Economics and Legalizing Drugs...

I came across this great article which talks about the negative economic effects from legalizing pot in California. It reminded me that when we talk about the effects of drug legalization on "the economy", we often only assume the effects on the transparent legal economy because it is recognized by our government. The flip side is that there is currently a less transparent "black market economy" that operates just like any other market, only not as easy to measure. Something game changing like legalizing pot will undoubtedly have effects on this black market that will likely reach into the so called "legal economy".

I love these types of articles because they force us to realize that the existence of a market does not depend on our ability to recognize it. We tend to forget about these underground markets just because they are not in front of us and we don't typically interact with them. The truth is that they do exist and they often play a more significant role in our everyday lives than we think. For instance, according to the cited article, if pot is legalized in California then the unemployment rate should increase by a measurable amount. This means that people currently on the job market in California enjoy the benefits from less competition because a large portion of potential job seekers are currently employed within the illegal pot market. I could rattle off a list of similar effects, but you get the point.