Ed Dolan's Econ Blog

Cops and Economists: Contrasting yet Complementary Views on Drug Legalization

Last week Darby Beck of LEAP (Law Enforcement Against Prohibition) sent me a statement on drug legalization by Major Neill Franklin (Ret.) Franklin, now LEAP’s executive director, is a 34-year veteran of the Maryland State Police and the Baltimore Police Department. Like other members of his organization, he now advocates ending the war on drugs, after years of fighting on its front lines.

While reading Franklin’s statement, it struck me that although law enforcement officials and economists start from contrasting perspectives, they reach many of the same conclusions.

Here is how the war on drugs looks to those who, like Franklin, have a street-level view of U.S. drug policy:

Before Nixon declared the war on drugs in the early 1970s, policing was a different creature altogether. Police were the “good guys” going after the “bad guys”—the rapists, the murderers, the child molesters— [the ones] most people could agree society was better without. Since that time, the very nature of policing has changed. . .

All of this has caused society generally and our communities of color specifically to look upon us as people to be feared rather than as public servants advancing public safety, and that distrust, far from being merely an abstract concept, makes our jobs infinitely more difficult as community members shy from cooperating in investigations.

For Franklin, the broken relationship between police and the communities they serve is unintended consequence number one of the war on drugs. He also points to a second unintended consequence—the way drug policy enriches criminals.

Will the legalization of marijuana and other drugs lead to a reduction in the power of street gangs and cartels that terrorize our cities? I believe that most officers brave enough to be honest with themselves can only answer in the affirmative . . . The prohibition of drugs, just like the prohibition of alcohol, is what provides the tremendous profits to the criminal organizations that provide the drugs on our streets.

Economists, in their own way, make the same point. They see the wealth and power of the drug gangs in terms of elasticity of demand. If demand for a good is elastic, a small increase in price causes a big drop in sales, and the total revenue of the seller goes down. If demand is inelastic, which is the case for illegal drugs, even a large increase in price makes only a small dent in the quantity sold, so the revenue of the seller goes up. Here is how I explained the consequences of inelastic demand in an earlier post and a slideshow that goes with it:

This gives us our first clue as to why the war on drugs isn’t going so well. The main strategy is interdiction of supply. To the extent interdiction succeeds in reducing supply, it drives up the market price. With inelastic demand, a higher price means more revenue for the drug cartels.

Note that more revenue for the drug cartels does not necessarily mean more profit, because interdiction efforts also raise suppliers’ expenses. However, from a public policy point of view, it is the expenses that do the damage, not the profits. If drug lords just earned profits, they would probably spend them harmlessly on fancy cars and villas. It is not so harmless to see their expenses rise. Those consist largely of salaries paid to thugs who guard shipments and shoot anyone in the way, bribes to officials on both sides of the border, and pay and equipment for more thugs who are assigned to inter-gang warfare, with innocent victims caught in the crossfire. With inelastic demand, a higher price for drugs means more revenue available to finance all of those things. To the extent that is the case, the interdiction strategy on which the war against drugs is based is self-defeating.

LEAP also calls attention to a third effect of the war on drugs—our surging population of prisoners and former prisoners, nearly a quarter of whom are low-level drug offenders. The organization’s statement of principles includes the following point:

LEAP believes that an inordinate number of people have been misguidedly incarcerated for violation of zero-tolerant, nonviolent, consensual “drug crimes.”  The end of drug prohibition will allow those persons to be promptly released, to have their record of conviction expunged, and their civil rights completely restored.

The plight of prisoners and former prisoners concerns economists because of its effects on unemployment and labor force participation. As I wrote in another post,

The United States has the highest incarceration rate in the world, something like 750 per 100,000 of population. About two-thirds of those are in federal and state prisons, the rest in local jails. That is forty percent more than Russia, 50 percent more than Cuba, and almost three times as many as Mexico—none of them places we would  like to emulate. It is seven times the rate of France, Italy, or the U.K. and more than twelve times the rate of Japan.

Technically, imprisonment does not affect the official ratios, since the denominator of both the unemployment rate and the labor force participation rate is the “civilian noninstitutional population,” which excludes prisoners. However, the hundreds of thousands who are currently behind bars are only the tip of the iceberg. There are also 5 million parolees, 6 million ex-prisoners, and altogether, nearly 14 million former felons in the population, including those who paid fines or were sentenced directly to probation without imprisonment.

All of them, including people who never served time, are disadvantaged in the labor market. They are often formally barred from occupations that require licenses or from working with children. Even where the law does not restrict their job options, many employers reject ex-felons for positions that involve any degree of responsibility. According to a study from the Center for Economic and Policy Research, taking all employment effects into account, the labor market effects of contact with the criminal justice system amount to a 0.8 to 0.9 percentage point decrease in the official employment-to-population ratio.

In a recent speech, Federal Reserve Chair Janet Yellen used two people with criminal records to illustrate the reasons for high long-term unemployment and low labor force participation. Commenting on the speech, John Schmidt of the CEPR told the Financial Times that the employment rate of ex-felons is 12 percent lower than that of the general population. Apply that to the total population of people with convictions for low-level drug offenses, and you get more than 400,000 “missing” jobs.

Fortunately, the tide may be turning. A new survey from the Pew Research Center reports that 54 percent of the U.S. population think use of marijuana should be legalized, against 42 percent who are opposed. Some 75 percent, including those who oppose legalization of marijuana, think it is inevitable. What is more, support for a change in policy extends to hard drugs. Sixty-seven percent of those surveyed thought the government should emphasize treatment for users of heroin and cocaine, against just 24 percent who favored criminal prosecution of users.

Perhaps President Obama, who, like the legendary Duke of Plaza-Toro, likes to lead his regiment from behind, will be the next to join the bandwagon. If he were to speak out, he would simultaneously be striking a blow for safety on our streets and for a healthier economy.


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