One of my main arguments for legalizing weed, cocaine, heroin, etc. relates to costs and benefits when drugs are illegal versus costs and benefits when they’re legal. Specifically, those who bear a large part of the costs when drugs are legal are the users themselves whereas, when drugs are illegal, the drug war imposes costs on people who have no connection to the drug trade. In the former case, think of people who overuse drugs (by some standard) and have a pretty awful life. In the latter case, think of the innocent bystanders we hear about in Chicago and elsewhere who are unlucky enough to be caught in the crossfire.

I don’t want anyone to bear costs, but if people are to bear them, it’s much more fair for those who use drugs to bear them than for innocent bystanders to bear them.

Here’s the abstract of a recent study by three economists at the Kansas City Federal Reserve Bank:

We analyze the effects of legalizing recreational marijuana on state economic and so- cial outcomes (2000–20) using difference-in-differences estimation robust to staggered timing and heterogeneity of treatment. We find moderate economic gains and [sic] accompanied by some social costs. Post-legalization, average state income grew by 3 percent, house prices by 6 percent, and population by 2 percent. However, substance use disorders, chronic homelessness, and arrests increased by 17, 35, and 13 percent, respectively. Although some of our estimates are noisy, our findings suggest that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily. States that legalized early experienced similar social costs but larger economic gains, implying a potential first-mover advantage.

The study is Jason P. Brown, Elior D. Cohen, and Alison Felix, “Economic Benefits and Social Costs of Legalizing Recreational Marijuana,” September 28, 2023.

In short, their findings roughly fit what I have thought would result from legalization. The part that doesn’t fit is arrests. I would have thought that arrests would fall, not rise.

The costs of substance use disorders and chronic homelessness are arguably borne mainly by the users. That’s why I don’t think the authors are careful enough in their use of the term “social costs.” We generally think of “social costs” as being equivalent to “negative externalities.” To be sure, there probably are negative externalities from people have substance use disorders and/or being chronically homeless. But it’s important to separate the externality part from the “costs borne by users” part.

The reduction of “caught in the crossfire” is not likely to be important for legalizing marijuana because, at least in my perception, there aren’t many drug gang fights over the marijuana trade. (I’m open to being corrected on this.)

One of the main benefits I would expect from legalizing much harder, and more expensive, drugs is that the price would come down and, therefore, users wouldn’t steal as much to support their habit. I wouldn’t expect this effect with legalization of marijuana because, as I noted recently in my review of Robin Goldstein and Daniel Sumner’s Can Legal Weed Win?, the heavy regulation that accompanies legalization of weed means that legal weed is often more expensive than illegal weed.

By the way, you might wonder why economists at a federal reserve bank are writing about an issue that has nothing to do with monetary policy. But if you’ve followed studies by Fed economists over the years, you wouldn’t be surprised. Each federal reserve bank has a lot of economists looking for issues to research. One benefit, from the viewpoint of the researchers, of researching issues that have nothing to do with monetary policy is that you can’t get in as much trouble as you can get into by researching monetary policy.

HT2 Kevin Lewis.