11/26/2010

Proposition 19 – Legalization of Marijuana

Should marijuana be legalized? According to 46% of California’s voting citizens, the answer is yes! For these voters, they believe that the legalization of marijuana will “cut law enforcement costs, raise tax revenue, and make it harder for children to get marijuana.” From an economic perspective, I have to agree with them. However, I don’t think their argument is complete as I believe they have failed to factor new negative externalities which I believe will emerge if it were legalized. For example, what added social costs will emerge? By what percentage will productivity decrease with more employees missing work by either forgetting to go or by needing increased medical treatments?

This is an interesting topic for examination as I believe it has numerous discussion points. For example, in regards to the price of marijuana, I believe that if it were legalized we would see an increase in price in the short-run with supply remaining the same and demand shifting rightward. Then, in the long-run, I can see the price falling with both a rightward shift in demand and an even greater rightward shift in supply. If the government’s only purpose in legalizing marijuana was to make the price drop and make it safer for consumers (FDA would be involved) then the legalization of the drug makes sense.

However, if the government’s intent is to save money by decreasing law enforcement costs and raising tax revenue, then I believe their argument is flawed as externalities in addition to hard costs need to be considered.

Although the California citizens voted against the legalization of marijuana, I believe that the topic will continue to resurface until it eventually passes.

3 comments:

denver said...

The legalization of marijuana is a pretty hot topic right now and I think it is being pushed now more than ever because of the economic crisis that California is currently dealing with. Some people want marijuana to be available for sale for recreational purposes, but are spinning the marketing campaign as tax revenue for the state. The campaign lightly touches the reasons why marijuana should be legalized other than the tax benefits.

The prohibition may not be ethical by the standards of those who want to smoke it or even just sell it. That is what concerns me though. Those who are trying to legalize marijuana are doing it so they can smoke it openly or so that they can make a buck selling it. I know that this is an economics class and that we are looking at the monetary impact of issues, but this goes a little deeper. We are talking about legalizing more drugs. It feels like a Trojan horse to me. If marijuana is legalized then what comes next?

Rex said...

My question is to what extent will it be legalized? Will their be age restrictions? Will there be special licensing? Will there be limited areas where it can be used in public? My point is that it will never be without some form of restriction. The money spent on law enforcement will significantly decrease, but not as much as everyone thinks. When this is considered, the indirect costs may offset the benefits.

Dave said...

Would you believe the first time I ever got let loose in a classroom of my own (way back in Fall 1982) one of the things I talked about was the economic case for drug legalization?

Anyway ...

I think the big thing that is missed in thinking about this is that many people think demand is going to behave differently after legalization than it did before.

But ... demand is driven by preferences ... and do we really think preferences for marijuana will change much just because it is legal?

So, how would I run with this argument? Demand for marijuana is probably pretty inelastic. This is how we justify the arguments that users can ruin their lives by being dependent on a commodity whose price can spike. Fair enough. But, this then implies that demand would be inelastic in the face of a price decline too. This means that a big increase in supply is going to cause a movement along demand that is steeply downward: a big price drop without much of a quantity increase. That will make the revenue in this "industry" plummet. In sum, I think that arguments that the gains will not be that large don't hold water.