What Economic Analyses of Law Have to say About Legalizing Drugs
- Introduction
Psychology, medicine, law, and philosophy are usually in the spotlight when it comes to discussions regarding the legalization of drugs. These knowledge fields are indeed capable of contributing to the discussion in many ways. To psychologists and doctors, this is, above all else, a matter of public health (Passos, 2015). From another perspective, law and philosophy, without rejecting the public health argument, understand the drug situation as a matter of constitutional principles and the role of the state in a contemporary democracy (Barroso, 2016).
The contributions of economics, on the other hand, rarely show up in discussions about drugs. When they do show up, they are usually superficial and secondary. One example is the argument that legalizing drugs is going to increase the GDP; another example is the argument that taxation on production and commercializing of these substances can increase the income of the state (Silva, 2007).
Even though these arguments are not entirely wrong, they seem to ignore some fundamental questions. It is Machiavellian to saying that, in order to increase the GDP, the issues regarding health and security can be ignored. The argument about taxation also is problematic because if drugs were taxed, there would still exist a strong black market for drugs; i.e., the security issues involved in this situation are not going to be solved.
However, believing that these are all the contributions that Economic Analyses of Law (EAL) can bring to this discussion is a mistake. Especially when talking about security issues related to the drug problem, EAL is able to contribute the most. This brief article will explain the argument developed by Harvard professor Gregory Mankiw about this theme.
- Drugs and Crimes
Intending to avoid the increase of crimes related to drugs, most countries invest billions of dollars to protect their borders from the entrance of drugs. The US government, for example, has spent $106 billion over the last five years on border enforcement and has doubled the number of border patrol agents.[1] Most governments understand that protecting their borders against drugs is necessary, but they do not seem to take into account that this policy can increase criminality related to drug abuse.[2]
One of the main issues involving drugs is chemical dependency. Criminality can be related to this condition in a broad and complex context that involves different factors that can lead to this situation. Sometimes, in order to afford drugs and sustain the addictive condition, those who are dependent on drugs need to steal or to commit other violent crimes[3] (Mankiw).
In order to demonstrate graphically his point, Mankiw proposes an analysis consisting of three steps. One: check if there is displacement in the supply or in the demand curves. Two: Verify the directions of these displacements. Three: Analyse how price and quantity are affected.
Even though the prohibition of drugs aims to reduce its use, the impact of the “war against drugs” policy goes on the salespersons rather than the consumers. When importing drugs becomes harder and the risks of transportation and negotiation increase, two things happen: one, drugs become more expensive, and the consumers take this cost; and two, the supply of drugs in the market decreases.
On the other hand, the demand for drugs is inelastic in relation to the price. In other words, the quantity demanded of drugs does not change according to the price, since there are chemical and biological issues related to its use.
The graphic at the end of this article shows how the supply curve is dislocated to the left (S¹->S²), while the demand curve stays unaffected. Therefore, the equilibrium price in the market goes up (P¹->P²) and the quantity of equilibrium decreases (Q¹->Q²). This means that, in fact, drug prohibition policies reduce the use of drugs in a society.
What is being discussed here is, however, the criminality related to drugs and not the quantity of drugs used. As explained before, drugs demands are inelastic, which means that if the price increases, the total income of drug dealers increases as well.
Graphically, this can be shown by the variation between the prices (P²-P¹) compared to the variation in the quantity demanded (Q²-Q¹). This means that drug prohibition raises the prices more than reduces the quantity demanded (P²-P¹>Q²-Q¹). The amount of money circulated in the market increases (Q²xP²>Q¹xQ²); therefore, drug dealers become stronger and richer.
The consequences are twofold: one, rich drug dealers can buy more guns and empower their gangs; and two, those who are dependent on drugs may have to commit more crimes to afford drugs, since they are more expensive after prohibition. This is how Mankiw argues that drug prohibition raises criminality.
- Legalizing reduces crimes
Mankiw’s approach suggests a different way to deal with the drug issue rather than fighting drug dealers and protecting the borders. As drugs get legalized, reducing its use shall become easier, not only through education, but also by treating those people who are addicted to drugs.
Economically speaking, his proposal is that the state focuses on reducing the demand instead of reducing the supply. Below, the graphic demonstrates how legalization together with education and treating programs affect the status quo.
Due to the better control and education, the demand curve dislocates to the left (D¹->D²). This happens because fewer people are willing to buy drugs, regardless of the price. Therefore, the demanded quantity decreases (Q¹->Q³) and the prices decrease (P¹->P³). Note that after these public policies are adopted, the income made in the market reduces, since both the price and the quantity demanded drop (Q³xP³<Q¹xP¹<Q²xP²).
This way, Mankiw argues, if drugs are legalized, the results should be less use and fewer crimes related to chemical dependency. In the graphic below, all that was explained so far is demonstrated.
- Final Considerations
The drug legalizing discussion can be studied from many different perspectives. Each one of them, in its own manner, contributes to the debate with important considerations.
Even though economics arguments in this context are most of the time superficial and secondary, this brief article tried to demonstrate how EAL can contribute to the discussion in a more meaningful and reasonable way.
Mankiw’s analysis concludes that the “war against drugs” is insufficient and causes negative externalities to the society. The effects of these externalities can be easily spotted in the public security.
It is important to have in mind that the analyses made here are simplified and, therefore, can be subject to criticism.[4] However, the purpose of this article is not to deeply analyse the arguments proposed by Mankiw. The goal of this article is to present new perspectives on the discussion.
- Bibliography
[1] Check: http://cmsny.org/does-the-united-states-need-to-invest-more-in-border-security-probably-not/
[2] Check: https://www.ncjrs.gov/ondcppubs/publications/policy/99ndcs/iv-f.html
[3] http://www.statcan.gc.ca/pub/85-002-x/2015001/article/14201-eng.htm
[4] See ILLEGAL DRUG USE AND CRIME: A COMPLEX RELATIONSHIP by Casavant and Collin