Marijuana Legalization Costs: The David Evans Inequality

How can we continue to ignore the economic possibilities of America's Largest Cash Crop?

We can’t legalize marijuana because it would cost society too much.  That’s one refrain I hear constantly from prohibitionists.  It goes along these lines, as eloquently stated by John Redman in the San Francisco Chronicle:

Full legalization, on the other hand, according to a study published last year by the Rand Corp., would increase drug use. A look at our problems with alcohol and tobacco reveals that, even though we collect some taxes on their sales, they pale in comparison to the social costs of these drugs (that is why alcohol taxes, for example, do not effectively pay for drunken driver education or youth anti-drinking initiatives).

Unlike Mr. Redman, I’ll link you to the RAND Corp study he’s referring to, which says, “researchers cannot rule out consumption increases of 50 percent to 100 percent, and possibly even larger.”  Now they are referring to California consumption, but let’s pretend this would hold true throughout America under national legalization.  Never mind that ending federal prohibition doesn’t mean Oklahoma has to legalize and that it is unlikely Iowa will ever match California’s prevalence of pot smoking.  Never mind that alcohol and tobacco are toxic and addictive, cannabis is neither, and therefore its costs to society are far lower, if any.  For the purposes of this thought experiment, we’ll simplify a bit.

This introduces a concept I’ve named “The David Evans Inequality”, in honor of the prohibitionist who recently tried this line of reasoning on Allen St. Pierre.

PCost + PEnforce – PTaxes > LCost + LEnforce – LTaxes

“PCost” is what pot smoking costs society under prohibition.  ”LCost” is what pot smoking would cost society under legalization.  We have similar variables “Enforce” for the cost of law enforcement and “Taxes” for the revenue we would realize.  Our goal is to make sure the “L” side is less than the “P” side; that is, legalization costs society less than prohibition.

Immediately we can remove the variable “PTaxes” because we don’t reap any tax revenue under prohibition:

PCost + PEnforce > LCost + LEnforce – LTaxes

We can only estimate how much it costs to enforce marijuana laws under prohibition.  Jeffery Miron of Harvard pegged the number at around $7.7 billion nationwide back in 2005.  The RAND Corp study Redman mentions put California’s enforcement costs alone at $300 million.

PCost + $7.7billion > LCost + LEnforce – LTaxes

It’s hard to say what the enforcement costs of marijuana are in a legal world.  I can’t imagine they would be greater than the costs of enforcing prohibition.  I’d assume they’d be much, much lower.  But for the sake of simple equations, let’s throw Evans and Redman a bone and say it would cost exactly as much to check IDs and license grows as it does to bust potheads and rip up grows.

PCost + $7.7billion > LCost + $7.7billion – LTaxes

We never get any sort of number from the prohibitionists as to what “PCost” currently is.  But Redman and Evans point to the RAND Study that use may double, I assume they presume that costs to society would double.  That’s questionable because “use may double” could be “twice as many people toking” to “the same people toking twice as much” and is probably somewhere in-between.  Let’s be charitable to Redman and Evans and assume costs would double under legalization.

PCost + $7.7billion > 2PCost + $7.7billion – LTaxes

OK, now we can subtract PCost and the $7.7billion from both sides of the equation…

$0 > PCost – LTaxes

Add LTaxes to both sides…

LTaxes > PCost

…and you have the answer.  Set the tax rate for legal weed greater than the current cost to society of illegal weed.  Now you know why they never tell you what the cost to society from cannabis under prohibition, because then you know exactly what the pot tax needs to be to offset that cost.

Also consider this thought experiment assumed legal weed enforcement equals prohibition, which it will not.  Every billion less that legalization costs in enforcement is another billion less we need to raise in pot taxes to maintain the status quo on social costs.  It also assumed costs would double, which they won’t, and every fraction less than double means even less marijuana taxes that must be raised.