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Economists and drug policy
Carnegie-Rochester North-Holland
Economists
William The
Conference Series on Public Policy 36 (1992) 223-248
and drug policy
A. Niskanen
Cato Institute
Abstract Economists
have made a substantial
contribution
to understanding
the illegal
drug market and the probable effects of alternative drug policies, despite the lack of adequate
price and consumption
dependent
data. Current patterns of drug use are primarily
on personal characteristics.
Drug legalization,
however, would substan-
tially reduce the price and increase the demand for drugs, possibly consumption
doubling
of the now illegal drugs. The major effects of drug legalization
be large net benefits to drug users, the elimination
the
would
of the rents to illegal suppliers,
and a reduction in crime and social control costs. The effects on the health status of drug users may be either positive or negative but are likely to be small.
I. Introduction For most economists, surely for this one, the illegal drug market is like a distant country with a language and culture that we do not understand and about which the data range from poor to nonexistent. For this reason, an economist
who addresses
drug policy risks be‘ing an innocent
abroad.
What do economists have to say about drug policy? Specifically, what do we have to say that might convince political officials to change current drug policies? This paper addresses these questions, based primarily on data available to the general public and the developing literature on this issue by other economists. My primary incentives for addressing these issues are that the Cato Institute has been a leading advocate for reconsidering drug policy and that I live near the center of a city with the nation’s highest murder rate. My only advantages in addressing this issue are my own graduateschool studies of the markets for cigarettes and alcoholic beverages and my developing skepticism about the case for “wars,” whether in some distant desert or in the inner city. This paper, thus, is a record of my own odyssey 0167-2231/91/$03.50
0 1991 - Elsetiqr Science Publishers B.V.
All rights reserved
through the available data and economic literature to sort out my own views on drug policy.
II. The
public
record
in a continuing
attempt
on drugs
In a nationally televised address in September 1989, President Bush stated that “All of us agree that the gravest domestic threat facing our nation today is drugs.“l Let us first look at the generally available data that might have led President Bush and many others to this conclusion. Most of these data are summarized in the annual Statistical Abstract of the United States 1990.
Drug
Use
The most comprehensive data on drug use are collected every several years by the national Household Survey of Drug Absue.2 Table 1 summarizes the data from the 1988 household survey. This table excludes the available data on the nonmedicinal use of a variety of other legal and illegal drugs (inhalants, hallucinogens, analgesics, stimulants, sedatives, and tranquilizers) for which use rates are similar to those for cocaine. Other data from the survey (not shown) indicate that the weekly use rate is about 56 percent of the monthly use rate for marijuana and about 28 percent for cocaine. 0 t her sources estimate that the total number of current heroin users is about 0.5 million.3 The most obvious lesson from this table is that only a small share of the population is a current user of any illegal drug. Many commentators, including President Bush, have repeated the estimate that 23 million Americans are current dug users. The number of drug users, however, is not additive across types of drugs. Most users of the hard drugs, for example, also use marijuana, and many drug users use combinations of drugs, such as stimu‘Address 2This reporting
by the President
survey
is subject
bias-but
three percent
on National to three
the potential
Drug Policy,
types
magnitude
of the U.S. population
September
of error-sampling
5, 1989.
bias, sampling
of these errors is probably
are in institutions
error,
not large.
and
Around
or are homeless and are not covered
by the survey; most of this group, however, are in institutions (old-age homes, hospitals, prisons, and military quarters) where access to illegal drugs is severely restricted. The Household Survey is based on a sample of nearly 9,000, so the sampling error is quite small except for those drugs for which reported use is small. The survey results are now based on written
confidential
responses;
may
over time,
but the magnitude
have varied
drug use is probably
under-reported
of this bias is probably
and this bias small.
A more
serious problem is the substantial nonreporting share of those sampled. There has been no effort to resample this group, so there is no basis for confidence that those reporting are a representative sample of the total number sampled. These results, however, are quite consistent with other types of samples where there is an independent confirmation of drug use based on urine samples. 3President’s
Commission
on Organized
Crime
224
(1986).
Table 1: Drug Use by Type of Drug and Age Group,
use Rate Type
ofDw
Alchol Cigarettes Marijuana cocaine Heroin
12-17 Ever current
Age Group 1825 Ever current (Percent of Group)
Over 25 EVW current
50.2 42.3 17.4 3.4 0.6
90.3 75 .o 56.4 19.7 0.4
88.6 79.6 30.7 9.9 1.1
25.2 11.8 6.4 1.1 na
1988 Total[l]
65.3 35.2 15.5 4.5 na
54.6 29.8 3.9 0.9 na
Ever current [2] (millions) 172.5 152.5 67.6 21.8 1.9
108.4 58.5 12.0 3.0 M
1. Assumes drug-use rate in nonhousehold population is the same as in the household population. 2. Current use is defined as those who have used a specific drug at least once in the prior month. na: not available Source: U.S. National Institute on Drug Abuse, National Household Survey of Drug Abuse 1988; data summarized are from U.S. Bureau of the Census, Statistical Abstract of the Umted States 1990, p. 122.
lants and opiates, with opposite pharmacological characteristics. The total number of current drug users, thus, is only somewhat higher than the number of marijuana users, about 6 percent of the total population. A more interesting lesson from these data is the revealed patter of addiction rates. The concept of addiction is subject to a range of interpretations and measures. For my purpose, the addiction rate is best measured by the percent of those who have ever used a specific drug who are current users. Table 2 presents estimates of the addiction rate by type of drug and age group, based on the same data presented in Table 1, excluding heroin for lack of data on the current use rate. The revealed addiction rates presented in this table display several patterns. declines as a function of the potency may find reasonable
First, in general, the addiction rate of a drug, a pattern that economists
but that is quite contrary
to popular perceptions.
Sec-
ond, the addiction rate for legal drugs peaks in the 18-25 age group. Third, the addiction rate for illegal drugs peaks in the 12-17 age group. The primary problem of interpreting Table 1 and Table 2 is that the pattern of drug use by age group reflects both an age effect and a cohort effect. Those now over 25, for example, were young teenagers in years in which social attitudes and the illegal drug market were quite different from current conditions. Those who are now young teenagers will have a quite different ever-used record when they are over age 25. These two effects, however, can be separated by statistical analysis of the household survey data. For this purpose, I have used the following test equation: LCU = C + bYAD + cADD + dCGD + eALD + fLEU
Addiction
Table 2: Rate by Type of Drug and Age Group 1988 Age Group 12-17
18-25 Over 25 (Percent)
Type of Drug Alcohol Cigarettes Marijuana
50.2 27.9 36.8
72.3 46.9 27.5
61.9 37.4 12.7
Cocaine
32.4
22.8
9.1
where: LCU C YAD ADD
is is is is
CGD
is a dummy variable for specific to the two older is a dummy variable for specific to the two older
ALD LEU
the natural log of the current-use percent, the constant, a dummy variable for the 18-25 age group, a dummy variable for the over-25 age group,
is the natural
log of the ever-used percent.
The results of this regression, in the 1988 household
cigarettes, age groups, alcohol, age groups, and
based on a sample of all of the drugs included
survey except heroin, are summarized
Variables C YAD ADD CGD ALD LEU N = 29
Coefficient -1.840 -0.577 -1.004 0.683 1.114 1.248 R2 = .974
below:
Standard Error ,148 ,130 .130 .243 .248 .062 S.E.R. = ,273
For the most part, these regression results are consistent with the patterns revealed in Table 2. The strongest effect on the current-use rate is the everused rate, with an elasticity significantly larger than unity. The constant and 226
the several dummy variables each measure the effect on the current-use rate relative to the ever-used rate; in effect, the constant is the dummy variable for the 12-17
age group. The coefficients
that the addiction rate the 18-25 age group, The coefficients on the is somewhat higher for
for the age-group dummies indicate
is lowest among the 12-17 age group, highest among and somewhat lower among the over-25 age group. drug-type dummies indicate that the addiction rate cigarettes and alcohol than for the set of illegal drugs;
it is not clear whether this effect is specific to these types of drugs or whether it is a consequence of the legal status two older age groups.
of these drugs for most people in the
These relations should also be helpful in forecasting future drug use under present drug policies. The ever-used rate for the group now of ages 12-17 is lower than for the same age group a decade ago for almost every drug. This implies that current drug use among the older groups would probably continue to decline slowly under present drug policies.
Drug Arrests A substantial amount of police resources are used to control the distribution and use of both legal and illegal drugs. Table 3 summarizes the arrest rates for alcohol and illegal drugs from the FBI crime reports for 1988. The first lesson from this table is that even legal drugs involve a substantial amount of enforcement activity; (the summary arrest data do not include any arrests for violation of the tobacco laws). This implies that regulation of other drugs by a system of social controls similar to that for alcohol would involve substantial continued enforcement expenditures. (A large share of the current expenditures to control illegal drugs, however, is for enforcement activities in other countries or at the U.S. border, and legalization would nearly eliminate these activities.) A second lesson is that the arrest rates per current user are roughly the same for alcohol, marijuana, and drugs other than cocaine and heroin. The arrest rates per current user of cocaine and heroin, however, are many times that for the other drugs, roughly 10 times as high for distribution violations and five times as high for use or possession violations. It is important to recognize that the laws bearing on alcohol and illegal drugs differ in two major ways. The importation, manufacture,-and sale of alcoholic beverages is legal subject to specific restrictions, and the distribution arrests are for violations of these restrictions. For illegal drugs, the importation, manufacture, and sale is illegal except for narrowly restricted medical use. For alcohol, the abuse violations are for specific types of offensive or threatening public behavior. For illegal drugs, the abuse violations are for mere possession. 227
Table 3: Arrests for Distribution
or Use of Drugs
1988 Rate per 100,000 Residents Current Users[l]
Type of Drug Alcohol Distribution Drunkenness Driving While Intoxicated TOTAL Marijuana Distribution Possession TOTAL Cocaine or Heroin Distribution Possession TOTAL Other Drugs Distribution Possession TOTAL
1. Estimates for cocaine
of current or heroin
these groups;
454 559 1,194 2,207
25 130 155
520 2,665 3,185
75 154 229
5,253 10,794 16,047
24 42 66
817 1,462 2,279
users based on 1988 Household and for other
for these groups, Federal
260 321 685 1,266
Bureau
drugs
assume
the estimated
Source:
U.S.
marized
are from the U.S. Bureau
arrest
of Investigation, of the census,
1990, pps. 177, 178.
228
Survey.
current-use
Estimates rates
of arrest
are additive
rates within
rates are biased downward.
