Guide: How to cite a Online image or video in Ethics (for book reviews) style

Guide: How to cite a Online image or video in Ethics (for book reviews) style

Cite A Online image or video in Ethics (for book reviews) style

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Fact 1: Legalizing Marijuana Would Not Alter the Character of the Drug War Marijuana is the only major illegal drug with a realistic prospect of being legalized in the US Since 2000, propositions for legalization in Alaska, California, Colorado, and Nevada have each garnered the support of 40% or more of voters. In 2010, California’s Proposition 19 needed only 3.6% more of the vote to pass (California Statement of Vote, 2010, pg. 7). Along with the Ammiano Bill, this makes two serious legalization attempts in California in 2010.

Would legalizing marijuana reduce violence in Mexico? Advocates such as former New Mexico governor Gary Johnson argue that legalizing marijuana is “the only practical way to weaken drug cartels” (Johnson, 2010), often citing an Office of National Drug Control Policy (ONDCP) document which asserted that 61% of DTO revenues derive from marijuana exports (National Drug Control Strategy, 2006, pg. 36). However, 61% is a gross exaggeration even for strictly drug-related revenues, and DTOs also generate considerable revenue from nondrug-related activities. Kilmer et al. (2010b) debunk the 61% figure and estimate the correct proportion to be more like 15-26% of drug-related revenues.

Statewide legalization in the midst of continued federal prohibition is far different than nationwide legalization. Still, given how easy it is to smuggle drugs across state lines within the US, marijuana diverted from legal production in even one state might displace most Mexican marijuana from US markets (Kilmer et al., 2010b; Caulkins and Bond, in submission).

It is very hard to know how losing perhaps one-fifth of drug-related revenues would affect DTO violence (Kilmer et al., 2010b). Perhaps it would cut violence by as much as one-fifth, but the DTOs might respond by trafficking more of other drugs or shifting focus to nondrug-related activities such as kidnapping, human trafficking, or racketeering (Felbab-Brown, 2010). What is certain though is that legalizing marijuana in the US will not make the DTOs go away (Longmire, 2011).

Legalizing marijuana would also only modestly impact drug harms in the US Even though marijuana accounts for most drug use and nearly half of all drug arrests, marijuana’s social costs are relatively low. It represents only about 8% of drugrelated imprisonment, one-sixth of user spending, and about 16% of treatment admissions (Caulkins and Sevigny, 2005; ONDCP, 2001; ONDCP, 2010). Marijuana is even less implicated in other drivers of drug-related social costs; it contributes minimally if at all to HIV/AIDS transmission and overdose deaths (ONDCP, 2004). Statistics breaking down drug-related crime by substance are hard to come by, but one rarely hears of drive-by shootings between rival marijuana gangs in the US Low-level marijuana distribution is mostly embedded within social networks (Caulkins and Pacula, 2006) rather than being a strictly for-profit commercial activity.

Likewise, marijuana is cheap enough that even heavy users have less incentive to turn to property crime than do, say, dependent heroin users (Kleiman, 1992).

Fact 2: Prohibition Drives Prices Up Far Above Legal Levels Legalization’s proponents sometimes argue that legalization need not drastically affect the prices or availability of illegal drugs. They invoke various analogies to substantiate their argument, such as alcohol prices not plummeting after the repeal of Prohibition, medical cocaine being very expensive, and marijuana in Dutch coffee shops and Californian medical dispensaries selling for near black market prices (e.g., Miron, 2003). Upon closer examination, however, these analogies start to look very weak. To understand prohibition’s effect on the free market price, it is more instructive to look directly at facts concerning production and distribution costs. (We discuss the possibility of assessing very high excise taxes in the next section.)

Legalization could easily cut wholesale prices of cocaine and heroin in the US by 85-95% because current international prices plus legal transportation costs are that far below current wholesale prices. The United Nations Office of Drugs and Crime (UNODC) reports that cocaine costs $2,348 per kilogram in Colombia and heroin costs $2,405 per kilogram in Afghanistan (UNODC, 2010). If these substances were legal, distributors could ship them by any of the various means now used to transport other legal goods. For example, FedEx charges only $65 to send a one-kilogram package from Colombia to the US, and $196 to ship from Afghanistan to the US, negligible amounts compared to the more than $10,000 per kilogram it now costs to smuggle them illegally. This suggests that free market wholesale prices for these drugs in the US might be something like2:

    $2,348+$65=$2,413 per kilogram for legal Colombian cocaine and

    $2,405+$196=$2,601 per kilogram for legal Afghan heroin

The UNODC (2010) cites a range of wholesale prices for one kilogram of cocaine in the US ($10,000 $43,000), but the geometric mean ($20,700) is more than eight times this implied free market price. The corresponding figure for heroin in the US today ($53,000) is more than twenty times the implied legal price.

