Miles Peterson

Fall 2002

Economic ramifications of the War on Drugs

The War on Drugs costs the United States untold amounts in potential revenues from the taxation and licensing of drug related businesses which are currently operating on the black market. Profits in illegal drugs are so inflated, that three-quarters of all drug shipments would have to be intercepted to seriously reduce the profitability of the business.1 As a result of the illegal nature of these substances all purchases must take place on the black market, outside the bounds of taxation and regulation. Legalization would allow the United States government to generate revenue from taxing the sales of these substances, as well as related licensing, permit, and zoning fees for the individuals and businesses that would be operating in this field.

From an economic point of view, it is easy to see why so many different drug suppliers are competing in the market. The Law of Supply tells us that the higher the price of a good, the more of that good sellers will make available over a specified time period.2 A kilogram of heroin in Pakistan costs an average of $2,720, and sells for an average of $129,380 in the United States.1 Any business that could get away with a 4,730% mark-up would be able to absorb a variety of operating expenses. In the drug business these operating expenses include total loss of shipments due to seizure and paying desperate individuals large sums of money to attempt to drive a van-load of product over the border.

Having an educated population is highly related to the pace of economic development, increasing the rate of enrollment in secondary schools by 2 percent raises the average rate of economic growth by half a percent per year.2 It would be more economically prudent to promote educating our population than imprisoning them; however, this has not been done. From 1984 to 1996, California built 21 new prisons and only one new university; state government expenditures on prisons increased 30% from 1987 to 1995, while spending on higher education decreased by 18%.3 The implications in these facts are alarming, the War on Drugs is having a directly negative effect on both the Gross Domestic Product and the growth of the economy.

In 1999 the United States spent a record $147 billion for police protection, corrections, and judicial and legal activities.1 Without the War on Drugs this total would be significantly lower and the money could be better spent on treatment and education, as well as aid for individuals with a variety of other needs including poverty and homelessness. As it stands, in 2000 drug law violators comprised 21% of all adults serving time in State prisons and 57% in Federal prisons, this equated to 324,489 individuals; fiscally this costs American taxpayers approximately $8.6 billion a year.1 It also leaves close to 2 million children with at least one parent in the court system. These incarcerated individuals are largely non-violent, approximately 80% of drug-related arrests are for possession, and are not contributing towards society in any meaningful way while behind bars.4 If these people had not been imprisoned they could be gainfully employed and contributing to the United States Gross Domestic Product, rather than being a drain on our economy.

The budget for the United States is significantly skewed towards Justice Department expenditures. The budget request for fiscal year 2001 included $8.2 billion for the Justice Department, in comparison $1.03 billion was requested for the Defense Department, and only $750 million for the Education Department.5 Our nation has a long standing attitude that wrong-doers should be punished rather than treated. This attitude fits well with the policies enforced by the War on Drugs. Unfortunately, this does not result in an efficient use of resources in the form of taxes by the United States government and has long-term results that are detrimental to our society as a whole. Treatment costs range from $1,800 - $6,800 per client per year; in contrast the average cost of incarceration is approximately $26,500 per inmate per year.6 If the United States as a whole took a more progressive outlook on treatment versus prison the overall cost to taxpayers would be significantly lower and the societal benefits would be tremendous. In 1996 Arizona began mandating treatment instead of prison for non-violent drug offenders. After the first year studies showed that Arizona taxpayers saved $2.6 million and 77.5% of the probationers tested negative for drug use. 6 If the money budgeted for all the associated costs of arresting and imprisoning drug offenders was instead spent on treatment for the individuals not only would the significant problem of prison overcrowding be dealt with but also the treated individuals would be much more likely to become contributing members of society.

Nearly half of the need for drug treatment, not including alcohol abuse, is unmet in the United States.6 Treatment generally has positive effects compared to prison, which generally has negative effects on the individual. Treatment has been shown to decrease welfare use and increase employment, whereas prison has been shown to have negative effects on employment prospects and an increased likelihood of returning to prison at some point in the future.

There are deeper economic impacts from the eventual release of American drug felons, these individuals will not have good prospects ahead of them. Many employers are hesitant to employ individuals previously convicted for a felony, many careers are completely closed to convicted felons including law enforcement, teaching, and fire fighting. The individuals released from prison will likely be competing for minimum wage and under the table jobs, and they will have reduced access to welfare money due to the reform of the welfare system in 1996. Under federal law, young people convicted of a drug offense lose their right to federal college loans, in 2001 there were 43,000 students affected by this provision.7 As a whole, individuals previously convicted of a drug offense will have a much higher likelihood that they will be unable to compete for good jobs due to being undereducated or because their past conviction precludes them being able to be accepted for the position.

One common misconception regarding drug use is that if drugs were legalized there would be an explosion of drug use. The available research, as affirmed by a recent Federal analysis on drug policy, indicates there would be little if any increase in use.7 Ending the War on Drugs combined with legalization and would result in a safer product being distributed for those who choose to use these substances, additional revenues for the nation, significantly less overcrowding in our prison systems, treatment being more readily available for those who desire it, and less unskilled and uneducated individuals in the work force. The money saved by ending the War on Drugs could be spent in a more efficient manner, including further promotion of an educated society which would result in positive economic growth for the nation.

The United States drug laws have not had significant impact in the sale of or use of illicit drugs and have inflated the costs of law enforcement, the court and prison systems. Additionally, the War on Drugs has created rifts in the family structure and left several million children without positive parental role models due to incarceration for offenses as minor as possession of a controlled substance. Treatment has been proven to be a much more effective and efficient way to reduce drug use among the citizens of America as well as reducing the number of people on welfare and unemployment. The United States Constitution was written to, in part, establish justice, insure domestic tranquility, and promote general welfare for the citizens of this country. The current policy laid down by the War on Drugs goes against these goals. The sooner the United States government recognizes this and ends the War on Drugs the sooner Americans can go back to living in the Land of the Free.

1 Drug War Facts:Economics. [updated 22 November 2002; cited 24 November 2002].

Available from http://www.drugwarfacts.org/economi.htm.

2 Miller, Roger LeRoy. Economics Today. Boston: Addison-Wesley Inc., 2001. 59, 212

3 Drug War Facts:Prisoners.. [updated 12 October 2002; cited 24 November 2002].

Available from http://www.drugwarfacts.org/prison.htm.

4 Drug War Facts:Crime.. [updated 22 November 2002; cited 24 November 2002].

Available from http://www.drugwarfacts.org/crime.htm.

5 Drug War Facts:Families.. [updated 17 May 2002; cited 24 November 2002].

Available from http://www.drugwarfacts.org/families.htm.

6 Drug War Facts:Treatment.. [updated 16 July 2002; cited 24 November 2002].

Available from http://www.drugwarfacts.org/treatment.htm.

7 Common Sense for Drug Policy:Top Drug Warrior Distortions.. [updated 05 May 2002; cited 24 November 2002].

Available from http://www.csdp.org/research/dwdist.htm.