Effects of Drugs on the U.S. Economy: Costs and Policy

Introduction

Drugs such as morphine, heroin, and cocaine pose significant problems for American society. Americans have long grappled with the harmful effects of drug abuse and addiction. Restrictions were imposed at the beginning of the 20th century through domestic and overseas law enforcement to contain the drug epidemic, including efforts to limit opium and coca crop cultivation (Drug Enforcement Administration, 2012). This paper provides a brief history of drugs in the United States and outlines how drug use affects the American economy both positively and negatively. It also examines how decriminalization of drugs like marijuana could lessen the tax burden on taxpayers.

Non-medical use of drugs in the United States dates back to the early 1900s. During that era, there were, in many respects, more addicts than exist today, and the adult population was greatly affected. The use of morphine and its derivatives in medical procedures worsened the situation; morphine was widely used as a painkiller following surgical operations. Its extensive use during the Civil War made it a major topic of media discussion. Beyond addiction prompted by post-surgical painkillers, morphine addiction was also attributable to patent medicines sold over the counter, which had high morphine content (Whitebread, 1995). Compared to the present, a significantly larger share of the adult population were victims of drug addiction in the early 1900s.

History of Drugs in the United States

To address the spiraling drug addiction and abuse crisis at the onset of the 1900s, the government enacted the Pure Food and Drug Act in 1906. This law established the FDA in Washington and ensured that food and drugs intended for human consumption were tested and approved. It stipulated that certain drugs could only be sold by prescription and required that potentially habit-forming drugs be labeled as such. The Act effectively put many proprietors of patent medicines out of business, thereby reducing the chances of accidental addiction. Although it was not a criminal law, it contributed to a meaningful reduction in levels of addiction among the population (Whitebread, 1995).

The Harrison Act was the first criminal law to criminalize the non-medical use of drugs, coming into force in 1914. Originally called the Harrison Tax Act, it specifically targeted opium, morphine and its derivatives, and cocaine. The Act regulated the medical use of these substances while criminalizing their non-medical use. Doctors were required to pay one dollar annually to be permitted to prescribe these drugs, and they had to strictly adhere to the statute's regulations. A second tax of one thousand dollars was imposed on each non-medical transfer of morphine, opium, and cocaine — effectively functioning as a criminal prohibition intended to discourage consumption (Whitebread, 1995). Illegal possession of these substances was prosecuted as tax evasion.

Between 1915 and 1937, approximately 27 states passed legislation criminalizing marijuana use. These laws were enacted particularly in the Rocky Mountain and southwestern states, largely to deter migrant Mexicans from introducing marijuana into those regions. States in the Northeast, such as Connecticut, Rhode Island, and New York, enacted marijuana laws out of fear of substitution — that is, they wished to prohibit marijuana use before it became established, fearing that heroin and narcotic addicts deterred by the Harrison Act would turn to marijuana instead (Whitebread, 1995). Utah was the pioneer in enacting a criminal law against marijuana, though in that case the legislation was driven not by concern over migrant populations but by the state's Mormon heritage.

The Marijuana Tax Act was enacted in 1937 and was intended to prohibit the cultivation of marijuana in America on the grounds that the drug was addictive and produced criminality, insanity, and death. In the period from 1938 to 1951, following the prohibition, violations of the national marijuana ban were reported among jazz musicians, leading to a number of arrests in the late 1940s. The Boggs Act of 1951 quadrupled penalties in every offense category and introduced a new rationale for marijuana prohibition (Whitebread, 1995). Contrary to earlier claims that marijuana made users insane and violent, it was later argued that marijuana actually produced passivity. The new justification for prohibition in 1951 was that marijuana use served as a stepping stone to heroin addiction. Marijuana was therefore grouped with opium, morphine, and cocaine into a single category. This legislation coincided with both the Korean War and the Cold War, during which the press depicted foreign enemies as using drugs to subvert American youth (Whitebread, 1995).

In 1956 the Daniel Act came into force, introducing harsher penalties in every offense category to deter the rise in drug use. Possession of marijuana became a heavily penalized crime, carrying a mandatory minimum sentence of twenty years with no parole, probation, or suspended sentence. Sale of marijuana carried a mandatory minimum sentence of forty years in prison.

