Introduction
Britain, on tenterhooks, waits. The reign of Boris Johnson is over; who will be its next Prime Minister? In a distinctively British attempt at impersonating ‘democracy’, a mere 180,000 Conservative members will get to decide between two candidates. We will see either Rishi Sunak or Liz Truss promoted from Johnson’s Government. While increasingly fractious, it has become a leadership campaign which is gloriously focused on key economic rationale. Sunak, the candidate for ‘sober rectitude’, highlights macroeconomic uncertainty and the need for fiscal conservatism. Sustainability, defined as guaranteeing Good Ship Britannia, is our key need. Truss, pitching herself instead as a tribute act to the great Margaret Thatcher, insists on a programme of tax cuts. Supply-side economics is back on the radar: capitalism is enfeebled by corporate and income tax; reduce such taxes, grow the economy, increase tax revenues, & repeat. Today I want to chat about an issue which naturally embeds itself within this leadership debate: the issue of drug legalisation. While the end of drug prohibition is not currently on either candidate’s political agenda, it is ironic that it can illuminate the economic (non) validity of either Sunakian economics or Trussonomics.
The Fiscal Conservative
Rishi Sunak, concerned about the post-furlough scheme state of Britain’s coffers, is mostly recognised as the vilified caricature of ‘tax splurging’ Chancellor. Concurrently, he can also be found beguiling the masses with a tragic lament for the deteriorating waiting lists in the National Health Service. How can he avoid implementing further soul-destroying tax rises whilst also meeting basic public good delivery? Other than finding further savings through the use of backdoor privatisation, the options are limited. His economics has hit a wall. In these circumstances, might he consider how the drugs legalisation debate frames his economic strategy perfectly? The informal colloquialism, the ‘War on Drugs’, hints at the wanton expense that it generates. Often artificially inflated, the costs are threefold: Reactive spending, typically involving health costs, from drug consumption; proactive spending, focused on an overworked criminal justice system, to reduce supply and demand; and social costs, typically through propriety crime, created by the curse of addiction. Various figures are pitched, but Dame Black’s (2020) review suggests a figure around £20 billion per year.
It’s of little surprise that ‘legalise & tax’ offers a solution to such spending nightmare. The recent experience of cannabis legalisation in the US coined the phrase ‘Green Rush’, with 10 states reporting a tax revenue boost of $2.7 billion in 2020. Assuming Sunak genuinely cares about NHS funding, this presents the opportunity to also fund ‘anti-markets’: i.e. the provision of effective treatment to allow individuals to break free of their addiction habit.
In summary, ‘legalise & tax’ offers Sunak the opportunity to finally indulge in introducing a ‘good tax’. As a ‘sin-based’ revenue raiser, it helps solve his fiscal dilemma without having to upset the apple cart with the imposition of more distasteful general tax increases. Despite not currently listed on his policy agenda, it is a ‘win-win’ for fiscal conservatism.
The Thatcherite
And what about the compatibility with Liz Truss’s economics? Here, it’s ‘market fundamentalism’ which teases out the logic originating from drug legalisation policy. Traditionally, addiction is deemed to be an immensely destructive trait. Through this interpretation of negative connotations ‘nanny government’ is needed to trample all over the market. The addict is a slave. Denied free will, they are necessarily compelled to repeat devastating consumption. Economic analysis, originally from ‘Freeborn’ Gary Becker, poo-poos this definition of addiction. Addiction instead becomes defined as a mere time dependency in an individual’s consumption patterns. Drug consumption today will depend on drug consumption yesterday. In this alternative universe of the ‘rational addict’, the consumer remains best placed to determine their optimal consumption plans. Committed to maximising their personal well-being, they will be forward-looking and fully appreciate the consequences of their choices. They appreciate how current consumption spurs on future consumption. Despite this time dependency, markets continue to work as maximising free-will individualism persists. In support of that premise, empirical evidence does confirm that drug prices do matter. The Law of Demand holds, with rational addicts logically reducing their consumption as drug price rises.
We are naturally gifted here with a libertarian rationale for drug legalisation, inherently replicating standard preference for limited government. You personally may find drug consumption habits unappealing, but the addict is still a maximiser. For supply-side economics, any resulting shift from prohibition to legalisation also provides a tax-based boon. By shifting tax emphasis from income source to consumption outcomes, work disincentive effects are removed. People will work harder and therefore the economy will grow stronger.
Conclusion
So what can we conclude from this discussion? In economic terms, either of our candidates for the next Prime Minister should logically decide to legalise drugs. It meets fiscal conservative needs and opens up libertarian opportunities. It is, after all, a celebration of ‘market forces’. Assuming a conservative outlook where only a soft drug like cannabis is selected for such legalisation, it will significantly assist in meeting their ‘tax and spend’ policy needs.
Despite the irrefutable logic, we know that the words “I will legalise drugs” won’t be muttered by either candidate. Why? Perhaps, aware of the scientific evidence into how addiction is indeed consistent with destructive behaviour, they reject the ‘rational addiction model’? Alternatively, might it conceivably reflect how the Conservative members selecting the winner aren’t necessarily too comfortable with the economic logic? You decide.