At Obama’s recent online town hall meeting the most popular question was whether he favoured legalising marijuana. There are plenty of persuasive arguments in favour: the revenues from sales tax and taking drugs out of the hands of gangs to name but two. It was suggested to Obama that taxation of marijuana might be a good way to put a dent in the budget deficit! Of course, there are negative externalities in terms of health costs and negative internalities from addiction (OK, that’s more contentious). According to drug and alcohol rehab centers, one of the worst side effects is addiction, which can also lead to death in extreme cases.
Recent posts here have shown commenters to be against regulation where no externality can be shown. My question is, if the externalities are removed via taxation, is there any good reason to ban drugs? Can the harm from them ever be so high that banning them doesn’t markedly reduce welfare? Here we also need to bear in mind the extreme highs that result from taking drugs and their positive effect on welfare.