Was there any additional authority which you requested the
President include in the Executive Order, but was not included In
the final package?
WHAT INFORMRTION CAN YOU PROVIDE ON THE PERCENTAGE OF SOCIAL AND
ECONOMIC COSTS THAT COME FROM EACH DRUG â€” MARIJUANA, HEROIN,
COCAINE, LSD, WHATEVER?
Under our research compKDnent and through one of our research
contractors we have developed a model for estimating the retail
value of the illegal drug market here in the United States.
Attached is a research paper titled " What America's Users Spend
on Illegal Drugs. 1988-1991 . In it we provide estimates for both
production and consumption, by drug.
Also attached is a recent report from the University of Southern
California titled, " Economic Impact of Drug Abuse in America .
The key points are presented in the Executive Summary, but,
according to the report, the monetary cost of drug abuse to the
United States has grown from $44 billion in 1985 to $76 billion
in 1991. While the researchers are unable to break down these
figures by drug, the information is still valuable.
ECONOMIC IMPACT OF
DRUG ABUSE IN AMERICA
Bernard and Ellen Simonsen Fellowship
Carolyn Parsons and Andrea Kamenca
Graduate School of Business
University of Southern California
Table of Contents
I. Executive Summan
II. Abbreviated Paper
III. Abbreviated Bibliography
IV. Final Full Length Paper
VII. Presentation Slides
Ccp'Tight: Andrea Kanenca
Carolvn Parsons, 1992
The Economic Impact
of Drug Abuse in America
Bernard and EHen Simonsen Fellowship Project
Andrea Kamenca and CaroKii Parsons
Graduate School of Business
Lnjvcrsit>' of Southern Cahforma
The abuse of illegal drugs is a major cause of business mefTiciency.
widespread health nsks. crime, and premature death m the United States Drug
abuse is causmg us to live with costly medical resource use. significant
productivity losses, senous motor vehicle accidents, and devastating cnrrunal
acn\Tt\' Building on the Department of Health and Human Services studs
conducted by the Insnrute for Health and .^ging at the University of California.
San Francisco, stansncai and economic analyses were used to project the total
economic impact of illegal drugs in the Umted States for the period 1985-1997.
Berw een the years 1 985 and 1 99 1 , the monetary cost of drug abuse to the
United States grew from S44 billion to S76 billion If current trends persist, by
1997, the cost will nse to SI 50 billion Both resources expended and the
resources lost arc mcluded m the economic costs of drug abuse . .Money is
expended on medical treatment, drug prevention, drug enforcement and drug
traffic control Producnnty (resources) is lost when: a'drug abuser participates in
a life of crime or is mcarcerated. a drug abuse cnmc victim is unable to work, and
the worker abusmg drugs causes quality control problems, accidents, or other
busmcss mefficiencies .Aji evcr-mcreasmg component of the cost is the l\'-drug
abusers' pre-marure deaths due to AIDS.
The cost of drug abuse m the United States is reachmg astronomical
proportions. Research shows that the money expended on drug abuse is used to
enforce drug laws and control its traffic. However, according to government
studies, the money would be better spent for treatment and prevention For every
$ 1 spent on treaQncnt-K.is returned m the form of saved tax dollars and mcreased
producHvityXNIDA, 1 990/Newsweek, Aug. 22. 1983) The money mvested ui
prevention (currently only 1% of total govenunent spending) would result m
extraordmary sums of money bemg saved. Rotary can make an impact and reduce
the economic costs of drug abuse. They can apply their resources towards
prevenrmg the use of drugs. This commitment will help the children. For m the
future, the children who arc not victims of drug abuse will be paving for those
who arc We must fight this problem to preserve theu future.
The abuse of illegal drugs is a major cause of business inefficiency,
widespread health risks, cnme and premature death in the Lmted States Drug
abuse is causing us to live with costly medical resource use, significant
productivity losses, senous motor vehicle accidents, and devastating criminal
activity Drug abusers may become economically dependent, homeless, socially
isolated, lose opportunities for promotion and education, and cxpcnencc
disruptions m life plans Fanulies and finends of drug abusers are also affected
and their lives disrupted
The monetary burden on society of the many senous consequences of drug
abuse can be measured L'nfominately, there exists no smgle measurement, no
annual repon, no one set of data that can. by itself, adequately descnbe a drug
epidemic m all of its complexity
This report will summarize the research and analysis earned out by two
University of Southern Califorma, Master of Busmess Admmistraoon students. It
is designed to facilitate a broader and more dispassionate view of the latest
available drug-related data m several basic areas and to bring to light the monetary
burden to the Uiuted States m terms of econonuc resources lost and resources
spent. TTie surveys, studies, and stabstical repons summanzed here, and
projections based on these statistics are widely considered the best, most basic and
important measures now available.
