Perhaps I should not begin my first post here by 'shamelessly blogwhoring' but I just wrote over 2500 words on this topic, with twice as much again in the comments section, so I am going to summarize my argument briefly -- well, for me it's brief, but those who know me know that is an elastic word for me -- and then recommend the original post for more details.

Advocates for legalization -- which range from HIGH TIMES to Milton Friedman -- frequently point to the tax revenues legal marijuana might generate, to the better utilization of police and judicial time, to the savings on incarceration -- even to the reduction in plea bargaining and early release that the unclogging of court calendars and prison systems would bruing about.  All of these are perfectly valid arguments.  (I would argue the civil libertarian arguments, that people should have a right to consume a mostly harmless substance, especially when such more harmful substances as tobacco and alcohol are legal, while valid, are more likely to 'convince those who don't need convincing.')

But, afaik, no one has noticed the economic stimulus effect that legalization would produce, and it is major -- my calculations give a stimulus effect of $2 billion dollars -- a month.

The argument isn't a difficult one.

An economic stimulus is the increase of spendable money into the hands of people who are likely to spend it, thus creating a multiplier effect.  Jobs produce stimulus, food stamps produce stimulus.  And the reason why tax cuts do not to the same extent is because the money goes to people less likely to put it into circulation.

But there is another way of creating stimulus.  If the price drops substantially on a widely used product, and that price drop is the result of a reduction in cost to a producer or a middleman, the differential between the old and new price represents a stimulus -- and even if some or most of that money is spent on increasing consumption of the same product, or in purchasing a higher quality of it, this still puts money into circulation -- as long as the product is legal.  (Spending it on an illegal product might also keep the money in circulation -- after all, for example, prostitutes may still have to buy cat food, pay rent, buy diapers, or eat lunch.  I believe there is an equation comparing the 'multiplier effect' for legal and illegal expenses, but I don't know what it is or where to find it, and help will be gratefully appreciated.)

The key to the argument is the underlined phrase above.  Several people have objected that 'you aren't creating stimulus, you are just transferring money from producers to consumers.'  With many products -- whose prices are generally too inelastic to permit such a drop -- each step of the way creates a mark-up that is 'addition of value' as well as profit.

But for marijuana, profit and 'value added' (drying, transporting, packaging, etc.) are minor parts of the mark-ups.  The rest is 'assumption of risk' and this is a legitimate cost.  These mark-ups represent 'insurance' against the quite real risk that action by law enforcement could, at the least, result in loss of substantial quantities of 'product' and could, at worst result in totally uncompensated loss of the business, plus the possibility of a period of incarceration.

And this same risk, and thus this same cost, produces a mark-up at every stage of the business.  Growers, transporters, distributors, wholesalers, retailers, at any time could lose every bit of product they currently possess -- and, theoretically, an arrest 'down the line' could threaten the businesses up-line.

Thus 'assumption of risk' is a valid cost to the business -- though I have no idea how many marijuana businessmen actually calculate, or even realize this.  They just give a traditional mark-up without realizing why it exists.

However, remove the risk, you remove the 'assumption of risk' and eventually and rather quickly the mark-ups associated with it.  On the other hand, this is somewhat, but only partially, counterbalanced  by a tax that would almost certainly be placed on the now-legal product -- and the costs of record keeping, etc, connected with the tax.

I have gone into detail on the basis of the calculations in the original article.  I'll just give the results -- and these are based on 'good commercial grade' marijuana.  (I simply don't know enough about the premium, specialty, and luxury types to estimate either the amount of price drop -- certain to be much larger numerically than the commercial -- or the percentage of the market they represent.)

Cost of one ounce of illegal marijuana to user = $160 (this is the most common price around the  states according to marijuana user forums -- who have knowledge and relatively little incentive to lie)

Cost of one ounce of untaxed legal marijuana to user (including the remaining legitimate 'value added' markups) = $10 to $20.  (Marijuana is relatively easy to grow, prepare, ship, and even package.)  Take the higher price.

Add a proposed $10 an ounce federal tax, an equivalent state tax, plus costs for record keeping, tax preparation and filing, FICA, sales tax, maybe raises to employees, etc.  Lets estimate these additional costs at $20 an ounce -- which seems high, but makes the math easier.

$20+$20+$20 = $60 as the new cost to consumer.  Please note, to save yourself reading several interminable comments by a 'wm. emba', that I do not consider taxes as part of the stimulus.  In fact they cut down the stimulus more than they raise in revenue.

The stimulus effect is $100 per ounce of marijuana consumed.  Which is how much?  I took the only estimate I could find -- again, any better one would be appreciated -- of 31 million pounds of marijuana.  Since this was by a long-time advocate, I cut it in half -- both advocates and opponents have incentives to 'err on the high side.'  This converts, approximately, to 250 million ounces a year, or 20 million ounces a month.

This converts -- assuming all marijuana in the US were legal and taxed and ignoring the 'premium' varieties -- to a stimulus of $2 billion per month.

