[420 Girl]

All the discussion about the economic effect of Marijuana legalization seems centered around the tax benefits and savings in police, legal, and incarceration expenses. That argument alone was enough to convince Milton Friedman and 500 other economists -- including two other Nobel Laureates -- to endorse the Miron report favoring legalization.

It's a powerful argument, and I'll be referring to it. But in today's economic climate, there's an even more powerful economic argument that, afaik, nobody's making. Marijuana legalization, over and above the revenue benefits, would provide a strong economic stimulus without the necessity for a New Deal type program. (I'm a New Dealer by nature, and know the benefit and necessity for these programs, but it is good to have other forms of stimulus as well.)

"Marijuana as an economic stimulus." Is Prup merely trying to tie a pet program to a pet problem? No, but it's a good question to ask any 'solution-provider.' It's too easy to see an idea as a 'one-size fits all' answer, take Republicans and their fetish for tax cuts.

But this solution really does work. An 'economic stimulus' is simply putting more money into the hands of people who will spend it. Tax cuts are an economic stimulus -- just the least efficient and least productive of any that have been proposed. Food stamps are the best economic stimulus out there, because the money gets used immediately for food -- and because it frees up money to be used on what food stamps can't buy. Tissues, cat food, even liquor sales all go up because of food stamps -- and they all stimulate the economy.

But there's another way of getting spendable money into the hands of people. Lower prices. The math is simple. If x costs $A and the price drops to .6A, and the annual consumption is C, the stimulus effect is, initially, C($A-.6A). Or .4C.

Of course, for most products it isn't that simple. Most prices are not that elastic, and if such a drop occurs -- ignoring technological advances, as with computers -- it means that there is a decrease in cost due to cutting wages, cutting employment, or cutting out middlemen. Those lost wages or lost jobs have to be figured against the stimulus above, and lessen or eliminate it. This is because most steps where the price increases occur between initial production and consumption involve -- at least theoretically -- value added. Shipping, packaging, paperwork insuring proper deliveries, even advertising all directly 'add value' to the product.

Marijuana is different. Some steps do add value to it, yes. Product still has to be packaged, shipped, distributed from wholesalers to retailers, and they may have necessary expenses to set up their operation. But even here what causes the price increase at each stage is not 'value added' but 'assumption of risk.'

Let's take shipping, as a simple example. If you are shipping a ten kilo package of couscous, or chocolate covered cashews, or fenugreek, or whatever, to a retailer who will unwrap it and sell it by the ounce, you simply call DHL or FedEx or whoever, order a pickup, and tht's it. The shipping costs are relatively small, as a wild guess maybe $10. Double it to include handling, meaning the salary of the secretary who placed the order and the guy who carried the package to the truck. You add six cents per ounce to the cost of your product, which gets passed on to the buyer.

Can't do that with marijuana. Well you can try shipping it by UPS, but you take the risk of losing not merely your shipment, but your whole business if a package cracks open -- not just 22 pounds of couscous. And you might reimbursed for the couscous, but not for the marijuana. No, you have to make 'special arrangements.' I won't go into details -- the reader has seen the same tv news shows and dramas I'd get them from. (I've never knowingly even spoken with someone in that end of the business.) The important point is that they add far more than six cents an ounce to the final cost.

I will make one point though. If DHL loses a shipment because a truck is hijacked, your fenugreek is insured. More importantly, the company can count on the willingness of authorities to investigate and prosecute. Again, 'can't do that with marijuana.' Your insurance against theft is likely to be an unpleasant type literally 'riding shotgun.' Even with him, you are going to suffer some losses along the way, from theft or police 'interference.' (And you might need to have a very expensive arrangement to support the loved ones of an arrested employee.) Both types of losses have to be figured into the final price of marijuana, but not of fenugreek.

The same thing can be shown at every step of the progress from planting a seed to selling an ounce to a user. (And it doesn't matter if the buyer has a state card permitting him to buy it legally. That doesn't lessen your risk as a dealer one bit -- except in California. He's protected, but his risk has never been a factor in the price. You aren't, and that is a factor.)

And that is why legalization would drive the price down incredibly. True, there would be 'value added' costs that would probably increase. technology to do what is done by hand, like deseeding and drying, more quality control, packaging, even advertising and branding. And there would be state and federal taxes on the marijuana as well (and income and sales taxes as well to be paid and figured in the costs). But even with these, assuming the taxes are reasonable -- in a proposed legalization Amendment I will include, I've set the federal tax at $10 an ounce plus a tarriff on imported marijuana of $20 an ounce, reasonable since it is likely that the only imported marijuana will be higher quality and higher priced -- the price will be considerably less than current prices.

This is one reason why decriminalization is such a poor 'compromise.' I will discuss the problems with decriminalization at greater length in an appendix, but it is enough here to point out that it neither provides any revenue to the state nor the economic stimulus that is the main point of this article. It doesn't make marijuana taxable, or marijuana dealers able to pay income taxes, it only slightly reduces court congestion -- and may lead to longer trials since the option of 'bargaining down' to simple possession is eliminated. There's no reason to release the inmates currently in jail and save the costs of their incarceration -- or the loss of income their conviction may cost them through their lifetime. And it doesn't lower the price one bit.

Neither does legalization of medical marijuana. (California is a slight exception, because their policy seems to be, in practice, 'medical marijuana is legal, and if you tell us it's for medical use, we'll take your word for it,' and because they have developed an 'alternate distribution network' whose employees at least pay income tax and where prices might be slightly lower.) In every other state, 'legal medical marijuana' amounts to nothing but, in effect, a 'Get Out of Jail Free" card for users. But sellers and growers and other people along the chain are just as liable to prosecution as ever. Thus it gives no downward pressure on the price.

