Written by Elliott Morss, Morss Global Finance
Introduction
Most Americans think the “entertainment” drugs (Marijuana, Opioids, Cocaine, Amphetamines and their derivatives) are bad. Bad or not, their illegality should be reconsidered. Below, I make the factual case for legalizing them.
Are Illegal Drugs Different Than Food?
Entertainment drugs are like alcohol, cigarettes, and food: they are bought because buyers believe they will add value to their lives. Most people use illicit drugs for enjoyment: to relieve stress and relax. And like alcohol, cigarettes, and food, most people use illegal drugs in moderation. For example, the UN reports that only 2% of the people using Marijuana or Opioids, including Heroin, needed treatment.
As I have noted elsewhere, alcohol, cigarettes, food and drugs can become addictive, leading to excessive use. And therein lies the problem:
- The overeating addiction leads to obesity;
- Excessive alcohol intake can result in loss of job, auto accidents, physical abuse, broken families, etc.;
- Smoking has very few redeeming features – it relaxes people but it kills half the people who smoke heavily (a pack a day or more); and yes
- We regularly hear horror stories about drug addicts but not about people who use them in moderation.
It is notable that all of these are legal, except for the entertainment drugs. In the following paragraphs, the arguments for and against legalizing drugs are examined.
American History – The Prohibition Period
The US engaged in a very interesting experiment between 1920 and 1933: it banned the manufacture, transportation and sale of alcohol. What happened?
- Alcohol consumption continued, despite significant efforts by Federal, state and local governments;
- Making the production and sale of alcohol illegal resulted in the market being served by criminals;
- Violence increased as different gangs fought over market control;
- Alcohol prices increased significantly; and
- The quality of the alcohol products fell, creating greater health risks.
The Prohibition history leads to the following questions on efforts to curtail the use of illicit drugs: Has consumption been significantly curtailed? Are the penalties and enforcement efforts having an impact? Has a criminal element emerged?
Has the Consumption of Illicit Drugs Been Curtailed?
There are two primary data sources on this question:
- Results from the 2011;
- US National Survey on Drug Use and Health and the UN Office on Drugs and Crime (UNODC).
Data from both sources suggest that US efforts to curtail illicit drug use are not working. The US Survey concluded:
“The overall rate of current illicit drug use among persons aged 12 or older in 2011 (8.7 percent)…was higher than the rates in most years from 2003 through 2008.”
Several UNODC findings for the US are worth noting:
- “[In the US]…the number of prescription overdose deaths exceeds the number of cocaine, heroin, and methamphetamine deaths combined.” Apparently doctors have become a bit “generous” in prescribing “pain killers”.
- “The UN has found that seizures are not an indicator of interdiction success but rather an indication of increased production and consumption.”
The US is also making overseas efforts to limit drug supplies to the US. Back in the ‘70s, I was a principal in a consulting firm that got contracts every year from the US Agency for International Development (USAID) to reduce Afghanistan’s opium production. And every year, we would heavily subsidize the introduction of one or more new crops: one year it would be asparagus, the next year, maybe flowers for the European market. And every time, once the subsidy stopped, the farmers went right back to poppies – they made much more money growing poppies.
But these efforts continue. I quote from a recent article in The Economist:
“American cash gave Afghan peasants incentives to grow wheat instead of poppies, and rewarded local politicians on whose turf opium production fell. In all, America has spent more than $10 billion trying to suppress the opium trade. Afghan farmers planted 200,000 hectares with opium poppies in 2013, according to the UN—a new record. John Sopko, the American official whose job is to oversee how Uncle Sam’s money is spent in Afghanistan, told National Public Radio: “If the goal was to reduce cultivation, we failed. If the goal was to reduce opium production, we failed…If the goal was to break that narco-trafficking nexus and the corrupting influence, we have failed.“
In sum, US efforts to curtail illicit drug use dwarf those of all other countries combined. They are not working.
Are the Penalties and Enforcement Efforts Having an Impact?
They are. Richard Nixon signed the Comprehensive Drug Abuse Prevention and Control Act in 1970. Ronald Reagan passed the Anti-Drug Abuse Act in 1986. The result: the US has by far the highest incarceration rate of any country in the world (730 prisoners per 100,000 citizens). And 25% of the prisoners are non-violent drug offenders. In 2003, 58% of all women in federal prison were there for drug offenses and that number is higher today.
Has a Criminal Element Emerged?