Ctime
in the
Statistical
United States; data sumAbstract of the United States
Health
Effects
of Drug
Use
Most of the legal and illegal drugs have significant health effects. Table 4 summarizes the available data on the number of annual medical treatments, and deaths emergencies, the late 1980s.
attributable
The first lesson from this table
to specific is that
drugs for various years in
use of the major
legal drugs is
a major cause of health problems and deaths. Around 350,000 people are clients of alcoholism treatment centers, about .3 of one percent of current alcohol users. Around 600,000 deaths per year may be attributable to the direct and indirect effects of alcohol and cigarette consumption, nearly 30 percent of deaths from all causes. (I do not necessarily endorse these estimates; they are difficult to reconcile with the detailed data on mortality, which report about 26,000 dea.ths due to chronic liver disease and 141,000 deaths due to lung cancer in 1988. The total number of deaths due to alcohol and cigarettes, however, must be at least several hundred thousand.) The mQre important lesson from this table is that illegal drugs cause substantial health problems but remarkably few deaths. Around 260,000 people are clients of drug-abuse treatment centers, nearly two percent of the current drug users. Around 160,000 emergency-room episodes per year are attributable to some drug, about one percent of the current drug users. A total of 6,756 deaths was reported as drug induced or drug related in 1988, 21 percent of which were apparent suicides. For comparison, the number of accidental deaths due to drugs is only somewhat larger than the number of accidents due to drowning or fires. Only a few deaths are attributed to marijuana-use only. The attribution of deaths to any specific drug is necessarily imprecise because of the prevailing pattern of multiple drug use. The use of drugs that are now illegal clearly causes substantial health problems, but it is difficult to understand the basis for a conclusion “...the gravest domestic threat. to our nation today.”
III. The contribution
of economists
that it represents
to understanding
drugs
Economists have made a substantial contribution to understanding drug use and drug policy, despite the paucity of personal experience and relevant data. The general skills that economists bring to this issue are the same as have proved valuable to understand other issues - a theory of rational behavior, understanding of markets, sophisticated empirical techniques, and a distinctive approach to the analysis of public policy. This section reviews the major contributions by economists to understanding the most important questions that bear on the choice of drug policy. 229
Table 4: Health Effects of Drug Use 1987 or 1988
Types of Drug Alcohol Cigarettes Drugs Marijuana Cocaine Heroin Other TOTAL
Treatment [l] Emergencies[2] Deaths[3] (thousands of people per year) 351 na
46.6 na
229
na na. na na 264
10.7 62.1 20.6 121.5 160.0
0.3 3.3 2.5 10.4 6.8
390
na: not available. 1. Number of clients served by alcoholic and drug-abuse treatment centers, 1987. Source: U.S. National Institute on Drug Abuse and U.S. National Institute on Alcohol Abuse and Alcoholism, National Drug and Alcoholism Treatment Unit Survey: Main Findings 1987 data summarized are from U.S. Bureau of the Census, Statistical Abstract of the United States 1990, p. 122. 2. Number of emergency-room episodes in 1988 in which a specific drug is mentioned as a cause of the emergency. The number of alcohol-related episodes include only those episodes for which alcohol is used in combination with one or more other drugs. The total number of drug “mentions” is much higher than the number of drug episodes, because 46 percent of the episodes involve more than one drug. Source: U.S. National Institute of Drug Abuse, Drug Absue Warning Network (DAWN) Annual Data 1988, Series 1, Number 8.
3. Source of the number of deaths due to alcohol: U.S. Department of Health and Human Services, “Fifth Special Report to the U.S. Congress on Alcoholism and Health.” Source of the number of deaths due to smoking: U.S. Public Health Service, “Reducing the Health Consequences of Smoking: 25 Years of Progress,” 1989. Number of deaths due to drugs is from the DAWN report (referenced above). Number of deaths due to a specific drug includes those in which more than one drug is mentioned as a cause of death. The total “mentions ” is much higher than the number of drug deaths, because number of drug-death 77 percent of drug-related deaths involve the use of more than one drug.
230
A theory Several elegant
of rational
addiction
years ago, Becker and Murphy (1988) develped a characteristically model of rational addiction. This model incorporates the effects of
both “reinforcement” and “tolerance” on current consumption. Reinforcement implies that higher past consumption increases the demand for current consumption, but tolerance implies that the utility from current consumption is a negative function of prior consumption. The model is developed from the following function:
u(t) = 44a W), y(t)l, where U(t) is utility at time t, c(t) is the current consumption tive good, S(t) is the stock of “addictive capital” that depends sumption, and y(t) is the current consumption of a nonaddictive authors then demonstrate that revealed consumption behavior state (where c = 6s) will reflect a net reinforcement effect only
of an addicon past congood. The in a steady if
where u is the individual’s rate of time preference, and 6 is the rate of depreciation on the stock of addictive capital. For such addictive goods, the past, current, and expected future consumption are complements. From this simple model, the authors derive a rich set of behavioral hypotheses: l Addictive behavior is more likely for those who have a high rate of time preference, such as young people and the poor. l Addictive behavior is more likely for those goods for which the rate of depreciation of the stock of addictive capital is higher. l
Some people never consume addictive
goods.
0 Some people return to a zero consumption sumption of addictive goods. l Some consumers of addictive they reach a higher steady state. l The long-run short-run elasticity. l
The long-run
(absolute)
goods go on a consumption
price elasticity
price elasticity
level after some prior con-
of demand
“binge” until
is higher than the
is higher for those with a stronger
addic-
tion. The ratio of the long-run to short-run with a stronger addiction. l
price elasticity
is higher for those
This is an impressive theoretical development, and the behavioral hypotheses are consistent with the observed consumption behavior in the mar231
kets for a number of legal drugs. 4 The important issue is whether this model describes the consumption behavior for those drugs that are now illegal.
The price
elasticity
For several reasons,
of demand
for illegal
there are no conventional
drugs
studies of the demand
func-
tions for illegal drugs. The available price data are limited and usually do not control for drug potency. In addition, there are no direct measures of consumption. As far as I know, there are only two careful studies of the price elasticity of demand for illegal drugs, one for marijuana and one for heroin, both using unconventional techniques. Nisbet and Vakil (1972) report estimates of the price elasticity for marijuana from -1.0 to -1.5, based on a mailed confidential “what if?” survey of U.C.L.A. students. These estimates seem consistent with the Becker-Murphy hypotheses, but they are not based on revealed behavior and do not merit additional comment. The only careful study of the price elasticity of demand for illegal drugs based on revealed behavior is that by Silverman, Spruill, and Levine (1975). This study examines the effects on monthly variations in property crime in Detroit of the variations in the street price of heroin, controlled for trend, seasonal conditions, law-enforcement activities, and the potency of the heroin sold. The test equations reflect an a,ssumption that increases in the expenditure for heroin increase the incentive to augment other income by property crime. The estimated price elasticities for heroin, based on the sample of all property crimes, are reported below:
Estimated
Price
Elasticity
of Demand
Current
Price
+
Average
2 Heroin
for Heroin Price
1
Potency
2.5%
-.380
-.241
10.0%
-.355
-.215
4The consumption of alcohol, however, does not appear consistent with these hypotheses. The study by Cook and Tauchen (1982) f ound that the long-run effect of increases in state liquor taxes on cirrhosis mortalit,y was slightly lower than the first-year effect, and the effect appendix about
on cirrhosis mortality was lower than to this study explains the conditions
double
consistent
the short-run
effect,
on liquor consumption. for which the long-run
but, the empirical
with this hypothesis.
232
results
on cirrhosis
A mathematical effect would be mortality
are not
These results are strongly inconsistent with several of the Becker-Murphy hypotheses. The long-run price elasticity is lower than the short-run elasticity,
suggesting
that
past and current
consumption
are substitutes.
Sec-
ond, the price elasticity for those who purchased the more potent heroin is somewhat lower than for those who used the less potent heroin.5 In addition, some supplementary calculations indicate that the price elasticities were much lower in the poor neighborhoods of Detroit than in the more affluent neighborhoods. of demand by regular dom. The heroin, for
These several estimates
suggest that the (absolute)
elasticity
by casual users is quite high but that the long-run price elasticity users is much lower, more consistent with the conventional wisBecker-Murphy model may not have much relevance to goods, like which the addiction rate is quite low.
The effects
on drug consumption
of drug legalization
These quite precise, but indirect, estimates of the price elasticity of the demand for heroin are the best available. For several reasons, however, these estimates are of little value for estima,ting the effects on drug consumption of drug legalization: l Theory and the available evidence are not sufficient to determine the form of the demand function over a substantial price range. This is not important for small price changes but is very important for large price changes. For example, given a price elasticity of -.24 within the observed price range, a go-percent reduction in the retail price would lead to a 74-percent increase in per capita consumption if the demand function is logarithmic but only a 22-percent increase in per capita consumption if the demand function is linear. l The retail price of legal drugs is quite uncertain and would be strongly dependent on tax and regulatory policies. retail price, however, is huge. For cocaine
The potential reduction in the and heroin of uncertain quality
that now sells on the street for $10, the cost of production is five to ten cents.6 (I do not know of similar estimates for marijuana.) As with alcohol, both the legal retail price of drugs and the remaining illegal market would depend on the level of product-specific taxes and regulations on legal distribution. l Most important, legalization of drugs would increase the demand for drugs at any price. Current users of illegal drugs face two types of costs in addition to the street price. First, the costs of purchase include search
‘Both of these results are consistent by Cook and Tauchen (1982). ‘jN. Lord (1990) cocaine
estimates
is about 0.8 percent
with those from the study of alcohol consumption
that the price paid to the Medellin cartel of the street price.
equivalent
of heroin available
the street
price of heroin.
through
J. Kaplan (1975)
legal medical
233
reports
for a kilogram
of
that the morphine
channels sells for about 0.7 percent
of
costs and the risks of assault and arrest. Second, the costs of use include the risks of drugs of uncertain potency, adulterants, and of some use techniques. Drug legalization would eliminate most of these two types of costs. Moreover, legal cocaine and heroin would probably include known antidotes substantially reduce the toxicity of these drugs.
that
In summary, legalization would both reduce the price of drugs and shift the demand function for drugs. Economists are now able to offer only crude estimates
of the price effects and no evidence of the demand-shift
effects.
Three other types of evidence also bear on this issue: the level of alcohol consumption before, during, and a.fter “the noble experiment” with the national prohibition of alcohol, the available record on drug use prior to the prohibition of hard drugs beginning in 1914 and of marijuana beginning in 1937, and the experience with alternative policies in other nations. The classic study by Warburton (1932) provides the best estimates of the effects of prohibition on the consumption of alcoholic beverages. Table 5 presents the Warburton estimates of consumption during prohibition and the public data for comparable periods before and after prohibition. J. Miron and J. Zwiebel (1991) h ave recently reaffirmed Warburton’s estimates of the effect of prohibition on total consumption of alcohol, based on a different functional form and a longer sample period. Apparent consumption of each alcoholic beverage declined in the early years of prohibition, most sharply for beer. Although expenditures to enforce the Volstead Act increased sharply during the 192Os, apparent consumption of spirits and wine was higher at the end of the decade than prior to prohibition. During the late 192Os, the real price of each beverage was about 2.5 times the price prior t’o World War I. As of 1940, when real per capita income had recovered to the 1929 level, the level of spirits and wine consumption was about the same as during the late years of prohibition, and beer consumption was about the same as prior to prohibition. After the early years, the primary effects of prohibition on alcohol consumption, thus, appear to have been a reduction in the consumption of beer. Several related statistics also bear on the effects of the prohibition of alcohol: the death rate from chronic liver disease roughly doubled from the 1920s through 1970 and has since declined by about one-third. The death rate from alcohol poisoning, however, increased sharply during prohibition and declined sharply after the end of prohibition. From this experience with alcohol prohibition, Miron and Zwiebel speculate that the legalization of drugs would not lead to a substantial increase in drug consumption. The primary reason to qualify the relevance of this experience is that the end of alcohol prohibition reduced the real retail price by about 60 percent, whereas drug legalization might reduce the retail price by over 90 percent. The other U.S. experience
tl1a.t may provide some guidance 234
to the prob-
Table 5: Consumption
Years 1911-1914 1921-1922 1927-1930 1939-1941
of Alcoholic 1911-1941
Beverages
Beer Spirits Wine Annual Gallons Per Capita 1.71 .59 20.53 1.07 .51 1.49 1.88 .98 6.27 1.73 1.06 19.67
Sources: Clark Warburton, The Economic Results of Prohibition University Press, 1932. Later data from industry publications.
