In case you missed it, the American economy is in something of a down phase and has been for several years. Oh sure, Americans still enjoy a greater per capita gross domestic product than do the citizens of all but a half dozen or so other nations. However, on the other side of that, the United States has a negative current account balance and a substantial one too - the largest in the world, in fact, and by a factor of six.

The only lasting way to get out of this conundrum is for the government to commit to spending vastly, vastly less of the money it takes from taxpayers. This won't happen until the consequences of failing to do so become stark and unavoidable, and once lawmakers see a political benefit to belt-tightening over continued profligate spending. In the meantime, as we teeter on the fiscal cliff, previously verboten sources of revenue are looking more and more socially palatable. Here are just a few of the unorthodox ways proposed to fix the economy (or at least to avoid worsening it):

No drug in our society is as discussed and debated to quite the extent that marijuana is. Its drawbacks are evident to any sober person who's ever had to deal with a stoner, but the alleged medical benefits of marijuana are enough to have gradually weakened laws against its use and consumption throughout the country. If this seems extraordinarily progressive, it's not. Pro-marijuana advocates are actually trying to turn the clock back 100 years (106 years, to be precise). That's when the District of Columbia became America's first jurisdiction to outlaw marijuana. By 1937, marijuana prohibition became federal law.

In recent years, various states have allowed "medicinal" use of marijuana, a general feeling of vague physical discomfort often being enough to grant a "patient" a prescription. On Election Day 2012, another barrier broke, as voters in Colorado and Washington approved referenda allowing recreational use of marijuana. Could this mean a windfall for these states?

Not likely. The language in the Washington bill calls for marijuana to be taxed at 25% on multiple levels, with it being levied on transactions between grower and processor, between processor and retailer, and between retailer and consumer. This essentially amounts to a 75% tax. (Anyone who's buying marijuana right now might still have cheaper avenues available.) The most liberal estimates say that legalization could mean half a billion dollars in the state's coffers, annually. If that wasn't
almost certainly an overstatement, it could wipe out the state's budget deficit all by itself.

It's possible to argue that legal marijuana has the economic benefit of not only increasing revenue, but reducing costs. A finite court system has a little more room to breathe when routine marijuana possession cases aren't clogging up the docket. However, that overlooks one little problem: federal prohibitions against marijuana use still stand, and even the state officials tasked with upholding the new laws have no idea how that'll work.

Legalizing All Drugs
The difference between legalizing marijuana and legalizing cocaine or heroin is one of degree, not kind. Jeffrey Miron, an economist at Harvard University, argues that legalizing all drugs would greatly reduce gangland violence, force police agencies to direct resources to more pressing matters and essentially do, on a larger level, what the passage of the 21st Amendment did in 1933.

Miron estimates that tax revenue from across-the-board drug legalization would approach $47 billion annually. That's not enough to turn America into the nation with the world's largest budget surplus, but it'd be a start.

Disapproving attitudes about drugs rival only those about sex. Furthermore, the idea of exchanging either commodity for money strikes many legislative bodies as distasteful. In the latter case, the illogic is particularly profound - why is it OK to give something away, but not to charge for it? Prostitution isn't exactly uncommon, but legal prostitution is exceedingly so. What if prostitution was decriminalized nationwide?

We already have a test market; in (most of) Nevada, prostitution is legal. One can brazenly walk into one of several brothels throughout the state - even announce so to passersby through a megaphone - and the local authorities will shrug their shoulders and carry on with their lives. As a regulated industry, what benefit does legal prostitution bring to the state's bottom line? Can we extrapolate that to the nation as a whole?

Nevada doesn't levy a state income tax. Instead, each brothel remits sales tax revenue to its county. Lyon County, population 52,000, received about $500,000 in such revenue last year, all from four brothels that all sit within a mile of each other. Contrast that with the next-closest major English-speaking jurisdiction where prostitution is legal, the eastern states of Australia. There, legal prostitution resulted in estimated revenues of $1.8 million AUD in 2005. Licensing fees represent a few hundred thousand dollars a year, and some politicians shun any association with prostitution for fear of being looked upon as indirectly supporting the degradation of women.

The Bottom Line
Decriminalizing what consenting adults insert into their bodies has plenty to recommend it, at least if you believe in freedom and liberty. As for any economic benefit that might accrue to the respective governments involved, there's a somewhat more tenuous connection. There are other, more direct steps that the United States can take toward improving its economy, but allowing drug use and sex-for-consideration couldn't make things palpably worse.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.