Retail price declines would be even greater. To see why, note that the free market retail price equals the wholesale price (effectively, the retailers’ cost of goods sold), plus a markup to account for distribution and retailing costs, plus sales tax.

The key to estimating the correct markup is finding a contemporary analogue with a similar value to weight ratio that requires similar processing – which is to say very little processing since wholesale cocaine and heroin are already in ready to use form. Conventional, legal agricultural products mostly fail on both counts.3 The best current analogy may be silver.

As of this writing, silver on commodity exchanges was trading at $43.58 per troy ounce. This equates to $1,400 per kilogram,4 putting silver’s wholesale value to weight ratio in the vicinity of what we project for cocaine and heroin after legalization. The same day, a local coin shop was selling one ounce silver rounds for $47.005. That reflects a wholesale to retail markup of 7.8% or $0.11 per gram6.

Dividing the wholesale prices (found above) by one thousand to express them on a per gram basis, and adding the 7.8% wholesale to retail markup plus a 7% sales tax suggests free market retail prices could be approximately:

      $2.41 × 107.8% × 107%=$2.78 per gram for cocaine and

      $2.60 × 107.8% × 107%=$3.00 per gram for heroin.

The UNODC cites current retail prices for illegal cocaine and heroin in the US of approximately $59 and $91 per gram, respectively, but these are for retail purity. Scaling them up by the ratio of wholesale to retail purity to put them on the same footing7 as the implied legal prices above suggests current retail prices at wholesale purity of:

      $59 × 63% pure at wholesale56% pure at retail=$66 per gram for illegal cocaine

      $91 × 55% pure at wholesale36% pure at retail=$140 per gram for illegal heroin

Thus these calculations suggest legalization could cut retail prices of cocaine by 96%, from about $66 to $2.78 per gram at 63% purity, and retail heroin prices by 98%, from about $140 to $3 per gram at 55% purity.

For marijuana, Kilmer et al. (2010a) develop bottom-up estimates of post-legalization production costs for sinsemilla under different conditions, including farming in large outdoor fields (<$20 per pound vs. $2,000 per pound currently) and grow houses that more or less fill an entire residential house with marijuana plants ($200 $400 per pound). They focus on the latter as more plausible if a state legalized marijuana, but the federal government did not, because the producers would seek to avoid attracting federal enforcement attention. Factoring in distribution and retailing costs (greater, proportionately, than 7.8% because of marijuana’s lower value to weight ratio), they conclude that production, distribution, and retailing costs would amount to about $38 per ounce of sinsemilla, a decline of more than 80% from current prices of $300 $450 per ounce.

Fact 3: The Taxes Necessary to Prevent a Price Collapse are Uncollectable Production plus distribution costs without prohibition would be far lower than current retail prices. Justifiably fearing increases in consumption and seeing the benefit of raising tax revenues, some suggest using excise taxes to counteract the price collapse (e.g. Caputo and Ostrom, 1994). However, the collapse would be so great, both in absolute dollars and as a percentage, that the magnitude of the required taxes per unit weight would have no precedent.

Consider, for example, the Ammiano Bill’s proposed marijuana excise tax of $50 per ounce. That is only a fraction of what would be necessary for California to fully close the gap between Kilmer et al.’s (2010a) estimate of the untaxed legal retail price ($38 per ounce) and the current illegal price of $300-$450 per ounce (Kilmer et al., 2010a). Even so, a $50 per ounce tax is more than eighteen times higher per unit weight than is California’s tax on cigarettes. Relative to price drops of 96% for cocaine and 98% for heroin, a $50 per ounce tax isn’t even on the map. Closing the gap between cocaine’s current price of $67 and its $2.78 per gram free market price would require a tax of over $1,800 per ounce. Heroin would require a tax of nearly $4,000 per ounce.

As the tax per unit weight increases, so does the incentive to sell untaxed products in a tax evading “grey market.” Currently tobacco is the consumer good with the highest excise tax per unit weight in the US Lafaive et al. (2008) find a positive relationship between a state’s tobacco excise tax rate and the proportion of consumption in that state that comes from the grey market. Caulkins et al. (2010) note that plugging the Ammiano Bill’s $50 per ounce tax into this relationship predicts tax evasion rates of 50% – even using the public health literature’s relatively low estimates of current tax-evasion. Using the public finance literature’s estimates of tax evasion leads to predicted evasion rates of greater than 100%. Obviously, simple extrapolations from tobacco to marijuana or from tax rates of several dollars per ounce to $50 per ounce should not be taken literally. But the exercise is a sobering warning to those who blithely assume that excise taxes can easily prevent dramatic price declines.