(Just in passing, I leave it to legal professionals and theorists to discuss the paradox that it is legal for A to buy marijuana from B, but illegal for B to sell it to A. And I should mention that Amsterdam -- the supposed home of a sensible marijuana policy -- suffers from the same paradox. It is legal for coffee shops to sell small amounts to customers, but -- technically -- illegal for them to buy the product in any amount larger than what they sell.)

But legalization would provide both benefits, and in surprising numbers. Let's run some numbers.

I said above that the Stimulus Effect Equation was simple. S = C(illegal price-legal price). And that remains true even if the money expended is on more marijuana or higher quality marijuana, as long as it's legal. The money remains in the economy, because marijuana dealers still have to buy diapers, lunch, and cat food.

(I am sure there is an equation comparing the stimulus effect of money spent in the legal and the underground economy. I don't happen to know it, but would appreciate anyone supplying it for the final version of this.)

Now all we need are the numbers. I've seen one figure on annual marijuana consumption, from Jon Gettman, a long time advocate. He lists it as 31 million pounds a year in the US. That seems possible but a bit large -- both sides have incentive to inflate numbers. Let's cut it in half to 15.5 million pounds a year, and convert that to ounces -- perhaps the most common 'unit of sale.' The numbers are very convenient for the math, 250 million ounces a year, or 20 million a month are both good approximations.

Now, as far as I can tell from comparing prices on marijuana forums -- where the participants usually have solid information and little incentive to lie -- the average price for 'good commercial marijuana' seems to be about $160 an oz. There's some fluctuation, but not much, and of course I have no way of comparing what is considered 'good commercial' in different regions. Premium, specialty, and luxury types are much more expensive, ranging from $400 to $600 a month. (Worth it? My only experience with this level of marijuana was, literally, finding a bagged bud on the street that someone had dropped. Don't know the variety or the cost, but it certainly was worth, comparatively, the price I quote.)

But what would the price of legal marijuana be? (I'll stick with the commercial grade to avoid complications.) I could, i suppose, spend a week researching and estimating all the costs involved, but we are doing a rough estimate here. Now marijuana is very easy to grow, as I've said. It takes very little labor, or special equipment. I suppose there would be some extra expense for legal that an illegal grower doesn't dare use for fear of calling attention to himself. And drying and deseeding add an additional cost, but I find it hard to imagine the price at the producer level being much over $10 an ounce.

But there are a lot more steps along the way. Shipping, packaging, advertising, wholesalde and retail mark-ups. Let's say they increase the price to $30 an ounce. Add my proposed federal tax of $10 an ounce, and a similar state tax. Then add $10 for sales tax and 'those things I would have thought of if I were a better businessman.' And we reach a total of $60 an ounce to the user. Let's use that.

(In fact it is likely that market forces would cut this way down. People can grow their own at minimal cost. It's not easy to develop the patience needed, but it can be done -- and you can choose the types of seeds you plant. That factor will force prices down considerably, and perhaps cut some of the steps mentioned above. Especially if you can buy ready-started plants from a nursery the way you would gladiolas or bonsai trees.)

Okay, we have the numbers. C=20,000,000 oz a month. P(i)=$160. P(l)=$60. Which means S=$2 billion dollars a month.

And tax revenue is even easier. If we take my proposed $10 per ounce tax for both federal and local, this would raise $2,500,000,000 a year for the national treasury and the same for the state treasuries, without including sales or income taxes, tariffs, license fees, etc. Not enough to balance the budget, but still 'real money.'

Of course my example is unrealistic in one way. Federal legalization is possible, and long overdue. I would not be surprised to see it as soon as this summer. But this would leave state options, and, at first, many states would not legalize it. And while it is likely that there would be some drop in prices in these states because dealers would be in competition with legal sellers in neighboring states, these states would not get the full stimulus effect or any tax revenue at all.

I should mention there is a factor that may act opposite to that as far as overall revenue was concerned. I have only mentioned the premium, specialty, and luxury types. They would certainly sell at a much higher price than commercial grade, but perhaps the ratio would be less, and grow increasingly less as legal growers concentrated on them. But let's say they stabilized at $200 an ounce. That changes the stimulus equation so that each ounce sold gives a stimulus effect of $300, not $100.

How much does that change the total? I can't answer that one. I have never seen any estimate as to what proportion of the market is premium grade or above, and doubt one exists. (If I am wrong, please let me know.) And the same can be said about my proposed tariff. It may be more likely that there is a reliable estimate of the proportion of imported and domestic marijuana in the country, but I have not seen it, if it exists. (Again, help requested.)

And I haven't mentioned hashish at all. (For those of you who don't know this, hashish is the same plant as marijuana. Marijuana refers to the leaves, hashish to the pollen and resin of the plant. Hashish is stronger -- though the differential has dropped far more than the price, which is why it has dropped in popularity -- but not substantially different in effect. Legalization might bring it back into popularity -- the taste is great, it's more suited for use in cooking, and there is a certain flair to smoking it. That would involve some interesting questions, only because of the areas that are traditionally known for hash -- Turkey, Pakistan/Afghanistan, and 'the Biblical Lands,' all of which could use the economic benefits if it regained popularity.

So, to sum up, an economic stimulus that also makes the government money, and which has other beneficial effects. What's the counter argument? I haven't seen any.

http://www.420magazine.com/forums/in...-stimulus.html