New York:
Columbia
able effects of drug legalization was the use of drugs prior to the imposition of national controls beginning in 1914. ’ In the late 19th century opium, morphine, and cocaine were legal and widely available without prescription. Parke-Davis sold cocaine for a variety of beverage, smoking, and medicinal uses beginning in lSS5. Heroin was the brand name of a cough suppressant sold by Bayer beginning in lS9S. After an accumulation of medical warnings, however, the use of opiates peaked in the 1890s at about twice the estimated present rate, and the use of cocaine peaked about 1905. After passage of the Pure Food and Drug Act in 1906, which required that the presence of specific drugs be identified on the label of patent medicines, the use of these drugs declined by one-third to one-half long before their use was prohibited. Although popular magazines increasingly warned their readers against the use of patent medicines including these drugs, there was no organized drug prohibition
movement
and no press reports
of a “drug crisis.”
The major
lesson from this experience is that drug use peaked at rates about twice the estimated present rate and subsequently declined in response to more broadly available information about the effects of drug use. The current
record of drug policies and drug use in the Netherlands
and
Great Britain may provide an even better guide to the effects of relaxing drug-use controls in the IJnited States. For nearly two decades, the Netherlands has had the most relaxed drug laws of any industrial country, generally treating drug use as a public-health problem rather than as a police problem.8 Drug users are provided with clean needles, counseling, and treatment but are not subject to prosecution for use or for possession of small amounts of 7For an efficient summary the article
by Musto
‘See Ruter (1990)
of the U.S. esperience
with drugs prior to prohibition,
see
(1987). and Trebach
and Zeese (1990)
235
for summaries
of the Dutch experience.
any drug. Criminal prosecution is focused on major suppliers. Many coffee houses sell marijuana and are not subject to police interference unless they sell wholesale quantities or to those under age 16, or unless they advertise more than by a marijuana-leaf decal on their windows. Current use rates among Dutch teenagers are slightly higher than in the United States for alcohol and tobacco but are a fraction of the U.S. rates for other drugs, and marijuana use appears to be declining; these data overstate the current use rates among the native Dutch, because a substantial share of drug users are foreigners. In a population of 15 million, there are less than 100 drug-related deaths a year. And the murder rate in Amsterdam is about one-tenth that in Washington, DC. Drug policies in the Netherlands are broadly supported, and the results of these policies so impressed the American ambassador that he recommended careful study of this experience. British policies affecting cocaine and heroin addicts are similar to those in the Netherlands, despite the tightening of official policies in the late 1960s and the strident rhetoric of British politicians.g Legal cocaine and heroin are not available for recreational use, but British physicians may prescribe these drugs to their addict-patients. Local governments are experimenting with different treatment practices. Such policies, however, do not apply to marijuana, smoked opium, or a range of other drugs. The British are broadly perceived to have rejected the “decriminalization option” in 1968, but this is misleading. A comparison of arrest records, for example, indicates that the number of drug arrests per capita in the United States is 10 times the British rate; excluding ma.rijua.na., for which British policies are similar to American policies, the U.S. arrest rate is 35 times the British rate. The British courts have progressively increased the proportion of those arrested for drug-use offenses who are subject to probation and treatment rather than incarceration. Current-use rate in Britain are lower than in the United States and appear to have declined since the mid-1980s. The de facto British policy of “harm reduction” does not appear to have led to a significant increase in drug use or health problems,
and the costs of social control are much lower
than in the United States. My rough judgment, based on these several types of evidence, is that drug legalization might double the present rates of drug use but that any estimate of this effect is subject to large error.
Other
conditions
affecting
drug use
As the above section illustrates, economists have been able to make only indirect inferences about the effects of drug price on drug consumption. The available information, however, permits a much better understanding of the ‘See Mandel (1990) and Trebach
(1987) for summaries
236
of the British
experience.
other conditions that affect drug use. A. Gill and R. Michaels (1991) have recently completed an analysis of the 1984 National Longitudinal Survey of Youth, using a probit analysis to estimate the effects of a variety of personal and economic conditions on the probability that a person has used one or more illegal drugs in the prior year. Their general conclusion is that personal characteristics, rather than economic variables, are the primary determinants of drug use. For example, drug use appears to be most strongly related to alcohol abuse, frequency of going to bars, a record of prior illegal activities or income from illegal sources, and dissatisfaction with one’s job. Drug use appears to decline with the education of the respondent but to increase with the education of parents. Drug use is higher among single people, males, urban residents, westerners, and (for hard drugs) whites. Given these personal characteristics, there appears to be no significant effect of the respondent’s wage rate or income from other legal sources. This study is not a sufficient basis for concluding t,ha.t the income elasticity of the demand for drugs is negligible, because it addresses only whether the respondents used some illegal drug in the prior year rather than the amount consumed. The most encouraging conclusion is that most regular drug use is limited to a small part of the popula.tion, most of whom have other personal problems.
The effects
of drug use on productivity
One of the perceptions
that affects drug policy is that drug use reduces pro-
ductivity and, in turn, wage rates and ea.rnings. The only apparent basis for this perception is the observation that many drug users have low wages. The correct inference, however, may be the opposite of the common perception: the personal characteristics a.ssociated with low wages may be the same that lead to drug use. As part of the study of drug use summarized in the above section, Gill and Michaels (1990) a 1so estimated the wage differences between drug users and nondrug users by techniques that control for both the personal characteristics that affect wages and those that affect drug use. They estimate that drug use (at least once in the prior year) appears to increase wages about 7 percent and that hard drug use may increase wages as much as 20 percent. This finding may be surprising, but it is quite consistent with a similar study by Berger and Leigh (1988) that concludes that alcohol consumption up through two drinks a day also appears to increase wages. These studies are not sufficient to resolve the economic concern about drug use because they do not address the possible effects of drug use on employment, but they suggest that moderate alcohol and drug use is not a major economic problem. 237
Drug enforcement
and crime
It is not clear that the rapid increase in drug enforcement activities in the 1980s reduced drug use. Both the price and the potency of marijuana increased sharply. The price of both cocaine and heroin declined substantially, and the average potency of both drugs increased. There is more evidence, however, that increased drug enforcement increases property crime. This relation operates through two effects: the effect of drug price and the effect of a diversion of police resources. following simple model:
Consider
the
C = aAmbPc
A = dL”S-f P = gL?s” where C is the total property crime rate, A is the probability of arrest for a property crime, P is the price of drugs, L is the total number of police per capita, and S is the share of police resources allocated to enforcing the drug laws. Solving this model for the property crime rate yields
The study of property crime in Detroit by Silverman, Spruill, and Levine (1975) provides estimates of the first equation, where b = .42 and c = .29. A recent study of property crime in Florida by Benson and Rasmussen (1990) provides estimates of the second equation, where e = .45 and f = .34. (These estimates do not reflect the additional effects on property crime of the reduction in conviction rates and effective penalties resulting from the crowding of courts and jails by drug-law offenders or of the reduced reporting of property crime resulting from a reduced clearance rate.) I know of no estimates of the third equation, but for this purpose it is useful to examine the effects of h and i over the range from .3 to .7. Combining these etimates yields the following relations between C, L, and S:
12,= i = .3 h = i = .7
c =c( L-JOS.23 C =c( L.01S.34
These equations suggest, tha.t the property crime rate is a weak (negative or positive) function of the number of police and a stronger positive function of the share of police resources allocated to drug enforcement. Moreover, these conclusions are stronger the more effective is police activity in increasing the price of drugs. Some part of the high property crime rates in our major cities must be attributed to enforcement of the drug laws. There are no similar studies of the relation between drug enforcement and violent crime. The selecti\-e evidence available, however, should not
238
be dismissed.”
One study estimates
that
about
10 percent
of assualts
in
1980 were drug-related. For the entire United States, nearly 8 percent of recent murders were drug related. Officials in Miami, Washington, and New York City estimate
that 30-40
percent of recent murders in these cities were
drug related. It is also important to observe that most of these drug-related assualts and murders are attributed to disputes over contracts or territory in the illegal market, not to the psychopharmacological effects of drug use. The victims of most of these assaults and murders were participants in the illegal drug market, although there have been some well-publicized deaths of third parties and police. A final piece of evidence may be the most convincing: the murder rate and the rate of assault with firearms increased substantially during the national prohibition of alcohol and then declined continuously for a decade after the end of prohibition.
Drug
enforcement
and health
Economists do not have a comparative advantage in evaluating the health effects of drug enforcement and drug use. A number of economists, including Reuter (1990), h ave reviewed these effects, but the basic studies are by pharmacologists and physicians. Economic theory, however, is useful to explain some of the health effects of drug enforcement. Since the probability of arrest is a positive function of the volume of drugs shipped and the number of transactions, one should expect drug enforcement to increase the potency of each drug and to shift consumption to the more potent drugs. One should also expect the “quality” of drugs (in terms of the variance of potency and the risk of dangerous adulterants) to decline in response to increased enforcement of the street markets, because such enforcement reduces the potential for a sustained relation between buyers and sellers. Drug use, in turn, should be expected to decline in response to both increased potency and lower quality. The available evidence is roughly consistent with these expected effects. Marijuana use peaked in about 1979 in association with the sharp increase in potency. Cocaine use peaked about 1985, shortly after the introduction of crack in the street markets. Heroin has largely replaced the use of opium and morphine. Drug enforcement
may also have led to more dangerous
use techniques.
Closing the “head shops” has probably reduced the use of water pipes in favor of smoking the now increasingly potent marijuana. Sniffing cocaine appears to have been largely replaced by smoking crack. Many of the deaths (from AIDS and hepatitis) associa.ted with the use of injected drugs such as heroin appear to be the result of dirty needles. A careful review of the available studies indicates that many of the adverse ‘OFor an efficient
summary
of this evidence,
239
see the study ;by J. Ostrowski
(1989).
health effects of current drug use, maybe most of these effects, are due to the side effects of prohibition of these drugs - overdose, adulterants, more risky use techniques, and a reluctance to seek early medical treatment.‘l Most of the drugs that are now illegal present some risk even in a controlled
setting,
but the risks appear to be much lower. In Canada, for example, cocaine is routinely applied in nasal surgery in doses that are about the same as in recreational use. A survey of surgeons revealed that this use of cocaine led to five deaths and 34 severe reactions following 108,032 applications of cocaine. l2 Even at this rate, however, a once-a-week cocaine user faces a probability of death that is roughly double that for nonusers. There are ample reasons to discourage the use of such drugs. The important issue is whether such drugs should be illegal. IV. Sorting
out the issues
about
drug
policy
Economists who a.ddress drug policy characteristically ask the following three questions: l What are the effects of a specific drug policy on drug users and suppliers? l What are the effects on third parties? l What would be the benefits and costs to each group of a change in drug policy? Most of the current debate on drug policy concerns marginal issues about more or less enforcement, more or less education and treatment. These are important issues but ones about which I have no special understanding or interest. This section addresses the more important structural issue about whether the prohibition of specific drugs is superior or inferior to a system of social controls, more like that for alcohol and tobacco, where drugs are legal; drug sales are subject to an excise tax; drug sales and some types of uses are regulated; there are penalties for those types of drug use that harm or threaten
third parties;
and private
institutions
establish
their own rules
affecting drug use by customers, employees, or members.13 My judgment is that the available data and studies are not sufficient to make good quantitative estimates of the benefits and costs of these two major alternative systems for the social control of drugs, but there is a reasonable the direction of most of the effects of drug legalization the rough magnitude of these effects. “Ostrowski
(1989)
estimates
that
as much as 80 percent
basis for estimating and, in some cases,
of the adverse
of illegal drugs may be due to these characteristics. This estimate, careful lawyer, not a medical specialist. “The book by Alexander (1990) summarizes this record. 13For an efficient summary social controls,
see Nadelmann
of the case for drug legalization (1988).
