How Drugs And Crime Became One Harvard Professor's Body of Work

Call it CSI: Boston.

Jeffrey A. Miron's sabbatical at the National Bureau of Economic Research in Cambridge, Mass., in the second half of the 1980s didn't turn out the way he expected; in fact, it was the beginning of the end of his career as a macroeconomist.

Harvard Professor, Jeffrey Miron

A NBER idea to study illegal drug markets never panned out, but it was enough to prompt Miron to ask a different question: Why do authorities treat marijuana differently than alcohol?

A little research revealed that the field had an excellent academic pedigree—Milton Friedman had written an op-ed piece for Newsweek calling for the legalization of drugs a couple of years before his 1976 Nobel Prize for economics. But beyond that it was otherwise largely untapped.

Seeing a wealth of research potential, Miron went to work and gradually abandoned macroeconomics to focus on drug policy and economics in crime.

Miron, now with Harvard University and one the foremost authorities in the field, recently published 2010 edition of “The Budgetary Implications of Drug Prohibition.”

He spoke with CNBC.com about the economics of marijuana.

CNBC: Tell us a little bit about the methodology and how given the lack of broad research and data, it makes this very convincing?

Miron: We tend to think that markets do things well, we tend to believe in consumer sovereignty, that is consumers seem to want to purchase this or that, consume this or that. We figure, well, the main reason is because they like it, they get some benefit from it. Economics doesn’t really try to ask what exactly is the nature of that benefit. So that’s sort of one part of my perspective and some people would think of that as a bias and some people would say that’s just sort of natural economics.

But then economists are also very much trained to think about unintended consequences and the fact that if you impose some sort of policy you’re going to affect the incentives faced by everybody in the affected area. So if you make it more difficult, if you make it impossible or very difficult to buy drugs legally, that doesn’t necessarily mean it stops it, it just means people will look for some way to do it illegally and people want to supply it because there is a demand there and so again we expect a lot of things to happen other than just passing a law against drug use or drug production.

In terms of the social-science research parts, we are making somewhat sort of strong, if not heroic, assumptions. We can’t do the controlled experiments. We can’t get quite as much data as we would like because of course we don’t observe drug use directly. But even worse, there haven’t been that many episodes where a place that had criminalized drug use, then turned around and legalized it. And that’s really what we would like to observe is what happens when you go from one policy to another. So, alcohol prohibition is one example where that did happen.

CNBC: Clearly, you have built your research based on a group of assumptions.

Miron: There is actually a pretty clean formal version of my basic model—a paper written by Gary Becker and Kevin Murphy and Michael Grossman—that shows that if you prohibit something for which there is a strong demand, particularly inelastic demand, you’re going to draw a lot of resources into that activity for the purpose of getting around the prohibition. And that those costs are likely to be substantial and in particular they can show formally that using a sin tax is going to be an unambiguously sort of better way of trying to accomplish the same goal of reducing drug use relative to the prohibition. Basically, when you ban it, you mean that there are all these resources wasted in the attempt to evade it and attempt to enforce it. When you pass the sin tax, you of course still raise the price but that’s mainly a transfer from the people who pay it to the general coffers—you haven’t actually thrown away resources in the process of imposing the tax.

CNBC: Right, and that is in essence the fundamental economic argument for legalization?

Miron: Right.