"Necessity," says Lorenzo Jones, executive director of the Connecticut-based A Better Way Foundation, "is the mother of invention." Jones, who has spent his adult life swimming against monster currents in his efforts to reform the country’s criminal justice system, pauses to chuckle deeply at his own cliché. When it comes to drug policy, he continues, think of the present moment "as moving from a war economy to a postwar economy."

For decades, progressive policy analysts and criminal justice reformers such as Jones have argued that state and federal antidrug and, more generally, "tough on crime" incarceration strategies were counterproductive: that they were dramatically reshaping American society, at a staggering fiscal and moral cost, and they weren’t succeeding. Drug use remained commonplace, and high recidivism numbers for paroled prisoners suggested that prisons weren’t remolding criminals into model citizens. Far better, they argued, to keep prisons as a last resort for the truly hardened, violent criminals and to invest more resources in less expensive, and more effective, alternatives to incarceration.

True, crime rates have fallen dramatically since the early 1990s, in part because of those higher incarceration rates. But most experts believe they fell in larger part because of demographic shifts, changes in policing practices and an easing of the crack epidemic. The drop-off in crime has, in turn, finally allowed a public slightly less scared of crime to be slightly more willing to look for nuance rather than sound bites when it comes to policy. It has created what Bart Lubow, a juvenile justice advocate with the Annie E. Casey Foundation, terms an "ideological space" for discussions of reform. "The overall context regarding crime policy," he says, "is much less hysterical than it was through most of the 1990s."

Faced with a growing body of evidence that carefully tailored rehabilitation models can reduce recidivism or drug use better than jails and prisons, and with a burgeoning crisis in local and state government finances, politicians and voters alike are turning their backs on basic tough-on-crime staples. Instead, they are looking for inspiration to programs such as the HOPE Project in Hawaii, the High Point project in North Carolina and an experiment in Multnomah County (home to Portland, Oregon) to divert low-end probation and parole violators to nonincarcerative settings. All these model programs view jail and prison sentences as a last option rather than a default, and swift responses to violations are considered more important than harsh ones. For reformers, it is a rare breath of fresh air.

"I think the criminal justice system is more under the microscope because of the fiscal situation," explains Mike Thompson, director of the New York–based Council of State Government’s Justice Center. "Every state’s facing fiscal problems, with the exception of North Dakota, and when you look at items where expenditures have risen in the last twenty years, corrections jumps out at you."

Around the country, legislators are essentially asking how they can get more bang for the bucks they spend fighting crime, drug use, mental illness and so on. And they’re willing to consult reformers they would have shunned in the recent past as irredeemably "soft" on crime. "Nobody can sit here and say things are fine," argues Jones. "Something has to give. Now we can sit at the table with people we couldn’t previously work with and say, ‘What are you willing to give?’ We are literally writing this narrative as we go."

In Texas a $600 million prison-expansion plan was shelved in 2007 in favor of a $241 million plan expanding community-based drug and alcohol treatment services, after researchers convinced legislators that the latter would lower crime rates more than expanding the state’s penal infrastructure. As a result, the notoriously prison-tough Lone Star State, whose leaders used to boast about its extraordinarily high incarceration rate, is implementing some of the country’s most innovative reforms, creating a network of in-prison and post-prison residential drug treatment and DWI centers, mental health facilities, halfway houses for inmates being released onto parole, and nonjail residential settings for low-end parole violators. In 2009 the state’s prison population declined, perhaps signaling the start of a reversal of nearly four decades of expansion, which saw the Lone Star State’s prison numbers grow from just shy of 16,000 in 1972 to more than 170,000 in 2008. Texas joined twenty-five other states that saw reductions in the size of their inmate population last year.

In Kansas legislators approved a large investment in drug treatment programs and services for parolees designed to stop so many offenders from simply cycling back into prison after their release. The result was a drop in Kansas’s prison population significant enough to allow the state to close several facilities.

Michigan recently reformed its prisoner-release process to allow for shorter sentences, winning accolades from the ACLU in the process. The state closed eight prisons as a result and invested some of the $250 million savings expected to be generated over a five-year period in an expanded network of mental health and job training services, as well as drug treatment programs.

All told, ten states have embraced "justice reinvestment" strategies such as this, reducing prison spending, investing a portion of the savings in more effective anticrime infrastructure and using the remainder of the savings to plug gaps elsewhere in their budgets. As this model spreads, says Thompson optimistically, we’ll get more results-oriented policy-making than we’ve had in the past. "These are bipartisan, data-driven approaches: figure out what’s driving the [prison population] growth and what can be done differently."

Even states that haven’t formally adopted such a reinvestment strategy are, of necessity, being pushed in this direction. In California, home to the country’s largest state prison population as well as the country’s most dysfunctional state budget process, the combination of federal injunctions against overcrowding and the worst fiscal crunch since the Great Depression has brought the race to incarcerate of the past quarter-century to an end. Over the next several years, to the dismay of politicians who have built careers on being tough on crime, the prison population, which stands at around 170,000, will be reduced by several tens of thousands, with more emphasis on parole, probation and local drug treatment.