240
however,
subject
health
effects
is that
by a
to these types
of
Figure Economic
Effects
1:
of Drug Legalization
on Users and Suppliers
Price l(
I
b / 100 Quantity
Economic
e$ects on drug u.sers arnd suppliers
The legalization
of drugs would have two substantial
drugs: the price of legal drugs (including percent or less of the street price of illegal price would increase in response to‘lower legal drugs and the lower health risks
effects on the market for
an excise tax) would probably be 10 drugs. The demand for drugs at any search costs and risks of purchasing per unit of legal drugs consumed.
Figure 1 illustrates these two effects. The price elasticity of illegal drug use is based on the study by Silverman, Spruill, and Levine (1975) discussed above. For this example, the legalization of drugs is assumed to reduce the price per representative unit from $10 to $1 and to shift the demand function from di to eg. Given these two assumptions, the consumption of legal drugs would be twice the consumption of illegal drugs. In the illegal market, total expenditures are illustrated by the rectangle ackj and the net benefits to users by the triangle cdk. In the legal market, total expenditures are illustrated by the rectangle abfh and the net benefits to 241
users by the triangle
bef. Given these assumptions,
thus, legalization
would
reduce the total expenditure for drugs by 80 percent and would increase the net benefits to users (the difference betwen the triangles bef and cdk) by about 300 percent. The economic
effects of drug legalization
on the suppliers of illegal drugs
are more difficult to estimate, because there are no estimates of the supply function of illegal drugs. If the effective supply function is represented by the line from c through k, all suppliers would be at the margin, there is no rent in the illegal market, and the legalization of drugs would not reduce the net benefits to the illegal suppliers. The vicious turf wars in the illegal market, however, suggest that there is substantial rent in this market. For this reason, the supply function of illegal drugs is probably better represented by the line from b through k. In this case, legalization would reduce the rent to the suppliers of illegal drugs by the triangle bck, an amount about 45 percent of the total expenditures for illegal drugs, and increase the combined net benefits to users and the suppliers of illegal drugs by about 130 percent. A. reasonable estimate of the total expenditures for illegal drugs would permit estimation of the magnitude of the effects of legalization on the net benefits to users and the loss of rents to the illegal suppliers. The most recent estimate, by the White House Office of National Drug Control Policy, is that Americans spent $40.4 billion on illegal drugs in 199O.l* This estimate is far lower than previous estimates but still seems too high; total expenditures for alcohol and tobacco, for example, are now about $50 billion. The $40 billion estimate would imply about one million full-time-equivalent workers in the illegal drug market, about one worker per fifteen current users of any drug. On the basis of this recent estimate, legalization would increase the annual net benefits to drug users by about $74 billion and reduce the rents to the suppliers of illegal drugs by about $18 billion, and expenditures for legal drugs would be about $8 billion. All of these estimates,
of course, are substantially
speculative.
The major
lessons from this analysis, however, are not dependent on the range of uncertainty about these estimates. The first lesson is that drug legalization would lead to very large net benefits to drug users. The second lesson is that drug prohibition probably leads to large rents to the suppliers of illegal drugs.
Safety
and health
effects
on drug
users
and suppliers
One clear effect of drug legalization is that it would nearly eliminate the many assaults and murders in the illegal drug market. For 1988 the FBI attributed 1,023 murders to illegal drugs, but this is surely an underestimate 14This estimate
was reported
in the Washingfon
Post
on June 21, 1991.
because the motive for nearly 27 percent of murders was unknown;” a more reasonable estimate is that about 1,400 murders were directly attributable to the conditions Estimating more complex
of the illegal drug market.
the effects of drug legalization on the health of drug users is and involves estimates of the following three effects:
* the increase
in consumption;
* the reduction in the health risks per unit of consumption from using quality-controlled legal drugs of a known potency (possibly including an antidote that reduces drug toxicity), f rom the change in use techniques, and from the probable shift to less potent drugs; and * the change in the use of other risky substances, such as alcohol and tobacco. Each of these effects is uncertain but is subject to reasonable bounds. As explained earlier, my judgment is that drug legalization would roughly double the consumption of drugs. A large body of evidence suggests that many, perhaps most, drug-related health problems and deaths are due to unexpectedly high drug potency, risky adulterants in illegal drugs, and to more risky injection techniques. The Canadian record of cocaine use in nasal surgery, for example, would explain only about one-half the recent U.S. deaths attributable to the use of illegal cocaine. A large share of heroinrelated deaths, plus more tha,n 3,500 AIDS deaths a year, are attributable to the use of dirty needles. The experience following the end of alcohol prohibition, in turn, suggests that drug legalization would shift drug use to the less potent drugs. The combination of these offsetting effects suggests that drug legalization may either increase or reduce the total number of health problems
and deaths
due to drug use, but in any case the net effect would
probably be small. There are no available estimates of the third effect. Although a substantial share of drug-related health problems and deaths are attributable to the use of drugs in combination with alcohol, it is not clear whether drugs and alcohol are substitutes or complements. If drugs and alcohol are substitutes at the ma.rgin, as is the case for most products, drug legalization would reduce the consumption of alcohol and the health problem and deaths attributable to alcohol, probably by a small amount. In summary, the popular perception that drug legalization would lead to a large increase in health problems and demands on the medical system by drug users appears to be without merit. The potential net effects appear to be small and may be negative.
‘SStatistical
Abslrncl
(1990),
p. 173.
243
Major
effects
of drug
legalization
on third parties
For most of us (those who are not drug users or suppliers),
most of the effects
of drug legalization would be beneficial. One can be quite confident about the direction and relative magnitude of the following effects: * The threats to foreign nations (most importantly Mexico, Colombia, Peru, and Bolivia) from illegal drug suppliers would be nearly eliminated. * U.S. drug control expenditures (now over $10 billion a year), the crowding of courts and jails, the corruption of police and officials, and the arbitrary use of police power would be substantially reduced. A system of social controls on legal drugs similar to that for alcohol, however, may still cost several billions a year. * Assaults and murders incident to the illegal drug market and to druginduced robberies would be substantially reduced. * Property crime would decline, possibly by a substantial amount. * The transmission of AIDS to the sexual partners of drug users would be substantially reduced. * The excise taxes on legal drugs would generate tax revenue, probably about $4 billion a year. There are several potential a.dverse effects of drug legalization on third parties that merit more attention. The progressive socialization of medical insurance has created a new type of externality: all of us pay some part of the medical costs of the publicly insured and the uninsured. As a consequence, all of us have a stake, in addition to normal human caring, in the number of people with serious drug-related health problems. As explained in the above section, however, it is not clear that legalization would increase the number of drug users with health problems, and the potential effects appear to be small in a,ny ca.se. A more serious potential problem is that different drugs have different psychopharmacological effects. Heroin is an opiate that substantially reduces all active behavior and may increase welfare dependency. Cocaine is a stimulant that can increase aggressive behavior. The available evidence suggests that both of the effects are very small at current rates of drug use. The magnitude of these effects is probably proportional to drug consumption and might double with drug legahzation. The most serious potential problem is that drug use (as well as alcohol and tobacco use) during pregnancy can affect the health of the baby and may affect its future lea.rning ability. A recent survey suggests that about 11 percent of babies born in ma.jor metropo1ita.n areas are exposed to some illegal drug, primarily cocaine, during pregnancy. Nearly one-third of these babies have some health problem, usually low birth-weight, at birth. The risk of low birth-weight due to cocaine exposure during pregnancy appears to be roughly equal to that resulting from moderate to high consumption of alcohol and 244
tobacco. The research on the longer-term effects of drug exposure during Drug legalization would probably pregnancy is still quite inconclusive.16 increase this problem; because sanctions
penalizing
discourage
the mother is not a sufficient policy response
early medical examinations,
warnings, and care.
In summary, the legalization of drugs, as with alcohol and tobacco, would reduce some problems and increase others. There is a reasonable basis for informed people to disagree on the balance of the benefits and costs of drug legalization, especially if the substantial benefits to drug users are not considered relevant. Most economists who have studied drug issues appear to favor the legalization of at least some drugs, reflecting our skepticism about corner solutions. One should also recognize, however, that politicians make a living by transforming virtues into requirements and sins into crimes, and they often regard the policy views of economists as quite bizarre.
“For
an efficient summary
of this evidence,
245
see the article by Gieringer
(1990)
References Alexander, on Drugs.
Becker,
B., (1990). Peaceful Measures: Canada’s Toronto: University of Toronto Press.
G. and Murphy, K., (19SS).
nal of Political
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M. and Leigh, P., (19SS).
plied Economics,
20:
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Out of the
Addiction,
War
Jour-
675-700.
Benson, B. and Rasmussen, D., (1991). Drug Enforcement Policy and Property sues, IX, No. 4, 106-115. Berger,
Way
The Relationship Between Illicit Crimes. Contemporary Policy Is-
The Effect of Alcohol Use on Wages.
Ap-
1.333~1351.
Cook, P. and Tauchen, G., (19s’). Drinking. Bell Journal of Economics,
The Effect
How h/Ian>.Crack Babies?
Gieringer, D., (1900). ter, March/April, 4.
of Liquor Taxes
on Heavy
13: 379-390.
The Drug Policy
Newslet-
Gill, A. and Michaels, R.. (1990). Drug Use and Earnings: Accounting for the Self-Selection of Users. \Vorking Paper 11-90, California State University, Fullerton. Gill,
A. and Michaels.
Contemporary
Lord,
Policy
N., (1990).
Dealers, Policy.
Kaplan,
R., (1991). The Determinants IX. No. 3. 9%105.
of Illegal
Drug Use,
IsNes.
Violence
in Drug Tra,fficking:
An Optimal
Strategy
Arnold Trebach, and Kevin Zeese (eds.), The Great Issues The Drug Policy Foundat,ion: Washington, DC. J., (1975).
A P rimer on Heroin.
Stanford
Law Review,
27:
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of Drug
801-826.
Mandel, J., (1990). P uss~v Cat,s and Lions: British vs. U.S. Drug Problems, Arnold Trebach, and Kevin Zeese (eds.), The Great Issues of Drug Policy, The Drug Policy Foundation: \Vashington, DC. Miron, J. and Zweibel, J., (1992). American
Musto,
Economic
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(19S7).
Reaifw,
.~lcohol consumption
During Prohibition.
forthcoming.
