RS6 An Economist Gets Stoned

This blog is a reaction to NPR Planet Money’s “An Economist Gets Stoned.”

In 2010, fourteen states legalized marijuana as a medical treatment and by the current year that number has jumped to 17.

On National Public Radio’s broadcast Planet Money, analysists speak with Jeffrey Miron, a Harvard economist and libertarian who believes in the legalization of pot. Miron talks about drugs and smoking on casual terms, and even goes so far to say that he believes marijuana should be legalized. But, he believes marijuana should be readily available because of his libertarian ideals, because he believes everyone should be able to do whatever they want as long as it doesn’t hurt anyone. The economic reasons for legalizing pot don’t phase him and he even gets frustrated at the numbers being thrown around about the matter.

In California, the size of California’s largest cash crop is worth 14 billion dollars. Many pro-legalizationists argue that marijuana could become a huge cash crop nation wide. According to the law of demand, price and quantity have an inverse relationship. When price goes up, quantity demanded goes down, and when price goes down quantity demanded goes up. If the drug becomes available, the price of it would go down by law of demand because the quantity for it would grow. At the same time, the price would lower because it would be easier to manufacture. These people say the government would save money since there would be less regulation and enforcement money needed, and they would gain money from the taxes they could charge on the drug. Yet, just as enforcement is needed to watch out for alcohol abuse and issues, wouldn’t the same need to be done for marijuana as a legal drug? Hiding the sale of a drug is expensive. Drug dealers have to hike up their prices because they have to pay for guns and weapons to protect themselves, transportation for each individual sale as opposed to mass transport, and many more expenses.

I believe that in a competitive market nobody should be making a lot of money, just as Miron stated. I think if marijuana is legalized, quantity demanded will increase substantially but will then sizzle out. Just as any other product has its peak, marijuana will do the same and then continue on as a product like any other substance such as cigarettes or alcohol. From an economic standpoint, costs of marijuana will rise after the peak ends since marijuana is an inelastic good. People will always want to buy it and people always will. Even though prices will go up because manufacturing will be more expensive when quantity demanded goes down, I don’t think revenues will ever break even between the initial and changed prices. Even though the good may be inelastic, it isn’t inelastic to many since smoking isn’t a daily necessity like gas is for driving, but it’s a lifestyle choice. I would bet more people drive a car than smoke weed.

Even as Miron stated, people are overestimating how much marijuana can “save,” financially that is. People are expecting that the government will gain 1.3 billion dollars through the legalization of marijuana, but Miron estimates only 100 million, since he states that the amount of people expected to purchase is overestimated.

Even though marijuana could potentially get 1000 times cheaper if legalized, its economic benefits aren’t really a value to capitalize on when pushing for its freedom.