Marijuana – Should be legalized!

16 05 2011

Cannabis, also known as marijuana, among many other names, refers to any number of preparations of the Cannabis Plant  intended for use as a psychoactive drug or for medicinal purposes.  Marijuana is being used by kids, teenagers and adults in today’s society. Apparently there is a great demand for this product, yet it is not legalized. There were three million Canadians who used marijuana in 2002, according to Statistics Canada. That’s about 12 per cent of the population older than 15, up from seven per cent in 1989. The Canadian Medical Association estimates that about 1.5 million Canadians smoke marijuana recreationally. Taking a look at these statistics one can just imagine how much revenue Canada’s government has lost due to the illegalization of marijuana.

There sure is a failure in the market for marijuana. People who don’t get it use different and illegal ways to get marijuana. By illegal ways I’m referring to the black market. In this situation we can see the concept of price floor where there is not enough supply and the demand is greater than supply. Consumers in this case use other ways to get what they want. So this has created a black market in Canada for marijuana. People buy marijuana from the black market where products are not taxed due to which the government looses a lot of money.  The government is always trying to catch these people because they loose out on taxes that people are suppose to pay. But then again why not just legalize marijuana if you want taxes?

A study estimates that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of production was only $1.70. It is true that Increased marijuana use can have ill effects on the health of the population but the increased sales bring in more revenue for the government. However, if legalized, governments can control how much marijuana is consumed by increasing or decreasing the taxes on the product. There is a limit to this, however, as setting taxes too high will cause marijuana growers to sell on the black market to avoid excessive taxation.

Just like cigarettes smoking marijuana has some negative externalities as well. The smoke sure does destroy not only your but other people’s health as well. There are many negative effects of marijuana. The short-term effects of marijuana include:

  • Distorted perception (sights, sounds, time, touch)
  • Problems with memory and learning
  • Loss of coordination
  • Trouble with thinking and problem solving
  • Increased heart rate, reduced blood pressure

Sometimes marijuana use can also produce anxiety, fear, distrust, or panic.

Although marijuana has all these effects, so does smoking cigarettes and drinking alcohol. If the government can charge taxes on cigarettes and alcohol then they should do the same for marijuana.

In conclusion, every drug has its own effects on the consumer and the society.  I think marijuana should definitely be treated like alcohol and tobacco in terms of taxation. I’m sure the government can control the consumption of marijuana by implying reasonable taxes. They should use the command and control policy where there are laws imposed on certain things. This is something they should think about.  I think marijuana should be legalized. The government is loosing a lot of money by not legalizing marijuana in fact they are loosing billions of dollars. There should be laws against the consumption of marijuana. It should be treated the same way as alcohol and tobacco. It should be taxed. This way the government will earn vast amount of revenue and people will be happy.

Canada vs. Cannabis: An Economic Showdown (TBM)

15 05 2011

Canadians have a reputation, whether it’s good or bad is debatable, for smoking marijuana all the time, with some of our neighbors down south thinking that it’s legal in the Great White North.  A country full of pot-smoking hippies is all Canada is to most Americans.  What they don’t realize is marijuana is Canada is far from making every Canuck a stoner, and in fact the only way one can get it legally in Canada is through a medical prescription.  The legalization of medical marijuana has been around for 10 years in Canada, available for illnesses like glaucoma and epilepsy, to ease the pain of chemotherapy, and even to induce its infamous “munchies” on patients with little appetite. The question that everyone is asking now is whether Canada should take marijuana to the next level or not.

Right now, the economic system for marijuana is failing, because we have tried to impose a temporary solution on the “problem” of cannabis use for too long.  The prohibition of pot has created a system where the country allows no supply to be made, sold, or used in the country; but just ask 3 out of every 20 Canadians and they will tell you the demand is there, and that consumers are willing to pay for their share.  This system failure is similar to that of a price floor, where there is not enough supply to meet the demand, and consumers must either do without, or turn to another outlet to get what they want.  This has lead to the black market of marijuana trade in Canada.  Canadians have seen this happen before during the alcohol prohibition of the 1920’s, where many Canadians turned to black markets that were selling various alcoholic drinks because they saw the profit that was to be made.  Eventually, alcohol was legalized and taxed, to the profit of the government and the destruction of the black markets.  Legalization solved so many problems, so why wouldn’t it work with marijuana?

