Not so long ago economist Paul Frijters mused about drug legalisation here at Troppo.
It seems that Paul is an international trendsetter. Now economist elder statesman Gary Becker and the world’s most prolific judge/legal academic Richard Posner are musing on the same topic at their joint blog. Becker is unequivocally pro-legalisation though not especially analytical, while Posner attempts an economic analysis based on a recent paper by Miron and Waldock resulting in a couple of reservations and a proposed field study to resolve them:
Most important, the authors also do not consider the possible social benefits of prohibition. Prohibition reduces the consumption of mind-altering drugs. Of course there are mind-altering drugs that are not prohibited, and many of these are close substitutes. These include the numerous prescription drugs that have mind-altering effects very similar to those of the illegal drugs, and of course there is alcohol and cigarettes. Moreover, a tax on legalized drugs would raise the price to the consumer and thus moderate the effect of legalization on consumption. But if the tax is too high, it will result in reviving the illegal industry. And the authors probably underestimate the increased consumption that would result from a lower price or even the same price (brought about by a particularly stiff excise tax) because they don’t mention concerns with impurities and with the stigma of being a “drug addict” that are created by the prohibition and would be substantially reduced by its repeal.
The question would then be whether the external costs of increased consumption of mind-altering drugs would exceed the savings in law enforcement costs from legalization. It seems doubtful that marijuana consumption generates significant social costs, but legalizing it would generate only modest cost savings–$8.7 billion a year, according to the authors’ estimates. But cocaine, especially the crack form, along with heroin, ecstasy, LSD, methamphetamines, and perhaps others, may induce behavioral changes that cause social damage. Most leaders of black communities believe that rampant drug usage is highly destructive to their communities, and not only because of the gang activity that prohibition induces. Drug gangs would disappear with legalization and that would reduce the violence in those communities, but the effect might be more than offset by the effects of greater drug use.
Concern with the huge budget deficits of our federal, state, and local governments may gain the authors a more sympathetic reading than advocacy of repealing the drug laws usually does. From a budgetary standpoint, the authors are estimating an annual savings of almost $90 billion. But without an estimate of the social costs of increased drug usage, the path to repeal is blocked. It would a step in the right direction if the Justice Department would take the position that it will not enforce a federal drug law in any state that repeals its parallel prohibition of that drug; that way we might obtain experimental evidence of the social costs of illegal drugs.
NSW government criminologist Don Weatherburn addressed these questions in a recent address to the Medico-Legal Society of NSW. It’s relatively short anyway but I’ve extracted the most relevant passages over the fold:
Personally, I am not sure what caused the heroin shortage, but that is not the main issue. As long as prohibition makes drugs more expensive than they would otherwise be, the crucial question for policy is not whether or not police can push up the price, but whether or not higher prices lead to lower levels of consumption and drug-related harm. The available evidence suggests that they do, at least as far as consumption is concerned. Economists call the sensitivity of demand for a product to changes in its price its ‘price elasticity’. …
Weatherburn concludes that the illicit drug market is price-elastic, meaning that successful law enforcement efforts that reduce supply and therefore increase price will tend to reduce consumption and therefore arguably harm. However he goes on to observe:
This brings me, finally, to the issue of harm minimisation. Recognising these facts, some have retreated to the position that prohibition might reduce some drug-related harms, but it is certainly not the best way to minimise drug-related harm. …
You might think that the key imperative in illicit drug policy is to protect public health. Someone running a shop in Cabramatta might think that the key imperative is to keep needles out of the park and drug users off the street. You might think that the loss of civil liberty entailed in police searches is worth the benefit in terms of public amenity. Others might think that it is not.
It is easy to say the goal of drug policy should be to minimise drug-related harm, but whose harm should we try to minimise and how do we compare qualitatively different types of harm? …
Conclusion
There is nothing wrong with the idea that we should strive to reduce particular drug-related harms, such as crime, morbidity, mortality and drug-related problems of public amenity. We kid ourselves, though, if we think we can minimise all drug-related harm. Drug policy involves hard trade-offs between competing harm-reduction objectives. There is no such thing as a free lunch and there is no such thing as a drug policy which reduces one harm without increasing the risk of another.
“As long as prohibition makes drugs more expensive than they would otherwise be, the crucial question for policy is not whether or not police can push up the price, but whether or not higher prices lead to lower levels of consumption and drug-related harm. The available evidence suggests that they do, at least as far as consumption is concerned.”
Or in other words they DONT, except as far as consumption is concerned.
More consumption = more harm is still, here at least, an article of faith.
I’d say it’s a truism, but one with a very non-linear graph, and one where the optimal outcome requires some form of at least decriminalisation.
“More consumption = more harm is still, here at least, an article of faith”…”but one with a very non-linear graph”
I think this probably depends on the drug — The probability that more consumption equals more harm for pot is probably about the same as smoking (i.e., 100%). I imagine the graph for harm vs. consumption would also look very similar (probably worse actually given that most regular pot smokers also tend to get addicted to nicotine, and I seem to remember that the probably of getting cancer from both pot and cigarettes is higher than if you just smoke cigarettes alone).