The History of Legislative 246
Controls
Over Opium,
Co-
Caine, and Their
Derivatives,
Lexington
Lexington,
Books:
Ronald
Hamowy
Massachusetts,
(ed.),
Dealing
vlith Drugs.
37-71.
Nadelmann, E.A., (1989). Drug Prohibition in the United Consequences, and Alternatives, Science, 245: 939-946.
States:
Costs,
of the Price and ExS ome Estimates Nisbet, C. and Vakil, F., (1972). penditure Elasticities for Marijuana Among U.C.L.A. Students, Review of Economics and Statistics. 54: 473-475. Ostrowski, J., (1989). Thinking About Drug Legalization. Policy Analysis No. 121. Washington, D.C. President’s Abuse,
Commission
Drug
Trajicking,
Reuter, P., (1990). a Hoover Institute
on Organized
Cato
Institute
Crime, (1986). America’s Habit: Crime. Washington, DC.
Drug
and Organized
On the Consequences of Toughness. conference. November.
Paper presented
at
Ruter, C.F., (1990). B asis of Dutch Policy, Arnold Trebach and Kevin Zeese (eds.), The Great Issues in Drug Policy. The Drug Policy Foundation: Washington, DC. Silverman, L., Spruill, N., and Levine, D., (1975). Urban Crime and Heroin Availability. Center for Naval Analysis: Public Research Institute Report 75-1, Washington, DC. Trebach,
A., (1987).
The Need for Reform of International
Ronald Hamowy (ed.), Francisco. Trebach,
A. and Zeese,
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Dealirzg
K., (eds.)
and the Conscience
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DC.
U.S. Bureau Washington,
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(1990).
of Nations.
Statistical
Institute
on Alcoholism
247
Institute:
Laws, San
The Dutch Do It Better, Drug The Drug Policy Foundation:
Abstract
and Health.
on Drug Abuse,
Narcotics
Pacific Research
of Health and Human Services,
to the U.S. Congress
U.S. National
With Drugs.
(1989).
of the United
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(1988). Fifth Special Report Washington, DC. Drug
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Reducing the Health Washington, DC.
Warburton, C., (1932). The E conomic Columbia University Press.
24s
Results
DC.
Consequences
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New
of
York:
Economists
William The
Conference Series on Public Policy 36 (1992) 223-248
and drug policy
A. Niskanen
Cato Institute
Abstract Economists
have made a substantial
contribution
to understanding
the illegal
drug market and the probable effects of alternative drug policies, despite the lack of adequate
price and consumption
dependent
data. Current patterns of drug use are primarily
on personal characteristics.
Drug legalization,
however, would substan-
tially reduce the price and increase the demand for drugs, possibly consumption
doubling
of the now illegal drugs. The major effects of drug legalization
be large net benefits to drug users, the elimination
the
would
of the rents to illegal suppliers,
and a reduction in crime and social control costs. The effects on the health status of drug users may be either positive or negative but are likely to be small.
I. Introduction For most economists, surely for this one, the illegal drug market is like a distant country with a language and culture that we do not understand and about which the data range from poor to nonexistent. For this reason, an economist
who addresses
drug policy risks be‘ing an innocent
abroad.
What do economists have to say about drug policy? Specifically, what do we have to say that might convince political officials to change current drug policies? This paper addresses these questions, based primarily on data available to the general public and the developing literature on this issue by other economists. My primary incentives for addressing these issues are that the Cato Institute has been a leading advocate for reconsidering drug policy and that I live near the center of a city with the nation’s highest murder rate. My only advantages in addressing this issue are my own graduateschool studies of the markets for cigarettes and alcoholic beverages and my developing skepticism about the case for “wars,” whether in some distant desert or in the inner city. This paper, thus, is a record of my own odyssey 0167-2231/91/$03.50
0 1991 - Elsetiqr Science Publishers B.V.
All rights reserved
through the available data and economic literature to sort out my own views on drug policy.
II. The
public
record
in a continuing
attempt
on drugs
In a nationally televised address in September 1989, President Bush stated that “All of us agree that the gravest domestic threat facing our nation today is drugs.“l Let us first look at the generally available data that might have led President Bush and many others to this conclusion. Most of these data are summarized in the annual Statistical Abstract of the United States 1990.
Drug
Use
The most comprehensive data on drug use are collected every several years by the national Household Survey of Drug Absue.2 Table 1 summarizes the data from the 1988 household survey. This table excludes the available data on the nonmedicinal use of a variety of other legal and illegal drugs (inhalants, hallucinogens, analgesics, stimulants, sedatives, and tranquilizers) for which use rates are similar to those for cocaine. Other data from the survey (not shown) indicate that the weekly use rate is about 56 percent of the monthly use rate for marijuana and about 28 percent for cocaine. 0 t her sources estimate that the total number of current heroin users is about 0.5 million.3 The most obvious lesson from this table is that only a small share of the population is a current user of any illegal drug. Many commentators, including President Bush, have repeated the estimate that 23 million Americans are current dug users. The number of drug users, however, is not additive across types of drugs. Most users of the hard drugs, for example, also use marijuana, and many drug users use combinations of drugs, such as stimu‘Address 2This reporting
by the President
survey
is subject
bias-but
three percent
on National to three
the potential
Drug Policy,
types
magnitude
of the U.S. population
September
of error-sampling
5, 1989.
bias, sampling
of these errors is probably
are in institutions
error,
not large.
and
Around
or are homeless and are not covered
by the survey; most of this group, however, are in institutions (old-age homes, hospitals, prisons, and military quarters) where access to illegal drugs is severely restricted. The Household Survey is based on a sample of nearly 9,000, so the sampling error is quite small except for those drugs for which reported use is small. The survey results are now based on written
confidential
responses;
may
over time,
but the magnitude
have varied
drug use is probably
under-reported
of this bias is probably
and this bias small.
A more
serious problem is the substantial nonreporting share of those sampled. There has been no effort to resample this group, so there is no basis for confidence that those reporting are a representative sample of the total number sampled. These results, however, are quite consistent with other types of samples where there is an independent confirmation of drug use based on urine samples. 3President’s
Commission
on Organized
Crime
224
(1986).
Table 1: Drug Use by Type of Drug and Age Group,
use Rate Type
ofDw
Alchol Cigarettes Marijuana cocaine Heroin
12-17 Ever current
Age Group 1825 Ever current (Percent of Group)
Over 25 EVW current
50.2 42.3 17.4 3.4 0.6
90.3 75 .o 56.4 19.7 0.4
88.6 79.6 30.7 9.9 1.1
25.2 11.8 6.4 1.1 na
1988 Total[l]
65.3 35.2 15.5 4.5 na
54.6 29.8 3.9 0.9 na
Ever current [2] (millions) 172.5 152.5 67.6 21.8 1.9
108.4 58.5 12.0 3.0 M
1. Assumes drug-use rate in nonhousehold population is the same as in the household population. 2. Current use is defined as those who have used a specific drug at least once in the prior month. na: not available Source: U.S. National Institute on Drug Abuse, National Household Survey of Drug Abuse 1988; data summarized are from U.S. Bureau of the Census, Statistical Abstract of the Umted States 1990, p. 122.
lants and opiates, with opposite pharmacological characteristics. The total number of current drug users, thus, is only somewhat higher than the number of marijuana users, about 6 percent of the total population. A more interesting lesson from these data is the revealed patter of addiction rates. The concept of addiction is subject to a range of interpretations and measures. For my purpose, the addiction rate is best measured by the percent of those who have ever used a specific drug who are current users. Table 2 presents estimates of the addiction rate by type of drug and age group, based on the same data presented in Table 1, excluding heroin for lack of data on the current use rate. The revealed addiction rates presented in this table display several patterns. declines as a function of the potency may find reasonable
First, in general, the addiction rate of a drug, a pattern that economists
but that is quite contrary
to popular perceptions.
Sec-
ond, the addiction rate for legal drugs peaks in the 18-25 age group. Third, the addiction rate for illegal drugs peaks in the 12-17 age group. The primary problem of interpreting Table 1 and Table 2 is that the pattern of drug use by age group reflects both an age effect and a cohort effect. Those now over 25, for example, were young teenagers in years in which social attitudes and the illegal drug market were quite different from current conditions. Those who are now young teenagers will have a quite different ever-used record when they are over age 25. These two effects, however, can be separated by statistical analysis of the household survey data. For this purpose, I have used the following test equation: LCU = C + bYAD + cADD + dCGD + eALD + fLEU
Addiction
Table 2: Rate by Type of Drug and Age Group 1988 Age Group 12-17
18-25 Over 25 (Percent)
Type of Drug Alcohol Cigarettes Marijuana
50.2 27.9 36.8
72.3 46.9 27.5
61.9 37.4 12.7
Cocaine
32.4
22.8
9.1
where: LCU C YAD ADD
is is is is
CGD
is a dummy variable for specific to the two older is a dummy variable for specific to the two older
ALD LEU
the natural log of the current-use percent, the constant, a dummy variable for the 18-25 age group, a dummy variable for the over-25 age group,
is the natural
log of the ever-used percent.
The results of this regression, in the 1988 household
cigarettes, age groups, alcohol, age groups, and
based on a sample of all of the drugs included
survey except heroin, are summarized
Variables C YAD ADD CGD ALD LEU N = 29
Coefficient -1.840 -0.577 -1.004 0.683 1.114 1.248 R2 = .974
below:
Standard Error ,148 ,130 .130 .243 .248 .062 S.E.R. = ,273
For the most part, these regression results are consistent with the patterns revealed in Table 2. The strongest effect on the current-use rate is the everused rate, with an elasticity significantly larger than unity. The constant and 226
the several dummy variables each measure the effect on the current-use rate relative to the ever-used rate; in effect, the constant is the dummy variable for the 12-17
age group. The coefficients
that the addiction rate the 18-25 age group, The coefficients on the is somewhat higher for
for the age-group dummies indicate
is lowest among the 12-17 age group, highest among and somewhat lower among the over-25 age group. drug-type dummies indicate that the addiction rate cigarettes and alcohol than for the set of illegal drugs;
it is not clear whether this effect is specific to these types of drugs or whether it is a consequence of the legal status two older age groups.
of these drugs for most people in the
These relations should also be helpful in forecasting future drug use under present drug policies. The ever-used rate for the group now of ages 12-17 is lower than for the same age group a decade ago for almost every drug. This implies that current drug use among the older groups would probably continue to decline slowly under present drug policies.
