The Economics of Drug Legalization

Myths and Misconceptions of Drug Legalization: US Dept. of Justice

Chapter Four: The Economics of Drug Legalization

Discussion

1. Their Argument

Proponents of legalization suggest that their policy will save society money for several reasons. First, we will not have to pay police to enforce the present criminal-justice approach to drug usage. Second, we will be able to tax legal drugs, thereby raising revenue.

II. Our Argument

It should be stated initially that most people misconceive the amount of resources expended under the status quo for drug control. The FY 1994 federal budget allocates $7.51 billion for drug control (supply reduction) which includes criminal justice, interdiction, international programs and intelligence.81 State and local governments spend even more, $12.6 billion a year.82 Granted, this is a lot of money, but we should put these numbers in perspective. Americans spend about four billion dollars each summer for air conditioning.83 The citizens of Washington State spend $1.4 billion each year on legal gambling alone.84 The national debt numbers in the trillions of dollars. One Stealth Bomber runs half a billion dollars. Indeed, only 1.4% of total government spending goes for law enforcement of all types, and an additional 1.0% for prosecution and prisons.85 Out of this small percentage, 12% of spending for law enforcement was allocated to drug control activities, and about 25% of correctional (prison) spending was drug related.86 Only 1.5% of total state and local government spending is attributed to drug control activities.87 Thus, when taken in context, it is apparent that the costs of criminalized drugs nowhere approaches the financial obligations of government programs such as national defense, Social Security, or Medicare.

More important, if we legalized drugs on the assumption that by taxing them we could raise large amounts of revenue, we would be sadly mistaken. First, as discussed in Chapter Two, any such taxation scheme would perpetuate a criminal black market. Consequently, we would still have to spend money funding police, courts and the like to fight this problem. Second, if alcohol is any indication, we simply would not make that much money by taxing drugs. The total revenue collected from alcohol taxes at the federal, state, and local levels amounts to about $13.1 billion a year," a paltry sum compared to the social costs associated with alcohol consumption - something in the neighborhood of $100 billion." Third, how would we structure a tax scheme for drugs? If we wanted to correlate higher taxes with higher risk behavior, logically we would tax the fifth joint more than the first (inasmuch as the fifth joint probably is more damaging to one's health). And wouldn't it cost money to create the governmental bureaucracy that would handle this taxation policy?

Thus, we do not spend that much on the drug war in comparison to other governmental programs, and taxation of legalized drugs would not result in that much revenue. But by far the most compelling economic argument against the legalization of drugs is the social costs associated with such a policy.

First, treating drug addicts is enormously expensive. Take crack babies as an example. In 1988, it cost $2.5 billion for the intensive care needed to keep the babies alive after birth.90 But that was just the beginning of the expenses. It is estimated that it will cost $15 billion to prepare these children for kindergarten,91 and will then cost between $6 billion and $12 billion for every year of special learning programs.92 Even assuming the low-ball figure, the social costs of educating all of the crack babies born in 1988 - not all crack babies, mind you, just those born that year - will run approximately $90 billion by the time they graduate from high school. Now to the extent that legalization will increase the drug addiction rates enormously [see Chapter One], legalization seems like a very expensive policy indeed. And who will foot the bill? Either common citizens will through taxes for government aid programs, or through increased insurance premiums.93

But treatment costs are just the first way in which drug addiction drains society. Already, drug addicts cost the country roughly $33 billion dollars a year in lost productivity and job-related accidents, according to a study conducted in 1987 by the Research Triangle Institute of Research Triangle Park, North Carolina.94 If legalized, addiction rates would increase and the cost would rise to between $140 billion and $210 billion a year.95 And who will pay for lost productivity and job-related accidents? Consumers will, of course, in the final costs of the produced goods.

Finally we must consider human lives in the economic calculus. As drug abuse causes more job related accidents, more people will be hurt or killed. Take, for example, the Conrail/Amtrak disaster of January 4, 1987. Because an engineer and a brakeman were high on marijuana, their train collided with another, killing sixteen people and injuring 175.96

So go back to the beginning. We spend approximately $20 billion a year on drug control activities. If drugs were legalized, we would see an increase in addiction rates. Consequently we would have more crack babies (the kind that already will cost the system $90 billion), decreased productivity (at a cost of between $140 billion and $210 billion), more job-related accidents, and more dead people. And given the potential black market effect, it is unlikely that we could raise even several billion dollars in tax revenue. From a purely economic standpoint, legalization is not cost effective.

