinsurgency. There is plenty of work in all areas of this bloody war. Somebody has to load em so we can fire em.

    Figures lie, and lairs figure. Gota love a guy with Miron’s credentials throwin the numbers around.

    Doing my own research I Found a GAO report from 2007, GAO-08-215T. In Testimony Before the Committee on Foreign Affairs House of Representatives in the report the GAO indicates (I will condense) from 2000 through 2003, 37,600 metric tons of cannabis was imported from Mexico and of that total 11,600 metric tons was interdicted, leaving a total of 26,000 metric tons delivered to the street.

    At $10 per gram (My estimate) street value was $260,000,000,000. or an average per year import value of $65,000,000,000. A modest sales tax of 6% would put the lost revenue at $3,900,000,000. per year.

    Ya I took some liberties with the numbers but so did they. They gave an average amount per year in lieu of the exact numbers per year.

    “The estimated amount of marijuana produced in Mexico ranged from a low of 7,000 metric tons in 2000 to a high of 13,500 metric tons in 2003—averaging about 9,400 metric tons a year. Reported seizures averaged less than 2,900 metric tons, or about 30 percent a year”

    What do you suppose the import numbers are now? I haven’t found another report, Yet!

  25. Cliff says:

    “so what are you doing, besides sitting at home w/no job?”

    Like I said, you gotta do what you gotta do. I hold no malice towards those who give up thier liberty for whatever reason.

    I will say this, those men who signed the Declaration of Liberty did so at the risk of thier very lives and those of thier family’s. What I am doing is nothing compared to that. So you give money to the cause and I protest the pee for pay employment situation. It’s a win win.

    BTW I held down a good paying job for 15 years before the recession hit. For the last 3 years I have been working 2 jobs, a janitor gig from about 7:00 PM to about 2:00 AM and another part time job as an engineering technician for a local engineering company in the afternoon.

    All of these jobs did not require a piss test before hiring me and are / were very happy with the results of my work.

  26. Cliff says:

    “Ya Kapt, you know its a sad time in America when truth and common sense is bought out by Mammon, also, what does that say about this nation when our people give up funding schools for a failed policy that does nothing but waste resorces and lives.”

    Welcome to America where everyone knows the exact price of anything and the actual value of nothing.

  27. Leonard Krivitsky, MD says:

    Cannabis is less physically addictive than caffeine, while the so-called “gateway drug” theory is a complete fantasy, and it was just recently called “half-baked” as a result of a scientific study. CNN reported that Cocaine use has dropped sharply, by 30% since 2002, which is really good news. I worked in addiction medicine for years, and this is what I can advice on the matter: Any suppression of Cannabis use will be immediately followed by an increase in alcohol/hard drug/prescription drug abuse! You don’t believe me? Then maybe you will believe the Big Alcohol lobby that is financing the Cannabis Legalization opponents for exactly this reason. Right now Cannabis is just simply perceived as a much safer alternative to alcohol/hard drugs, which is precisely how it should be perceived. To have a society in which there is NO psychoactive substance use is an illusion, and it will be good for our government to realize this. So then, it becomes a matter of “safer choices”, just like with the sex education. And Cannabis is, without a shadow of a doubt, a much safer choice than alcohol or hard drugs! Just very recently a research study in addiction medicine has determined that Cannabis may actually serve as an “exit” substance for recovering alcoholics/hard drug addicts! And there is another extremely important property of Cannabis that the prohibitionists would love to keep secret: Cannabis use suppresses violent urges and behaviors and, as one prestigious textbook says, “Only the unsophisticated think otherwise” Then, of course, there is a potential for Cannabis in chronic pain, where other drugs may be ineffective (or physically addictive), with very important potential implications for our wounded veterans, many of whom have chronic pain. It is also worth noting that Cannabis may have certain preventative value for such devastating conditions as cancer and Alzheimer’s disease. And all this comes with no danger of overdoses or induction of a physical dependence! Let’s be very happy that the cocaine abuse rate is dropping. Let’s not interfere with these dynamics, and then we can possibly achieve what has already been achieved in the Netherlands where the drug overdose rate is 85%(!!) lower than in the US, and that is with much more liberal Cannabis possession laws than in this country! Maybe it is time to give up “dogma” about Cannabis, and to start listening to the experts, if we really want to lower the alcohol/hard drug use in this country, and the accompanying dependencies and overdoses!

  28. Madison Ridgeway says:

    This is a really good place to begin understanding how having a father in prison can lead to very negative outcomes of these children in later life. I just read an article that said these children are almost twice as likely to use marijuana and other illegal drugs like meth, cocaine, and heroin [] as teenagers and young adults. The article says that 13% of young adults report that their father has been incarcerated! Are we condemning a new generation of children to become addicts and experience incarceration?

  29. WLAN Router says:

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