The Cost Effectiveness of the War on Drugs

The goal of my paper is to determine the cost-effectiveness of current War on Drugs legislation - including current mandatory sentencing laws for drug offenders - aimed at curbing demand and supply in the market for illegal drugs. This can be accomplished by using the policy evaluation tool of cost-benefit analysis. For inputs of the analysis where reliable monetary estimates cannot be found, I will mention what information is needed and attempt to give a possible range of numbers that can be used for analysis. My paper will take a unique approach in listing the costs of War on Drugs policy for cost-benefit analysis by attempting to integrate the effects of the "crowdout effect," when drug offenders' mandatory imprisonment leads to the premature release of other prisoners. The rate of this crowdout effect has been estimated to be just over fifty percent, so this will likely have a tremendous impact on cost-benefit analysis (Kuziemko and Levitt 19). I will also pay special attention to the lost utility from drug use by those who are placed in prison for possession, among other costs to determine whether the policy is succeeding.

There are five main costs that will be utilized in my cost-benefit analysis for the War on Drugs policy: the explicit operating cost of the policy; lost utility for drug users who are arrested for possession; the crowdout effect; the costs of conducting trials for drug offenders; and the costs of keeping drug offenders in prison, both at the state and federal level.

The explicit operating cost of drug prevention by the federal government was listed as 12.6 billion dollars in 2005. Forty-five percent of this operating budget - 5.69 billion dollars - was allotted to reduce demand, with the remaining fifty-five percent - 6.95 billion - used to curb supply (Office of National Drug Control Policy 3). This per-year cost can be expected to increase annually as funding requests in recent years have been steadily rising.

Lost utility for drug users can be estimated, at least roughly by looking at the prevailing prices in the markets for different drugs and approximations for consumption of different drugs. The most recent data on this subject was released in December 2000 by the Office of National Drug Control Policy; using this information limits the analysis to marijuana, cocaine, heroin, and methamphetamine in the year 1998.

It is important to remember that, since the demand for drugs is inelastic, their prices do not serve as perfect signals to the value placed on the goods and the utility derived from them by users because the gap between consumer surplus and price is likely very large; thus, unless drug dealers are assumed to perfectly price discriminate, the estimate for this lost utility is likely too low, but the amount of these forgone purchases gives some idea of the satisfaction derived from the drugs. Drug sentencing also varies somewhat based on the type of drug the offender had in his or her possession during the arrest. For example, heroin and cocaine typically carry longer sentences than does marijuana; thus, the actually lost utility for their years is likely higher than in my estimates, while marijuana users' might be lower.

The data estimated that the average marijuana user smokes .2618 ounces of the drug per month, resulting in 3.1416 ounces consumed per year; at the estimated street price of $320 per ounce, this results in a yearly spending of $1,005 dollars in 1998 dollars. The typical methamphetamine consumer uses $91 worth of the drug per week; this comes to $4,732 per year. Total expenditures for the year on cocaine were 39 billion dollars for 5.76 million users, leading to an average individual spending of $6,770 per year. Heroin's data yielded a total of $9,400 spent per year (Office of National Drug Control Policy pp. 1-23).

This data, coupled with the average prison sentence for drug possession provides insight into how much utility is forfeited by a typical drug user when he or she is sent to prison. The U.S. Department of Justice reports an average prison sentence of two years for drug possession, with fourteen months actually being served. For a marijuana user, these fourteen months of incarceration have an opportunity cost of $1,172 in drug consumption. Cocaine and heroin users lose $7,898 and $10,966 respectively in individual consumption, while methamphetamine consumers give up $5,520 worth of the drug.

The third cost to consider for effective cost-benefit analysis is the impact of the crowdout effect: the early release of prisoners to make room for drug offenders incarcerated under current mandatory sentencing laws. The rate of this crowdout is estimated to be about fifty-three percent for all prisoners, meaning that "for every two new prisoners sent to prison, one represents a real increase in the prison population and the other displaces an existing prisoner who is released early" (Kuziemko and Levitt 19). This effect is especially damaging to the cost-effectiveness of War on Drugs policy because of the high rate of recidivism for released prisoners; it also challenges the assumption that that imprisoning drug offenders is beneficial for society.

