I knew when I started arguing for marijuana legalization that I would have to argue publicly with Mark Kleiman, who is easily the sanest critic of legalization.  This isn't easy for me.  I have corresponded with Mark over a couple of years, like what I know of the man, and he's even given me a forum to guest-post a couple of articles on other topics.  I like him personally from the contact we've had - and if he occasionally considers my long-windedness tiresome, so has almost anyone who has known me and been a friend.  (Hell, even I can consider my long-windedness tiresome - one reason I tend to take breaks from blogging and abandoned my previous blog.)

          And on most things political I am reasonably close to Mark.  We may disagree on minor matters but - to disappear into fantasy - were we to be Senators, Mark from CA and me from NY, our voting records would probably wind up being pretty close to identical.  Even on drugs other than cannabis we probably are close.  Mark is hardly a 'drug warrior' and has as much contempt for the breed as I do.  I too do not favor legalization of other drugs but prefer, in most cases 'steps short of legalization.'  (In fact, while I don't recall Mark speaking of these in particular, I may be to the right of him on some drugs.  I don't see any way of dealing with methamphetamine or 'date-rape' drugs except the 'drug warrior' position - one reason why I tend to criticize the 'what right has the government to tell us what we can do with our bodies' argument.)

          But, on cannabis, Mark is, simply, wrong.  His overall position, his 'legalization without commercialization' is not a bad policy, but it is impractical and unnecessary, mostly because Mark's basic fears - which seem to come from a mistaken belief that a business model that works well for cocaine is transferrable to the marijuana business - are 'chimeras.' 

I had started a long post in reply to one of Mark's a couple of weeks ago, but medical problems and domestic necessities kept me from finishing it.  I will probably cannibalize some parts of this if Mark is willing to turn this into a dialogue.  (Btw, for those who are curious, my medical problems are mostly orthopedic, a torn rotator cuff, a misplaced disc, arthritis in my ankles and a problem with the hinge of a knee.  None seem to be the result of my marijuana smoking, unless you blame it for making me work harder and longer than I might otherwise do and thus having worn out various parts.)

          However, yesterday Mark <a href="http://www.samefacts.com/archives/drug_policy_/2009/03/cannabis_legalization_as_economic_stimulus_a_pipe_dream.php> posted </a> an article on 'legalization as an economic stimulus,' calling it a pipe dream and treating it as almost beneath contempt.  Since this is my own favored argument I feel almost required to respond.  (Afaik, I was the first person to use it -- as contrasted to the 'tax it for revenue' argument.  I did a cursory google search and didn't find an earlier cite If someone used it earlier, I would appreciate seeing knowing of it.  I'm very curious to find out if anyone used similar reasoning.)

[As it happens, the reply grew so long I'll be posting it in two parts.]

Mark makes a number of statements in his five points against the 'stimulus' argument, and I have to dispute or question almost every one.  Let's start with a simple 'statement of fact.'  According to Mark, the 'current average' price for marijuana is $300 an ounce.

          Now Mark doesn't footnote this, nor does he describe what he means by 'average.'  It is possible - though (see below) highly unlikely - that Mark has accurate statistics on the whole of the marijuana market, that those statistics are so complete and are broken down so carefully that he is able to figure the proportion of marijuana sold that is various levels of premium compared to the amount that is 'commercial grade' and that he has mathematically totaled up the weighted figures and come with a mathematical average of $300 an ounce.  If this is true, I am hoping he will share that information with us.  Those figures would be invaluable in refining my taxation policy and my calculations of the stimulus effect.

          On the other hand, if he uses 'average' to mean 'ordinary' he is simply wrong.  (If he had spent time on various pro-marijuana boards and forums reading discussions of prices from people who are discussing their own experience and have no reason to lie -- as I did before I began these articles - he'd know that.)  $300 an ounce is actually a relatively unlikely amount to pay for an ounce.  Most premiums are more expensive than that, and the price for commercial is surprisingly consistent at $160-175, occasionally up to $200.  There have been times when Mark's statement would have been accurate, particularly in the 80s, but in each case, classic market forces brought the price down considerably.  (I was surprised to find that what I have been paying is consistent with the national average, since I am a New Yorker, but it is.)

