Would Ending The Drug War Stimulate Economic Growth?

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Correspondent Richard Posner wrote an interesting blog post suggesting six ways that the U.S. could stimulate economic growth, without making the debt much worse. I agree with much said in the post, but there's one point that I want to pick at a little. Posner believes that ending the drug war would help. I'm not so sure.

There are many philosophical reasons for ending the drug war that are quite compelling. If you have any libertarian friends, just ask them, and I'm sure they'll happily rant on for hours. There are also a couple of economic benefits that I've heard. But providing for more economic growth isn't an argument I've come across very often. Here's what Posner proposes:

Decriminalize most drug offenses in order to reduce the prison population, perhaps by as much as a half, which will both economize on government expenditures and increase the number of workers. (Again and for the same reason, phase in gradually.)


Effect On The Federal Budget

Let's look at how much the federal government actually spends on prisons each year. That can be found in the Federal Prison System Budget Request for 2011 (.pdf). In 2010, federal prisons cost taxpayers $6.2 billion. While I wouldn't say we should ignore spending a sum that size, in the grand scheme of budgets and deficits, that isn't much.

Recall, the 2010 deficit projection is $1.6 trillion. That means if we eliminated all federal prisons, we would reduce the deficit by four-tenths of a percentage point. And, as Posner mentions, drug-related crimes account about half of the federal prisoners. So really, the effect would be only half of that tiny reduction, and again, there are surely some drug laws you'd want to remain intact. So the portion would be even smaller -- less than two-tenths of a percentage point of the federal deficit.

Effect On State Budgets

Yet, federal prisons only account for a fraction of prisoners. According to the Bureau of Justice Statistics' Prisoners in 2008 report (.pdf), there were about 200,000 federal prisoners and 1.3 million state prisoners. So if you shrunk prisoners overall, that would definitely help the states' fiscal health too.

But, as it turns out, the report also shows that a far larger portion of federal prisoners than state prisoners are incarcerated due to drug-related crimes. While drugs convictions caused the prison terms of close to 50% of federal prisoners, they caused the incarceration of only 20% of state prisoners. So using the numbers above, you could conclude that 100,000 federal prisoners and 260,000 state prisoners are incarcerated because of drugs. Assuming similar costs on the state level, that would spread a maximum cost-savings of $7.8 billion over the 50 states. Again, that number is not insignificant, but it wouldn't have a dramatic impact on state budgets.

More Hard-To-Employ, Low-Skilled Workers

So what happens if you unleash 360,000 prisoners into the population? Well, it probably wouldn't help that 9.7% national unemployment rate come down much more quickly. Of course, Posner says that these changes should be made gradually, so not to shock unemployment. But given how slow an employment recovery is expected, just how gradual would that have to be? Over five years? Ten years?

And how much would these additional workers really help GDP? It isn't very easy for those who have been in prison to find good jobs. And it's even harder if employers are being picky due to a huge population of unemployed workers. Over probably the next decade, the problem for the U.S. isn't going to be not enough unskilled workers, but too many. As far as I can see, this would exacerbate the problem.

Drugs And Productivity

Finally, I have a little trouble with the notion that legalizing drugs would increase economic growth, because I worry about the effect on worker productivity. Sure, I know, alcohol is legal now, and workers are pretty productive. But just which drugs are we talking about legalizing here? Marijuana is probably relatively benign. But where do we draw the line? Do we legalize LSD? How about Ecstasy? PCP? Cocaine? Heroin? All of those drugs are mind-altering. All can have significant negative effects on the brain, even if used only occasionally. While liberty advocates might argue that it's the right of individuals to screw up their brain as much as they like, that's very different from claiming that increased drug use would bring more economic growth. Duller minds would probably result in less productive workers, which would lower future economic growth.

An Excise Tax

On a purely statistic level, if you bring the drug trade above ground, then any revenue created would add to GDP. So in a sense, by definition, it would increase U.S. GDP, even though that business had gone on before, but wasn't accounted for in official economic statistics. I guess you could kind of call it farming. Or pharmaceuticals? But I'm a little bit dubious on the notion that the U.S. would root for its future growth to be driven by mind-altering drugs.

The only real, tangible way that I could see any economic benefit to certain drugs being legalized is through regulation. Excise taxes on less harmful drugs, like marijuana, could definitely bring in some tax revenue on the state and federal levels to help combat the deficit -- if the additional tax revenue is really used for that purpose.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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