Legalizing Drugs

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.