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Pot law may have unintended results

By Hempology | May 28, 2003

From the Times Colonist, May 28, 2003

By Stephen T. Easton

Because of the pending federal government decriminalization of the possession of 15
grams or less of marijuana, the Law of Unintended Consequences strikes with full force
to create a farce, if not a tragedy.

Don’t get my wrong, I support the notion that the marijuana laws should be loosened,
but the current legislation needs rethinking. In a nutshell, the legislation increases
demand for marijuana by effectively lowering the cost to consumers but leaves the
status of production unchanged.

The simplest economics ensures that the price for marijuana paid by consumers
will tend to fall, and the price received by growers will tend to rise,
as demand increases. This in turn will induce an increase in production –
illegal production. Furthermore, current producers will reap a temporary,
and lucrative, windfall as their current production is suddenly more valuable.

I have nothing against producers of marijuana as a group. They are only providing
what the free citizens of Canada and the United States want to buy.

However, because it remains illegal to produce marijuana (a single plant that
produces a 100-gram bud), organized crime and others who find marijuana production
a rich source of finance for other more unsavory activities are also beneficiaries
of the federal legislation.

To the extent that we facilitate purveyors of murder, extortion, intimidation, and
their ilk, we should take pause. The windfall profits they can anticipate are
in proportion to the increase in price and the current quantity of production.

If we conservatively ignore additoinal consumption arising from any new consumers
and look only at the roughtly 2.25 million Canadians (over the age of 15) describing
themselves as marijuana users, suppose that each were to consume one more cigarette
a month.

At 0.5 grams per cigarette, that is about six grams more per year per consumer.
This is 13.5 million more grams a year or 13,500 kilos. At wholesale prices of
$2,800 per kilo it amounts to roughly $38 million, or at retail prices of as much
as $20.50 per gram – that is, $276 million.

Well, it isn’t enough to pay for the federal gun registry, but it is a nice little
gift nonetheless.

Two further unintended behaviours may save the federal policy of decriminalizing
marijuana possession from passing along windfall profits to organized crime.

First, it just may be that the law has been such an ass for so long, that everybody
already has access to what they want to smoke – just ask your teenagers if they could
obtain pot in their high school if they wanted it – so that decriminalization
du jure is already de facto.

Second, with the stunning efficency of private entrepreneurship, supply response
to the increase in local Canadian demand may be so massive that all the new production
will snuff out any potential windfall profit.

It is ironic that the mitigation of federal policy preventing windfall profits for
organized crime grooups may lie in the efficiency and adaptability of the current
crop of illegal producers, many of whom are not linked to organized crime.

Let us think of an historical analogy. The U.S. had prohibition against alochol
production and consumption during the 1920s. Suppose (the famous economist) Al
Capone had suggested legalizing consumption but not production.

Wouldn’t (the other famous economist) Elliot Ness have been the least bit curious
why? I suspect Ness would have realized that Capone already had a good production
infrastructure and a stranglehold on distribution, and would be delighted to supply
the new demand.

Capone eally did not want to supply legal product. International distillers from Canada
and the rest of the world would have poured in and killed his profit. So who exactly
has been giving Justice Minister Martin Cauchon advice?

As is typical of so many government policies, you often get (what I hope are)
unintended consequences from what is, to all appearances, a reasonable action.

Although we may share in the social value of freeing marijuana consumers from the
threat of what has become arbitrary criminal rposecution, by keeping production
illegal, the windfall profits will flow to some of the last people on Earth we
would want to have supplying the market.

Stephen T. Easton is a professor of economics at Simon Fraser University and
a Senior Fellow at the Fraser Institute, a Vancouver-based think-tank.

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