BACKGROUND AND HISTORY
The history of drugs m the Umted States has been characterized by
dramatic shifts ui use and attitude. During the 19th century, certam mood-altering
substances, such as opiates and cocame, were regarded as helpfiil in everyday life.
But gradually, the real affect of these substances has been uncovered through
obscrvanon and research In addmon to the social problems causes, death, illness.
famihaJ discord, came the realization of the monetan burden the disease had
created on our societv' In 1980. The Research Tnangle Institute in 1980 set out to
quantify this impact .And building upon their work the most extensive and
reliable study to date was completed in 1985, and updated in 1988. under the
leadership of Dorothy Rjce at the Institute for Health and Aging. University of
California, San Francisco for the Department of Health and Human SerMces
These studies measured as precisely as possible the economic costs to society of
the ravages of Drug .Abuse
.Although past studies have estimated the economic burden of drug abuse,
data for more recent years v^ould be useful for making program policy decisions.
Many surveys and other data sources on which the economic costs are based are
conducted penodically, rather than aiinually .As a result, an approach was
developed that requires employmg a limited number of data and mdexes with
knowTi relanonslups to drug abuse cost estimates. This method allows researchers
10 update the study without constructing onginal research on an annual basis.
A variety of factors affect the changes m cost over tune: inflation in wages
and pnces, growth of the population at nsk. sociodemogxaphic distnbuoon, change
m the prevalence, causal factors and social responses to drug abuse. Although all
of these factors contnbute to changes m costs, the first two are used to project
costs. Adjustment factors, such as change m medical care costs, number of arrests,
and number of deaths, were used to reflect inflation and real change m each cost
component For example, m updating the cost of drug abuse related crime
"Number of Arrests for Drug Abuse Related Violations" is used to determine the
real change, and the GNP Pnce Deflator is used to reflect cost changes the result
Through statistical analysis, the total economic cost of drug abuse was
projected to 1997 Over the years 1985 through 1991 the cost has grown from $44
billion to $76 billion If current trends persist we are facmg an annual impact on
our economy of $150 billion by 1997
This dramatic increase can be attnbuted to several factors. The large
increase m direct costs reflects the rapid nse of medical care pnces during this
penod compared to a much lower rate of mcrease m earnings. Crime related loss
and the cost of lost productivity also played a signiflcant role. However, the recent
rise m AIDS among intravenous (IV) drug users, is by far the largest contnbutor.
The combined effect of increased mcidence and increased treatment costs are
increasing this cost exponentially.
DEFINITION OF COST COMPONENTS
Drug abuse results m social, emotional, familial, and economic tragedy
borne by society Although it is diÂ£Bcult to quantify these effects, it is possible to
assess the economic costs. The costs must be ubulated considering both the
resources expended and the resources lost as a result of drug abuse.
The money spent by society, crime victims and the drug abuser are the
resources expended due to drug abuse The costs of drug treatment, drug
prevention, and drug enforcement and control are included in the S27 billion of
total resources expended.
The cost of drug treatment in 1991 was $5.7 billion. The treatment costs
consisted of short-suy hospital fees, specialty institution fees, office-based
physician fees, research and training costs of medical professionals and AJDS-
related treatment costs
The cost of drug pre\ennon m 199! was S265 nullion These costs were
taketi directly from the drug trafilc control budget expended by the U S
The costs of drug enforcement and control were the largest resources
expended. In 1991. public and pnvate expenditures to errforcc existing drug laws
as well as to control drug traffic amounted to $18 billion' The public and pnvate
expenditiires mclude the money spent for police protection, specifically as it
relates to drug abuse, legal fees, state and federal correcnons: drug traffic control.
including prevention and law enforcement, pnvate legal defense, and property
The other component mcluded m the calculation of the economic costs of
drug abuse in the United States is the value of resources lost Typically, m
economic terms, this is referred to as an opportuiury cost The resources lost due
to drug abuse is lost productivity Lost productiMtV occurs when a drug abuser
participates in a life of cnmc or is incarcerated versus gainfully employed. The
productivity loss due to a victim bemg unable to work as a consequence of hiyher
victimization is a lost resource .\Jso. the loss of productive work time and
mefficient labor as a result of drug abuse has been mcluded. .AJl total, the
productivity losses for 1991 amounted to $49 billion!