If we look at this from an economic standpoint, the trade of cannabis in Canada is an estimated $20 billion per year, creating 250,000 jobs in production alone.  The tax revenue Canada is missing out on is a whopping number.  Not only could the government tax the sales of marijuana in Canada with sales taxes like the GST and PST, or HST (depending on your province), along with an excise tax that could be put on the retail price of marijuana, but the government could also make money through increased volume of income taxes.  The 250,000 people employed by the cannabis industry are not claiming this income due to the illegal practice in which it was acquired, growing and distribution; legalize pot, and that income is not only legal, but nice and taxable.  Looking at HST and excise tax averages for cigarettes across Canada, the estimated tax revenue to be gained via marijuana legalization is approximately $11.8 billion, give or take a couple billion.  The money gained from the cannabis industry would not only be routed away from the black market, but also be used to further the country as a whole by the government.

Some say that marijuana is a drug too dangerous to be let onto the market.  They say the addictive power of the tetrahydrocannabinol (THC) in the pot is addictive, and leads to usage of harder drugs within pot smokers, and that the cancerous properties are too much to risk having out on the shelves of stores for any good to come out of the legalization of cannabis.  What people don’t realize is that compared to other drugs, even alcohol and tobacco, cannabis is safer for the body and the mind.  Cannabis does not cause cancer as often as tobacco, it does not damage the body as severely as alcohol and tobacco do, and it is less addictive than both alcohol and tobacco.  In fact, even caffeine is more addictive than cannabis!  The harm cannabis will do to someone is less than that of other legalized drugs, so there is no reason to exclude it because of that.  The idea that marijuana is a gateway drug is only a problem because the same black markets that push pot on people also try to get users addicted to harder, more addictive drugs like cocaine and heroin.  The destruction of the black markets through legalization would prevent people from being exposed to these hard drugs, and cannabis would no longer be a dangerous gateway drug.  Lastly, concerning laws, alcohol and tobacco laws limit the age of those allowed to use those drugs, and the same would go for weed.  Laws would need to be in place for driving while under the influence of marijuana, along with ways to test on the roadside for such intoxication.  The safety of everyone should not be compromised when legalizing cannabis.

Overall, the prohibition on marijuana is holding the government away for billions of dollars in revenue, and destroying lives through exposure to hard drugs through the black market.  Marijuana should be made legal, with laws to protect the users and those who do not wish to partake, just like alcohol and tobacco laws.  Marijuana should be taxed once legalized, to generate revenue for the government, and discourage use, like the tax on alcohol and tobacco.  It’s a safe drug that we could make a lot of money on, so why not legalize it?

Marijuana: The New Cigarette (to be marked)

15 05 2011

Marijuana use is currently illegal in Canada except for medical purposes. However, this has not prevented the development of a black market for marijuana that is worth billions of dollars, the existence of tens of thousands of grow ops in British Columbia, and the fact that 4.5 million Canadians (about 14% of the entire population) used marijuana in 2004. With the prevalence of marijuana in Canadian society, it is obvious that its prohibition is ineffective and that the legal battle against marijuana has been lost. It is time that the government introduce market based policies to influence the use of marijuana and benefit from its market. In other words, it is time for the government to legalize marijuana.

The Externalities of Marijuana Being Illegal

Governments can control for the negative externalities of marijuana use by applying command and control policies or market based policies. Command and control policies are usually regulations that prohibit or require certain behaviours, whereas market based policies involve the use of taxes (taking away money) or subsidies (giving money) to encourage a desired behaviour.

By criminalizing marijuana possession, the Canadian government is using only a command and control policy in its attempt to reduce the use of marijuana. The problem with this is that, unlike market based policies, it offers little economic incentive for people to comply with the law, and as a result causes many negative externalities to develop as people try to dodge around the law. For example, criminalizing marijuana possession has caused the formation of a black market for marijuana, where people operate grow ops and sell marijuana to each other in secret. This market is worth billions of dollars, but the government does not profit from it because the market is not regulated. Also, the money gained from the marijuana market often ends up in the hands of criminals, who use the money to perform more illicit activities.

