March 27, 2005
Response on Legalizing Drugs-BECKER
Some excellent comments, and extremely interesting discussion among the commentors. Clearly, too many and too varied for me to do justice to all of them. Let me give a few reactions.
It is true that long run elasticities of demand, especially for habitual and addictive goods like drugs, exceed short run elasticities. The estimates I refer to are in fact long run elasticities in the few cases where they are estimated, and are the actual estimated elasticities in the other cases where no distinction is drawn. While one or two estimates exceed one, the vast majority of the estimates are significantly below one, including the estimated long run elasticities. One half is a good indicator of their central tendency.
Someone suggested that elasticities are different for price increases than for decreases. If utility functions are continuous with continuous first derivatives-sorry to be technical- this cannot be true for small price changes. Of course, they might differ for large price changes, so that the elasticity is not necessarily constant along a demand curve. Perhaps the elasticity increases as prices decline, although the usual assumption is that it tends to decrease as prices fall, at least eventually.
I obviously do agree that legalization would likely increase drug use if it lowered prices of drugs- the quantity demanded of drugs also tends to decline as their price falls. That is why I did not assume a zero price elasticity, but used 1/2 as my estimate. However, whether legalization would increase quantity demanded at a given price is far less clear. Forces go in both directions, such as the desire to obey the law versus the desire to oppose authority.
A couple of comments claimed legalization would be a tax on the poor, especially with the market price held constant. I do agree that the demand for drugs by the poor would be more responsive than demand by others to a fall in price produced by legalization. But can anyone doubt that the war on drugs has primarily hurt the poor? They are the ones mainly sentenced to prison on drug charges, their neighborhoods are often destroyed by drugs, and so forth.
I did not suggest that the legal excise tax on drugs should keep the market price of drugs constant – I allowed the possibility that the tax could be high enough to lead to higher prices, or low enough to produce lower prices than at present. My instincts as an economist are to favor giving individuals free choice as long as they do not harm others. But as a parent I also understand the desire to keep drugs away from young persons so that they do not get started along that path, although the prohibitionists have to realize that little is known about what behaviors would substitute for drug use.
Legalization would give the government additional tax revenue if they do not cut other taxes. I have sympathy with the comments that are skeptical of whether the government would use that revenue wisely. But it would still be much better than the present system that involves, among other things, a drain on taxpayers’ resources, and hits the poor especially hard.
There were some denials of whether the black market with legalized drugs would be any smaller than present levels if the tax on drugs either kept the market price the same as present street prices, or if it raised the market price even higher. However, the crucial point is that there is no alternative to illegal production and distribution under the present system. With legalization, many producers-I believe the vast majority of them- would choose to produce legally, and consumers would prefer to buy from them. This is because of several important reasons, including that the legal quality would be more certain, and legal producers could use the courts and arbitrators to help enforce contracts. Then the police and legal system could concentrate fewer resources on combating more effectively a smaller underground sector.
Posted by becker at 6:58 AM | Comments (7) | TrackBack (6)
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Comments
I'm going to go off again and repete what I've said below, the problem I have what much of what you're saying is that 'drugs' are not a commodity like pork bellies. More that drugs are a group of interrelated commodities each with own pharmacological, sociological, economic, aspects.
Perosnally I think the largest difference you would see if any particular drug was legalized would be due to changes in the distribution network, not so much due to changes in price. Currently the distribution networks are highly channelized and have incomplete market coverage.
Posted by gibbon at March 28, 2005 3:09 AM | direct link
Everything we know about consumer markets for commodities suggests that under drug legalization most producers -- the vast majority of them, in fact -- would be driven out of business by market forces as effectively as they could be now by law enforcement.
Production of marijuana, for example, is now dispersed among a large number of relatively small producers, the better to evade laws against its production. If it were legal, production could be consolidated, and a much smaller number of producers could grow a much larger quantity of the drug. Among the many questions this raises is how former producers of marijuana would react. They could, I suppose, leap at the chance for secure, stable employment with DopeCo. They could give up growing marijuana and the income its sale now provides, or grow just enough for their own use. Or they could switch from producing marijuana to producing some other drug offering a comparable rate of return.
If every conceivable drug now illegal were decriminalized and made commercially available this could not happen, but I don't think even Becker is proposing this.
Posted by Zathras at March 28, 2005 12:09 PM | direct link
I'm surprised there were no comments on the fact that the government has proven itself woefully inept at regulating drugs. As anyone who still remembers high school will tell you, alcohol and tobacco are a huge part of the social life of teenagers in this country, despite the fact that they're illegal. The same goes for college. Even at the tech school I went to, which was recently rate one of the worst party schools in the country, a very large percent of the students drank a lot and often. Legalizing more drugs might seem like a good idea if you assume the government can keep young people from consuming, but this is a risky assumption to make. Does anyone have confidence in the government keeping newly legalized drugs out of the hands of high school and college students?
Posted by Bob at March 28, 2005 12:19 PM | direct link
Exactly, Bob, and I would add to it that legalizing possession greatly complicates enforcement of a taxation regime, as I stated in my prior comments. The mere fact that some possession (through purchasing at an approved retailer that pays the tax) is legal whereas midnight harvesting or the farmer selling a little on the side is not would doom any attempt at legalizing and highly regulating. Cheating this regulatory scheme is wayyy too easy, as the failure of the authorities to control teenage alcohol and tobacco use shows.
It's the same principle as how the government regulates monopolies in different ways (antitrust laws, government ownership, rate regulation) depending on the specific industry. Costs of practical, effective enforcement are key to the regulation choice.
Posted by RWS at March 28, 2005 3:10 PM | direct link
fling, one of the key reasons why illegal drugs have an active black market like you said is because they are so costly, which means that the dealer can make a very good profit. If the drugs were legalized but taxed at a rate that would make them cost just as much, there would be even more of a black market from dealers wanting to make a buck from capturing windfall profits. Cigarettes and alcohol have pretty low taxes by comparison, and so there is not an organized black market to capture that profit. The only way to eliminate the black market is to legalize it and have taxes so low that one won't develop.
Also, we see a lot more kids lighting up cigarettes in the high school parking lot than marijuana, for whatever that is worth empirically.
Posted by RWS at March 28, 2005 3:25 PM | direct link