          Mark also makes another statistical claim, which he repeats in his last two posts on the subject, that "the illicit cannabis industry in the U.S. generates revenues of about $10 billion per year."  He gives no source for this, and if he has one with a shred of reliability, I would be interested in seeing it.  In fact, though, it seems unlikely to be accurate, based on two distinct calculations.

          First, if we take $200 an ounce as a real 'average' weighting in a certain percentage of premium, we get 50 million ounces per year.  3 million pounds plus - but this seems low.  I've seen figures ten times this, and cut that in half for my own figuring.  (Again, Mark may be right, but I'd like to see the figures.  And, of course, if Mark's 'average' is correct, or if there is more premium being sold, or more half-ounces - or even smaller quantities where the mark up is higher, and one source suggests that people are buying $25 bags more frequently than I would have expected -- the figure would drop considerably.)

          But working my way through the partial statistics I have seems hopeless - even if I knew how accurate the surveying was.  Is it on the level of tv ratings, or does it have any semblance of plausibility?  However, there is another way of looking at it.

          The proprietor of a legal, 'medical' 'marijuana café' was interviewed on Marijuana, Inc.  In passing, he stated that he paid Federal Income Tax of $500,000 a year, and state Income Tax of $300,000.  Now people don't usually exaggerate the amount of tax they paid - IRS inspectors might look more closely at someone who boasts like that - but let's say he doubled it, that he really paid $250,000 in Income tax.  Let's assume he is the 'sole proprietor' of the café, and that all the profits go to him, that he is paying at the highest rate with few deductions, that his tax represents a third of the profits from the café, that only half the income from the café comes from direct marijuana sales - the rest from t-shirts, marijuana containing products like cooking oil, cookbooks, etc., and let's assume that his profit margin is 50% on the marijuana.  (All are extreme cases, and each works to lessen the sales of marijuana from that café.)

          $250,000 income tax means $750,000 income.  If half the income comes from marijuana, and there is a profit margin of 50%, these cancel out, so the amount of marijuana sold at ONE café is $750,000.  But that was low-balling every figure.  If we assume he was telling the truth about his taxes, that he takes enough deductions that this represents a quarter of his income, that 75% of the profit comes from marijuana, and that his profit margin is 40%, this would put the upper limit of his sales at about $3,750,000 - from one - admittedly very successful - café.

          If Mark's figures are right, that one location represents between (rounding up a bit for easy figuring) 1 and 4 ten-thousandths of all the marijuana revenue generated by all sellers in every state of the Union.  Does this seem plausible, no matter how 'up-scale' the location (and price) is?   

(But even taking Mark's figures as accurate, Mark continues to treat this as a trivial amount.  Okay, it is maybe 1/30^th of the money spent on new automobiles, but it exceeds the money spent on frozen foods and is just below the amount spent on chocolate in all forms.  Both are substantial parts of the economy, hardly 'rounding error' as Mark refers to it.)

          Let's quote Mark directly.  He has five numbered 'bullet-points.'  The first is :" 1. The illicit cannabis industry in the U.S. generates revenues of about $10 billion per year. If you're keeping score at home, that's less than 1/10th of 1% of GDP. We're talking rounding error here."

          Hardly.  If what Mark is trying to argue is that the stimulus effect will not solve the depression, he's skewering a nice strawman.  (Of course, Mark shows he doesn't understand the stimulus argument in a later point, but we'll get to that.)  I certainly never claimed that it would single-handedly turn things around.  I merely pointed out that, using my figures, there would be a stimulus effect of $2 billion a month, and tax revenues of $5 billion per year.  Even taking Mark's figures, the stimulus effect would be $400 million a month and tax revenues of $1 billion per year.  Say the truth were somewhere in between, it still wouldn't 'solve the crisis' but it would be one of the few stimulus efforts that would simultaneously increase government revenues rather than shrinking them.