Drug Arrests A substantial amount of police resources are used to control the distribution and use of both legal and illegal drugs. Table 3 summarizes the arrest rates for alcohol and illegal drugs from the FBI crime reports for 1988. The first lesson from this table is that even legal drugs involve a substantial amount of enforcement activity; (the summary arrest data do not include any arrests for violation of the tobacco laws). This implies that regulation of other drugs by a system of social controls similar to that for alcohol would involve substantial continued enforcement expenditures. (A large share of the current expenditures to control illegal drugs, however, is for enforcement activities in other countries or at the U.S. border, and legalization would nearly eliminate these activities.) A second lesson is that the arrest rates per current user are roughly the same for alcohol, marijuana, and drugs other than cocaine and heroin. The arrest rates per current user of cocaine and heroin, however, are many times that for the other drugs, roughly 10 times as high for distribution violations and five times as high for use or possession violations. It is important to recognize that the laws bearing on alcohol and illegal drugs differ in two major ways. The importation, manufacture,-and sale of alcoholic beverages is legal subject to specific restrictions, and the distribution arrests are for violations of these restrictions. For illegal drugs, the importation, manufacture, and sale is illegal except for narrowly restricted medical use. For alcohol, the abuse violations are for specific types of offensive or threatening public behavior. For illegal drugs, the abuse violations are for mere possession. 227
Table 3: Arrests for Distribution
or Use of Drugs
1988 Rate per 100,000 Residents Current Users[l]
Type of Drug Alcohol Distribution Drunkenness Driving While Intoxicated TOTAL Marijuana Distribution Possession TOTAL Cocaine or Heroin Distribution Possession TOTAL Other Drugs Distribution Possession TOTAL
1. Estimates for cocaine
of current or heroin
these groups;
454 559 1,194 2,207
25 130 155
520 2,665 3,185
75 154 229
5,253 10,794 16,047
24 42 66
817 1,462 2,279
users based on 1988 Household and for other
for these groups, Federal
260 321 685 1,266
Bureau
drugs
assume
the estimated
Source:
U.S.
marized
are from the U.S. Bureau
arrest
of Investigation, of the census,
1990, pps. 177, 178.
228
Survey.
current-use
Estimates rates
of arrest
are additive
rates within
rates are biased downward.
Ctime
in the
Statistical
United States; data sumAbstract of the United States
Health
Effects
of Drug
Use
Most of the legal and illegal drugs have significant health effects. Table 4 summarizes the available data on the number of annual medical treatments, and deaths emergencies, the late 1980s.
attributable
The first lesson from this table
to specific is that
drugs for various years in
use of the major
legal drugs is
a major cause of health problems and deaths. Around 350,000 people are clients of alcoholism treatment centers, about .3 of one percent of current alcohol users. Around 600,000 deaths per year may be attributable to the direct and indirect effects of alcohol and cigarette consumption, nearly 30 percent of deaths from all causes. (I do not necessarily endorse these estimates; they are difficult to reconcile with the detailed data on mortality, which report about 26,000 dea.ths due to chronic liver disease and 141,000 deaths due to lung cancer in 1988. The total number of deaths due to alcohol and cigarettes, however, must be at least several hundred thousand.) The mQre important lesson from this table is that illegal drugs cause substantial health problems but remarkably few deaths. Around 260,000 people are clients of drug-abuse treatment centers, nearly two percent of the current drug users. Around 160,000 emergency-room episodes per year are attributable to some drug, about one percent of the current drug users. A total of 6,756 deaths was reported as drug induced or drug related in 1988, 21 percent of which were apparent suicides. For comparison, the number of accidental deaths due to drugs is only somewhat larger than the number of accidents due to drowning or fires. Only a few deaths are attributed to marijuana-use only. The attribution of deaths to any specific drug is necessarily imprecise because of the prevailing pattern of multiple drug use. The use of drugs that are now illegal clearly causes substantial health problems, but it is difficult to understand the basis for a conclusion “...the gravest domestic threat. to our nation today.”
III. The contribution
of economists
that it represents
to understanding
drugs
Economists have made a substantial contribution to understanding drug use and drug policy, despite the paucity of personal experience and relevant data. The general skills that economists bring to this issue are the same as have proved valuable to understand other issues - a theory of rational behavior, understanding of markets, sophisticated empirical techniques, and a distinctive approach to the analysis of public policy. This section reviews the major contributions by economists to understanding the most important questions that bear on the choice of drug policy. 229
Table 4: Health Effects of Drug Use 1987 or 1988
Types of Drug Alcohol Cigarettes Drugs Marijuana Cocaine Heroin Other TOTAL
Treatment [l] Emergencies[2] Deaths[3] (thousands of people per year) 351 na
46.6 na
229
na na. na na 264
10.7 62.1 20.6 121.5 160.0
0.3 3.3 2.5 10.4 6.8
390
na: not available. 1. Number of clients served by alcoholic and drug-abuse treatment centers, 1987. Source: U.S. National Institute on Drug Abuse and U.S. National Institute on Alcohol Abuse and Alcoholism, National Drug and Alcoholism Treatment Unit Survey: Main Findings 1987 data summarized are from U.S. Bureau of the Census, Statistical Abstract of the United States 1990, p. 122. 2. Number of emergency-room episodes in 1988 in which a specific drug is mentioned as a cause of the emergency. The number of alcohol-related episodes include only those episodes for which alcohol is used in combination with one or more other drugs. The total number of drug “mentions” is much higher than the number of drug episodes, because 46 percent of the episodes involve more than one drug. Source: U.S. National Institute of Drug Abuse, Drug Absue Warning Network (DAWN) Annual Data 1988, Series 1, Number 8.
3. Source of the number of deaths due to alcohol: U.S. Department of Health and Human Services, “Fifth Special Report to the U.S. Congress on Alcoholism and Health.” Source of the number of deaths due to smoking: U.S. Public Health Service, “Reducing the Health Consequences of Smoking: 25 Years of Progress,” 1989. Number of deaths due to drugs is from the DAWN report (referenced above). Number of deaths due to a specific drug includes those in which more than one drug is mentioned as a cause of death. The total “mentions ” is much higher than the number of drug deaths, because number of drug-death 77 percent of drug-related deaths involve the use of more than one drug.
230
A theory Several elegant
of rational
addiction
years ago, Becker and Murphy (1988) develped a characteristically model of rational addiction. This model incorporates the effects of
both “reinforcement” and “tolerance” on current consumption. Reinforcement implies that higher past consumption increases the demand for current consumption, but tolerance implies that the utility from current consumption is a negative function of prior consumption. The model is developed from the following function:
u(t) = 44a W), y(t)l, where U(t) is utility at time t, c(t) is the current consumption tive good, S(t) is the stock of “addictive capital” that depends sumption, and y(t) is the current consumption of a nonaddictive authors then demonstrate that revealed consumption behavior state (where c = 6s) will reflect a net reinforcement effect only
of an addicon past congood. The in a steady if
where u is the individual’s rate of time preference, and 6 is the rate of depreciation on the stock of addictive capital. For such addictive goods, the past, current, and expected future consumption are complements. From this simple model, the authors derive a rich set of behavioral hypotheses: l Addictive behavior is more likely for those who have a high rate of time preference, such as young people and the poor. l Addictive behavior is more likely for those goods for which the rate of depreciation of the stock of addictive capital is higher. l
Some people never consume addictive
goods.
0 Some people return to a zero consumption sumption of addictive goods. l Some consumers of addictive they reach a higher steady state. l The long-run short-run elasticity. l
The long-run
(absolute)
goods go on a consumption
price elasticity
price elasticity
level after some prior con-
of demand
“binge” until
is higher than the
is higher for those with a stronger
addic-
tion. The ratio of the long-run to short-run with a stronger addiction. l
price elasticity
is higher for those
This is an impressive theoretical development, and the behavioral hypotheses are consistent with the observed consumption behavior in the mar231
kets for a number of legal drugs. 4 The important issue is whether this model describes the consumption behavior for those drugs that are now illegal.
The price
elasticity
For several reasons,
of demand
for illegal
there are no conventional
drugs
studies of the demand
func-
tions for illegal drugs. The available price data are limited and usually do not control for drug potency. In addition, there are no direct measures of consumption. As far as I know, there are only two careful studies of the price elasticity of demand for illegal drugs, one for marijuana and one for heroin, both using unconventional techniques. Nisbet and Vakil (1972) report estimates of the price elasticity for marijuana from -1.0 to -1.5, based on a mailed confidential “what if?” survey of U.C.L.A. students. These estimates seem consistent with the Becker-Murphy hypotheses, but they are not based on revealed behavior and do not merit additional comment. The only careful study of the price elasticity of demand for illegal drugs based on revealed behavior is that by Silverman, Spruill, and Levine (1975). This study examines the effects on monthly variations in property crime in Detroit of the variations in the street price of heroin, controlled for trend, seasonal conditions, law-enforcement activities, and the potency of the heroin sold. The test equations reflect an a,ssumption that increases in the expenditure for heroin increase the incentive to augment other income by property crime. The estimated price elasticities for heroin, based on the sample of all property crimes, are reported below:
Estimated
Price
Elasticity
of Demand
Current
Price
+
Average
2 Heroin
for Heroin Price
1
Potency
2.5%
-.380
-.241
10.0%
-.355
-.215
4The consumption of alcohol, however, does not appear consistent with these hypotheses. The study by Cook and Tauchen (1982) f ound that the long-run effect of increases in state liquor taxes on cirrhosis mortalit,y was slightly lower than the first-year effect, and the effect appendix about
on cirrhosis mortality was lower than to this study explains the conditions
double
consistent
the short-run
effect,
on liquor consumption. for which the long-run
but, the empirical
with this hypothesis.
232
results
on cirrhosis
A mathematical effect would be mortality
are not
These results are strongly inconsistent with several of the Becker-Murphy hypotheses. The long-run price elasticity is lower than the short-run elasticity,
suggesting
that
past and current
consumption
are substitutes.
Sec-
ond, the price elasticity for those who purchased the more potent heroin is somewhat lower than for those who used the less potent heroin.5 In addition, some supplementary calculations indicate that the price elasticities were much lower in the poor neighborhoods of Detroit than in the more affluent neighborhoods. of demand by regular dom. The heroin, for
These several estimates
suggest that the (absolute)
elasticity
by casual users is quite high but that the long-run price elasticity users is much lower, more consistent with the conventional wisBecker-Murphy model may not have much relevance to goods, like which the addiction rate is quite low.
The effects
on drug consumption
of drug legalization
These quite precise, but indirect, estimates of the price elasticity of the demand for heroin are the best available. For several reasons, however, these estimates are of little value for estima,ting the effects on drug consumption of drug legalization: l Theory and the available evidence are not sufficient to determine the form of the demand function over a substantial price range. This is not important for small price changes but is very important for large price changes. For example, given a price elasticity of -.24 within the observed price range, a go-percent reduction in the retail price would lead to a 74-percent increase in per capita consumption if the demand function is logarithmic but only a 22-percent increase in per capita consumption if the demand function is linear. l The retail price of legal drugs is quite uncertain and would be strongly dependent on tax and regulatory policies. retail price, however, is huge. For cocaine
The potential reduction in the and heroin of uncertain quality
that now sells on the street for $10, the cost of production is five to ten cents.6 (I do not know of similar estimates for marijuana.) As with alcohol, both the legal retail price of drugs and the remaining illegal market would depend on the level of product-specific taxes and regulations on legal distribution. l Most important, legalization of drugs would increase the demand for drugs at any price. Current users of illegal drugs face two types of costs in addition to the street price. First, the costs of purchase include search
‘Both of these results are consistent by Cook and Tauchen (1982). ‘jN. Lord (1990) cocaine
estimates
is about 0.8 percent
with those from the study of alcohol consumption
that the price paid to the Medellin cartel of the street price.
equivalent
of heroin available
the street
price of heroin.
through
J. Kaplan (1975)
legal medical
233
reports
for a kilogram
of
that the morphine
channels sells for about 0.7 percent
of
costs and the risks of assault and arrest. Second, the costs of use include the risks of drugs of uncertain potency, adulterants, and of some use techniques. Drug legalization would eliminate most of these two types of costs. Moreover, legal cocaine and heroin would probably include known antidotes substantially reduce the toxicity of these drugs.
that
In summary, legalization would both reduce the price of drugs and shift the demand function for drugs. Economists are now able to offer only crude estimates
of the price effects and no evidence of the demand-shift
effects.
