This month Minnesota begins the long process of regulating legal retail sales of cannabis.
Jackpots of a billion dollars or more in multistate lotteries are in the news.
So the challenge of managing goods and services that people want to consume — but that also have harmful effects — are at center stage. Can economists contribute anything to public debate on this perennial issue?
Well, yes to useful insights and to suggesting palliative measures. But no to solutions. Desirable products that cause collateral damage to society are an old problem and one that will be with us always.
History offers some insights. In the Bible, Noah gets drunk and into trouble bringing harm to his kids. In the mid-1700s, gin consumption in Britain exceeded six gallons per man, woman and child. Social harms from this “gin craze,’ memorably recorded by satirical painter William Hogarth, were enormous.
In our nation a century later, per capita consumption of alcohol reached a level equivalent to seven gallons of pure alcohol, three times the current level. Yet British alcohol consumption waned in the 1800s. This eventually also occurred in our country. We had an era of ubiquitous saloons prior to World War I followed by a reactionary prohibition. The “greatest generation” liked cocktails based on whiskey and other distilled liquor. Now wine and fortified sodas are more popular and consumption less concentrated in time.
Similarly, we have gone through legal, but mostly illegal, “epidemics” of junkies shooting up, mass consumption of marijuana, cocaine, crack cocaine and now synthetic opioids. Usage waxes and wanes geographically and between social classes. But, legal or illegal, the demand remains. And the supply meets it.
Ditto for gambling. It was wide open in the 1800s, then repressed over most of the last century. For a few decades one had to go to Nevada and, later, Atlantic City. But now one can gamble in multiple locations in every state. And retail lottery tickets are marketed as a kind of palliative “good for the loons” justification for the vice.
The problem is that while alcohol, other addictive drugs and gambling may produce pleasure or satisfaction for the people consuming them, they can cause broader harm to others and to society as a whole. These effects are well known.
News of horrific traffic accidents are just the most visible of the harms caused by drinking or hard drug consumption. The more widespread costs are much more personal. Most of us know someone whose life has been ravaged by addiction or compulsive gambling, or businesses or nonprofits harmed by embezzlement.
At the same time, as Prohibition proved, and widespread illegal cannabis use affirmed, addiction cannot be legislated away. We are damned with spillover effects if we do allow production and consumption, and damned if we try to ban it.
Nobel economist Milton Friedman, one of the parents of modern libertarianism, had useful insights. He argued for legalization of drugs, noting that whenever you try to choke off supply of something, you drive up its price.
This is particularly true when demand for the good or service is “inelastic.” This means people will not significantly reduce quantities purchased based on price. The Catch-22 of addiction is that use of the product creates greater demand. So alcohol, mood- and mind-altering drugs and gambling tend to have very inelastic demand. People keep on buying even when prices rise.
Considering all this, keeping it illegal only fosters illegal activity and an artificial pricing structure. Legalizing and regulating it may or may not bring down prices, may or may not foster greater demand, but at least it lets the real market level it out.
And consider the other spillover effects. A century ago, Prohibition created demand for illegal hootch that gave rise to enormous criminal organizations that spread into other areas. Demand for cannabis, cocaine, natural and manufactured opioids, including fentanyl, support enormous illegal activity producing these, especially in Latin America and Asia and in trafficking them nearly everywhere. This illegal, unregulated industry in turn fosters other social ills: mistreatment of migrant farm and factory workers, for example, that we’ve seen both in the U.S. and abroad.
So illegality fosters violence, inequity, crime and corruption. As Friedman argued, the external or collateral damage of trying to suppress supply can easily outweigh the direct harm to the health or well-being of those actually using the harmful product. History makes it clear he was largely right in this argument.
Better to legalize, he argued, and concentrate resources on reducing demand if one thinks use creates problems. Education and treatment might be only palliatives but, on the whole, society would be better off without the harm violated by a “war on drugs” or on alcohol or gambling for that matter.
So that is where we are. One can buy alcohol in many venues, but there are legal controls on sales and retail servings that don’t apply to innocuous products. One can gamble in a discrete number of physical venues or via state-sponsored lotteries. We are now going to put cannabis on the same legal footing as alcohol. In this case, there are positive spillovers of facilitating healthful medicinal uses of cannabis substances. Another is the easing the production of useful industrial hemp products that were unnecessarily hampered by the botanical association of hemp and marijuana.
Addictive products will always have allure. But societal attitudes change. For a century, cigarette smoking was very common and, for men at least, bore no social stigma. But over a few decades, smoking declined to very low levels and smokers became social pariahs — with nicotine addicts getting open scorn from people who would be more charitable toward a cocaine user. So we are not destined to greater tobacco consumption. And we may see some reduction in crime levels as legal supplies of cannabis become available.
Our spending remains lopsided however. We have a culture that, overtly and subtly, nudges people toward addiction. State governments depend on lottery revenues. Big jackpots funnel money from all sorts of households, but especially poor ones, into public coffers. We have nominal anti-addiction educational efforts and funding of addiction treatment that varies widely from state to state. But on the whole, we are taking Friedman’s advice. There are no solutions to the innate human propensity to self-addict. But our palliatives could be larger.
St. Paul economist and writer Edward Lotterman can be reached at [email protected].