ANALYSIS OF CURRENT SPENDING
The current spcndmg related to drug abuse is extremely disproporaonate.
Seventy-eight percent of the money spent is used to enforce laws or control the
drug abuse trade Twcnry-onc percent is spent on treatment. This is particularly
tragic because government studies show that for every $1 spent on drug abuse
treatment. S7 is returned in the form of saved tax dollars and mcreascd
producn\ir\' Only lÂ°o is spent by the L S Government on the prevention of drug
abuse Private spending is currently not tracked
There is no quesnon that drug abuse in the L ruted States is reaching
astronomical proportions The economic costs are likewise substantial. The
projected figures show that between resources lost and resources spent, drug abuse
m 1991 cost $76 billion That figure is expected to reach SI 50 billion m 1997
Current spendmg panems show that proportionally little resources arc spent on
treatment or prevention Perhaps if spending patterns shifted and more money was
spent on drug abuse prevention and treatment, not only would less money have to
be spent on enforcement and control, but the overall economic costs of drug abuse
m Amenca would decrease Given the current global competitive busmess
environment, can v,e afford not to address this issue''
ABBREMATED BIBLIOGRAPHY *
"How Drug Abuse Takes the Profit Out Of" Business ' (pamphlet) National Institute on
Drug Abuse Dept of Health and Human Services 1991
Brecher. John Ipsen, Enk Wallace. .Ajny Burgower, Barbara Moms. Holly Shirlev.
Don .Abramson. Pamela Taking Drugs on the Job" Newsweek August 22. 1983 pp
Musto. David F "Opium. Cocaine, and Marijuana in Amenca History", Scientific
Amencan July, 1991 pp 40-48
National Household Sur\ev on Drug .\buse Main Findings. Population Estimates.
Highlights. 1985. 1988. 1990. 1991 U S Depanment of Health and Human Services
Washington, D C National Institute on Drug .Abuse, 1985-1990
Harwood. Henrick J Napolitano. Diane M iChstiansen Collins. James J Research
Tnangle Institute Economic Costs to Society of Alcohol and Drug .Abuse and Mental
Illness 1980 Research Tnangle Park. NC Research Triangle Institute. 1984
Rice. Dorothy P Kelman. Sander Miller. Leonard S Dunmeyer, Sarah The Economic
Costs of Alcohol and Drug .-^buse and Mental Illness 1985 Report submitted to the
Office of Financing and Coverage Policv of the Alcohol, Drug Abuse, and Mental Health
.Administration, U S Depanment of Health and Human Services San Francisco, CA
Institute for Health and .Aging, University of California, 199Q
A Day in the Life of Amenca New York Collins Publishing, 1986 (Photos by Nicole
Bengiveno, p 191, Dave Shippee, p 180, Barry Lewis, p 128-9, Robb Kendrick, p
"Hard Times", LJis Time Inc Magazines, New York March 1992 Vol 15, n 3 Photo
by Mary Butkus, The Belleviile News-Democrat p 62
Minerbrook, Scott "Crack Dealers' Rotten Lives ", US News and World Repon Nov
12. 1990 p. 36 (Photo by Mark Reinstein- Urn Photo)
Yuzawa, Takeshi Photo Fortune May 18, 1991 p 47, 63.
* ThÂ« abbreviated bibliography rÂ«prÂ«a*nts only a partial list of aourcaa
uaad to cotnplata thia pro)Â«ct. A coaplata bibliography ia avaxlabla
from tha Rotariana Against Substance Abuaa Foundation.
THE ECONOMIC IMPACT OF
DRUG ABUSE IN AMERICA
INTRODUCTION AND HISTOR\
The history of drugs in the L'ruted States has been charactenzed by
dramatic shifts m use and attitude During the 19th century-, mood-aJtenng
substances, such as opiates and cocaine, were often regarded as compounds
helpftil in everyday hfc. Gradually this perception of drugs changed From the
early 1900's and until the 1940's, the country viewed these and other psychoactive
drugs as dangerous, addictive compounds that needed to be severely controlled.
