Blazing a Trail

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.