Nice try, but no cigar

Steven Levitt of the University of Chicago, a really distinguished economist (this year’s winner of the Clark Medal) reviews Rob MacCoun and Peter Reuter’s Drug War Heresies in the current Journal of Economic Literature. [Text of the article here; subscription required.]

Levitt gets the basic point right: the MacCoun and Reuter volume is a fine, level-headed book. But the review goes on to endorse a substantive policy proposal not made in the book: that cocaine should be legalized, but with a steep specific excise tax leading to a high price. That would, I am convinced, almost certainly be a bad mistake.

Say we were to legalize at a price equal to today’s illicit-market price. In the short term, we would eliminate a big illicit market. That’s a big gain. In the short term, the number of new users would be small, and so therefore would be the associated cost of additional cocaine use (especially since most of the new users would be casual users rather than the heavy users who do most of the damage to themselves and to others). So, at first blush, legalization plus a heavy tax looks like a good policy in the short term.

But that analysis neglects a big question. What are the million or so Americans who made some money (not necessarily a living) last year by selling cocaine are going to do instead? In particular, what are the otherwise poor heavy cocaine users who currently finance their cocaine purchases from dealing earnings (and from their access to wholesale-priced cocaine that comes from their being dealers) going to do once their primary income source has dried up?

Some of them, deprived of cocaine dealing as an income source, would give up crime (not having an equally rewarding criminal alternative) and try licit employment. That would require that they cut back on, or cease, cocaine use. That’s all to the good, though it should be noted that a large proportion of today’s dealers have been convicted of dealing, which would make the transition to legal employment harder for them.

The rest of today’s user/dealers would wind up (1) stealing (2) dealing other drugs, thus expanding their supply or (3) engaging in prostitution, which would tend to drive down prostitutes’ wages and perhaps marginally increase the spread of sexually transmitted disease. So we would have less crime associated with sales of cocaine, but not necessarily less crime overall. In effect, we would have substituted the state for the illicit entrepreneur as the eventual recipient of the earnings of theft and prostitution. (There’s an additional complexity if cocaine remained illegal for minors; some people would be able to make some money buying cocaine legally and reselling it illegally, but if alcohol is any example that wouldn’t be a very lucrative trade.)

That’s in the short run. In the longer run, things look mostly worse. Even today’s illicit-market cocaine is cheap enough to allow many people to use on a casual basis without feeling much of a financial pinch. A “rock” of crack costs about $5, and provides about twenty minutes’ fairly intense experience. So crack use is competitively priced, on a per-hour basis, with theater-going or nightclub-going or fine dining. Crack (or other cocaine) use is still an expensive habit, but that’s because once it becomes habitual the number of hours spent at it tends to escalate, as does the amount of cocaine required to produce a given effect.

The hypothetical licit cocaine market, by offering users a product of known composition, available in safe surroundings from non-criminal suppliers, and without the risk of legal sanctions at the price illicit dealers charge for product with none of those attractive qualities, would represent a substantial hedonic price decrease compared to the current situation. Moreover, legality, and the associated marketing activity, would tend to change current attitudes and opinions in a direction favorable to cocaine use.

Therefore, one would expect a fairly large increase in the number of people trying cocaine. Some proportion of them would become habituated, and some proportion of that group would find the habit difficult to break and become chronic heavy users. For them, the high legal price would mean that their cocaine habits, though legal, would be ruinous financially, and some would be likely to turn to crime to finance continued cocaine purchases. In addition, of course, they would face many, though not all, of the health and psychological risks attendant on heavy cocaine use as we now know it.

So I conclude that legalization at a high price is probably a loser, even if one adjusts for what would certainly be benefits to supplier and transit countries and some marginal reduction in resources available to terrorist organizations. That even someone as smart as Levitt could have been taken in testifies both to the peculiarities of drugs as consumers’ goods and to the strength of the persistent hope that our seemingly intractable drug problems might be made to yield to some simple piece of ingenuity.

[Legalization at a low price would probably succeed in reducing overall crime, and might well be a substantial boon to poor minority neighborhoods now wracked by cocaine dealing, though at what would very probably be a very high cost in increased cocaine abuse. It is even possible, though I doubt it, that low-price legalization would represent a net improvement over today’s version of prohibition.]

[I continue to think that other changes in policy, specifically focusing drug law enforcement on reducing violence and disorder and using drug testing and sanctions to squeeze cocaine consumption among user-offenders under community correctional supervision, would yield many of the benefits sought from legalization without the unwanted side-effect of a big growth in the addict population.]


Jonathan Caulkins of Carnegie Mellon’s Heinz School has done this analysis to show that if cocaine were legal, a high price would be virtually impossible to maintain, at least without an enforcement effort comparable to the current efforts to enforce prohibition. The gradient between production costs of no more than a few dollars per gram and an after-tax price of $100 per gram would be so steep as to present very attractive opportunities for illegal arbitrage.

Second update

Kevin Drum is the guy I want doing oppo for my campaign: he sums up the discussion above as follows:

Mark Kleiman writes today that legalizing cocaine is a bad idea because it would put a lot of coke dealers out of work and would devastate the earnings of crack whores.

And he’s right to say that the capacity of campaign professionals to distort arguments in that way makes serious discussion of some policy problems, including drug policy, especially difficult.

But he also asks the serious question: given the costs of prohibition and the uncertainties involving legalization, has anyone done a serious benefit/cost analysis? Kevin also wants to know whether there’s a consensus on the issue among academics who study drug policy.

Kevin correctly states the main analytic principle involved: no matter how bad things are, there’s always a way to make them worse. As he notes, any benefit/cost analysis is necessarily speculative in the absence of a quantitative estimate of the increase in consumption. However, with a twentyfold decrease in cash price, plus the absence of legal risk for the user, I’d say we’d be very lucky to get off with less than a factor-of-five increase in total cocaine consumed. (Since cocaine and alcohol are complements, that means an increase in alcohol abuse as well). For a synopsis of the argument against cocaine legalization, see pp. 23-29 of this document (the cocaine chapter of my book Against Excess.

Insofar as there’s an academic discipline of drug policy analysis, opposition to cocaine legalization is pretty much the consensus view. But there are lots of law professors, economists, political scientists, sociologists, doctors, and so on, who disagree.

I find it frustrating that it’s easy to get attention for a discussion of cocaine legalization, which is probably a bad idea and certainly a non-starter politically, while talking about practical steps to make prohibition work better just makes people’s eyes glaze over.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: