USA - Legalize drugs, gain $77 billion

[Heretic.Ape.]

Legalize drugs, gain $77 billion

Here are more excerpts from the Harvard study cited in today's column. The study was undertaken by Jeffrey Minor, an economics professor who is described in various press reports as a libertarian.

Government expenditures

"This report concludes that drug legalization would reduce government expenditure by $44.1
billion annually. Roughly $30.3 billion of this savings would accrue to state and local governments, while roughly $13.8 billion would accrue to the federal government. Approximately $12.9 billion of the savings would results from legalization of marijuana, $19.3 billion from legalization of cocaine and heroin, and $11.6 from legalization of all other drugs."


"The estimates are ballpark figures that indicate what order of magnitude policymakers should expect from legalization."


"To estimate the state and local savings in criminal justice resources, this report . . . estimates the percentage of state and local arrests for drug violations and multiplies this percentage by the state and local budget for police. It estimates the percentage of state and local felony convictions for drug violations and multiplies this percentage by the state and local budget for prosecutors and judges. It estimates the percentage of state and local incarcerations for drug violations and multiplies this percentage by the state and local budget for prisons. It then sums these components to estimate the overall reduction in state and local government expenditure. Under plausible assumptions, this procedure yields a reasonable estimate of the cost savings from drug legalization. "

Taxes
"In addition to reducing government expenditure, drug legalization would produce tax revenue from the legal production and sale of drugs. To estimate the revenue, this report employs the following procedure. First, it estimates current consumer (retail) expenditure on drugs under prohibition. Second, it estimates the expenditure likely to occur under legalization. Third, it estimates the tax revenue that would result from this expenditure based on assumptions about the kinds of taxes that would apply to legalized drugs."


"Legalization would also generate tax revenue of roughly $32.7 billion annually if drugs were taxed at rates comparable to those on alcohol and tobacco. Approximately $6.7 billion of this revenue would result from legalization of marijuana, $22.5 billion from legalization of cocaine and heroin, and $3.5 billion from legalization of all other drugs."

Demand
"This report assumes there would be no shift in the demand for drugs. This assumption likely errs in the direction of understating the tax revenue from legalized drugs, since the penalties for possession potentially deter some persons from consuming. Any increase in demand as a result of legalization, however, would plausibly come from casual users rather than heavy users, since heavy users are the ones with strong desire to consume drugs and are therefore already consuming despite prohibition. Any increase in use might also come from decreased consumption of alcohol, tobacco or other goods, so increased tax revenue from legal drugs would be partially offset by decreased tax revenue from other goods. Forbidden fruit effects from prohibition might also tend to offset the demand decreasing effects of penalties for possession. Thus, the assumption of no change in demand is plausible, and it likely biases the estimated tax revenue downward. "

Lower drug prices
"Under the assumption that demand does not shift due to legalization, any change in the quantity and price would result from changes in supply conditions. Two main effects would operate. On the one hand, drug suppliers in a legal market would not incur the costs imposed by prohibition, such as the threat of arrest, incarceration, fines, asset seizure, and the like. This means that, other things equal, costs and therefore prices would be lower under legalization. On the other hand, drug suppliers in a legal market would bear the costs of tax and regulatory policies that apply to legal goods but that black market suppliers normally avoid. This implies an offset to the cost reductions resulting from legalization. Further, changes in competition and advertising under legalization can potentially yield higher prices than under prohibition."
More info: LEAP


http://weblogs.baltimoresun.com/news...7_billion.html

[Alfa]

I expect this is based upon official estimates of narcotic sales and use in the USA. However, the USA has not dared to truly test how large drug use of the American people is. After the enormous success in Europe, the USA has tried testing sewage water of Fairfax for cocaine, but AFAIK the results where never released. If someone has them, then please let me know.

Similar tests in London, Germany, Italy and all over Belgium showed evidence that the cocaine use in these areas is 5 to 15 times higher than the official figures. Remarkably the use of cocaine in these countries is about the same.

