Newsbrief: Legalize It, Says Business Week Columnist 3/4/05

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In a Monday column for the Internet version of Business Week, contributing economics editor Christopher Farrell called for legalizing currently illicit drugs and taxing them at very high rates. In his regular "Sound Money" column, Farrell called for "a new kind of drug war," arguing that, "The conventional one has been highly costly, with little return. Making narcotics legal -- and very expensive -- can reduce addiction and crime," he wrote.

Citing Boston university economist Jeffrey Miron, Farrell wrote that government at all levels had spent $33 billion in prosecuting the drug war in recent years. "How is the return on that investment?" asked Farell. "Abysmal." Farrell cited the usual litany of disasters to make his case -- continuing strong demand for drugs, the growth of drug trafficking organizations, crime and corruption, overstuffed US prisons.

"It's time to consider a dramatic shift in policy," Farrell concluded. "Instead of the battle cry 'war on drugs,' let's try the mantra 'legalization, regulation, and taxation.' We should regulate narcotics just as we do cigarettes and alcohol, restricting sales to minors and imposing steep excise taxes... Indeed, the model for dealing with alcohol is instructive. Banning alcohol outright in the US was a public policy disaster. Ending Prohibition quickly cleaned up the liquor industry. Gangsters were denied a lucrative source of income, and violent crime associated with the business fell."

While the idea of legalization and regulation is not new, Farrell wrote, it has never been implemented because of fears that cheap legal drugs would create an army of addicts. The solution, Farrell opined, is to tax newly legalized drugs at rates so high that prices remain similar to current black market prices. Even though demand for drugs is relatively inelastic, it is not completely inelastic, he argued. Higher drug prices mean lower drug use levels.

"With the addition of a steep excise tax -- several hundred percentage points above the cost of wholesale production, for example -- the price of cocaine could be greater than the price the fruitless war on drugs supports. It's possible that consumption would be lower in a high-tax regime than it is in today's law-enforcement environment."

Farrell did not come to this conclusion easily, saying he did not look forward to heroin and cocaine being made available at the corner liquor store. "I know that the cost of drug abuse and addiction -- including nicotine and alcohol -- is already substantial, especially measured by increased health-care expenditures and lower worker productivity. And I have no wish to see the numbers of addicts increase. But there's the hope that with a carefully crafted new paradigm of legalization, there could be fewer users. That's positive. There's nothing positive to be derived from staying with the status quo."

In addition to writing the regular "Sound Money" column for Business Week, Farrell also hosts the nationally-syndicated "Sound Money" program for Minnesota Public Radio and contributes to National Public Radio's "Marketplace" program.

(Visit DRCNet's Prohibition in the Media blog to read what DRCNet executive director David Borden has to say on the matter.)

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Issue #377 -- 3/4/05

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