What Conrad said. Similarly with drugs which induce aggression and psychosis in some users i.e. ice and coke. OTOH The sum total of user harm might well be reduced with legalised heroin even with lower price meaning more users, because more certain purity would mean less overdoses.
That’s no doubt why Weatherburn concludes his paper by saying “there is no such thing as a drug policy which reduces one harm without increasing the risk of another.”
The simple economist’s answer (and I am a simple economist) is to legalise drugs and place a Pigovian tax on them equal to the negative externalities that they create. If this tax needs to be so high that illegal supply continues, then that must be addressed through law enforcement.
I cannot see how, in any dimension, this Pigovian approach would/could be worse than the status quo.
Ken,
thanks for the thumbs up. To be fair though, economics has a long tradition of arguing for legalisation of drugs. Milton Friedman was probably the one who pushed the idea onto the young Gary Becker.
Btw, Milton Freedman looks eerily like the photo up there…..
Google images said it was Posner and it looks similar to all the other photos of Posner, although Milton Freedman looks very similar so it could be a mistake …
Weatherburn concludes that the illicit drug market is price-elastic
there have been some large drug bust recently in Australia and the price of those drugs has hardly moved
I found it. It is Milton Freedman:
http://www.martinfrost.ws/htmlfiles/nov2006/milton_friedman.html
It is Milton Friedman.
The heroin drought in Australia seemed to be caused by much intensified police activity interdicting imported heroin. Heroin prices rose sharply and heroin use and overdose deaths collapsed.
Those on the pro-drug lobby including many who make their living from harm minimization have invented a fantastic set of stories to conceal the simple facts here but we know heroin demands are quite elastic so the outcomes are consistent with economic evidence.
Levels of marijuana use and of cigarette smoking are at record low levels among youth – current policies have high effectiveness.
We do not legalize homicides because the law is expensive to enforce and fails to be effective. The counterfactual where there are no laws against an activity is difficult to evaluate but in countries where opiates are freely available levels of use and of addiction have been high.
The positive message should be stressed that there are better ways of getting high than taking drugs. Certainly the activity should not be seen as something socially approved.
I’ll have to upload another image. Sigh (that one was much more lively than most of the photos of Posner).
Note that Don Weatherburn, who has examined the Australian heroin drought of the early 200s very closely, states that he is not sure what caused it. It may well be true that effective law enforcement and large busts played a part, but it’s very likely that events in places like Afghanistan (viz the US bombing ans then invasion) and the Golden Triangle played a bigger part. As Mark points out, recent large drug busts have not apparently affected price (so Weatherburn’s recent research tells us). That strongly suggests that external factors, especially disruptions in source countries, are a key factor.
Harry
I agree that the “legalise it” lobby skates over some of the factors you mention. Another issue not discussed is that, although you can argue that adults should be entitled to make a free and informed choice to take mind-altering drugs as long as their choice does not significantly affect the well-being of others or the community, the reality is that there often WILL be such effects. Even with drugs like heroin and cannabis, frequent users tend to become semi-vegetative and are likely to be unproductive citizens and social welfare burdens on the state. I don’t know whether that aspect has been researched but it doesn’t seem to reflect in the economic analyses of researchers like Niron and Waldock. What is the balance of harm? I have no idea, but we certainly should attempt to find out before moving to outright legalisation. That’s why I quite like Posner’s idea of using a particular (smaillish) state as a test bed (not that it’s likely to occur in a polarised society like the US).
The idea that events in Afghanistan or elsewhere drove up prices is implausible. Heroin is generally an internationally traded good and if this had been the explanation then heroin droughts would have occurred around the world. This was not the case. The price spike in Australia was very distinctive.
In any event such explanations don’t bear on the fundamental idea that heroin demands are surprisingly price elastic. Regardless of reasons if you can increase price people will use less.
It is not adults who typically start using drugs like heroin but impulsive teenagers. They have high discount rates which become lower as they move into their mid-twenties. I think it is incorrect to suppose a rational agent model describes the behaviour of such users.
Think about it yourself Ken. How many crazy things did you do at age 18 that you either regretted later on or looked back on with astonishment. Its a phase of risk-taking that probably prepares people for adulthood but involves some poor choices in relation to driving cars and taking drugs for example. At about age 25 the brain settles down into a less risk-taking more rational mode and more responsible choices are made.
Harry
I don’t think we’re necessarily disagreeing with each other. Here’s what Don Weatherburn has to say in his 2001 paper :
Whatever the cause of the heroin drought it seems clear that reducing supply increases price which in turn reduces consumption levels. However it also means that continuing addicts will likely be subjected to large fluctuations in the purity of heroin they purchase, meaning significantly increased risks of overdose and death. If one adopts a purely utilitarian approach to determining appropriate policy, it would just be a matter of measuring the comparative harm (to the extent that it’s measurable and commensurable) of more addicts but predictable purity (and therefore less overdoses) versus less addicts but more overdoses (and more pressure to resort to crime to fund addiction given the higher prices engendered by scarcity). Is it better to have not as many 18 year old risk-takers becoming addicted, or not as many older confirmed addicts dying from overdoses (given that it also seems to be true that even the fairly long-term addicts eventually grow out of it and stop taking drugs, as long as they live long enough to wake up to themselves/get sick of it)? I just don’t know. It’s a topic on which I’ve always been conflicted, and nothing in this renewed discussion has caused me to reach a decisive conclusion.