Today, after a resurgence in the use of drugs stemming from an attitude of
tolerance in the 1960's and 1970's. we find ourselves again viewing these and other
psychoactive drugs as dangerous, addictive compounds.
As the usage and discovery of drugs has grown, so also has the recognition
of their potential dangers. Dunng the 1800's, increasmg numbers of people fell
under the influence of drugs that demanded regular consumption or exacted the
painful penalty of withdrawal. As consumption mcreased, so did the frequency of
addiction By the late 1800's, repons of overdoses and idiosyncranc reactions
shifted to accounts of the social and behavioral effects of long- term use. The ease
with which experimenters became regular users and the mcreasing instances of
drugs bemg linked with violence and paranoia gradually took hold in popular and
Beginnmg in the early 1900's, through the enactment of a variety of laws
arising from public fear, opiate and cocaine use gradually declined as a societal
problem. (Musto, pg. 45) By 1930 the New York City Mayor's Committee on
Drug Addiction was reporting that "durmg the last 20 years cocaine as an
addiction has ceased to be a problem." (Musto, pg. 45). But by the 1960's through
the late 1970's use of all drugs was on the rise.
With the decline m favorable attitudes toward illegal-drugs, including
manjuana, that began m the late 1970's. has come an increase in the research mto
the acruaJ impact of these substances By the late 1980s, a senes of sune\s and
statisncaJ indicators had coni'irmed what many Amencan lav, enlorcement
officials, medicaJ professionals, teachers, and parents already knew that the
United States was expenencing a senous epidemic of drug use Hard data
collected in subsequent years made clear just how bad the Nation's drug problem
Unfortunately, there exists no smgle measurement, no annual report, no one
set of data that can. by itself, fairly dcscnbe a drug epidemic m all of its
complexify This document is designed to facilitate a broader and more
dispassionate view of the latest available drug-related data in several basic areas
The surveys, studies, and stansncal reports summanzed here are widely considered
the best, most basic and imponant measures now available.
The impact of drug abuse on society is enormous m terms of the economic
cost, the public and pnvate burden of the cost, and the devastatmg effect on the
lives of mdividuals sufTenng from drug abuse disorders and their families. The
figures reported thus far are based on estimates of the economic burden for 1985.
the latest year for which reliable data arc available. Data for more recent years,
however, is useful for making program policy decisions. Many surveys and other
data sources on which the econonuc costs are based are conducted periodically,
rather than annually Therefore, it is necessary to use statistical methods to update
the economic costs delivered m the 1985 Department of Human Health Services
Study (DHHS) conducted by Dorothy Rice at the University of California, San
Francisco The approach used here was developed by the Research Triangle
Institute (RTI) m updatmg theu 1980 figures to 1983 and refmed by DHHS m
updating 1985 figures to 1988 estunates. The method uses a lirruted number of
economjc data and indexes with known relationships Although there is some
imprecision m this approach, the aggregate data can be useful. (Rjce. pg. 161)
A vanety of factors affect the changes between 1985 and 1991 m the
economic costs of E)nig Abuse. The following factors are significant m making
cost estimates (RTI, Harwood et al, 1984, p. G-4):
1) Inflation m wages and pnces
2) Growth of the population at nsk;
3) Sociodemographic distnbution;
4) Change m the prevalence or mcidence rates;
5) Causal factors; and
6) Social responses to Drug Abuse
-Although all of these factors conmbute to changes in costs, only the first
rwo are used to project costs Exhibit 1 lists the cost components for drug abuse
cost estimation and specifies adjustment factors to reflect inflaoon and real change
(e.g., change m medical care use, morbidity, mortality). The data series listed in
the table are updated annually and are read../ available and published by the
federal government. Exhibit 2 shows the actual annual data for 1985 through 1990
and estimates for 1991 through 1997 for each adjustment factor. And Exhibit 3
shows the actual projections of the cost components.
