When You Chase Two Rabbits at the Same Time, You Won't Catch Either One

I think it was Thomas Sowell who noted that politicians are more popular than economists because the former offer solutions, while economists can only offer tradeoffs.

One of the most difficult problems in marijuana reform is the fact that we often run after two very different goals at the same time.  On the one hand, we want to get rid of the black market for weed and the corruption and violence that accompanies it.  On the other hand, we want to carefully regulate it, avoid encouraging addiction, and raise money in taxes.  The problem is that these two goals are fundamentally incompatible.

With any addictive substance -- alcoholic beverages, drugs, even fast food -- 20 percent of consumers ordinarily consume 80 percent of what's sold.  Thus, the 20 percent of heaviest drinkers imbibe 80 of the booze, just as the 20 percent of the heaviest McDonald's eaters consume 80 percent of the Big Macs.  (Pun not intended.)  Because of their heavy consumption, the 20 percent are usually very price-sensitive.  It's not hard-core alcoholics who tend to buy the most expensive wines, beer, and spirits -- they tend to look for the stuff that will get them drunk most cheaply.

Translate this to marijuana, and we can assume that the heaviest users will tend to be the most price-sensitive.  That means that even relatively small price differences between products of similar potency will have a big effect on demand, and thus that unless legal weed prices are kept at or below the price of the illegal stuff, the black market will thrive.  To the extent those prices are propped up by restrictions on growing and selling -- as we now see in several states -- and by various taxes,  the black market remains.  And so long as the black market remains, law enforcement will be targeting those who illegally grow and possess the stuff.  The only difference is that they'll be prosecuting them for evading taxes, not drug possession.

And it works the other way.  If there's a thriving black market, it's easy to evade the regulations and to avoid paying the taxes, which means that tax revenues will be lower than expected.  That seems to be the case so far in Colorado, where reports are that marijuana consumption is up but taxes are falling well below projections.  To drive up tax revenues, the state will have to commit additional resources to combat the black market.

That fact, and some of the thoughts I've mentioned here, are discussed in this nice piece from The Upshot's Josh Barro:  Marijuana Taxes Won’t Save State Budgets.