Would diverting mentally ill from jails and prisons expand the economy?

Jackie Shannon, who is chairwoman of the Board of Trustees of MHMR Services in San Angelo, has a column today in the Standard-Times which opens with the question, "Would you be surprised to learn that the odds of a seriously mentally ill person being in jail or prison in Texas compared with being in a hospital are 7.8 to one?" She supplies some interesting analysis mostly culled from a recent study from the National Sheriff's Association - More Mentally Ill Persons Are In Jails and Prisons Than Hospitals: A Survey of States (pdf) -  but also included a provocative, perhaps counterintuitive argument on the negative economic impacts of failing to supply adequate mental health care:

Obviously it doesn’t make fiscal sense to cut mental health services and hospital beds if the result is higher costs to the prison system. So, what’s a Legislature to do?

Ray Perryman, of the well-regarded Perryman Group, in a January letter to state Rep. Jim Pitts, chairman of the Texas House Appropriations Committee, wrote:

“For several years, I have been studying the economic and fiscal issues surrounding treatment for mental health and substance abuse. Even beyond the human cost of such problems (which is enormous and defies measurement), the drain on the economy and the State’s social services system is also substantial.

“With inadequate treatment, overall costs can notably escalate; for those Texans without private insurance, obtaining treatment can be impossible due to financial constraints.

“In a 2009 study by my firm, (‘Costs, Consequences, and Cures!!! An Assessment of the Impact of Severe Mental Health and Substance Abuse Disorders on Business Activity in Texas and the Anticipated Economic and Fiscal Return on Investment in Expanded Mental Health Services’), my analysis revealed that mental health and substance abuse cost the state economy billions of dollars each year, and that increasing funding for these services brings a net payoff to the state. The components of this total cost include medical spending related to treatment, comorbidity and disability expense, lost income and productivity, incarceration, homelessness and mortality.

“Simply stated, if all of the costs and associated losses associated with these factors could be eliminated, the Texas economy would be approximately 10 percent larger than its present size. While such an outcome is not practical, finding cost-effective methods to reduce the incidence and severity of mental health and substance abuse problems is an important endeavor that can improve the state’s fiscal situation. Clearly, improving mechanisms to provide care to those in need is an important task.”

If Perryman's right, maybe the best wedge argument against slashing mental health services isn't merely sympathy for the plight of those in need. Maybe it's that doing so would harm economic growth while alleviating the problem would promote it.