New Mexico recently enacted a law banning employers from asking job applicants if they have a felony record. An increasing number of states, including conservative bastions like Alabama and Louisiana, are restructuring their juvenile justice systems to move away from incarceration. Drug and mental health courts are channeling more offenders into structured treatment. And many states are rolling back their most restrictive truth-in-sentencing provisions, allowing low-level offenders to return to their communities after serving only a small percentage of their sentences behind bars.

Some states and localities are also starting to invest in restorative justice models, putting offenders to work to repair the damage they caused the community rather than simply warehousing them in prisons.

Father George Horan, co-director of the Archdiocese of Los Angeles’s Office of Restorative Justice, has spent a lifetime watching youngsters do stupid things and, as a result, ruin their lives. He has seen generations of kids graduate from being troubled children to hardened prisoners. And he has grown increasingly cynical about the ability of penal institutions to solve ingrained social problems. Far better, he has come to believe, to sit nonviolent offenders down with their families, teachers, peers, even victims, and force them to come to terms with the consequences of their actions.

Horan, 64, has a ruddy complexion and dresses casually. From his small office in the Sacred Heart Catholic Church in Lincoln Heights, a bleak industrial area of Los Angeles just north of downtown, he works to help delinquent teens, many of them gang members, establish more productive bonds with their communities. When three teens broke into their school a few years back and trashed it, the Office of Restorative Justice persuaded the trial judge to consider a restorative justice solution. The kids had to face their principal and fellow students; they had to pay for the damage; and they had to spend their weekends doing community service at the school—cleaning classrooms, doing basic maintenance work, sweeping autumn leaves. The principal, recalls Horan, took the kids out to lunch, got to know them and encouraged them to attend to their studies. "She said the next year they were the three best kids in the school. What a better result than sending the kids to juvenile hall. They turned their lives around."

Horan is aware of the limitations of this strategy—he tried the same approach when three boys set fire to his church door, but this time the prosecutor insisted on seeking prison terms. Politically, he says, it would be next to impossible for prosecutors to embrace restorative justice for violent criminals. But Horan believes restorative justice models have to play a part in any revamping of America’s criminal justice system. "Always, the first step is, the person has to take responsibility for what they did. That’s the cornerstone," he explains. "What can a person do to heal the victim and heal the community?"

Meanwhile, extending the first-do-no-harm principles of the restorative justice movement, a growing number of politicians have started to identify sky-high African-American incarceration rates as a civil rights issue that, in tandem with high crime rates in poor communities, serves up a double whammy to already devastated neighborhoods. As a result, they have begun pushing legislation that characterizes the disproportionate incarceration of African-Americans as a problem. Connecticut recently passed a "racial impact statement" law mandating all major legislative proposals for the criminal justice system be studied for their racial impact. Other states, looking for ways to preserve public safety without inflicting the kind of collateral damage on communities that mass incarceration unleashes, will likely follow suit.

No part of the criminal justice system has had more of a racially skewed impact than America’s antidrug strategy. Over the decades, millions of young Americans, mainly poor and disproportionately black and brown, have been arrested, prosecuted and sentenced to jail or prison for their involvement with the drug trade. It has been a staggering exercise in futility.

Yet these days, the "war on drugs," which Barack Obama denounced as an utter failure during his presidential campaign, is showing the fragility of old age. At the urging of the Obama administration and top Justice Department officials, Congress is working to eliminate the infamous crack and powder-cocaine sentencing disparities. And over the next few years, the Justice Department’s Task Force on Sentencing Reform will likely recommend more proportionate sentencing for many drug offenses.

The era of "Lock ’em up and throw away the key" seems, slowly, to be drawing to a close. And over the next few decades, that will likely have the effect of gradually drawing down the size of the bloated prison population. Even seasoned conservative voices are cognizant of the winds of change.

"My attitude has always been, speed and certainty are crucial aspects of running a criminal justice system, not length of sentence," argues James Q. Wilson, at one time the country’s most influential conservative criminologist. "Many sentences could be shortened without endangering public safety." Wilson, who rose to intellectual fame as President Nixon’s favorite sociologist and later became known as the philosophical father of the Broken Windows policing theory, doesn’t regret his role in developing ideas that helped contribute to America’s mass incarceration experiment. But he also doesn’t think that mass incarceration is, or should be, an end in itself. If there are alternatives that have at least as powerful an effect on reducing the crime rate, Wilson, an empiricist, believes they should be tried. Parole and probation systems should be reformed, he argues, so that violators are dealt with quickly and minor violators, such as those who fail a urine drug test, receive "a swift but very short penalty—a weekend in jail, a week in jail. It need not be returning people to serve a full prison term."