Another negative externality of criminalizing marijuana is the high cost of running the judicial system involved in court trials for marijuana trafficking, putting criminals in jail and policing for marijuana possession and growing. According to Canadian Alliance MP Keith Martin, $150 million dollars would be saved in court costs every year if marijuana possession was legalized. The financial resources going into enforcing the law would not be a huge matter, if it were not for the fact that it has not reduced marijuana consumption. Of the millions of marijuana users in Canada, less than 1% of them are caught and more than half of that is let off with only a warning.

Criminalizing marijuana has not reduced the supply or the demand for marijuana to yield a socially desirable equilibrium quantity.

The Benefits of Legalizing Marijuana

To eliminate the negative externalities of using command and control policies to regulate marijuana, the government should use more market based policies. For example, cigarettes are regulated using both kinds of policies. The government uses command and control policies through the regulation of the legal smoking age, and through advertisements printed on cigarette packs detailing the negative health effects of using marijuana. On top of that, the government also uses a market based policy by imposing an excise tax on cigarettes, which raises the prices paid by consumers and thus decreases demand for cigarettes. This places the supply and demand of cigarettes at a healthy level.

The government can use similar strategies to regulate the marijuana market, for example by placing similar advertisements in shops where marijuana is sold and on packages of marijuana. The government can also impose excise taxes on marijuana. Using this strategy, legalizing marijuana possession can actually reduce its usage more than criminalizing it. Based on the principles of supply and demand, if marijuana was legalized, there would be an increased number of grow operations as people flood the now legalized market in an attempt to make money. This would shift the supply curve to the right. The equilibrium point for the market would then be shifted to a lower price, increasing the quantity used. However, if excise taxes are applied to marijuana, like they are to cigarettes, the supply curve would shift towards the left. The amount of tax can be adjusted to such a level that the equilibrium point of the marijuana market actually yields a lower quantity consumed than at first, thus meaning that marijuana use has decreased.

There is the possibility that a black market for marijuana will still exist even after it is legalized. This can happen if the excise tax on marijuana is too high. Suppliers may decide not to comply with the regulations in the legal marijuana market, and instead sell marijuana at a lower price to willing buyers to make a higher profit. This will increase costs for the government because the government must then spend money on policing and regulation to ensure that sellers pay their taxes. To reduce the possibility of this happening, the government can ask marijuana retailers to list their suppliers and then search for the suppliers to impose taxes on.

Legalizing and applying excise taxes to marijuana can decrease the quantity demanded and supplied to a more socially desirable level.

Legalization is the Right Way to Go

The government should treat marijuana with a more market based approach. Just like how cigarettes are regulated through command and control policies and market based policies, marijuana should be regulated the same way. The combination of command and control policies and market based policies would be most effective in reducing marijuana use while at the same time benefiting the Canadian economy.

Maybe this isn't such a bad idea.

Marijuana should be legalized(TBM)

15 05 2011

“…marijuana is one of the safest, therapeutically active substances known to man.” – Judge Francis Young (DEA) In my opinion,  growing and selling of marijuana should be legalized in Canada, in other words, marijuana should be treated as same as tobacco and alcohol. Marijuana would be good for the Canadian government. The government would be able to collect the extra revenue from marijuana industry while patients can benefit from this drug.

