The Economic Case for Decriminalizing Heroin

The Economic Case for Decriminalizing Heroin by Dylan Matthews
From the Washington Post Wonk Blog

The University of Chicago’s Gary Becker and Kevin Murphy, who generally lean right on matters of public finance, made some waves by calling for the full decriminalization of drugs in the Wall Street Journal. They don’t want to just, say, decriminalize the use of marijuana while still banning its sale, as Massachusetts does. They want to decriminalize the sale and use of heroin, and meth, and crack, and other hard drugs. 

Becker and Murphy have been making this argument for a while. Indeed, they first broached the subject back in the 1980s when they argued that many drug addicts are perfectly rational consumers. They, like the savviest grocery shopper, use the resources they have to get what they want in a cost-effective manner. It’s just that what they want happens to be drugs.
But the most relevant paper for understanding the Becker/Murphy critique is one they coauthored with CUNY’s Michael Grossman, who was last seen in these parts arguing for a tax on junk food. The paper attempts to describe the economics of the drug market in the broadest sense. In particular, the authors want to combat the idea that legalizing drugs would lead to more addictions. 

Becker, Murphy and Grossman think this view is dramatically mistaken and they build a model to show why. They put together an equation that outputs the benefits to society of a drug prohibition regime, taking into account the social cost of drugs but also the cost of enforcement, and the enjoyment that drugs provide to their consumers. They then used that equation to determine the regime that maximizes social welfare and determined what the cost of drugs would be under that regime. 

Here’s the kicker: if drugs sold for that price after taxes in an environment where drugs are legalized, they’d still be cheaper than drugs sold on the black market. So the legal market would drive illegal producers out of business, there wouldn’t be any of the enforcement costs — including huge social costs like mass incarceration — that come with drug prohibition, the government would gain considerable new tax revenue, and because the price is the same, consumption of drugs wouldn’t be any different than under prohibition. In short, the best form of prohibition is still worse than legalize-and-tax.

"In short, the best form of prohibition is still worse than legalize-and-tax"

The idea behind Becker, Murphy and Grossman's proposal to legalize and regulate (despite the headline they mean the L and R words) the sale of heroin is to keep the price similar to that of the current black market.  They hypothesize that the high price will keep use down.

Let's start with the positives with such a regime:
Decriminalization
There would be enormous savings from police time spent enforcing prohibition, incarceration costs (including the opportunity cost of locking up citizens who would otherwise be working and paying taxes), court costs and all the expenditures of fighting the drug war.
Legalization
The loss of a customer base would decimate the black market.  Drug cartels may not disappear, but their major source of revenue would dry up. Prostitution, human smuggling and other areas organized crime traditionally deals in require far more work and are not nearly as profitable.  Without drug trafficking these cartels would be significantly weakened.  The term "Narco-state" would become obsolete.
Regulation
Users would presumably be getting pure drugs with labeled dosages. Sterile ampules of heroin suitable for injection could be made available along with clean syringes. Heroin could also be formulated in smokable or
insufflatable (snortable) formulations. Naloxone and naltrexone could also be made available or given along with every purchase. Blood-born disease transmission among IV users and overdoses would both decrease. Funds currently directed toward ineffective (indeed some say counter-productive) public information campaigns demonizing heroin could instead be used to educate users about using opiates safely.

Unfortunately for users who have a habit, this regime will not significantly improve their lives. It is the high cost alone which prevents those dependent on black market opiates from having normal lives. Furthermore heroin is not a particularly expensive drug, at least at first until tolerance develops.

According to Brian Bennett's excellent site, the per gram cost of heroin has been decreasing quite a bit since the 1980's. The last entry in his data set is the year 2003, in which the cost of a gram of heroin at the retail level (sales of less than a gram) was $372, or 37 cents per milligram. For the regime discussed in the Washington Post article to work, the cost would have to be below the black market prices. For the purposes of discussion, let's say the government set the price at 25 cents per milligram. It is also entirely possible that the black market could take a significant price reduction and still be profitable, but I will leave out that factor for the purposes of this discussion.

For the occasional user, or chipper, heroin is not particularly expensive. A dose of 10-20 mg of pure heroin, for an individual with no opiate tolerance, would get them feeling quite nice. For these individuals the cost of a dose would probably cost $5-10, and not exceed $20. Heavy users often reminisce over the days when they could get a buzz off a couple bags or a few percocets.  

For individuals who are physically dependent the benefits of the proposed regime are far more modest. Contrary to the popular mythology surrounding opiate (opioid), tolerance does not continue to develop indefinitely, every individual eventually reaches a plateau beyond which the returns rapidly diminish. We know from authors like de Quincey and Burroughs that extraordinarily high doses of opiates are not pleasurable, but rather cause some adverse symptoms. From reviewing the results of the Swiss heroin prescription trials, and other trials done in Vancouver, we know that the average daily dose (the plateau or therapeutic dose) is about 500mg. Therefore dependent users are still going to have to come up with over $100 a day to support their habit. As I said before it is the high cost alone which prevents even heavy heroin users from having otherwise normal, functional lives. The purposed regime will do nothing to end drug dependent prostitution or the acquisitive property crime that has become characteristic of heroin dependence in the 20th century.