Impact of Making Marijuana Legal on the Economy - Case Study Example

Phillip Ridenour Mrs. Gregoricka Eng101/Comp1 8th June 2009 Impact of Making Marijuana Legal on the Economy The economy in a recession and productionand consumption has declined, to ensure quick recovery the government has a major role in implementing policies that will ensure the economy is out of the recession soon, the current recession is characterized by a decline in consumption and production, the decline in consumption has resulted into a decline in demand for goods and therefore firms have laid off workers leading to increased unemployment, increased unemployment has contributed to the decline in per capita income reducing the level of demand in the economy. One of the solutions would be to make marijuana legal in order to increase demand in the economy for both marijuana and other products, this will increase tax revenue, increase the level of GDP and increase employment in the economy. Abstract: Economists state that the major problem in a recession is a decline in aggregate demand, he also states that the government role will be to increase demand through increased spending and lowering of interest rates in order to increase investment. However problems arise where the government has lower levels of tax revenue which may hinder spending, marijuana is an illegal product and the demand and supply is dictated by current laws, there is a risk involved and if it is to be made legal the government has an opportunity to increase revenue, there will be an increase in the production of the drug which will increase investment in the production process and therefore provide employment. An increase in employment will increase per capita and this increase will increase spending and the demand for other goods and services in the economy. (Keynes, 2007). Introduction: In many countries marijuana is an illegal drug and traded in the black market. This product has several health side effects; however it still can be used in the production of other drugs. The paper discusses some of the effects that the product will have if trade of the drug is made legal; some of these effects include an increase in tax revenue, increase in the level of GDP, increased employment, health and a reduction in crime. The following is a discussion of the impacts of making marijuana legal. Tax revenue: Marijuana has a number of purposes and one of the most important purpose is that it is used to produce medicinal drugs that can cure various ailments, on the other hand the product is traded in the black market as a drug, it is estimated that the price is more than triple the cost of production, therefore the traders have huge profits and this is due to the risk involved because its illegal to consume and trade marijuana. If the government makes marijuana legal then there will be an increase in tax revenue, the estimated tax revenue is approximately $1billion. The consumption of marijuana products will also increase given that making it legal will encourage individuals to consume the product given that there is no legal risk involved, the increase in demand wills eventually increase trade and therefore increase tax revenue. (About economics, 2009) Employment: The other positive impact of making marijuana legal is that there will be an increase in employment. Employment will increase as individuals in the economy will tend to produce their own products, the production process will require labor and capital and therefore employment in the economy will increase, this will be a positive impact given the current recession that has resulted into many individuals losing their jobs and per capita income has declined. The increase in employment means that there will be an increase in per capita income and this means that individuals in the economy will have income to spend therefore improving current living standards. Individuals in the economy will have income that will enable them to spend and this will therefore increase the level of demand in the economy and this will be a solution to the current recession that has resulted into lower aggregate demand in the economy due to lower income levels in the economy, the increase in per capita income will also influence demand for other goods and services, the production of these other goods and services will require labor and capital and therefore the level of employment will not only increase in the production and trade of marijuana but also in the production of other goods and services. (UCSD Guardian, 2009) Domestic production: Economic performance is measured using the gross domestic production, an increase ion GDP will mean that the economy has experienced growth, the GDP level is calculated by adding up the values of all finished goods in an economy that have been produced in a specific period, the calculation of GDP does not include certain products such as products traded in the black market which in this case include marijuana, when marijuana is made legal this means that there will be an increase in the production of this product which will increase the level of GDP through the inclusion of the product in the calculation of GDP and also through increased production and consumption of this product which will increase will force supply to increase and therefore more products will be produced. Legalizing marijuana will mean that the product will produced in the country, depending on demand and the supply the drug may be exported or imported, the drug is more likely to be exported given that many country have laws that prohibit trade and production of the drug. Exporting this product will improve balance of trade due to the increase in exports, foreign earning will also increase and this is likely to have a positive impact on the economy. (UCSD Guardian, 2009) Health: Legalizing marijuana will impact on health positively and negatively, drug abuse increase in the economy will mean that the government will spend more in order to care for the sick; this is due to the fact that there are diseases associated with the abuse of marijuana. Marijuana provides alternative drugs that can be used in the treatment of various ailments, they also state that marijuana is used in the production of drugs that are used in the treatment of cancer, Glaucoma and other ailment and therefore legalizing it will bring costs of drugs down given that existing drugs in the market will have a substitute that will ensure optimal pricing in the economy. (Randall and OLeary 1998) The government requires revenue from tax in order to finance health care, an increase in tax revenue as a result of legalizing marijuana will mean that there will be an increase in the revenue available to finance health care. Therefore the population health will be improved through increased revenue to purchase medical equipments, medicine and expansion of health facilities. Also given that marijuana can be used in the production of certain drugs then legalizing it means that more research will be undertaken on the usefulness of the drug which may provide a drug to common ailment and diseases. Crime: The legalizing marijuana will have an impact on crime and criminal activities, the legalization of marijuana will mean that trading the product will not be a crime and this will reduce the crime level, legal enforcers will now concentrate on other criminal activities and this will improve efficiently in the legal system, police officers and other officers will now spend time in solving other crimes and this will help reduce crime in the economy. The crime rate may also increase given that marijuana contains a psychoactive chemical that may influence behavior, individuals in the economy may experience a rise in crime given that the drug may influence such behavior. (DPA, 2009) Conclusion: From the above discussion it is evident that there are a number of positive impacts associated with making the trade and consumption of marijuana legal, the goventmn ahs an opportunity to increase its revenue which will be used to provide social amenities in the economy, firms will invest in the production and processing of marijuana products and therefore there will be an increase in employment, the increase in employment will increase consumers income and this will lead to an increase in the demand for other goods and services in the economy, therefore increased employment in the production of marijuana will stimulate further employment in other firms that produce other goods and services. References: About economics. 2009. Should government legalize and tax marijuana. The New York Times 8th June, UCSD Guardian.2009. Legalizing California cash crops. The guardian. 8th June. Drug policy alliance network.2009. Myths and Facts about marijuana .DPA network. 8th June, < http://www.drugpolicy.org/marijuana/factsmyths/> Keynes, John. The General Theory of Employment, Interest and Money. Hampshire: Palgrave Macmillan, 2007. Randall, Robert and OLeary, Alice. Marijuana RX: The Patients Fight for Medicinal Pot. New York: Thunders Mouth Press, 1998. Read More