Economic Analysis: Law and Marijuana

The primary focus of this blog is economic and financial synergy. However, in today's discourse I would like to deviate from the usual objective to remind readers that economics harbors broad applications. Though market trends and unemployment rates are important, more interesting questions are often overlooked. Given the right data, a wide variety of social phenomena can be analyzed to unveil deeper understandings of culture and common practice. For example, the author of Freakonomics, Steven D. Levitt, explores the rationality behind drug dealers living with their mothers and provides a description of a world typically misunderstood. He reveals the creative and insightful contributions that economic logic has to offer, a rare accomplishment outside the cubicles of slide-rulers and supply-demand charts.

Like the living habits of criminals, marijuana laws are not often discussed in economic terms, even though many pro-decriminalization arguments stem from cost-benefit and game theory analysis. The most prevalent example condemns the prohibition as a quantifiable drain on resources. The National Organization to Reform Marijuana Laws (NORML) provides studies that show "the societal costs of propagandizing against marijuana and marijuana law reform, funding anti-marijuana 'science', interdicting marijuana, eradicating domestically grown marijuana and industrial hemp, law enforcement, prosecuting and incarcerating marijuana smokers costs U.S. taxpayers in excess of $12 billion annually." Upon deeper investigation, a lot of these expenditures are questionable. For example, approximately 90% of marijuana related arrests are credited to personal use (refer to the left graph for the numbers of arrests). A large portion of tax payer's money is utilized to process these detentions with little to no social benefit. There are more pressing matters than the brief imprisonment of a cannabis user. Drug trafficking for example. Additionally, Jeffery A. Miron, a Harvard economist, demonstrates that tax revenues of up to $6.4 billion can be obtained if marijuana was treated like tobacco and alcohol. The opportunity cost alone begs the question: are there more efficient allocations for prohibition expenditures? Miron's report claims marijuana decriminalization would create such a significant impact on available funds that it could single handily cover the entire cost of anti-terrorist port security as well as provide the resources to secure lost soviet nukes.

Furthermore, basic economic theory implies that dead-weight loss would be eliminated. Overt operations, in contrast to black markets, streamline supply and demand, and therefore reduce prices. Consumers can either save the excess cash or spend it on alternative items. Either way, the American economy would realize a surge in its gross domestic product, not only from the addition of a billion dollar crop, but also from the reallocation of consumer funds.

However, to understand why decriminalization is truly the best the solution, one has to examine the futility of the opponent's position. Those in favor of federal marijuana laws argue that legalization would raise consumption, increase the ill effects of use, make it more accessible to adolescents, create a rise in motor vehicle accidents, send mixed singles to citizens, and influence the migration to harder drugs. In essence, the social cost of decriminalizing marijuana would manifest itself through diminished productivity, specifically in the nation's youth and the health of citizens. The flaw in this dispute arises from the already widespread use and accessibility of cannabis. I personally know several parents, one a successful lawyer, who indulge in habitual, though not daily, use. Statistics from the National Institute on Drug Abuse also indicate that approximately half of 12th graders have tried marijuana while close to 25% use it monthly (refer to right graph).

With such widespread use and accessibility, what should the government do? Conventional wisdom and simple game theory mechanics make the solution painfully obvious. In the real world, the struggle between government and those for decriminalization is a complex, dynamic game of many players. However, basic generalizations can be made that greatly simplify the analysis. First, the population of smokers and nonsmokers for decriminalization can be aggregated into one player (called player one) while the government and those against decriminalization can be aggregated into another (called player two). Members who do not fit the extremes can be discarded since they do not have a significant effect on payoffs*. Second, since marijuana users have demonstrated consistent consumption, even under the scrutiny of legal action, it is safe to assume that this trend will not be deterred by any future government action. The government, on the other hand, can either choose to legalize marijuana or continue to enforce federal marijuana law. Note that the choice of player two will determine the payoff of player one. These simplifications reduce the game into a static, one player scenario.

If the government continues to enforce marijuana law, they will obtain the "alleged**" payoff of preventing diminished productivity, zero, minus the loss of resources discussed in paragraph two. On the other hand, if the government chooses to decriminalize marijuana, the payoff would be the increase in available resources minus the small decrease in productivity. Given these two options, it is apparent that both players benefit from decriminalization.

Notes:

*It is assumed that those not falling under either extremes will not effect payoffs because they will a) not change the choice of player one and b) not effect the numerical values of player two's payoffs. Technically, they can be grouped with either player without significance.

**The term alleged is employed because the already widespread use of marijuana and its accessibility make the calculable effects of legalization uncertain. For simplification, we will assume the loss from productivity will be minuscule due to the above reasons.

Final notes: No payoff is attributed for morality. It is assumed that if cigarettes and alcohol are legal, the government's view of marijuana is similar. This is based on the definition that marijuana is not a hardcore drug.

This game is a gross oversimplification of the real situation. It provides insight as to which of the two choices benefits the government, but excludes the complication of actually implementing the decision. The most efficient way to transition from a prohibition to a decriminalized state is another discussion entirely. However, the preceding analysis should exemplify the universal practicality of economic logic and the rational approach it can provide towards social subjects.