          Mark's second point is quite complex, and starts out accurately: "2. To legalize cannabis we would have to withdraw from a treaty, the Single Convention on Narcotic Drugs. (No, of course cannabis isn't, properly speaking, a "narcotic." But that's the name of the treaty.) Doing so requires six months' advance notice. And of course there's the little matter of getting that change in the law through the Congress, and through the 50 state legislatures, since cannabis is currently illegal under state as well as federal laws. And it would take some serious work up front to develop whatever tax and regulatory structure would replace the current prohibition. If the President declared his support for cannabis legalization today, and had the political muscle to push it through, the current recession would still be a memory before a legal cannabis industry came into being, or we're in much worse trouble than I think we are."

The point about the treaty is an interesting one.  I'd like to know if any lawyer has discussed this, but, as far as I can tell, we are actually in violation of the treaty by accepting a medical use of marijuana when the treaty declares it of 'no medical benefit' - that's the key to the definition of the treaty's Schedule Four.  And, whatever the support for legalization, the support for medical marijuana - even in 'Red States" - is very high and I have no doubt the movement will spread to more states that the current 13 or 14.  (Is Maryland's 'affirmative defense of medical need' enough to put them in the column?  Maybe yes, maybe no.) 

Mark fails to point out two facts about the treaty.  Treaties CAN be amended, though this one would apparently take some complex reworking, and, more importantly, it has been the United States - over several Administrations - that has been pressuring countries to keep marijuana illegal.  Without this pressure, I have little doubt the treaty would be - officially or tacitly - amended.

          In fact, Mark's beloved 'grow your own' policy would also require amending the Treaty and, since it would involve a new concept of 'legalization without commercialization' such an amendment would be much harder to pass.  Mark himself admits that one weakness in the policy is that it provides no government revenue, which makes it less attractive to politicians here.  But on the world stage we are probably among the less corrupt.  I can easily imagine "10%" Zardari supporting an Amendment that would permit Pakistani hash sales - but one which wouldn't give him any opportunity for growers to 'show their gratitude'?  Not Bloody Likely.

          (I have asked some lawyers on the Net if there are any readily available articles on how such an Amendment would work.  If I get a reply, I'll include it in an update.  And I repeat my request here.)

          The Amendment is a valid point, but I am surprised Mark made the other points, because he should know better.  There was no organized attempt to change (Alcohol) Prohibition until the Depression set in.  (There was a little noticed article in the Pittsburgh Tribune-Review on this that is available <a href="http://www.pittsburghlive.com/x/pittsburghtrib/search/print_518872.html"> here.</a>  It deals with the factors that the author sees as causing Repeal, particularly the need for Federal Revenue, and is very worth reading.)  But once the bill was passed through Congress in February - despite the fact that it was an Amendment that required ratification by the states - it took until December for it to be ratified.  A simple law could pass in two weeks, if politicians were less afraid of bringing it up.  (President Obama would not support such a bill, but if it passed with considerable support, I don't see him vetoing it.)

          "All 50 state legislatures?"  Mark, prohibition was ended on a Federal level in 1933, but States were free to keep it themselves - as I permit in the draft legislation I included in my first post on the subject. (In fact, 'commercially importing marijuana into a state where it is prohibited' would remain a Federal crime, and while the Federal penalties would be low, states could be as Draconian as the Constitution permits.)  The last state to abandon alcohol prohibition was Mississippi - 28 years later, and Kansas didn't permit 'sales by the drink' or public bars until 1987.  This didn't mean that the Prohibition Repeal Amendment was useless - or that the effect on the tax revenues was reversed because it took some states a while to come aboard.