The Controlled Substances Act of 1969 abandoned the taxing framework that had underpinned previous drug legislation. This Act classified all drugs — except nicotine and alcohol — according to their medical use and potential for abuse. Penalties were based on the nature of the offense: possession, possession with intent to sell, sale, and sale to a minor. Schedule I drugs included marijuana and hashish, categorized there due to their high potential for abuse and lack of accepted medical use. Barbiturates and amphetamines were classified as having a high potential for abuse. The 1969 Act also lowered penalties in every offense category compared to prior law (Whitebread, 1995).

Drug trafficking and abuse affect virtually all aspects of American life. The economic cost of drug trafficking and abuse is estimated at $215 billion, a burden borne primarily by the criminal justice and healthcare systems. Drug abuse has also resulted in lost productivity and environmental destruction. Data from the National Survey on Drug Use and Health (NSDUH) in 2008 indicate that 14.2% of individuals aged 12 and older had used illicit drugs in 2007, with marijuana being the most commonly used illicit drug at 25.8 million users. Psychotherapeutics used for non-medical purposes ranked second at 15.2 million users, reflecting a slight decrease from 16.3 million in 2007. An estimated 15.3 million individuals aged 12 and older used cocaine in 2007, while approximately 850,000 used methamphetamine and 453,000 used heroin. Rates of drug use were highest among young adults aged 18 to 25, with 33.5% of that age group reporting drug use in 2007 (U.S. Department of Justice, 2010).

Illicit drugs inflict serious harm on their users, ranging from permanent physical and emotional damage to the breakdown of marriages, family disunity, and workplace conflicts. Illicit drug use leads to illness and disease, often resulting in premature death from overdose. When a parent dies from drug-related complications, children are frequently left in the care of foster parents or relatives (U.S. Department of Justice, 2010).

Drug law violations often result in incarceration. Individuals who might otherwise contribute to the economy and support their families are instead removed from productive society, creating economic gaps that are difficult to fill.

Illicit drug use heavily impacts the healthcare system. Under many circumstances, users of illicit drugs require specialized treatment and emergency department (ED) visits, and their hospital stays tend to be longer. The 2008 NSDUH data indicate that 7 million individuals aged 12 and older were dependent on or abusing drugs — particularly marijuana, prescription pain relievers, and cocaine. The Treatment Episode Data Set (TEDS-2008) reports approximately 1.8 million admissions to state-licensed treatment facilities as a result of illicit drug dependence or abuse, with opiates as the primary drug of choice, followed by marijuana and stimulants (U.S. Department of Justice, 2010). About half of all admissions were to ambulatory rather than residential facilities.

The Drug Abuse Warning Network (DAWN) reported in 2006 that out of 113 million hospital ED visits, approximately 1.5% were due to drug abuse or misuse — a massive strain on the healthcare system. Cocaine, marijuana, heroin, and stimulants were the primary substances prompting these visits. The 2007 DAWN survey of 63 metropolitan areas found 12.1 drug-related deaths per 100,000 persons. Drug-related suicide deaths per 100,000 ranged from fewer than one in some jurisdictions to 6.2 per 100,000 in Fargo, North Dakota. For context, CDC records indicate non-natural death rates of 15.1 per 100,000 for motor vehicle accidents, 24.4 per 100,000 for other accidental deaths, 11.1 per 100,000 for suicide, and 6.2 per 100,000 for homicides (U.S. Department of Justice, 2010).

How Drugs Affect the U.S. Economy Both Positively and Negatively

The consequences of drug use extend to users' families and the broader community. SAMHSA data from 2002 to 2007 show that approximately 2.1 million American children lived with at least one parent who abused or was dependent on illicit drugs. The U.S. Department of Health and Human Services estimated in 1999 that substance abuse was a contributing factor in placing children in foster care. Several states have enacted legislation to protect children from the consequences of drug production, trafficking, and abuse. In 2009, the El Paso Intelligence Center (EPIC) received reports that 980 children were affected by methamphetamine laboratories. Children have also lost their lives in drug-related gun violence, been abused by caregivers under the influence of drugs, or been drawn into drug trafficking themselves (U.S. Department of Justice, 2010).

Drug abuse imposes substantial costs on the criminal justice system through arrest, adjudication, incarceration, and post-release supervision. However, the development of drug courts and diversion programs — which subject participants to treatment services with strict judicial monitoring — has helped reduce resource wastage. Upon completing treatment, participants may have charges against them dismissed.

