legalizing marijuana

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Legalizat of Marijuana



INTRODUCTION

The legalization of marijuana has been an issue that has

generated great debate in recent years. Smoking marijuana has

been known to promote birth de ts, genetic abnormalities,

shrinkage of the brain, impairment of the immune system, lung

damage, reduction in testosterone levels, and sterility. Of all

of these hazards, only lung damage has been well established by

subsequent research.

If smoking marijuana seem~ (get quote) to have roughly the

~

same side effects as smoking cigarettes, then why does our

country spend billions of dollars in drug treatment and

prevention, and law enforcement? If the U.S. would legalize

marijuana and the government would supply drugs then wouldn't it

be the case that drug dealers would be put out of business and

much of the law enforcement costs associated with marijuana

arrests be eliminated? Economically, do the social benefits of

legalizing marijuana outweigh the social costs?

Unfortunately, these questions are not accompanied by "black

and white" answers. However, by using various economic

indicators, one can predict what might happen if marijuana were



legalized and how t might ffect tic prices, consumer and

producer surplus; and soc t I costs, such as law enforcement,

health care and the crime rate.

There are several hundred arguments for and against the

legalization of marijuana. The following arguments provide a

general outline of the issue.

ARGUMENT FOR LEGALIZATION OF MARIJUANA

Ethically and morally, legalizing a drug such as marijuana

would be wrong. However, ethics and morals have done little to

deter people from ling pot. The United States can spend

billions of tax dollars on drug prevention programs, but the

simple fact is that as long as their are profits to be made, as

long as their is a consumer willing to pay for the product the

suppliers will always be there. With marijuana, (get quote) the

least mild of the major drugs, (LSD, crack, cocaine) we have

obviously seen a substantial amount of the population interested

in smoking it. In 1991, according to the National Household

Survey on Drug Abuse (NHSDA), which is conducted annually 12.6

million Americans have used illicit drugs over the past month.

Of this 12.6 million, 9.7 million had reportedly used marijuana



past mon Marijuana is most popular of the ill it

drugs.

The drug problem cannot be answered with ethics and morals,

but ra with economics. The lization of all drugs is too

outrageous to contemplate, but an experiment with marijuana,

arguably the most widely used drug after alcohol and arguably the

most benign may have beneficial fects on the domestic economy.

Eminent economist Milton Friedman suggests that the first

step should be to legitimize sa of marijuana under controls

like those on alcohol; no sales to minors, no advertising, no

drugged driving, and Friedman adds that if your commitment to

deregulation will tolerate a little protectionism--no imports.

The economic incentive to smugg marijuana would be

eliminated if it could be grown legally in the U.S., where

according to the Drug Enforcement Agency (DEA) , about 20-30% is

already produced. According to the National Organization for the

Reform of Marijuana Laws, marijuana is the number one cash crop

in almost a dozen states (in 1989), bigger than wine in

California, a business that would flourish if pot farmers were no

longer criminals. It is important to note however, that if the



world price for marijuana would still lower after

legalization, it would not pay to grow the drug domestically,

Most the growers of the crop surely are not listing their

occupations accurately on their income tax forms and hence, they

are not giving Uncle Sam his percentage of the profits.

Furthermore, one third of drug arrests are for simple

possession of marijuana. If law enforcement authorities did not

have to worry about pot smokers, smugglers and growers, they

could concentrate on crack, cocaine, heroin, PCP and

amphetamines, the drugs that are doing the real damage.

Experimenting with marijuana could provide the best

opportunity to test the idea that we would be better off if drugs

were legal and controlled rather than outlawed and out of

control.

ARGUMENTS AGAINST LEGALIZATION

Most of the published journals I have read which encompass

arguments against legalization of drugs seem to focus very much

on social issues and seem not to reach the economic issues.

However, these social arguments make a very convincing case

against legalization.



in favor of liz marijuana or all for

that matter usually argue that it would "take the profit out of

the drug business." However, in actuality, marijuana dealers do

not earn huge sums of money. Most "grass" use

product regularly, so, they can support there habits and maybe

also set aside some cash (see section on law enforcement.)

Anti-legalization activists say that drug laws are in place

to make drug use an unattractive choice and legalization would

have people thinking that the government feels it's "OK" to smoke

marijuana. Furthermore, activists feel that drug use will soar

with legalization, however, marijuana may not simply because it

is within the average American's budget.