          (Ironically, the stimulus effect would still apply to a lesser extent where marijuana remained illegal, particularly in states or regions of states adjoining legalizing states.  Dealers would still have to drop their prices to remain competitive.  A 'marijuana moonshiner' in WV isn't going to be able to keep selling commercial at $160 or premium at $400 an ounce if his customers can drive over to Virginia and buy legal marijuana for a third of that.)

As for the 'serious work' on the tax and regulatory structure, not so much.  Each state would be setting up its own regulations, and while the decision to legalize and those regulations might be complicated, each state that chose to legalize would be 'encouraged' to get a system in place fast so as not to lose business to a quicker neighbor.

On the Federal level, there really aren't that many questions to be wrangled over.  I included a draft framework for legalizing that could serve as a starting point.  Then there would be the following major questions:

1)    Amount of tax and where levied, whether at point of sale, or on the grower, or elsewhere?

2)    Flat tax per ounce or a sliding scale based on chemical tests or variety?

3)    Standardizing variety names - by a commission

4)    Tariff on imported cannabis?  If so, how much?

5)     Import and export regulations

6)    How to handle hashish, tax at approximately the same rate as marijuana per ounce - which favors hashish importation (from states who could use the economic boost) - or by gram

7)    Farmer's market/roadside stand exception?  (Do you handle direct 'grower to consumer' sales differently?)

8)    Tax for immature and mature plants? 

9)    Amnesty - and quashing of convictions --for currently incarcerated prisoners whose non-violent offense involved medical marijuana and an amnesty board set up for other prisoners

10) Penalties for selling or importing untaxed marijuana and for importing (commercially, not for  personal use) of marijuana into states where it is forbidden

11) Confiscated marijuana - burned or auctioned off, and who would be part of the auction?

12) How to handle marijuana currently being grown on Federal lands such as National Parks

There may be a couple I missed, though I doubt it.  If so, please list them - again, Federal rules, not State Regulations.  It's a long list, yes, but not a complicated one.  Does anyone doubt that a week of hearings could bring consensus on many of these?  In fact, if the Senate invited a panel of bloggers who have written on the subject to prepare a list of suggestions, and subpoenaed them to appear in two weeks, which of us would not have a fully developed presentation on all of these?  (My own draft legislation covers most of them, though I still have no idea about #12.)

The controversial and difficult questions on age, where smoking is permitted and how marijuana could be sold, DUI questions, etc., would and should be State matters, and there would be considerable experimentation before the best ways of handling them became obvious, but that can be one of the glories of the Federal system.

          Mark might argue 'Do we really want the sort of patchwork quilt mess we got after Repeal?"  Mark, compared to what?  We already have an Award-winning quilt pattern of laws, both as to medical marijuana and marijuana enforcement in general - not to mention the relative degree of enforcement.  (For example, even my eyes bugged out when I saw what Washington State considers a reasonable '60 day supply' of medical marijuana.  24 ounces!  I smoke a lot, but I wouldn't go through that in a year.) 

          But states are much more used to cooperating now than eighty years ago, and cannabis is a much simpler product than alcohol.  I think most states will reach a consensus on most of the questions.  If they don't, it still will be an improvement over the current situation with the corruption, the variations in enforcement, and the disrespect for laws.   

          Mark's third point is : 3. Legal cannabis, even taxed, would presumably be way cheaper than the current illicit product. Other things equal, that would mean that the legal cannabis industry would have lower revenues than the current illicit industry. That wouldn't stimulate the economy: just the reverse. Of course it would move those revenues from criminals to (at least nominally) honest businessmen (or rather, make hones businessmen out of today's criminals). But the convention that excludes criminal earnings from GDP is just that: a convention, of no descriptive significance when it comes to determining the actual level of economic activity. That's not to deny that there would be economic gains: consumers would gain by getting better product at lower price and with less hassle, producers would gain by not going to jail, taxpayers would gain from the tax revenues and the reduction in enforcement spending. But all that is gain in welfare, not stimulation of economic activity.* The effect on economic activity would be negative.

