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Blazing a Trail

by Chris Woodrich, published

Prohibition was a huge success. No, it didn't achieve any of its goals, or make the country a more moral place. It was a huge success for Al Capone, and other gangsters.

For the average American, it was a waste of time and money. Prohibition did not make it impossible to drink, just much more expensive. A higher price of alcohol was caused by a built in "risk premium" on the supply side. Higher prices were exploited by Capone and others to make money hand over fist in a time of hardship.

The temperance movement was spearheaded by different Christian groups, and led to success by the Anti-Saloon League, which lobbied Congress until the 18th amendment was passed. Instead of creating a a better society, the movement empowered and entrenched organized crime in America for a generation. Today "Law and Order" conservatives like California's George Runner, and foolish drug laws have empowered a new generation of criminals.

Enter Assemblyman Tom Ammiano (D-SF). Ammiano recently introduced legislation to legalize marijuana, essentially treating it the same way the state treats alcohol. Anyone over the age of 21 would be allowed to consume, transport, grow, and sell.

Currently, marijuana is classified as a Schedule 1 drug under the Controlled Substances Act. Other Schedule 1 drugs include LSD and heroin. The Drug Enforcement Agency states that Schedule 1 drugs have the highest potential for abuse, and no accepted medical usage. Cocaine, by the way, is a classified as a less serious, Schedule 2 drug.

More than 40 percent of Americans have used marijuana at some time or another, including many of our leaders. One can watch our governor, Arnold Schwarzenegger, smoking a celebratory joint in his weightlifting days in the documentary film Pumping Iron. President Obama readily admits to usage in his earlier days, and even has poked fun at President Clinton when he was asked if he inhaled: "The point was to inhale. That was the point." Michael Phelps has cemented his status as one of the greatest Olympians of all time, and he seems to know his way around a bong.

Legalization would have a powerful impact on the market. By eliminating the punishment, the risk premium built into the price of marijuana is eliminated. Thus there would be an immediate decrease in prices. Bringing cultivation out of basements and onto farms would further shift out the supply curve. Given a year of legal cultivation, my own estimate is that prices would fall by at least 50 percent, absent any excise taxes. Given a much lower price and average elasticity of demand, usage would likely increase. Legalization could create thousands of real "green jobs" on farms across the state. As the price fell, the incentive for crime would fall also.

Tom Ammiano's bill includes a $50 per ounce tax. He estimates this could raise more than a billion in annual revenue for the state. Given that marijuana is already a 14 billion dollar industry in the state, the amount of revenues collected could be closer to $6 billion. Ammiano does not include the indirect revenue. By making marijuana cultivation and distribution a legitimate business, growers and dealers would start filing tax returns like everyone else. This would have the effect of increasing the California tax base. Legalization would also give rise to more tourism, possible on an Amsterdam scale.

Given the huge fiscal problems the state has, it makes sense to both broaden the tax base and save on prison costs by keeping recreational marijuana consumers out of jail. There are legal issues; the supremacy clause of the constitution makes federal laws trump state laws, but perhaps a liberal interpretation of the 9th and 10th amendments would protect California cannabis. California has taken the lead on many issues before, and it's time to blaze a trail once again.

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