Marijuana legalization is an idea whose time has come; it will almost certainly be enacted into law in Uruguay before Christmas. Colorado and Washington are already in the process of legalizing the use, sale, and cultivation, and there is a concerted push for a referendum in British Columbia. Now, these policy shifts can be justified on purely libertarian grounds alone. Criminal law  should be in place to prevent one person from harming another, not to act as a mechanism for one group of citizens to impose their moral beliefs on everyone else. But this flavour of argument doesn’t seem to be enough for many people. So let’s talk about the equally-convincing and ever-practical economic justification.

In many respects, economics is the study of mutually-beneficial exchange. It’s one in which both parties to any given transaction gain some benefit from the exchange, otherwise the trade would not take place. When the government criminalizes marijuana, it prevents a great deal of these mutually-beneficial transactions, and thus decreases overall social welfare, what economists call a ‘total surplus.’ It prevents willing buyers and sellers from coming together to engage in beneficial market transactions. And more interesting, this exact concept of ‘total surplus’ is very often used by the Canadian government to evaluate all manner of projects and policies—from highway tolls and bridge construction, and to anti-trust case tax policies. But we seem not to subject marijuana criminalization to similar reasoning.

There is another more subtle effect to prohibition. A large majority of the producers outright leave the industry, and the few who remain are given significant market power to charge prices above the marginal cost of production. The result is that, even after the total surplus is decreased, a good portion of the remaining surplus is transferred from the consumers to the producers. In the case of the illegal drug trade, this redistribution benefits the dubious and violent members of society: organized crime, for instance.

Consider the government money to be gained. At a minimum, legally-sold marijuana could be subject to provincial and federal sale tax, which is roughly thirteen cents on the dollar depending on the province. Or, we could tax it like tobacco. According to Smoking and Health Action foundation, cigarettes in New Brunswick have a total tax burden of roughly 236 per cent. If marijuana was taxed similarly, a lot of government revenue would be raised that could be used for other important government services, such as support for low-income families, or it could be used to reduce the dreaded and highly-distortionary income tax. And even with a high tax, the final price per gram would likely still be lower than what it is today.

Finally, not only would legalization bring in new government revenue, it would eliminate the funding required to enforce cannabis criminalization, and the very high cost of jailing offenders. Estimates of the enforcement costs range from $320 to $490 million; another sizeable chunk of money that could be used in more productive ways. Cannabis legalization really is an idea whose time has come. It should be justified on the basis of personal sovereignty alone, but the economic argument is equally persuasive.

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