Three other types of evidence also bear on this issue: the level of alcohol consumption before, during, and a.fter “the noble experiment” with the national prohibition of alcohol, the available record on drug use prior to the prohibition of hard drugs beginning in 1914 and of marijuana beginning in 1937, and the experience with alternative policies in other nations. The classic study by Warburton (1932) provides the best estimates of the effects of prohibition on the consumption of alcoholic beverages. Table 5 presents the Warburton estimates of consumption during prohibition and the public data for comparable periods before and after prohibition. J. Miron and J. Zwiebel (1991) h ave recently reaffirmed Warburton’s estimates of the effect of prohibition on total consumption of alcohol, based on a different functional form and a longer sample period. Apparent consumption of each alcoholic beverage declined in the early years of prohibition, most sharply for beer. Although expenditures to enforce the Volstead Act increased sharply during the 192Os, apparent consumption of spirits and wine was higher at the end of the decade than prior to prohibition. During the late 192Os, the real price of each beverage was about 2.5 times the price prior t’o World War I. As of 1940, when real per capita income had recovered to the 1929 level, the level of spirits and wine consumption was about the same as during the late years of prohibition, and beer consumption was about the same as prior to prohibition. After the early years, the primary effects of prohibition on alcohol consumption, thus, appear to have been a reduction in the consumption of beer. Several related statistics also bear on the effects of the prohibition of alcohol: the death rate from chronic liver disease roughly doubled from the 1920s through 1970 and has since declined by about one-third. The death rate from alcohol poisoning, however, increased sharply during prohibition and declined sharply after the end of prohibition. From this experience with alcohol prohibition, Miron and Zwiebel speculate that the legalization of drugs would not lead to a substantial increase in drug consumption. The primary reason to qualify the relevance of this experience is that the end of alcohol prohibition reduced the real retail price by about 60 percent, whereas drug legalization might reduce the retail price by over 90 percent. The other U.S. experience
tl1a.t may provide some guidance 234
to the prob-
Table 5: Consumption
Years 1911-1914 1921-1922 1927-1930 1939-1941
of Alcoholic 1911-1941
Beverages
Beer Spirits Wine Annual Gallons Per Capita 1.71 .59 20.53 1.07 .51 1.49 1.88 .98 6.27 1.73 1.06 19.67
Sources: Clark Warburton, The Economic Results of Prohibition University Press, 1932. Later data from industry publications.
New York:
Columbia
able effects of drug legalization was the use of drugs prior to the imposition of national controls beginning in 1914. ’ In the late 19th century opium, morphine, and cocaine were legal and widely available without prescription. Parke-Davis sold cocaine for a variety of beverage, smoking, and medicinal uses beginning in lSS5. Heroin was the brand name of a cough suppressant sold by Bayer beginning in lS9S. After an accumulation of medical warnings, however, the use of opiates peaked in the 1890s at about twice the estimated present rate, and the use of cocaine peaked about 1905. After passage of the Pure Food and Drug Act in 1906, which required that the presence of specific drugs be identified on the label of patent medicines, the use of these drugs declined by one-third to one-half long before their use was prohibited. Although popular magazines increasingly warned their readers against the use of patent medicines including these drugs, there was no organized drug prohibition
movement
and no press reports
of a “drug crisis.”
The major
lesson from this experience is that drug use peaked at rates about twice the estimated present rate and subsequently declined in response to more broadly available information about the effects of drug use. The current
record of drug policies and drug use in the Netherlands
and
Great Britain may provide an even better guide to the effects of relaxing drug-use controls in the IJnited States. For nearly two decades, the Netherlands has had the most relaxed drug laws of any industrial country, generally treating drug use as a public-health problem rather than as a police problem.8 Drug users are provided with clean needles, counseling, and treatment but are not subject to prosecution for use or for possession of small amounts of 7For an efficient summary the article
by Musto
‘See Ruter (1990)
of the U.S. esperience
with drugs prior to prohibition,
see
(1987). and Trebach
and Zeese (1990)
235
for summaries
of the Dutch experience.
any drug. Criminal prosecution is focused on major suppliers. Many coffee houses sell marijuana and are not subject to police interference unless they sell wholesale quantities or to those under age 16, or unless they advertise more than by a marijuana-leaf decal on their windows. Current use rates among Dutch teenagers are slightly higher than in the United States for alcohol and tobacco but are a fraction of the U.S. rates for other drugs, and marijuana use appears to be declining; these data overstate the current use rates among the native Dutch, because a substantial share of drug users are foreigners. In a population of 15 million, there are less than 100 drug-related deaths a year. And the murder rate in Amsterdam is about one-tenth that in Washington, DC. Drug policies in the Netherlands are broadly supported, and the results of these policies so impressed the American ambassador that he recommended careful study of this experience. British policies affecting cocaine and heroin addicts are similar to those in the Netherlands, despite the tightening of official policies in the late 1960s and the strident rhetoric of British politicians.g Legal cocaine and heroin are not available for recreational use, but British physicians may prescribe these drugs to their addict-patients. Local governments are experimenting with different treatment practices. Such policies, however, do not apply to marijuana, smoked opium, or a range of other drugs. The British are broadly perceived to have rejected the “decriminalization option” in 1968, but this is misleading. A comparison of arrest records, for example, indicates that the number of drug arrests per capita in the United States is 10 times the British rate; excluding ma.rijua.na., for which British policies are similar to American policies, the U.S. arrest rate is 35 times the British rate. The British courts have progressively increased the proportion of those arrested for drug-use offenses who are subject to probation and treatment rather than incarceration. Current-use rate in Britain are lower than in the United States and appear to have declined since the mid-1980s. The de facto British policy of “harm reduction” does not appear to have led to a significant increase in drug use or health problems,
and the costs of social control are much lower
than in the United States. My rough judgment, based on these several types of evidence, is that drug legalization might double the present rates of drug use but that any estimate of this effect is subject to large error.
Other
conditions
affecting
drug use
As the above section illustrates, economists have been able to make only indirect inferences about the effects of drug price on drug consumption. The available information, however, permits a much better understanding of the ‘See Mandel (1990) and Trebach
(1987) for summaries
236
of the British
experience.
other conditions that affect drug use. A. Gill and R. Michaels (1991) have recently completed an analysis of the 1984 National Longitudinal Survey of Youth, using a probit analysis to estimate the effects of a variety of personal and economic conditions on the probability that a person has used one or more illegal drugs in the prior year. Their general conclusion is that personal characteristics, rather than economic variables, are the primary determinants of drug use. For example, drug use appears to be most strongly related to alcohol abuse, frequency of going to bars, a record of prior illegal activities or income from illegal sources, and dissatisfaction with one’s job. Drug use appears to decline with the education of the respondent but to increase with the education of parents. Drug use is higher among single people, males, urban residents, westerners, and (for hard drugs) whites. Given these personal characteristics, there appears to be no significant effect of the respondent’s wage rate or income from other legal sources. This study is not a sufficient basis for concluding t,ha.t the income elasticity of the demand for drugs is negligible, because it addresses only whether the respondents used some illegal drug in the prior year rather than the amount consumed. The most encouraging conclusion is that most regular drug use is limited to a small part of the popula.tion, most of whom have other personal problems.
The effects
of drug use on productivity
One of the perceptions
that affects drug policy is that drug use reduces pro-
ductivity and, in turn, wage rates and ea.rnings. The only apparent basis for this perception is the observation that many drug users have low wages. The correct inference, however, may be the opposite of the common perception: the personal characteristics a.ssociated with low wages may be the same that lead to drug use. As part of the study of drug use summarized in the above section, Gill and Michaels (1990) a 1so estimated the wage differences between drug users and nondrug users by techniques that control for both the personal characteristics that affect wages and those that affect drug use. They estimate that drug use (at least once in the prior year) appears to increase wages about 7 percent and that hard drug use may increase wages as much as 20 percent. This finding may be surprising, but it is quite consistent with a similar study by Berger and Leigh (1988) that concludes that alcohol consumption up through two drinks a day also appears to increase wages. These studies are not sufficient to resolve the economic concern about drug use because they do not address the possible effects of drug use on employment, but they suggest that moderate alcohol and drug use is not a major economic problem. 237
Drug enforcement
and crime
It is not clear that the rapid increase in drug enforcement activities in the 1980s reduced drug use. Both the price and the potency of marijuana increased sharply. The price of both cocaine and heroin declined substantially, and the average potency of both drugs increased. There is more evidence, however, that increased drug enforcement increases property crime. This relation operates through two effects: the effect of drug price and the effect of a diversion of police resources. following simple model:
Consider
the
C = aAmbPc
A = dL”S-f P = gL?s” where C is the total property crime rate, A is the probability of arrest for a property crime, P is the price of drugs, L is the total number of police per capita, and S is the share of police resources allocated to enforcing the drug laws. Solving this model for the property crime rate yields
The study of property crime in Detroit by Silverman, Spruill, and Levine (1975) provides estimates of the first equation, where b = .42 and c = .29. A recent study of property crime in Florida by Benson and Rasmussen (1990) provides estimates of the second equation, where e = .45 and f = .34. (These estimates do not reflect the additional effects on property crime of the reduction in conviction rates and effective penalties resulting from the crowding of courts and jails by drug-law offenders or of the reduced reporting of property crime resulting from a reduced clearance rate.) I know of no estimates of the third equation, but for this purpose it is useful to examine the effects of h and i over the range from .3 to .7. Combining these etimates yields the following relations between C, L, and S:
12,= i = .3 h = i = .7
c =c( L-JOS.23 C =c( L.01S.34
These equations suggest, tha.t the property crime rate is a weak (negative or positive) function of the number of police and a stronger positive function of the share of police resources allocated to drug enforcement. Moreover, these conclusions are stronger the more effective is police activity in increasing the price of drugs. Some part of the high property crime rates in our major cities must be attributed to enforcement of the drug laws. There are no similar studies of the relation between drug enforcement and violent crime. The selecti\-e evidence available, however, should not
238
be dismissed.”
One study estimates
that
about
10 percent
of assualts
in
1980 were drug-related. For the entire United States, nearly 8 percent of recent murders were drug related. Officials in Miami, Washington, and New York City estimate
that 30-40
percent of recent murders in these cities were
drug related. It is also important to observe that most of these drug-related assualts and murders are attributed to disputes over contracts or territory in the illegal market, not to the psychopharmacological effects of drug use. The victims of most of these assaults and murders were participants in the illegal drug market, although there have been some well-publicized deaths of third parties and police. A final piece of evidence may be the most convincing: the murder rate and the rate of assault with firearms increased substantially during the national prohibition of alcohol and then declined continuously for a decade after the end of prohibition.