A 2002 study by the U.S. Department of Justice found the re-arrest rate for released state prisoners within three years to be 67.5% of the 272,111, with 51.8% going back to prison during that time frame. The released prisoners measured in the study had served, on average, just 35.2% of their prison sentence (Langan and Levin 2). The costs of the early release caused by crowding out is difficult to monetize, but can be done using a simple expected costs formula if the damage done to society by these repeat offenders' crimes can be quantified. Multiplying the probability of a prisoner, who is crowded out because of mandatory sentencing for a drug offender, committing another crime by the total cost of that new crime to society - costs of a trial, damage to property or to others' health and welfare - gives a value for what costs will be endured by the public due to the crowding out of one prisoner. This cost per individual can then be multiplied by the total number of prisoners who are released early each year - about half the number of people incarcerated for drug-related offenses - to give a total cost per year of the crowdout effect.

A fourth cost that should be considered with a cost-benefit analysis is the burden placed on society to arrest and keep a drug offender in custody for the duration of his or her trial. This burden is hard to estimate because of the substantial value and high opportunity cost of time for the necessary legal representatives. However, in 2002 the average time between initial arrest and sentencing for drug offenders in state court was 196 days; if the cost of detainment and trial was just one hundred dollars a day - surely a very conservative estimate - the legal process would cost just under $20,000 for each person arrested for trafficking of drugs (BJS 1).

The last cost included in my cost-benefit analysis is the expense of keeping a convicted drug offender in prison, as War on Drugs policy stipulates. The Department of Justice reported that the annual cost of keeping an inmate in federal prison for all of 2002 was $23,917 (DOJ 119). In 2003, 86,972 of the inmates in federal prisons were convicted on drug-related charges; the cost of keeping all of them in prison for the year, in 2002 dollars, was 2.087 billion (Beck and Harrison 10). The most recent data for state prisons, puts the figure at 6.186 billion for the year 2005 (BJS 9). These two operating costs total 8.273 billion dollars annually.

The benefits of the War on Drugs are very theoretical and lack monetary estimates that allow effective comparison to the costs of the policy. Decreased spending on health care is commonly touted as a positive effect of the policy, as the extremely harmful effects of the drugs are avoided when potential users decrease their consumption due to law enforcement aimed at cutting off supply of illegal drugs and educational efforts that intend to curb demand for the substances. However, this decrease is extremely difficult to quantify and may even be offset by the costs of the many publicly funded rehabilitation facilities that are an integral part of War on Drugs operations.

Another suggested benefit of the War on Drugs is that it strengthens families and leads to stable home lives which improve the development of children, allowing them to avoid destructive drugs entirely and develop strong human capital. Worker productivity is also expected to increase without the interference of disabling drugs, as is an individual's quality of life when he or she is off drugs.

These arguments are certainly not without validity, but all require data that cannot be accurately gathered to gauge just much they benefit society. For the War on Drugs to be proven effective by cost-benefit analysis, these benefits would have to outweigh the costs of operating the program. Two of the costs I proposed for the policy analysis, explicit operating costs and the cost of keeping convicted drug offenders in prison, have concrete monetary expenses attached to them, which total just over twenty billion dollars every year. The burden put on the legal system, the forgone utility of those arrested for drug use, and the harm to society done by prematurely released prisoners, who have high rates of recidivism, are not accounted for in this $20 billion annual total; their effects increase the amount dramatically if they can be monetized.

In other words, the benefits of maintaining the War on Drugs must at least exceed this $20-billion-dollar-a-year burden - and probably a great deal more - to be deemed a cost-effective course of action for society.

Policy analysis on the War on Drugs topic is made difficult due to a dearth of quality data in areas that are crucial to cost-benefit analysis on both sides of the equation. This is especially notable in the absence of utility derived from the use of drugs, since inelastic demand restricts the ability of prices to accurately act as signals in the market; the street prices of popular drugs and the forgone consumption of these substances is a good starting point, but, until consumer surplus is known, the true value placed on drug use by society cannot be known for certain. The substantial externalities imposed by mandatory sentencing laws for drug offenders is evidenced by the crowdout effect, an enormous cost to society that can be accurately measured by using two values that have already been calculated - the probability that a prisoner who is released early will commit another crime, known as the recidivism rate, and the number of prisoners prematurely released due to the crowdout effect - and one that has not: the total cost of crime to society. The high value expected for this cost provides further support for the idea that the benefits of the War on Drugs simply cannot outweigh the costs, making legalization or decriminalization of drugs an ideal alternative.

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