Legalization advocates think that the cost of law

enforcement is too great and legalizing marijuana would save the

country so much money. Many argue that it is more costly to not

have the enforcement. By this, I mean, there may be more drug

related accidents at work, on the highways and there could also

be substantial losses in worker productivity. In addition,

dropout rates may go up and there may be more hospital

emergencies.

CONJECTURE



are compelling a and aga t

legalization of drugs. However, marijuana is by

dangerous ill it drug. There has never been a s

t

th from

a marijuana overdose (Bureau of Just Statist .) It is also

argued that the short term fects of smoking pot are

harmful than those of alcohol.

As stated in the previous pages, ethics and morality have

not proven to be sufficient in lping to solve the drug problem.

The drug business is exactly that, a business. Therefore, a more

serious look at the economic ramifications of legalization should

at least be explored, holding ethics and morals constant.



FACTORS AFFECTING THE PRICE OF MARIJUANA

There are many different tors that ef t the price of

marijuana, the most obvious being quality. Product

differentiation is what gets suppliers more or less money for

their product. Marijuana is imported into this country from

different regions and each plant from these regions has a

different THC content (the drug). The higher the THC content,

the more expensive the dope.

A significant economic factor that affects the price of

marijuana are losses due to law enforcement. Suppliers

compensate their couriers, pilots and others for the risks they

must go through in this line of work. Therefore, the more

burdens these intermediaries must endure, the higher the price

will be for the drug.

The price of marijuana can also rise due to the following:

distances the drugs travel, the number of rungs on the

distribution ladder before the retail level, shortages of drug

supplies due to wholesale and retail losses, changes in pricing

at the export/import rates, changes in risk associated with



retail I , buyer preference a certain quality of drug

(ex. Acapulco gold.)

The elasticity of demand is fined as how sensitive a

change in the use of an item (quantity) is to a change in its

price. For most all commodities if the price of the good rises,

the quantity demanded decreases. The amount of the decrease

depends on its sensitivity to a change in demand. The price

elasticity of demand for harder drugs, like heroin, is lower than

it is for marijuana because heroin is a physically addictive drug

and marijuana is not. As reported by a study at the University

of California Berkeley, the elasticity of demand for marijuana

was 1.3. This means that for 1% increase in the price of

marijuana, the quantity demanded will go down by 1.3 percent.

The current street price of marijuana is $1,760 per pound in

1991. The level of domestic consumption is 23,000 tons in 1991.

The world price (Mexico) of marijuana was $300 per pound in 1991.

The following calculation and diagram show the effects on

domestic consumption after legalization.

The diagram on the following page has a figure of 23,650

tons of domestic marijuana consumption. This figure seems to be

skewed upward, so I will assume therefore, that only half of this



figure

the new

domest lly (11,825 tons). This will c

1 of consumption from 501,000 tons (displayed on the

graph), to 250,952. Therefore, the increase in domestic

consumption to 239,127 tons.



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CONSUMER AND PRODUCERS SURPLUS

The e ity of demand marijauna 1991 was 1.3. The

quantity of marijuana consumed in this country in 1991 was 23,000

tons. The who price of marijuana Mexico, according to

the Bureau of Just Statistics, was $300 per pound. Consider

that this price may be unusually high, because legalization would

almost completely cut the costs to producers' of selling the

product since the most of the cost they endured without

legalization were attributed to transportation and other costs

which involve the risk of moving the drugs from their country to

ours. Therefore, there is no producers' surplus. The average

street price of marijuana is $50/1/4Ib. This translates into

$1,760 per pound.

Assume that marijuana is produced by a competitive industry

and that there are constant production costs. The cost of

production is the price outside the U.S. (Mexican prices will be

used.) The street price in the U.S. is a fixed mark-up from the

world price.

Because the domestic consumption figure seems to be heavily

skewed upward, I will assume that only half of that amount is

consumed domestically, namely, 11,825 tons.



When this f i plugged to the equation, consumer

surplus is cut in half to $140,429,000. The demand curve in the

diagram should be drawn flatter so that area B is much greater

than area A.

The diagram below illustrates the gains from the

legalization of marijuana, holding health care and law

enforcement costs constant.