The other arguments for legalization are good ones, and I am sure that the public is ahead of the politicians on this one.  But in our current economic climate, this might be the clincher, the snowball that starts the avalanche that is waiting to happen.

For further details, see http://scienceblogs.com/dispatches/2009/02/guest_post_marijuana_as_an_eco.php

But I want to append to this something that appears as the second comment to the article, a proposed framework for a law federally legalizing marijuana.  {Comments in brackets}

Draft Bill for the Federal Legalization of Marijuana:

1.0 Effective on passage of this Law, all Federal Laws criminalizing the sale, possession, growth or importation of marijuana and hashish shall be repealed except as noted below. However, the transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of marijuana or hashish, in violation of the laws thereof, is hereby prohibited. {Copied from 21st Amendment}

1.1 As soon as Administratively feasible, all persons federally convicted of possession of less than 4 oz. of marijuana, and all people who can demonstrate that their marijuana-related offense was directly connected to a Medical Marijuana program legal in the State where the offense was convicted, shall be released from incarceration, and their convictions shall be quashed and expunged from their record.

1.1.1 A Board shall be set up in the Department of Justice with authority to review all other marijuana-related federal convictions and, at their discretion, to suggest to the relevant court that such convictions be canceled, sustained, or that prison sentences shall be commuted to 'time served. {It is necessary to include some form of adjudication because 'marijuana-related' offenses could include violent acts.}

1.1.2 Such board shall also make recommendations to the AG concerning the return of or restitution for assets seized in cases involving no offenses other than those against marijuana laws. {I know you'd prefer this to be extended to other cases, and so would I, and I'd expect it would be, but it will be hard enough to get this through as is.}

2.0 All marijuana and hashish sold within the United States shall be subject to a one-time tax of $10 an ounce. While such tax would be normally paid at the point of retail purchase, a retailer, wholesaler, or distributor may 'pre-pay' such tax and label such marijuana as 'tax paid.'

2.0.1 Marijuana or hashish used as an ingredient in other prepared foods shall be taxed at the same rate and such taxes shall be paid by the preparer of such. {From here on, to save time, 'marijuana' refers to 'either marijuana or hashish.'}

2.0.2 Such taxation shall not be considered to preempt the right of any state in which marijuana is legal from imposing such taxes as it sees fit, including both specific marijuana taxes and sales taxes.

2.1 Fradulent use of such a label, or selling untaxed marijuana shall be subeject to a fine of ... and confiscation of all marijuana currently in the offender's possession. {I want the fine to cover marijuana previously sold over a period of, say a week, and to be 'per oz' but I am not sure if such a provision is acceptable.}

2.2 The importing of marijuana, even if tax has previously been paid on it, into a state where it is illegal, either from another state or abroad, shall be illegal and any person imprting more than a pound of subject to a fine of $50 an ounce, as well as confiscation.

2.2.1 Such penalties shall be in addition to any state penalties and shall not be considered to preempt such penalties.

2.2.2. No penalties shall occur if marijuana is transhipped through such a state in sealed containers, provided the shipper can show a consignment order to a legal marijuana provider in the state of destination.

3.0 Marijuana imported into the United States shall further be subject to a tariff of $20 per ounce. {For reasons of encouraging the growth of a hashish industry in areas where it is traditional, and because of their foreign policy importance, as well as being unaware of any domestically produced hashish, I have deliberately set the taxes on hashish low -- hashish is customarily sold by the gram, and a comparable tax to that of marijuana would tax one gram of hash at the same rate as one ounce of marijuana. I have also not considered the question of taxing 'premium, specialty, and luxury marijuanas' -- which sell at 2 1/2 to 6 times the price of 'commercial grade' -- at a higher level. A comittee considering this legislation should explore this as well.}

4.0 Effective with the signing of this legislation, all marijuana currently growing on Federally-owned land ... {And here I am stumped. Technically it should become the property of the Federal Government -- see 5.0 below -- but at the same time it seems unfair not to figure out some form of compensation for those who had put in the work. One alternative would be to provide some sort of 'time window' effectively letting the growers harvest it. But all of these seem administrative nightmares -- how do you prove that's your marijuana patch -- and 'forced harvesting' could, at wrong time of year, waste a majority of the marijuana, as well as impacting the market. Perhaps it should be claimed by the government, divided into segments, and simply auctioned off while it remains in the ground, since I see no reason for prohibiting future leasing of federal land for marijuana growing. It is not, afaik, in any way harmful to land to have marijuana grown on it.}

5.0 Any marijuana confiscated by the Federal Government according to the provisions above shall not be destroyed, but shall be auctioned off at regular intervals to people authorized to distribute or possess marijuana in their own states. {Which could get interesting once corporations enter the marijuana business. I would personally favor an auction that would be weighted in some way to small retailers and even users, but don't know if this could be accomplished.}

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Since I wrote this I have become convinced that there should be a provision limiting any state tax to no more than the federal tax, but I am looking for amendments and corrections from all of you.