As I'm still trying to make up my mind on the issue, I have been reading various perspectives on the topic. From my readings, I conclude that it is hard to know what to trust. The problem is that none of the available information in this debate is objective, even the purported "scientific studies." This applies to both sides of the debate. When an onlooker like me wants a statement of the facts, he finds a report produced by an academic. That's what I do in this article.
In this post, I analyze the report, "The Budgetary Implications of Marijuana Prohibition," the report that claims that legalizing and taxing marijuana would net the U.S. Government nearly $14 billion in savings and revenue. When it was published in 2005 by Harvard economist Jeffery Miron, the report was endorsed by 500 economists. As a budding economist, I wanted know how Miron obtained these numbers, so I read the report. I'm nerdy like that.
I'm glad I read the report because after looking at its methodology (and data), I can definitively say that I don't believe the cost estimates. Not one bit. Let me explain why.
Cost methodology. The report generated the cost estimates by taking two steps (see Section II, page 5, paragraph 2):
1. Estimate the annual cost of marijuana prohibition (categories: incarceration, policing, courts).
2. Take the entire current cost of prohibition as the cost savings if marijuana were legalized.
As an economist, I object. The second step implies that dealing with legal marijuana has a budgetary cost of zero. Marijuana may cost less to control when it is legal, but there's no way it costs nothing. I read the whole section on estimating costs, discovering nothing deeper in the report's methodology. This flaw severely overstates the cost savings of legalization. It troubles me that there is no serious discussion of the costs of regulating legal marijuana.
The most direct mention of these other costs is the following dismissive statement (page 2 of the report):
If marijuana were legal, enforcement costs would be negligible and the government could levy taxes on the production and sale of marijuana.In a decriminalized system with a legal age, the cost of controlling underage use is significant, not negligible. If you do not believe this, just look at the resources devoted to policing minors in possession of tobacco or alcohol. Clearly, these costs are not zero and they can be quite high.
Furthermore, it is not costless to deal with the marijuana problem in a less abrasive way: even Portugal's decriminalized system has budgetary costs. In Portugal, when someone is found with marijuana, they’re referred to a panel of medical experts, which recommends a variety of options. Portugal’s policy appears to be effective, but it is not zero cost. And, the whole point of Miron’s report is that the government can save money by legalizing marijuana.
To sum up, a reliable estimate of cost savings would subtract post-legalization budgetary cost from our current budgetary cost. The Miron report trivializes the after-legalization expenditures, and as a result, produces an unreasonably high estimate of the cost savings.
Why might the budgetary cost of legal marijuana be high? More minors will use marijuana in a legal scheme with an age cutoff because there is less chance of being punished for dealing to minors under a legal scheme (at least minors will use more intensively, see a more detailed argument here or here). With more marijuana use among minors, we should expect the expenditure on policing minors in possession of marijuana to increase, not decrease.
Depending on the fraction of users who are minors, this effect could either increase or decrease how much we spend on controlling marijuana upon legalization for adults. After all, any legalization bill on the radar prohibits marijuana use for someone under some cutoff age. Realistically, we're not talking about legalizing pot for first graders.
I am not sure whether to expect an increase or a decrease in expenditures, but one thing is for sure: the estimates in this report make no mention of these effects. Even worse, as I stated above, the report does not budget for any expenditures post-legalization. And, that omission concerns me.
Next Wednesday, I will discuss other lingering issues I have with the report. In particular, I have yet to talk about the tax estimates, but there are some important statistical/data issues.
Note: I modified this post from its original version. In particular, the original version made claims about Miron's motives. As those claims were unnecessary and detracted from my point, I took them out. My main point deserves to stand on its own -- i.e., we really should account for the costs of a legal scheme.