~ t . t l 5)11,000

? , ' - { f.xx>/I1'00

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SECTION III - - SOCIETIES' COSTS

LAW ENFORCEMENT COSTS

Each year substantial resources are employed in an attempt

to control the drug problem and deal with its consequences.

Furthermore, resources that might have been used to add to GNP

and overall productivity are being used to produce and distribute

illegal drugs which does not add to productivity.

As shown by the graph below, law enforcement costs allocated

to drug expenditures were over $7 billion dollars (National drug

control strategy, Budget summary, January 1992.) Aside from the

dollar outlays denoted by the table, there are other ~costs"

(opportunity) associated with law enforcement.

These "costs" include the cost of lost physical resources,

such as property damaged or destroyed as a result of drug-related

workplace or traffic accidents or drug crime, and unsafe use of

hazardous chemicals by drug producers. In addition, legitimate

industrial production, such as agricultural and manufacturing

land, labor, and equipment diverted to the production and

distribution of illegal drugs which could have been employed

otherwise and add to GDP. Another "cost" is lost labor

productivity, such as absenteeism and lower productivity of those



using or affec by someone Ise's use of il 1 drugs, or

ting in labor

th from drug c

not of

ion drug c

victimization, or death from drug related workp or traffic

accidents. Lastly, diminished quality of life caused by illegal

drug use, such as the pain and fering of famil , friends,

and crime victims, urban neighborhood decay, and disruptions in

schools and at work.

These opportunity costs assoc ted with illegal drug use are

not included in calculating costs to society of drug use,

however, these costs, if possible to calculate, could be

substantial. It is important to not the opportunity costs of

illicit drug use, but because of their immeasureability, we can

just say that there would be a negative relationship between drug

abuse and overall production.

Drug crime can be drug defined or drug related. Drug

defined crimes, which are violations of laws prohibiting or

regulating the possession, use, or distribution of illegal drugs.

Drug related crimes I which are not violations of drug laws but

are crimes in which drugs contribute to the offense. These

(drug-related) crimes are the following: pharmacologically drugs



can induce via t behavior, the cost of drugs induces some users

to commit cr to support their drug habits, and vio often

characterizes re tions among participants in the drug

distribution system.

There are also consequences of illegal drug use that are not

net costs to society. Economically, some individual losses are

"transferred" from one owner to another, they are not lost to

society and, therefore, are not included in the calculation of

social costs. These include: stolen cash and property, welfare

payments and other forms of ass tance, and insurance.

FEDERAL GOVERNMENT EXPENDITURES ON DRUG ENFORCEMENT

The Federal drug control budget exceeded $10.8 billion

dollars in 1991 (as shown by the graph). As illustrated, these

moneys are split amongst several different government agencies.

In 1991, the Federal drug control budget was $42.78 per capita in

1991. This increased $6.38 per capita from 1981. Of the 1991

cost, $28.24 was allocated to law enforcement (National drug

control strategy, Budget summary, January 1992.)

The~9urc~l::>ook of Criminal Justice Statistics (1991) reports

total marijuana arrests as 326,850 and the annual expenditures

for marijuana arrests as 1.7 billion dollars (1990.) It is



important to note that 10 states do not make arrests for

marijuana possession. If they did, the estimated national

expenditure could rise to an estimated 2.5 billion (1990

Obviously, the United States is spending significant amounts

of money on law enforcement to combat the drug problem and these

numbers, past history would indicate, are not likely to decline.

The following tables show the percent changes in the Federal drug

law enforcement budget from 1981 to 1991. As indicated, the

percent changes have more than relative increases and the

increases in spending have gone up almost seven fold in those ten

years.

State and local legal systems spend about $5.2 billion on

illegal drug control in 1988. This is roughly 10% of all state

and local justice spending.

MARIJUANA DECRIMINALIZATION IN CALIFORNIA

During the early to mid-1970's, California courts were burdened

with a huge number of marijuana arrests (over 38,000 in 1985.)

California then implemented the Moscone Act in 1976 which imposed



a fine of $100 for possess of one ounce or of marijuana.

The number marijuana cases then went down to 8,000 in 1978.

In 1985, 40,761 citations were issued in California,

producing over $4 million in f It would have cost $2875 to

arrest and try each of those offenders. It is estimated that the

Moscone Act has saved California $100 million annually sits

enactment. The estimated savings from the period 1976-1985 are

the following: $464 million in arrest costs, $441 million in

court costs, #38 million in prison costs, and $14 million in

parole costs.