Drug
enforcement
and health
Economists do not have a comparative advantage in evaluating the health effects of drug enforcement and drug use. A number of economists, including Reuter (1990), h ave reviewed these effects, but the basic studies are by pharmacologists and physicians. Economic theory, however, is useful to explain some of the health effects of drug enforcement. Since the probability of arrest is a positive function of the volume of drugs shipped and the number of transactions, one should expect drug enforcement to increase the potency of each drug and to shift consumption to the more potent drugs. One should also expect the “quality” of drugs (in terms of the variance of potency and the risk of dangerous adulterants) to decline in response to increased enforcement of the street markets, because such enforcement reduces the potential for a sustained relation between buyers and sellers. Drug use, in turn, should be expected to decline in response to both increased potency and lower quality. The available evidence is roughly consistent with these expected effects. Marijuana use peaked in about 1979 in association with the sharp increase in potency. Cocaine use peaked about 1985, shortly after the introduction of crack in the street markets. Heroin has largely replaced the use of opium and morphine. Drug enforcement
may also have led to more dangerous
use techniques.
Closing the “head shops” has probably reduced the use of water pipes in favor of smoking the now increasingly potent marijuana. Sniffing cocaine appears to have been largely replaced by smoking crack. Many of the deaths (from AIDS and hepatitis) associa.ted with the use of injected drugs such as heroin appear to be the result of dirty needles. A careful review of the available studies indicates that many of the adverse ‘OFor an efficient
summary
of this evidence,
239
see the study ;by J. Ostrowski
(1989).
health effects of current drug use, maybe most of these effects, are due to the side effects of prohibition of these drugs - overdose, adulterants, more risky use techniques, and a reluctance to seek early medical treatment.‘l Most of the drugs that are now illegal present some risk even in a controlled
setting,
but the risks appear to be much lower. In Canada, for example, cocaine is routinely applied in nasal surgery in doses that are about the same as in recreational use. A survey of surgeons revealed that this use of cocaine led to five deaths and 34 severe reactions following 108,032 applications of cocaine. l2 Even at this rate, however, a once-a-week cocaine user faces a probability of death that is roughly double that for nonusers. There are ample reasons to discourage the use of such drugs. The important issue is whether such drugs should be illegal. IV. Sorting
out the issues
about
drug
policy
Economists who a.ddress drug policy characteristically ask the following three questions: l What are the effects of a specific drug policy on drug users and suppliers? l What are the effects on third parties? l What would be the benefits and costs to each group of a change in drug policy? Most of the current debate on drug policy concerns marginal issues about more or less enforcement, more or less education and treatment. These are important issues but ones about which I have no special understanding or interest. This section addresses the more important structural issue about whether the prohibition of specific drugs is superior or inferior to a system of social controls, more like that for alcohol and tobacco, where drugs are legal; drug sales are subject to an excise tax; drug sales and some types of uses are regulated; there are penalties for those types of drug use that harm or threaten
third parties;
and private
institutions
establish
their own rules
affecting drug use by customers, employees, or members.13 My judgment is that the available data and studies are not sufficient to make good quantitative estimates of the benefits and costs of these two major alternative systems for the social control of drugs, but there is a reasonable the direction of most of the effects of drug legalization the rough magnitude of these effects. “Ostrowski
(1989)
estimates
that
as much as 80 percent
basis for estimating and, in some cases,
of the adverse
of illegal drugs may be due to these characteristics. This estimate, careful lawyer, not a medical specialist. “The book by Alexander (1990) summarizes this record. 13For an efficient summary social controls,
see Nadelmann
of the case for drug legalization (1988).
240
however,
subject
health
effects
is that
by a
to these types
of
Figure Economic
Effects
1:
of Drug Legalization
on Users and Suppliers
Price l(
I
b / 100 Quantity
Economic
e$ects on drug u.sers arnd suppliers
The legalization
of drugs would have two substantial
drugs: the price of legal drugs (including percent or less of the street price of illegal price would increase in response to‘lower legal drugs and the lower health risks
effects on the market for
an excise tax) would probably be 10 drugs. The demand for drugs at any search costs and risks of purchasing per unit of legal drugs consumed.
Figure 1 illustrates these two effects. The price elasticity of illegal drug use is based on the study by Silverman, Spruill, and Levine (1975) discussed above. For this example, the legalization of drugs is assumed to reduce the price per representative unit from $10 to $1 and to shift the demand function from di to eg. Given these two assumptions, the consumption of legal drugs would be twice the consumption of illegal drugs. In the illegal market, total expenditures are illustrated by the rectangle ackj and the net benefits to users by the triangle cdk. In the legal market, total expenditures are illustrated by the rectangle abfh and the net benefits to 241
users by the triangle
bef. Given these assumptions,
thus, legalization
would
reduce the total expenditure for drugs by 80 percent and would increase the net benefits to users (the difference betwen the triangles bef and cdk) by about 300 percent. The economic
effects of drug legalization
on the suppliers of illegal drugs
are more difficult to estimate, because there are no estimates of the supply function of illegal drugs. If the effective supply function is represented by the line from c through k, all suppliers would be at the margin, there is no rent in the illegal market, and the legalization of drugs would not reduce the net benefits to the illegal suppliers. The vicious turf wars in the illegal market, however, suggest that there is substantial rent in this market. For this reason, the supply function of illegal drugs is probably better represented by the line from b through k. In this case, legalization would reduce the rent to the suppliers of illegal drugs by the triangle bck, an amount about 45 percent of the total expenditures for illegal drugs, and increase the combined net benefits to users and the suppliers of illegal drugs by about 130 percent. A. reasonable estimate of the total expenditures for illegal drugs would permit estimation of the magnitude of the effects of legalization on the net benefits to users and the loss of rents to the illegal suppliers. The most recent estimate, by the White House Office of National Drug Control Policy, is that Americans spent $40.4 billion on illegal drugs in 199O.l* This estimate is far lower than previous estimates but still seems too high; total expenditures for alcohol and tobacco, for example, are now about $50 billion. The $40 billion estimate would imply about one million full-time-equivalent workers in the illegal drug market, about one worker per fifteen current users of any drug. On the basis of this recent estimate, legalization would increase the annual net benefits to drug users by about $74 billion and reduce the rents to the suppliers of illegal drugs by about $18 billion, and expenditures for legal drugs would be about $8 billion. All of these estimates,
of course, are substantially
speculative.
The major
lessons from this analysis, however, are not dependent on the range of uncertainty about these estimates. The first lesson is that drug legalization would lead to very large net benefits to drug users. The second lesson is that drug prohibition probably leads to large rents to the suppliers of illegal drugs.
Safety
and health
effects
on drug
users
and suppliers
One clear effect of drug legalization is that it would nearly eliminate the many assaults and murders in the illegal drug market. For 1988 the FBI attributed 1,023 murders to illegal drugs, but this is surely an underestimate 14This estimate
was reported
in the Washingfon
Post
on June 21, 1991.
because the motive for nearly 27 percent of murders was unknown;” a more reasonable estimate is that about 1,400 murders were directly attributable to the conditions Estimating more complex
of the illegal drug market.
the effects of drug legalization on the health of drug users is and involves estimates of the following three effects:
* the increase
in consumption;
* the reduction in the health risks per unit of consumption from using quality-controlled legal drugs of a known potency (possibly including an antidote that reduces drug toxicity), f rom the change in use techniques, and from the probable shift to less potent drugs; and * the change in the use of other risky substances, such as alcohol and tobacco. Each of these effects is uncertain but is subject to reasonable bounds. As explained earlier, my judgment is that drug legalization would roughly double the consumption of drugs. A large body of evidence suggests that many, perhaps most, drug-related health problems and deaths are due to unexpectedly high drug potency, risky adulterants in illegal drugs, and to more risky injection techniques. The Canadian record of cocaine use in nasal surgery, for example, would explain only about one-half the recent U.S. deaths attributable to the use of illegal cocaine. A large share of heroinrelated deaths, plus more tha,n 3,500 AIDS deaths a year, are attributable to the use of dirty needles. The experience following the end of alcohol prohibition, in turn, suggests that drug legalization would shift drug use to the less potent drugs. The combination of these offsetting effects suggests that drug legalization may either increase or reduce the total number of health problems
and deaths
due to drug use, but in any case the net effect would
probably be small. There are no available estimates of the third effect. Although a substantial share of drug-related health problems and deaths are attributable to the use of drugs in combination with alcohol, it is not clear whether drugs and alcohol are substitutes or complements. If drugs and alcohol are substitutes at the ma.rgin, as is the case for most products, drug legalization would reduce the consumption of alcohol and the health problem and deaths attributable to alcohol, probably by a small amount. In summary, the popular perception that drug legalization would lead to a large increase in health problems and demands on the medical system by drug users appears to be without merit. The potential net effects appear to be small and may be negative.
‘SStatistical
Abslrncl
(1990),
p. 173.
243
Major
effects
of drug
legalization
on third parties
For most of us (those who are not drug users or suppliers),
most of the effects
of drug legalization would be beneficial. One can be quite confident about the direction and relative magnitude of the following effects: * The threats to foreign nations (most importantly Mexico, Colombia, Peru, and Bolivia) from illegal drug suppliers would be nearly eliminated. * U.S. drug control expenditures (now over $10 billion a year), the crowding of courts and jails, the corruption of police and officials, and the arbitrary use of police power would be substantially reduced. A system of social controls on legal drugs similar to that for alcohol, however, may still cost several billions a year. * Assaults and murders incident to the illegal drug market and to druginduced robberies would be substantially reduced. * Property crime would decline, possibly by a substantial amount. * The transmission of AIDS to the sexual partners of drug users would be substantially reduced. * The excise taxes on legal drugs would generate tax revenue, probably about $4 billion a year. There are several potential a.dverse effects of drug legalization on third parties that merit more attention. The progressive socialization of medical insurance has created a new type of externality: all of us pay some part of the medical costs of the publicly insured and the uninsured. As a consequence, all of us have a stake, in addition to normal human caring, in the number of people with serious drug-related health problems. As explained in the above section, however, it is not clear that legalization would increase the number of drug users with health problems, and the potential effects appear to be small in a,ny ca.se. A more serious potential problem is that different drugs have different psychopharmacological effects. Heroin is an opiate that substantially reduces all active behavior and may increase welfare dependency. Cocaine is a stimulant that can increase aggressive behavior. The available evidence suggests that both of the effects are very small at current rates of drug use. The magnitude of these effects is probably proportional to drug consumption and might double with drug legahzation. The most serious potential problem is that drug use (as well as alcohol and tobacco use) during pregnancy can affect the health of the baby and may affect its future lea.rning ability. A recent survey suggests that about 11 percent of babies born in ma.jor metropo1ita.n areas are exposed to some illegal drug, primarily cocaine, during pregnancy. Nearly one-third of these babies have some health problem, usually low birth-weight, at birth. The risk of low birth-weight due to cocaine exposure during pregnancy appears to be roughly equal to that resulting from moderate to high consumption of alcohol and 244
tobacco. The research on the longer-term effects of drug exposure during Drug legalization would probably pregnancy is still quite inconclusive.16 increase this problem; because sanctions
penalizing
discourage
the mother is not a sufficient policy response
early medical examinations,
warnings, and care.
In summary, the legalization of drugs, as with alcohol and tobacco, would reduce some problems and increase others. There is a reasonable basis for informed people to disagree on the balance of the benefits and costs of drug legalization, especially if the substantial benefits to drug users are not considered relevant. Most economists who have studied drug issues appear to favor the legalization of at least some drugs, reflecting our skepticism about corner solutions. One should also recognize, however, that politicians make a living by transforming virtues into requirements and sins into crimes, and they often regard the policy views of economists as quite bizarre.
“For
an efficient summary
of this evidence,
245
see the article by Gieringer
(1990)
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