81 "National Drug Control Strategy: Reclaiming Our Communities from Drugs and Violence,"

The White House, February 1994.

82 "State and Local Spending on Drug Control Activities," Office of National Drug Control Policy, October 1993.

83 John W. Ladenburg, "Should We Legalize Drugs?" Position Paper of the Pierce County Prosecuting Attorney.

84 Rachel A. Volberg, "Gambling and Problem Gambling in Washington State," Washington State Lottery, February 15, 1993.

85 "Sourcebook of Criminal Justice Statistics, 1986." Bureau of Justice Statistics, 1987. See also, "Report to the Nation on Crime and Justice," Bureau of Justice Statistics, March 1988.

86 "State and Local Spending on Drug Control Activities," Office of National Drug Control Policy, October 1993.

87 Id.

88 Morton M. Kondracke, "Don't Legalize Drugs," The New Republic, June 27, 1988.

89 Robert E. Peterson, "Stop Legalization of Illegal Drugs," Drug Awareness Information Newsletter, July 1988.

90 A.M. Rosenthal, "How Much is a Baby Worth?" New York Times, December 15, 1989.

91 Id.

92 Id.

93 "No Magic Bullet: A Look at Drug Legalization," U.S. Department of Justice, Drug

Enforcement Administration, Demand Reduction Section.

94 Peter Kerr, "The Unspeakable Is Debated: Should Drugs Be Legalized?" New York

Times, May 15,1988.

95 Morton M. Kondracke, "Don't Legalize Drugs," The New Republic, June 27, 1988.

96 Peggy Mann, "Reasons To Oppose Legalization of Drugs," Drug Awareness Information Newsletter, September 1988.

Chapter Four Summary Sheet: The Economics of Drug Legalization

If they say...

The drug control efforts are too expensive.

Then you say...

We spend approximately $20 billion annually on drug control. ["State and Local Spending on Drug Control Activities," Office of National, Drug Control Policy, October 1993].

Americans spend roughly $4 billion every summer on air conditioning. [John W. Wenburg, "Should We Legalize Drugs?" Position Paper of the Pierce County Prosecuting Attorney].

Less than 3% of total government spending goes for police and prisons, and only 12% of police spending and 25% of correctional spending is drug related. [Sourcebook of Criminal Justice Statistics 1986, Bureau of Justice Statistics, 1987 and State and Local Spending on Drug Control Activities, Office of National Drug Control Policy, October 1993].

Many programs such as national defense, Social Security, and Medicare cost much more than what we spend on efforts to control drugs.

If they say...

If we legalized drugs, we could raise much revenue through taxation.

Then you say...

If you try to tax legalized drugs, you will create a black market. You will then have to allocate resources to the police and the courts to combat this crime. (See Chapter Two].

This was tried with alcohol. It Failed. Federal, state, and local alcohol taxes combined raise approximately $13.1 billion dollars a year, but alcohol extracts over $ 100 billion a year in social costs such as lost productivity and health costs. [Morton M. Kondracke, "Don't Legalize Drugs," The New Republic, June 27, 1988; Robert E. Peterson, "'Stop Legalization of Illegal Drugs," Drug Awareness Information Newsletter, July 1988].

If they say...

Legalizing drugs would save money.

Then you say...

Legalizing drugs would increase the addiction rate. [see Chapter One].

Addicts require treatment, and this is enormously expensive. For example, in 1988 we spent $2.5 billion for intensive care of crack babies. It will cost roughly $15 billion to prepare them for kindergarten. Further, special learning programs will cost between $6 billion and $12 billion a year for every year after kindergarten. By the time they graduate from high school, this yields a total of roughly $90 billion. [A.M. Rosenthal, "How Much Is a Baby Worth?" New York Times, December 15, 1989].

If we legalize drugs, it will cost society between $140 billion and $210 billion a year in lost productivity and job-related accidents. [Morton M. Kondracke, citation above].

If we legalize drugs, consumers will bear the ultimate responsibility for the bill because of increases in insurance premiums and higher costs of manufactured goods. ["No Magic Bullet: A Look at Drug Legalization," Drug Enforcement Administration Publication].

Legalizing drugs would increase the incidence of drug-related accidents such as the Conrail/Amtrak train crash of January 1987 in which 16 people were killed and 175 were injured. [Peggy . Mann, "Reasons to Oppose Legalizing Illegal Drugs," September 1988].

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