Thursday, August 26, 2010

Why California should just say no to Prop. 19

LA Times OpEd "Why California should just say no to Prop. 19" (August 25th, 2010) deceives readers.
A 2004 meta-analysis published in the journal Drug and Alcohol Review of studies conducted in several localities showed that between 4% and 14% of drivers who sustained injuries or died in traffic accidents tested positive for delta-9-tetrahydrocannabinol, or THC, the active ingredient in marijuana. Because marijuana negatively affects drivers' judgment, motor skills and reaction time, it stands to reason that legalizing marijuana would lead to more accidents and fatalities involving drivers under its influence.
The meta-analysis the article mentions is called "A review of drug use and driving: epidemiology, impairment, risk factors and risk perceptions" in the Drug and Alcohol Review Volume 23, Issue 3 by Erin Kelly, Shane Darke and Joanne Ross, and is available here (gated). The analysis notes explicitly that, "There is inconsistent evidence regarding the impairing effects of cannabis in field studies." It lists four field studies and notes that three of them indicate no significant impact of cannabis consumption on driving. The article concludes, "the relationship between between THC and street driving performance is equivocal." Any reader inclined towards believing what the data is telling them, rather than what they wish they could find, would conclude not that "legalizing marijuana would lead to more accidents and fatalities involving drivers under its influence", as the LA Times piece has, but rather that we shouldn't expect legalizing marijuana to change the number of accidents and fatalities. The OpEd's conclusion is ridiculous and unsupported by the evidence they themselves cite.

In addition the the egregious error discussed above, the article also provides readers with a foolish analysis of negative externalities.
The current healthcare and criminal justice costs associated with alcohol and tobacco far surpass the tax revenue they generate, and very little of the taxes collected on these substances is contributed to offsetting their substantial social and health costs. For every dollar society collects in taxes on alcohol, for example, we end up spending eight more in social costs. That is hardly a recipe for fiscal health.
This analysis implies that the pleasure people get from drinking is worthless. Drinkers and non-drinkers alike deserve to have their utility taken into account when analyzing the costs and benefits of a liquor tax. Basic economic theory would tell us that social surplus is maximized when the marginal social cost of drinking equals the marginal social benefit of drinking. If we are counting drinkers as members of society, then it follows that some level of drinking is optimal. The figure below demonstrates how a pigouvian tax allows us to arrive at the optimal social level of alcohol consumption (click here to enlarge).

In equilibrium, the level of the tax just measures the difference between marginal private cost (cost of drinking to drinkers) and marginal social cost (cost of drinking to society, including alcohol-related externalities). Taxes on goods with externalities are meant to regulate consumption to socially optimal levels. As in the figure above, it is possible to draw social and private cost curves that yield the result discussed in the article--tax revenue is one eighth the area between social cost and private cost curves. The red shaded area represents the tax revenue and the blue shaded area represents the difference between social and private cost. This is a socially optimal (but not necessarily revenue maximizing) tax.

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