It has. The Arrestee Drug Abuse Monitoring Program shows a strong correlation between drug abuse and criminal activity. In 2010, the majority of arrestees studied tested positive for the presence of some illicit substance at the time of their arrest.
Competition for drug markets has led to gang warfare in most US cities. According to the Bureau of Justice Statistics, an estimated $4.2 billion a year is spent on new and repeat incarcerations of gang members in Federal and state correctional facilities. The toll exacted by gang activity in lives lost and damage to the social fabric of communities is higher: gang members were responsible for approximately 4,323 homicides between 2005 and 2009. And it is noteworthy that the Center for Education Statistics reports that almost a quarter of students in the US public schools reported gang activity, up from 21 percent in 2001.
Gang warfare resulting from US drug policies is taking place overseas as well: Felipe Calderón, Mexico’s last President, sees what is happening in his country. He is quoted in the Economist:
“…countries whose citizens consume drugs should find ‘market mechanisms’ to prevent their money from getting into the hands of criminals in Latin America.… Either the United States and its society, its government and its congress decide to drastically reduce their consumption of drugs, or if they are not going to reduce it they at least have the moral responsibility to reduce the flow of money towards Mexico, which goes into the hands of criminals.”
Calderón has reasons to be upset: more than 21,000 Mexicans are dying every year in the drug wars resulting from efforts to supply the US market.
The Conclusion
The Prohibition pattern has been repeated:
- Efforts to reduce illicit drug use have failed miserably. If anything, US drug use is increasing;
- Huge numbers of people are in jail; and
- Drug wars have spread.
What to do? To answer this question, consider the costs and benefits of the current program.
A Benefit/Cost Analysis of Current Efforts to Control Illicit Drug Use
According to the National Drug Intelligence Center Report, the Economic Impact of Illicit Drug Use on American Society (2011), the 2007 the estimated cost of illicit drug use was $193 billion. That sounds pretty bad. Read on: the devil is in the details.
The $193 billion annual figure includes:
- $48 billion for loss of productivity as a result of people being jailed for drug use;
- Prisons are expensive to run: the $193 billion figure also includes $56 billion to run the prisons to house drug offenders; and
- An additional $5 billion spent on interdiction efforts.
So the US is spending $109 billion on a program that is not working. Note that these are not the costs of illicit drug use: these are the costs of a program to limit drug use that is not working.
So what should be done? In earlier work, I have concluded that in light of the lessons we should have learned from Prohibition, the best that can be done for goods with a significant US demand, like guns or entertainment drugs, is what we have done with cigarettes:
- Legalize them;
- Don’t allow minors to buy them;
- Tax them heavily; and
- Use some of the proceeds for treatment and education campaigns.
What Legalizing the Entertainment Drugs Would Mean
The following table indicates the US is currently treating just over 9 million people annually for the misuse of entertainment drugs. It is costing about $11 billion. And approximately 17,000 people die annually for drug overdoses. If entertainment drugs are legalized, all of these numbers will increase: there will be more addicts needing treatment, more treatment costs, and more deaths.
Source: Centers for Disease Control and Prevention
But there will be real benefits.
The US will stop sending people to jail for drug possession. The jails can be emptied. Pharmaceutical companies, rather than criminals will sell the drugs. And as a result, the criminal element will be put out of business and the drug wars will stop (globally, far more people are dying in drug wars than from drug overdoses).
I indicated above that the US is spending $109 billion annually to reduce drug use. This money will be saved. In the US, cigarettes are heavily taxed at approximately 70% of their retail value. What if drugs were taxed at the same rates as cigarettes? Out of the $550.4 billion in global cigarette sales, the US share is approximately $79 billion. My sense is that the US share of illegal drug sales is much higher. So with global drug outlays of $874 billion, probably $400 billion is ending up in the US. If drugs were made legal, prices would come down dramatically: much of that price is a premium paid for illegal trades.
So let us suppose that at lower prices, $100 billion of the now-legal entertainment drugs were sold in the US. If the same effective tax rate was levied on drugs as cigarettes (70%), $70 billion would be collected for Federal, state and local governments.
In summary, legalizing entertainment drugs would in theory result in government savings of easily $109 billion. $70 billion in new taxes could be collected annually. Treatment costs are now only $11 billion. Some of the government savings and taxes could be used to fund additional treatment services and educational programs on the dangers of excessive drug use.
