New Federal Reserve Study Jason P. Brown, Elior D. Cohen, Allyson Felix Let’s look at the impact of marijuana legalization. Here’s a summary:
We analyze the impact of recreational marijuana legalization on state economic and social outcomes using difference-in-differences estimation methods that are robust to time lags and treatment heterogeneity. We find that some economic benefits come with some social costs. After legalization, state average per capita income increased by 3%, home prices by 6%, and population by 2%. However, substance use disorder, chronic homelessness, and arrests increased by 17%, 35%, and 13%, respectively. States that legalized early experienced greater economic benefits but similar social costs, suggesting a potential first-mover advantage.
Tyler Cowen discusses the study: Bloomberg:
While the researchers used appropriate statistical controls, questions remain about causation vs. correlation. At the very least, it seems highly likely that state GDP increased. States that legalize marijuana can sell marijuana to users in other states. Marijuana sales are a new business, and like any new business, they boost local economies.
Because of the reproducibility crisis in science, it’s wise to remain cautious about this kind of research, but for the purposes of this post, we’ll assume that their findings are accurate.
Let’s start with the fact that the estimated income gains are huge. To a non-economist, 3% may not seem like much, but it is. The US defense budget is roughly 3% of GDP, and few would call defense spending small. In contrast, the legal marijuana industry is tiny, well below California’s 0.2% of GDP. So this huge income gain would be: Direct impact We don’t expect any effect of legal cannabis on state GDP. Instead, marijuana legalization appears to generate powerful positive externalities: increased worker productivity and an increase in the number of workers. If this is true, it’s a finding we should “shout about.”
Tyler has mixed views on marijuana legalization, and in his Bloomberg article he mainly highlighted the negative aspects.
It will be hard to use this latest research paper to convince people that other drugs should be legalized, and I would not be surprised if some governments decide to stop their experiments with marijuana legalization. What good is marijuana for you unless you are a responsible user? What is the rationale for legalization, if we only consider practical issues?
Well, studies have shown that it leads to increased income. Sure, that’s unlikely. But then why cite that study?
The most powerful argument for marijuana legalization is that it is cruel to send people to prison for selling or consuming marijuana. Since legalization in California, the number of people incarcerated for marijuana-related crimes has dropped dramatically. On the other hand, the black market has not disappeared, and so the benefits of criminal justice are far less than they should be. This is in part because marijuana is still illegal at the federal level, which significantly increases the cost of doing business. Moreover, states have adopted legalization in ways that encourage the survival of the black market. There is nothing special about marijuana that makes it more susceptible to the black market than toasters or T-shirts. The black market is almost entirely driven by intrusive regulation. (Contrary to popular belief, taxes are not the main issue.) The government may want to restrict sales to people under a certain age and prohibit driving under the influence. Otherwise, it is not clear why marijuana production and distribution should be regulated.
So what should we expect? completion Marijuana legalization? Here are my guesses:
1. The state’s population will increase slightly, but probably by less than 2%.
2. There will be no significant change in per capita productivity or income.
3. There was a slight increase in both total usage and problem usage.
4. Crime and punishment would decrease substantially, much more than we have seen to date. The black market would almost completely disappear, except for resale to minors. (It would be even smaller than the black market for tobacco, which is taxed more highly than marijuana.)
(Note: for points 1 and 2, I actually More pessimistic Than the Fed study. I think they’re exaggerating the economic benefits.
It is interesting to compare this list with the effects of legalizing alcohol. I suspect that alcohol would be more detrimental to productivity than marijuana. I also suspect that alcohol is more likely to be used problematically and have greater health consequences than marijuana.
If society is serious about banning “bad things,” it might make sense to ban alcohol first. Of course, that experiment was done, and the effects were pretty consistent with the pros and cons mentioned above. Banning alcohol reduced both consumption and problematic consumption, and significantly increased crime and punishment. The latter is a clear negative of prohibition, but the former is ambiguous. While many people enjoy consuming alcohol, heavy users suffer pretty serious consequences. I suspect the benefits and losses from marijuana consumption are a little lower than for alcohol.
When we look at proposals to ban products like alcohol, tobacco, or marijuana, we see one big negative impact (increased crime and punishment) and others that are harder to gauge. In 1933, Americans rejected alcohol prohibition, and now they are beginning to view marijuana prohibition in a similar way: the policy would bring uncertain benefits and huge costs.
P.S.: When I say “full” marijuana legalization, I mean legalization at the federal level combined with state laws that are no more burdensome than the laws on beer sales.