          This misses the point so incredibly that the only charitable explanation I can give is that Mark heard the phrase 'Legalization as an economic stimulus' and was so sure he understood what it meant that he never bothered to actually read the articles proposing it.  (Mark, if you are reading this and preparing a reply - as I hope you are - please read the first piece on this blog before you do.)  Mark seems to think that the stimulus comes from moving the money spent from 'illegal channels' to legal ones.  That is nonsense, agreed, but nobody I know of is arguing that way. 

          The price drop does not lessen the stimulus effect.  The price drop IS the stimulus effect.  Economic stimulus comes from putting money in the hands of people who will spend it - that is why the Republican Hooverism is so absurd.  All the effects Mark lists will be important, yes, but the fact is that when a person who has budgeted $200 for an item per month suddenly pays $50 for the same - or a higher quality - item, that gives that person an additional $150 to spend on other things in the economy, all of which cause stimulus.  (Yes, even if they increase their consumption of cannabis or the quality they buy, as a legal product it is still providing the same multiplier effect.  But they are more likely, in the current conditions, to use most of the money on other things.

          (Mark - and others - might disagree with my argument that this is a true stimulus and not merely a transfer, that the savings come because the initial high price includes mark-ups which represent a form of 'self-insurance' against the catastrophic effects of law enforcement, and thus are countable as 'cost' not profit.  But someone who enthusiastically supports Obama's stimulus proposals and end to the Bush tax cuts - as we both do -- would find it less easy to argue that this point matters.  And of course there is a third way of looking at it, that it represents simple market economics, that legal sellers simply need to spend less to produce their product, and that the savings are passed along to the consumer, which is again, not a 'transfer' but a representation of market effects.  If someone cuts the price on a laptop by $100 because he has discovered a way of making them more cheaply, we don't say this is an unimportant transfer taking money from the old sellers and giving it to the new.  We point out that the buyers now have more money to spend.)

          In fact, that stimulus is quantifiable, at least roughly - precision depends on the tax structure, the actual size of the marijuana market, and the percent of the marijuana market that is taken up by 'premium, specialty, and luxury' varieties.  (Even if there is a tax on a sliding scale based on quality, these varieties will still show a much higher qualitative drop and a greater stimulus effect. Thus if 'purps' - no, "Prup" doesn't come from that, and I only heard the term some years after I chose the acronym of my nom de blog - cost $400 an ounce, and the tax is so high that they sell legally for $150, this still gives a stimulus effect of $250 per ounce of purp sold, compared to $100-$140 for commercial.)  And this gives legalizers a chance to demand opponents quantify the specific harm they see legalization causing and show that it substantially outweighs the stimulus effect, and the other benefits that even Mark accepts.

          So, Mark, will you please describe in detail and quantify the  negative effects you foresee.  (And please don't say 'read my book' as you did in personal correspondence.  It was written over 25 years ago, and while it may have been updated, I'd prefer as recent statistics as you can give.) 

Because you are right that there will be negative consequences, of course.  Any change brings positive and negative consequences.  (And any person on my side who argues that there are only benefits can be ignored as a fool.  The benefits might far outweigh the negatives, but there will be both - and the fool who denies this is liable to be exposed the first minor negative becomes apparent.  Sadly, those negatives will rebound against everybody on his side unless he is disavowed.)

So give us your negatives.  But then, put them in the balance pan and let us all see the scale tipping - if it does.

          Oh, and Mark.  You are a person I know to be fair and intellectually honest.  Now it is obvious that some of the 'new users' you worry about will choose marijuana instead of alcohol.  Others will switch from alcohol to marijuana.  Certainly not all, but there will be at least some lessening in the amount of alcohol consumed and the number of consumers.  I would like your estimate on this, and how much it adds to my side of the scales.

[continued in the next post.]