Costs of Illegal Drug Use

Public and private crime costs

1 drug expenditures (1991)

All law enforcementInterdiction

Investigations

International

Prosecution

Corrections

Intelligence

State and local assistance

Regulatory compliance

Other law enforcement

Drug prevention

Drug treatment

All research and development

State and local crime expenditures (1988)

Enforcement of drug laws

Adjudication of drug law violators

Correction of drug law violators

State Prisons

Local Jails

Juveniles

Probation, pardon, and parole

Other corrections

Other criminal justice

Millions

10,841

7,1572,028

1,288

640

584

1,265

104

1,016

31

201

1,483

1,752

450

5,240

2,007

123

3,072

1,158

890

224

677

122

38

The above costs of illegal drug use include all illicit

drugs, not only marijuana. According to the Department of

Justice Statistics, the annual expenditures for marijuana arrests

are 1.7 billion dollars. In 1982 dollars, this changes to over

1.2 billion dollars. It is important to note that ten states do

not make arrests for most possession cases.



Wi the legalization of juana, costs (1.2

billion) will be removed. So, just , soc ty is saving a

great I of money that can be allocated in a more productive

way.

HEALTH CARE COSTS

According to a study done by the Institute for Health and

Aging for ADAMHA estimates that health care to diagnose, treat,

and rehabilitate illegal drug users totaled $2.2 billion in 1985.

Half of this 2.2 was spent on short-stay hospital visits. In

1985, public and private psychiatric hospitals and other alcohol

and drug abuse accounted for an estimated $570 million of total

drug-related health care spending. According to the National

Ambulatory Care Survey, office-based doctors and psychiatrists

provided about $52 million in health care services for

drug-related illness'. In addition, expenses for research,

physician and nurses training, and health insurance

administration contributed $201 million to total health care

costs. The Federal Government absorbed 39% of health care costs

for drug-related illness'; State and local funds paid for 25% and

private sources paid for the rest.

Obviously, holding all exogenous factors constant, the net



fits of lization outweigh soc 1 and private costs.

However, with lth care, a comparison can drawn between

smoking marijuana and the health care costs associated with

smoking cigarettes which are some 65 billion dollars a year

according to the American Lung Association. This figure is

biased, that is, it takes into account the loss in productivity

associated with hospitalization due to smoking. In addition, the

per year annual health care cost per user of smoking cigarettes

is $1,023 dollars which is also extremely biased.

For simplicity, just assuming that the number of new users

of marijuana double from 9.7 million to 19.4 million, these costs

would increase 19.8 billion dollars.

CONCLUSION

The net benefits of the legalization of marijuana seem to

greatly outweigh the net costs. However, when looking at health

care statistics, one would tend to disagree. Almost $20 billion

dollars in health care costs is definitely much greater than over

$100 million dollars in consumer surplus.

There is no direct link to smoking marijuana and developing

an illness that would call for hospitalization. In addition, the



statistic for annual 1 care cos in Uni tates from

cigarette smoking is greatly b upward in that they take into

account loss in productivity assoc with smoking

cigarettes.

Ignoring the specious increase in health care costs

associated with smoking marijuana, the net benefits of

legalization would be greater than the social costs.



BIBLIOGRAPHY

Nadelmann, Ethan A. "Drug Prohibition in the United States:

Costs, Consequences, and Alternatives," Articles. Science.

vol 245.

Knight, Jerry. "Should Drugs Be Legal? An Experiment With

Marijuana Might Give the Answerr" Washington Post,

September 12, 1989.

Kopel, David B. "Marijuana Jail Terms: Costly and Hasty,"

Independence Issue Paper, April 24, 1991.

Morganthal, Tom. "Taking on the Legalizers, If Newsweek, December

25, 1989, volume 114.

Stein, Mark. "Recriminal tion: Lenient Pot Laws Going Up in

Smoke," Los Angeles Times.

Wilson, James Q. "Against the Legalization of Drugs"

Congressional Commentary, February 1990.

DATA SOURCES

Bureau of Justice Statistics. Drugs, Crime, and the .rue ci ce

System, December, 1992.

Department of Justice. Justice Expenditures and Employment in the

U.S. 1988.

Schultz, Dodi. Lung Disease Data 1994, American Lung A

Association.

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