Two recent Economist articles, “Illegal Drugs: The Great Experiment” and “Winding Down the War on Drugs: Towards a Ceasefire” report on drug legalization programs in Colorado and Washington State in fall 2012. Economists have been on the forefront of this issue for a long time, and it is a great teaching topic that raises nice questions about the ethical interface with economics and the limitations of controlling drugs by law.
The reality is that the prohibition of drugs has done little to reduce drug production and consumption. Drug use of some illegal drugs has increased by as much as 300 percent over the past 15 years. The effect of drug laws that prohibit drugs such as cocaine has led to an underground system in which drug sellers earn huge sums of untaxed income and create drug-running crime organizations to protect their monopoly. It has also led to millions of people, who could be productive members of our society, in jail. The law creates criminals.
The solution to the drug problem that economists have put forward (and I think should continue to push) is legalization coupled with hefty taxes, and a strong educational program warning people about the dangers of drugs, along the lines used in the fight against smoking. The current taxes accompanying the new legalization laws that these two states are enacting seem far too low. Since drugs are at least as hazardous as cigarettes, they should be taxed at least as high as the taxes on cigarettes—a 500 percent tax—with some of that revenue used to significantly reduce illegal sales. That tax revenue will provide the funds for the educational programs against drugs and rigorous enforcement of tax evaders, thereby setting up a legitimate supply chain. (For a longer discussion download my more extensive analysis from an earlier edition of my principles text here: Legalizing Drugs Colander.)
First Published : February 25, 2013