What would be the affect on the US economy if the illegal drug business was eliminated?

Question

Please add sources to your answers, if you can.

Answer 1

We would stop using the resources of the government and individuals chasing down people that do drugs. Its a complete waste of time and money. Instead of having a cop arrest someone doing drugs he could be out hunting down a murderer. We could also begin taxing and regulating drugs, just like we do drugs you buy at the pharmacy.

Answer 2

One aspect to your question might be the difference in the economic multiplier effect, between legal and illegal activity.  In general, the more we can keep money working within our country, the better off the American economy is.

If we assume that a certain amount of the profits in the illegal drug business accrue to people living and spending at least some portion of that money outside the united states, than we could conclude that eliminating the drug business might give us a chance to attract that spending to products and services that are more likely to be provided by american citizens.  all other things being equal, that would provide a greater benefit to the US.   But its quite a large assumption, given the amount of money the average citizen spends on products made outside the US each year.

So looking at the tax revenue implications might be more useful.   The illegal drug business probably attracts at least some of its income from people who might otherwise spend that money on other "sin" industries, perhaps gambling, alcohol, legal drugs, etc. which can be taxed.   But we also  suspect that some of the money spent on drugs might never have been generated, for instance the prostitute who turns tricks to feed her habit, might return to a legal, and far less lucrative in the short run, job.    So she has less money to spend, but pays more in taxes.

So it would be a mistake to think that all of the money going into the illegal drug business today would even be generated in the first place, and of that money that would still be spent on other goods and services, a portion of that will go to economic interests outside the US as well.

Still, I would predict the outflow to other countries would be lower, and the tax revenue would be significant.

A third benefit might be the expense of combatting the illegal drug trade.  It would probably be cheaper to prevent any recurrance of the drug trade, than it is to combat a well funded and well armed existing illegal drug trade.  So in addition to higher tax revenue, we might see lower expenses over time.

A fourth benefit would be increased productivity of US workers.  Presumably, significant productivity is lost to the use of illegal drugs by American workers.  Eliminating illegal drugs would only shift some of the problems to legal forms of abuse, but I would assume some people would be less affected and more productive.

All in all, it would probably pay some dividends to eliminate the illegal drug business if it is possible to do so while not damaging productivity through loss of liberties etc.