Several data sources incorporate both inflation and real change. For
example. National Health Expenditures (NHE) data, produced annually by the
Health Care Financing Administration (HCFA), are used to project treatment
costs. The NHE mcorporates inflation m the medical care costs as well as
population change. TTius. the percentage change from 1988 to 1989 is used to
update 1990 figures. For morbidity costs, inflation and real change are estimated
separately The change in compensation per hour m the business sector is used for
inflanon. and the change in the L S ciMlian labor force is used to reflect real
Because the purpose of thjs secnon is to determine the cost of drug abuse in
1991 and determine the cost trend for 1992-1997. the following methodolog\- was
used to update and project figures Adjustment figures marked with an
astensk (â€¢), denotes data that has been estimated These estimates were made by
using an averaging method All known increases up to that year were averaged
together and applied to the previous year's figure For example, dau was only
available through 1989 for the adjustment factor of Physician Services Percentage
mcreases through 1989 were calculated and then averaged This average was then
applied to the 1989 figure For data beyond 1990, the same averaging procedure
was used and this percentage was then applied to 1991 data and projected through
The cost estimates upon which this study is based is believed to be
conservative There are several reasons for concludmg that our estimates are
1 . No estimates were made for drug abuje related income loss among
the transient and the military populations.
2. Hospital discharge dau records may not list drug abuse coDdibons
for all prunary diagnoses known to be associated with drug abuse.
3. Estimates of income loss among the civilian non-institutionalized
resident population are calculated only for the population aged 18 to 64. To the
degree that those under age 1 8 and over 64 suffer earnings losses due to drug
abuse, the costs are understated.
4 A six percent discount rate is employed to estunate the present value
of future earmngs lost in order to be consistent with the RTI approach. Use of a
lower, perhaps more appropriate, discount rate would yield higher mortality costs .
One of the objectives of the present study, conducted at the L'mversitv' of
Southern Cahfomia, is to update to 1991 the 1985 drug abuse cost estmiates made
by the Uruversity of CaJifonua, San Francisco .-Vn update of costs from 1985 to
1991 would be expected to encompass a nse due to inflation and to reflect changes
in the prevalence of this disorder. With no changes in prevalence or in estimating
methodology, direct expenditures might mcrease about 65%, the nse m national
health expenditures during the 6-year pcnoA 1985-1991. Indirect costs might be
expected to increase about 35%. the growth in total earnings during this penod.
The actual changes in cost data are presented below.
Exhibit 4 highlights the magiutude of substance abuse in the United States
for the years 1985, 1991 and 1997 Between 1985 and 1991 the total economic "^
cost of drua abuse mcreased 73% from S44 Billion to S76 Billion m nominal I
dollars There is substantial variation m increase by type of costs. The primary ~-
contnbutors to mcreased costs were: nsing medical costs, mcreased incidence of
AIDS, increased criminal activity, and increased drug usage by each abuser
(NIDA, 1989) resulting m greater loss of productivity. (Exhibit 5)
By the fastest growing component of drug abuse is in the direct and indirect
costs associated with acquired immunodeficiency syndrome (AIDS) among
intravenous (IV) drug users. (Rice, 1990) It is estimated that 29% of the entire
AIDS population contracted the disease through illegal IV drug usage. (Centers for
Disease Control, 1991) In urban centers such as New York City, it is estimated
that half of the people who inject drugs are infected with the HTV virus. (Booth,
1988) All told, the incidence of AIDS among IV drug users has mcreased 1 100%
smce 1985. TTie combined effect of medical costs and increased prevalence has
resulted in an 1039% increase m the AIDS cost component over the six year
pcnod It IS estimated that one-fifth of thcsÂ« costs result from mcdicaJ care costs
and four-fifths result from the loss of producnut> . mamJ\ due to high monalit>
among persons \Mth .\JDS
Although increases ui other factors affecting costs may paJe compared to
the mcreases in .AJDS costs, they are nonetheless significant Loss of productivity
due to drug abuse composes 64% of the total economic cost of drug abuse Over
the last SIX years this component rose from S28 6 Billion to S49 Billion or 71%.
Hiis increase is made up of several components that will be discussed in more
detail later m our study reduced productivity and lowered occupational
achievement by uidividuals abusmg drugs (35Â°o increase), loss of productivity
due to mcarceranon (52%). lost productiMty due to death (17%), loss of
producnvTtv' due to an abuser bemg involved m a crime career (51%), and as
discussed above, loss of producnviry as the result of drug abuse related AIDS
TTie cost of criminal behavior due to drug abuse also rose over this period.
Total arrests for drug abuse violations mcreased 222% (Exhibit 6) contributing to a