A conservative estimate of the cocaine use in Belgium is 1.75 tonnes of cocaine for 10 million people. So when you extrapolate this to the USA, then this would be in the neighbourhood of 52.5 tonnes (52.500.000 kg's) per year for 300 million people.

If one calculates a $60 per gram price, as wikipedia seems to indicate, then that would add up to $3.150 billion dollars in street sales per year. I am pretty sure that the income tax and the value added tax to that would be much higher then the estimates given by professor Jeffrey Minor. If taxes would only take half of that income (With alcohol and cigarettes, the state takes a much higher percentage), then the state would make a whopping $1.625 billion from cocaine legalisation alone. This is 80 times more than calculated by professor Jeffrey Minor.

If all of the estimates in the above article are as skewed by the use of the US governments official figures, then you can do the math for heroin, cannabis and other drugs, and see that the potential here is way beyond just adding some money to the state budget. There is enough income for the state here to get a country out of recession and even get a country as large as the USA from financial crisis into prosperity.

Only when realistic figures are used, then it will be clear why the drug war can not be won. If there are many trillions of dollars to be made from just one drug, because American demand is that high, then that should be a clear indication of the sheer pressure that this demand creates. Even if a government would incarcerate all drug dealers in one day, then they would be replaced by new dealers quickly. This shows why the drug trade will never end.

[Herbal Healer 019]

The idea of legalizing drugs; heroin, methamphetamine, crack & cocaine in particular, would be approached with such scrutiny by a large portion of the ttl population that the proposal would inebidably crash & burn along with the career of the person who proposed the idea. Because ppl subcategorize alcohol & tobacco (proven as dangerous, if not more (tobacco) & as widely abused, as all illegal drugs) in a way that seperates the 2 substances from illegal drugs, the proposal would never be put into effect; at least not 4 several more decades, would b my guess. Once ppl realize that legalizing drugs is not going to create billions of new dope fiends & would actually prevent drug related death & dangers through consistant purity, minimum legal age requirments, & overall regulation; stop those "ruthless" drug related organized crime syndicates, & save & generate billions upon billions of otherwise wasted tax dollars; i.e spreadin the wealth (there ya go Obama); then the idea might appeal to the total population.

[crackcityrocker]

that amount of money saved assumes that the US doesnt already sell illegal drugs.

[klonopinz]

klonopinz adds:
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Interesting. I would like to point out the actual report (pdf, google pdf viewer here), from where the blog cites from only involved marijuana, and made estimates accordingly. Where did those larger number come from? Although he specifically cites the "Minor Report", maybe some new update has been done and published that I'm unaware of, and I would appreciate if any Swiy clarifies this, or might even be able to provide a link.

Imho, the drug market is probably the biggest non-government employer in the world. Also, most people that are involved in the market, just like in all other markets, have little or nothing to do with it's existence, but they just use this mean to make an end. Only a selected few actually immensely profit out of this. Full flat out legalization of drugs will probably create a sudden economic change with VERY complex characteristics that are different from those we understand or have studied (making it instant would probably create economic chaos). The reason is because the drug (untaxed) market, unlike all modern economic capitalist markets, is not based on mostly assumptions of a "predictable nature" (hedging, trade of options, etc.) obtained from years of detail observation and later analysis of factors that influenced, influence, and will influence that nature.

This process did not occur with the drug market, mainly because a ongoing false dilemma (catch 22). Those few in power won't permit the status quo to address topics of no significance to them, and also morally, ethically, lawfully and/or economically oppose to those they don't make money out of, and in turn private economic ventures as the drug cartels and distribution rings having a hierarchically, and if necessary, only concern for money. Both will escalate if necessary, and the other ~5.5 billion of are to suffer the consequences off.

It seems all we can do is not to support either, try to mediate until new power possessors reach the top, then have another different resource controlled and hope it's not one that you demand.

Also, "... Harvard economist Jeffrey A. Miron's report, funded by the pro-repeal Criminal Justice Policy Foundation..." might make some Swiys think the study might be biased.

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