There is definitely a market failure for marijuana. Patients have access to marijuana through illegal actions. It’s so bizarre that other countries such as China, India, the Middle East, South East Asia, South Africa and South America have used marijuana for medical purpose since 6000 B.C. But Canada  has prohibited trading marijuana due to the government’s thought that growing marijuana is producing drugs. Look at what happened to Mr. Mernagh, the government filed a lawsuit against him just because he was growing marijuana at the back of his yard instead of taking his current health condition into consideration. Given that marijuana can help AIDS patients to relieve pain, half of the patients reach the satisfaction of reducing nerve pain with no side affects which is pretty amazing since opioids and other pills can only reduce pains up to 30% but come with drowsiness and confusion as side effects. AIDS patients aren’t the only case that marijuana can be used as medicine. Doctors recommend marijuana for various diseases, such as anxiety, epilepsy, migraines, glaucoma, Crohn’s disease, chronic pain, multiple sclerosis and inflammation. Besides this, some may say that marijuana is more lethal to human beings than alcohol which is why marijuana is outlawed by government. However, a study by London Imperial College found out that the most dangerous drug in the world is alcohol and heroin. Alcohol is ranked as No.1 the Most dangerous drug on earth. Alcohol can not only cause severe health problems to drinkers but also causes tremendous grief to the people around them. Statically speaking, alcohol not only kills over 2.5 million people annually worldwide but also kills over 75,000 Americans each year and shortens their life expectancy up to 30 years. There is definitely a negative externality, alcohol has created adverse impact on bystanders, mostly relatives and friends. Alcoholism also leads to many car crashes which caused 40,933 deaths last year. It isn’t just about car crashes, 95% of crimes involved alcohol. Economic productivity has been lost, a recent study stated that, an estimated $119 billion loss related to alcohol problems in 1995. Alcohol also causes people to be ten times more likely to be late for jobs, reducing productivity by 33%, and 4 times more likely to get into job related accidents which all contribute to lowering corporations’ profit.Alcohol even affects school performances can be affected by alcohol. Drinking has an influence over children’s brain developments, drinking slows down the brain’s action of responding learning and thinking which contributes to the growing number of skipped, dropped out students with lower grades which affects their futures as well. This is what alcohol has done to us but it’s still public qualified for trading. However no one has ever died from marijuana. Clearly, marijuana isn’t as lethal as alcohol. In this year, most countries have suffered from the recession which started in the United State. Increasing unemployment rate hits its 25-year-high in the U.S who just put trillions into financial market. And Canada even has a 7.8% of unemployment rate. Governments can do something just to help reducing unemployment rate. Legalizing marijuana can be one of the things that government can do to get people who have been unemployed to go back to job market. If government refuse to legalize marijuana, a lot of people not only who are related to marijuana industry but also people who are in other industries that are interconnected with the marijuana industry can be affected which is a classic example of negative externality, especially under today’s economy. On the black market, sellers set their own prices due to no regulation of prices. People take risks of growing, moving and selling it. In the end, buyers have to buy the fluctuated prices simply because they have to. No need to worry about running out of business! Without legislation, marijuana industry is already profitable; 25 million people use marijuana annually. Given that after legalization was approved, the demand will increase. Supply will also increase because it has become legal and to buy and sell marijuana does not come with any risks attached to it anymore. Likewise, the quality of the drug will improve with it being less dangerous to buyers due to more money being put into the research and development of better quality marijuana. Given that on the black market, an estimated sale of $4 to 5 billion on selling marijuana occurs annually.The government could gain tax revenue between $2.4 billion (tax rate is different from normal goods) to $6.7 million (by using the same tax rate as alcohol and tobacco). Which government could resist taxing this figure? I wouldn’t.  If our government could gain revenue out of this giant accumulated income, more welfare, public goods government can provide to more people who desperately need it. The stable society would be on the way to come true due to legalization of marijuana. Moreover, GDP doesn’t take revenue from black market. But if marijuana was legalized, our GDP would increase and look healthier. Not legalizing marijuana can result in negative externality. The number of people arrested for marijuana has increased since 1937. The cost of running prisons over the last five years has risen to $2.1 billion for people who are charged with possession, selling and growing marijuana is attributed to it. Arresting these people or retain more people who just sell, buy and grow marijuana could make the available space of jails become smaller along with rising cost. However, if government would have put this $2.1 billion on other social welfare, we could have a better living as a result. If marijuana was legalized, the costs of prison could be lowered and government could generate more tax revenue and they can use this money to assist unemployed people. Like I mentioned before, the quality of marijuana would be better which is good for the users’ health.

Why not legalize marijuana? It can benefit smokers, patients and government together. People can feel better off by smoking marijuana without danger. Our society can have more funding to support us for a bright future by collecting more money to change and shape our country in a positive way.

Journal 7

25 04 2011

Journal instructions are available here.

This is the second journal prompt provided before the May 2nd deadline for Journal Submission #3.

