The Economics of Legalization: An Argument Against

There have been many a debate on the legalization of marijuana and other such drugs. More often than not the person in favor of legalization feels entitled to the free use of the drug and hides behind weak economic pretenses for the benefits of legalization. I'm here to present an economic argument against the legalization of now-illegal drugs that centers not on increased tax revenues but on decreased societal value.

Let's assume (the famous first words of any economist) that there are two types of people; those that use drugs illegally and those that do not. Let's also assume that drug users tend to congregate in blue collar industries where non drug users collect in white collar industries.

This might seem like an unfair assumption but it has been shown my multiple studies and surveys that drug use is more prevalent in blue collar jobs (Drug use at work). Further, you must remember I am an economist and therefore assumption are all I got - so go with the flow!

Now, as the world stands, drug use is illegal and those that use drugs illegally are blue collar workers. If drug legalization were to occur, I argue that marijuana use would shift towards the white collar population which would be more detrimental than the current situation.The mass argument is that if you legalize marijuana then the product will be cheaper by default since risk has been eliminated and transaction costs are considerably lower. Then it is thought that the government impose a tax on the drug up to, but not exceeding, the black market price (or else black market operations would still exist).

I argue that the cost of marijuana would increase from the current black market price. The price of marijuana could be set higher since black market sellers would be subject to even greater punishment (conceivably) after legalization and therefore the risk premium of black market operations would outweigh the expected benefits.

If the price of marijuana was to increase after legalization, then two things would happen. White collar workers would be more readily able to purchase the more expensive product than blue collar workers. This would shift drug use towards more white collar workers.

You might ask why this matters. Well to be blunt and terse, the social value of a white collar worker is higher than that of a blue collar worker. If a higher proportion of our white collar workers are engaging in marijuana usage we are limiting the value society can reap from these people. I do not care to go into evidences and anecdotes about how marijuana does or does not effect brain function or if it is or is not addictive. I will just state that externalities would more than likely result from increased usage among white collar workers and therefore a higher social cost will be observed.

Here I don't touch on the cost of overcrowding in jails and prisons due to drug possession crimes. I feel that this cost is not explicit to the illegal status of drugs but rather the criminalization of drugs. Those costs could simply be reduced by decriminalizing some or all drugs. This is just another example of false evidence used by pot activists to convince the masses of the economic benefits of legalization.