Choosing Sides in the Drug War

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Choosing Sides in the Drug War

• Economics of Public Policy
• PADM 625
• UAS - Fall, 2004 - Ben Muse

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In 1990 Richard Dennis, chief advisor to the Drug
Policy Foundation wrote an article for the
Atlantic Monthly.
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In the article, The Economics of Legalizing
Drugs Dennis argued that the benefits of
legalization would exceed the costs.
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Landsburg describes this article as ...one of
the worst cost-benefit studies ever done.
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Whats bugging Landsburg?
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(1)
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Mr. Dennis estimates that if drugs were
legalized and taxed, governments could earn at
least 12.5 billion in revenue every year, and he
counts that revenue as a benefit of legalization.
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What is his mistake?
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Tax revenues are a transfer from one party to
another - not a benefit from a social point of
view.
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(2)
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Mr. Dennis says that government could save 28
billion in expenditures on the arrest,
prosecution, and imprisonment of drug law
violators.
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What is his mistake?
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He has forgotten to add those costs of
imprisonment borne by the prisoners themselves.
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Several hundred thousand of them are deprived of
opportunities to hold jobs, care for their
families, or walk on the beach.
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An interesting point cost-benefit analysis makes
no moral distinctions.
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Another interesting pointgovt budget costs
often ignore other important costs - clients
standing in line, lost incomes for people on
juries.
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(3)
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Mr. Dennis believes that drug use causes crime
and in particular is responsible for 6 billion
per year in theft. He views this 6 billion as a
cost of prohibition.
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What is his mistake?
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A good is a good - no matter who owns it. A
stolen TV continues to exist and provide services.
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But arent there costs associated with theft?
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How about,

• The value of the thiefs time and energy
• Costs from victims efforts to protect themselves
  (changes in behavior, police, security
  investments)

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(4)
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Mr. Dennis recognizes that legalization would
lead to lower drug prices and an increase in drug
use. He counts this as a cost of legalization
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What is his mistake?
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But consumers who can increase their consumption
as the result of lower prices are reaping a
benefit, not bearing a cost.
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The supply and demand for drugs.
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Legalization reduces the cost of supply.
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And increases consumer surplus...
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(5)
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Voluntary consumption is a good thing in welfare
economics. Economists assume people know whats
best for themselves.
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Landsburg does a back of the envelope
calculation and estimates that the value of new
consumption is a social benefit of about 7
billion.
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Dennis estimated a cost of 25 billion for
private health care and lost income for new users.
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Landsburg notes that his own 7 billion figure
already reflects these losses as evaluated by
people when they come up with their willingness
to pay.
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What is his mistake?
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He double counts. He explicitly accounts for
private health costs and lost income when these
have already been accounted for by people
themselves in their willingness to pay for drugs.
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Source

• Steven Landsburg, Choosing Sides in the Drug
  War. How the Atlantic Monthly got it wrong.
  Chapter 10 in The Armchair Economist.