Journal Prompt

For this journal you are to consider the economics of marijuana.

  • Is there a failure in the market for medical marijuana?
  • What are the externalities associated with marijuana? Consider the externalities when it is illegal and if it were legalized.
  • Should marijuana be treated liked alcohol and tobacco, in terms of taxation and regulation?
You may choose to answer some or all of the questions.  Try to limit your arguments to a Canadian perspective.  You can use research and statistics from other countries to support your argument but we want to consider the costs and benefits from a Canadian perspective.

Remember, a good response will use economic terminology to help justify your opinion.

Background Material and Further Readings

There is a lot of information available. These links are just the starting point.  Be aware of the sources (legitimate, any bias) of any research you use.

The Court Case

General Information

Other Aspects

Practical Details

Do not comment on this post unless it is a question about the journal. You need to create your own entry for the journal.

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The title of your post is up to you.  Be sure to include the correct categories and tags to your post.  Feel free to use links, videos and any other content that will help you make your arguments.

Category: Journal 7
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J7 – Income Inequality [To be marked]

19 01 2011

Income inequality is one of the most pressing issues of our time. According to a Globe and Mail article, Toronto, a city once prized for being a middle-class even city, is becoming more and more of income polarized both numerically and geographically. So, should the government actively be trying to reduce income inequality?

Well, first we should realize that income inequality is not altogether a bad thing. In fact, it is a healthy part of a capitalist society. Being able to increase income is a great incentive to increase productivity and innovation, both for individuals and corporations. Higher income brackets thus turn into goals and lower ones become threats, always there to prod you forward. No matter what anyone says or thinks, someone is going to have more than someone else. Since resources are scarce, those who call for income equality are fighting a loosing battle in our greedy world. Everyone has a different idea of what is completely “equal”, “fair”, or “equitable” and complete equality is close to impossible in these conditions.

But should we just leave it at that and completely ignore the problem of income inequality (polarization)? No! Even though we cannot and should not create full equality, we should still try and close the gap between the high and the low, something which is far less controversial than complete equality. But why?

The first reason is one from morality – it is simply wrong for people to let their fellow brothers and sisters waste away while they enjoy their jacuzzis.  This is akin to leaving someone who tripped on the floor.  In fact, many people who are stuck in poverty are not neccessarily there because of themselves – they are stuck in the cycle of poverty. They need help getting out and we should be there to help them. If we don’t they will be both a burden to themselves and to us – they will need protection by families, friends, and relatives not to mention the fact that there is a chance of increased crime rate for them.

The second reason relates to our current economic “growth”. Not only does the GDP not document spending distribution leading to improper views about our society, but the poor are generally not included in economic “growth” rallies. Should they not feel the growth too? It is also not surpirsing then that, by not increasing in income, even in the best of times,  many low-income areas have limited business ventures/start-ups regardless of “economic conditions”. Let’s look at a projection of Toronto in only 15 years from The Globe and Mail:

Because these red areas have not seen the light of day, businesses will be loosing out on investment opportunities that could see them grow many fold. This can’t happen without letting these people get some income. Businesses cannot set up shop, hire more workers, and sell items, all activities which increase total GDP (C up, then I up, then C up, etc = multiplier effect!!).

In the hands of a few, large sums of money is useless. One can even call it “too much money”. There is only a certain amount of goods and  services that a rich individual can consume. Beyond that, their money is invested. But why not invest in the community? If that money was spread out, it can increase spending (and therefore GDP) even more because more people will spend more on bare minimums.

So how would this work? Well, I would say that those with super-high and high incomes transfer a percent or two (increasing progressively) of their incomes to those of lower income brackets. Though this is a small fraction from those of high incomes, it would be a large fraction when compared to the income it is being transfered too. I would suggest that$150,000 is considered “high class” but I could be wrong.

So, in conclusion, it is clear that, though it may cost more in the short run, the government should work actively to reduce income inequality. We could simply choose to be efficient and take the cheapest route – letting everyone whither away. But no. We are humans and we must try to be as fair as we subjectively can. Fairness requires a lot of sacrifice on our part, but after many years, with more people spending, we will see the positive effects it has on the growth of our economy.