“Even with drugs like heroin and cannabis, frequent users tend to become semi-vegetative and are likely to be unproductive citizens and social welfare burdens on the state”
The politically incorrect counter argument to this is that they die earlier too, hence saving the state money at the end of their lives (I imagine it should be possible to empirically determine this trade-off).
I also think that this statement is somewhat stereotyped — what percentage of frequent users are really burdens on the state that wouldn’t be otherwise? Despite the common stereotype, it’s quite possible to be a heroin addict and functional enough (especially if you don’t have to go around committing crime to pay for it), and there are innumerable heavy stoners that can function quite fine in many jobs (and for some jobs, probably better — just imagine if you clicked through groceries all day). Again, I think this is something that needs empirical evidence in an Australia-specific context to determine.
I fully agree, the Taliban were brutally effective at stamping out opium crops… very hard to hide a field of poppies in that landscape, when there are religious nutters in every village. They were also brutally effective at stamping out a whole bunch of other activities. In the year 2007, during US occupation, production was triple what it was under the Taliban 10 years earlier. There’s a graph on wikipedia (source data from UNODC).
http://en.wikipedia.org/wiki/File:Afghanistan_opium_poppy_cultivation_1994-2007b.PNG
Note that 2001 was an exceptionally poor harvest… now correlation does not prove causation, it is conceivably possible that the high street prices in Sydney influenced those Afghans to trample down their cash crops… but very basic economics would suggest the opposite. Actually there was an agreement between Mullah Mohammed Omar and United Nations the year before, needless to say that experiment was somewhat abruptly terminated.
Fiddlesticks. The heroin drought in Australia immediately promoted amphetamines as a ready and cheap substitution. I can dig up a reference if people can’t find it for themselves.
Yes, Weatherburn notes that the Golden Triangle has been a significantly more important source for Australian heroin than Afghanistan. Nevertheless the Afghan shortage no doubt played a part in the Australian heroin drought. Weatherburn notes that there was a drought (a real one) in Burma around 2000-2001. No doubt that together with the Afghan/Taliban situation created a supply shortage, which was compounded by major police seizures and arrest of various drug kingpins at the same time.
What is really interesting is that those factors have mostly now ceased to apply, in that there’s no longer a drought in the Golden Triangle, Afghna warlords and even the Taliban seem to be busily growing poppies and making opium as fast as they can, and there haven’t been any recent major arrests of drug kingpins that I can recall (although there have been some fairly large recent seizures). And yet it doesn’t appear that Australian heroin consumption has returned to anywhere near the peaks of 2000 and the years immediately before. I wonder why?
Here’s a thought (I’m sure it’s not original but I can’t be bothered googling). Substitution of speed etc as a short-term expedient occurred in the immediate wake of the 2001 drought (as Tel notes). However, youth culture/fashion had also begun changing fairly radically. Where once the epitome of the cool dude was the laid-back, vegetative stoner persona, now all night clubbing and the onset of the rap/hip hop image required a more aggro, hyper-active image best projected with the aid of speed, ice, coke and/or ecstasy. Hence new potential 18 year old consumers go that way rather than more passive narcotics like heroin or gunja. Moreover, the bikie gangs which inherited the drug kingpin positions after earlier generations were arrested and taken out of the game (or murdered each other in the case of Melbourne) seem much keener on trafficking speed, ice, coke and ectsasy. It’s a different and much more aggro society than a decade ago, and the large increases in aggravated assault rates bear that out.
“It’s a different and much more aggro society than a decade ago, and the large increases in aggravated assault rates bear that out.”
I agree with you about youth culture, although maybe it’s because the new generation simply forgets what it’s really like in the long run — even if it was really cheap in, say, 2002, seeing people on the nod and collapsed all over the place in the nineties is a pretty good practical lesson about the long term effects it might have.
However, your comment about assault rates is incorrect — these rates been growing very slowly for the last decade (albeit with other crimes falling a lot), and most of the growth over the last two decades was in the period when heroin was everywhere and cheap. see here — note that these are not corrected for population growth.
Most users of most drugs, illegal or legal, are not problem users. Yes even most heroin users aren’t problem users. Most heroin users never cross paths with the law.
Most problem drug users are poly users – a heroin shortage just shifts to substitutes – not even close substitutes – so many will shift to alcohol.
A shortage will show price elasticity but harm can, and does, also result from the substitutes.
Just as not all users are problem users – not all problem users are addicts as portrayed by the media.
Legalization does not mean free for all and heroin available at kinda. Alcohol and cigarettes are legal, but illegal in some circumstances.