Some suggest imposing sanctions on violators to enforce compliance with excise taxes (e.g., Becker et al., 2006). However, the financial reward of bypassing a $50 per ounce excise tax is roughly double the current reward for smuggling commercial grade marijuana from Mexico into the United States ($800 per pound vs. a cross border markup from roughly $60 to $300 per pound today). That suggests the magnitude of the punishment necessary to deter tax evasion would be greater than that which traffickers importing illegal drugs into the US face today. Theoretically, such Draconian punishments are possible, but there might be practical constraints and, more fundamentally, they would defeat the purpose of trying to eliminate smuggling opportunities from which organized criminals could profit.

Fact 4: Drug Use Responds To Price Many once believed drug demand was impervious to price changes, that an addict would do whatever it took to get a “fix”, regardless of the price. Now, however, a solid empirical literature documents that the law of demand applies to illegal as well as legal drugs. (For reviews, see Grossman, 2005 and Babor et al., 2009.) When prices go up, people use less. When prices go down, they use more.

This responsiveness to price manifests not only in youth and general population survey responses (e.g., Pacula et al., 2001), which primarily reflect relatively “light” users, but also in overdoses, treatment admissions, and proportions of arrestees testing positive for drugs (e.g., Hyatt and Rhodes, 1995; Dave, 2006), reflections of heavier or more compulsive patterns of use.

Economists measure various drug market “elasticities” – the percentage change in a consumption metric that is associated with a 1% increase in price. For example, the “participation elasticity” is the change in the number of users, the “conditional elasticity” is the change in the average amount users consume, and, the most useful, “price elasticity of demand” (or “total demand elasticity”) is the change in overall consumption. Estimates of total demand elasticity vary widely by drug, population, and study, but typical summary values are -0.525 for marijuana (Pacula, 2010) and -0.75 for cocaine (Caulkins and Hao, 2008), meaning that consumption would go up by 0.525% or 0.75% if prices fell by 1%.     Variability across studies generates uncertainty about the magnitude of the elasticity. For example, based on Pacula (2010), Kilmer et al. (2010a) consider marijuana elasticities ranging from -0.4 to -1.2, not just -0.525.

However, when projecting the effects of legalization, there is another, more important, and fundamentally irreducible source of uncertainty. Legalization will quite literally take prices outside the support of the historical data.8 Every empirical study of price responsiveness is necessarily based on historical data, so the estimates are derived from price changes of 1% or 10%, not 80-98%. Since no developed nation in the modern era has ever legalized one of the major illegal drugs,9 there is literally no empirical basis for estimating the shape or curvature of the demand curve for prices far below current levels. Moreover, different but reasonable assumptions about the demand curve’s functional form can yield radically different projections of how price declines will affect consumption (Caulkins, 2001; Kilmer et al., 2010a). There is also considerable uncertainty about how the non-price aspects of legalization would affect consumption (MacCoun, 2010).

Fact 5: Legalization Is an Irreversible Gamble Legalization would reduce the costs of supplying drugs by more than taxes could offset, pushing retail prices into uncharted waters. We can be confident this would affect consumption; we just don’t know by how much. One might consider giving legalization a trial run, pledging to repeal it if consumption ended up rising more than anticipated. However, even temporary legalization could have permanent consequences. Society could certainly “unlegalize” and reimpose prohibition, but that would not return matters to the status quo ex ante any more than putting toast in the freezer would change it back into fresh bread.

Some of the legalization-induced increase in drug use would be reversible; those consumers would return to baseline levels of use if prices were pushed back up. However, in others the increased use will lead to dependence – meaning very long-lasting changes in the brain’s neural pathways. Dependence is not the same as intoxication; it cannot be undone via “detox”. Once dependent, even when users stop using for a time and become sober, their demand, even cravings, for the drug endures. This plasticity of the human brain’s response to chemicals that mimic neurotransmitters means that legalization is not fully reversible.10 Once drugs have been legalized, pre-legalization conditions will be gone forever.

We cannot be confident of any particular prediction or bound for how much legalization would drive up use or dependence because there is no historical precedent for a modern industrialized country facing such low prices. So legalization’s effect on consumption could fall anywhere along a very broad range. Imagine though, for simplicity, there are just two possible outcomes. In the “good” outcome, dependency would increase only moderately, so that the benefit of eliminating black markets more than offsets the problems of greater dependency, resulting in lower aggregate social costs. In the “bad” outcome, the increase in dependence is high enough for the accompanying social costs to surpass prohibition levels, despite the benefits of reduced crime, corruption, and drug enforcement. If legalization turns out badly, then reimposing prohibition would not undo the damage. One would get back all the original black market problems of crime and enforcement costs, but multiplied severalfold by the extent to which long-term dependency had gone up during the interval of legalization. (Michael P. Caulkins and Michael Lee, 'Legalizing Drugs In The US: A Solution To Mexico’S Problems For Which Mexico Should Not Wait', Yale Center For The Study Of Globalization, 2012,

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