FBI records indicate that 12.2% of more than 14 million arrests in 2008 were for drug violations, and 4% of homicide arrests in the same year were attributed to drug abuse. Bureau of Justice Statistics data from 2007 indicate that 20% of state prisoners and 53% of federal prisoners were incarcerated for drug law violations, as were 27% of individuals on probation and 27% on parole (U.S. Department of Justice, 2010).

The 2008 Arrestee Drug Abuse Monitoring II (ADAM II) data indicate that the median percentage of male arrestees who tested positive for any drug in the 10 ADAM II cities was 67.6%, a slight decrease from 69.2% in 2007. Jail inmates in the survey had been dependent on or abusing cocaine, marijuana, and opiates, among other drugs; 55% had used these drugs in the month before their arrest. A 2004 Bureau of Justice Statistics report found that 17% of state prisoners and 18% of federal prisoners had committed their crimes to obtain money for drugs (U.S. Department of Justice, 2010).

Drug abuse also undermines national productivity. Premature mortality, illness, incapacitation, and imprisonment all reduce the labor force. Public funds directed to healthcare and the criminal justice system for drug-related issues represent resources that could otherwise be invested in other sectors of the economy. In 2005, an estimated 26,858 deaths were recorded as unintentional or undetermined-intent poisonings, with 95% attributed to drugs (U.S. Department of Justice, 2010).

An individual enrolled in drug rehabilitation or hospitalized for drug-related issues is effectively removed from the labor force. TEDS data indicate that 1.8 million individuals were admitted to state-licensed treatment facilities in 2007 for illicit drug dependence or abuse. Additionally, those incarcerated for drug law violations in state and local correctional facilities represent approximately 620,000 people removed from the workforce (U.S. Department of Justice, 2010).

Loss of productivity is also reflected in drug-related absenteeism and unemployment. The 2008 NSDUH data indicate that 19.6% of unemployed adults were current users of illicit drugs, as were approximately 8% of full-time employees and 10.2% of part-time employees (U.S. Department of Justice, 2010).

Methamphetamine production and outdoor cannabis cultivation also damage the environment. Because methamphetamine is produced using highly flammable materials, improper storage and disposal of those substances can cause laboratory explosions and fires. Toxic chemicals produced during manufacturing, if improperly discarded, can cause extensive environmental damage. In 2009, the California Department of Toxic Substance Control spent $776,889 cleaning up 232 methamphetamine laboratories and dumpsites. Cannabis cultivation on public lands leads to contamination and alteration of watersheds, diversion of natural water sources, and the introduction of toxic chemicals smuggled from Mexico that contaminate groundwater, pollute watersheds, and kill fish and other wildlife (U.S. Department of Justice, 2010).

The American prison system weighs heavily on taxpayers. According to December 2010 statistics, the American prison population stood at 1.6 million. A 1999 survey found that approximately 60,000 individuals were in prison for marijuana-related offenses, at a cost to taxpayers of $1.2 billion — not including the resources spent on those who had their probation or parole revoked for marijuana use (Bureau of Justice Statistics, 2011).

The criminal justice system spends an average of $7 billion annually on marijuana-related proceedings (National Academy of Sciences, Institute of Medicine, 1999). Marijuana-related charges are filed more frequently than charges for violent crimes such as assault, rape, robbery, and murder. Between 1991 and 2000, marijuana-related arrests doubled, while cocaine and heroin arrests declined by approximately one-third. An estimated 700,000 people are arrested on marijuana-related charges each year.

Decriminalization of marijuana would free up exhausted resources and save the government millions of dollars. Funds currently devoted to the prosecution and policing of marijuana offenses could instead be directed toward addressing deaths attributed to alcohol and tobacco use. It is difficult to justify the cost of prosecuting marijuana offenses when an individual dies from alcohol-related causes every five minutes.

Evidence from countries that have decriminalized marijuana suggests that decriminalization does not lead to increased use; in fact, restriction may be associated with higher usage rates, consistent with arguments made in the 1997 Connecticut Law Review. Legalizing marijuana could also contribute to job creation at a time when employment opportunities are scarce.

There are an estimated 60 million marijuana consumers in the United States (Easton, 2009). They purchase marijuana at an average of $5 per cigarette, which translates to approximately $110 billion per year. If the government were to legalize marijuana, it could capture revenue currently flowing to criminal organizations. Canada has demonstrated that government-sponsored production of marijuana can generate significant public revenue. Such revenue could be used to fund development programs, support new policy initiatives, and provide fiscal relief to states facing budget shortfalls.