Changes in drug policy don’t stop with shortening sentences, however. The administration recently lifted the ban on federal funding for needle-exchange programs—long a bugbear of drug-treatment and public health professionals. And for the first time since the 1970s, marijuana legalization movements are gaining traction at the state level. Californians will vote in November on a ballot measure to legalize pot, and preliminary polling indicates it could well pass. The initiative is buttressed by a number of politicians, like Assemblyman Tom Ammiano and State Senator Mark Leno, who have argued that legalizing marijuana would allow California to tax the lucrative market. Other states could follow in California’s wake.

"People are now making a lawful income from cannabis here in California and other states," argues 57-year-old Chris Conrad, of the marijuana-advocacy newspaper West Coast Leaf, at a hummus-and-wine soiree to celebrate the opening of the Drug Policy Alliance’s swank new downtown San Francisco offices. Conrad is talking about how the medical marijuana industry is increasingly using its clout to push for broader, across-the-board rollbacks of pot prohibition. "They can put that money back to invest in change. The idea is, it should be brought under control and tax revenue brought in. The whole financial argument is only going to get better. I think the drug war is fatally flawed, and it’s doomed. It’s just a matter of time; it could be five years, it could be twenty years. But prohibition doesn’t work. It creates crime; it doesn’t solve crime."

A few years ago Conrad would have been a countercultural refugee on the hippie fringe; these days, he and his ideas are increasingly mainstream. In fact, the attendees at the party oozed their radical-chic credentials; they were lawyers, doctors, politicians, consultants, businessmen. "The trend is for people to regulate rather than prohibit," asserted Doug Linney, the well-coiffed, sharp-dressed campaign consultant for the legalization initiative. "They see the current drug wars aren’t working, especially regarding marijuana. There’s an interest in changing it, especially because of the state’s finances."

Cumulatively, all of these changes are bearing significant fruit. For the first time since the Nixon era, America’s prison population is shrinking. In 2008, according to the Bureau of Justice Statistics, the prison population fell in twenty states; in 2009 it fell in twenty-six states; and that trend is likely to continue in 2010. Moreover, as the number of drug-related sentences has declined slightly, so too has the appallingly high African-American incarceration rate edged slightly downward, off 9 percent from its peak a few years back. The gears of what journalist Joel Dyer, in the 1990s, tellingly labeled a "perpetual prisoner machine"—a self-sustaining interaction of conservative criminal justice lobbies, political opportunism, popular tough-on-crime sentiments, the economic needs of depressed prison towns and media sensationalism—seem finally to have gotten gummed up. Ironically, the federal government, which did so much to shift the country in a more conservative criminal justice direction for nearly fifty years, seems quite content to let the gears stay locked.

Most decisions about the criminal justice system are made at the state level. Despite the near-tenfold growth in the population of federal prison inmates since 1980, less than 10 percent of all inmates are serving federal sentences. But the federal government does perform some vital roles: it allocates resources directly (by, for example, patrolling the border and exporting the "war on drugs") and indirectly (by granting money to localities and states to set up antidrug task forces, funding drug and mental health treatment services, and putting more police on the streets). It creates overarching legal parameters within which states must operate (federal drug laws supersede state ones, which means that if California legalizes marijuana, for example, theoretically it would be setting up a conflict with DC). Perhaps most important, the federal government sets the tone for national conversations on crime and delinquency.

When it comes to tone-setting, sometimes what isn’t said by federal officials is as important as what is. Over the past couple of years, President Obama’s drug czar, ex–Seattle police chief Gil Kerlikowske, has chosen not to follow his predecessors with regard to medical marijuana. Whereas John Walters, Bush’s drug czar, testified across the country against state medical marijuana laws, Kerlikowske has stayed silent. The effect, says Drug Policy Alliance executive director Ethan Nadelmann, has been to send a "green light to the states that they could have the freedom to go their own way on this." Kerlikowske, Attorney General Eric Holder and President Obama himself steer clear of talking about the "war on drugs," and they generally don’t use sound bites to trumpet their "tough" credentials when it comes to tackling the complex problem of crime.

But what is being said is also fascinating. "Too many of our citizens have come to have doubts about our criminal justice system," Holder told a Congressional Black Caucus symposium on June 24, 2009. "We must be honest with each other and have the courage to ask difficult questions of ourselves and our system. We must break out of the old and tired partisan stances that have stood in the way of needed progress and reform. We have a moment in time that must be seized in order to ensure that all of our citizens are treated in a way that is consistent with the ideals embodied in our founding documents. This Department of Justice is prepared to act."

Indeed, in a series of key speeches over the past year, Holder has delivered a commitment, unprecedented in recent decades, to use the might of the Justice Department to ensure a fairer, less coercive criminal justice system. Addressing the NAACP in July 2009, the attorney general talked of the devastating harm that harsh drug sentences have caused in poor communities. "It is not justice," he declared, "to continue our adherence to a sentencing scheme that disproportionately affects some Americans, and some communities, more severely than others."

The previous week, he told an audience at the Vera Institute of Justice, a New York–based think tank, that "getting smart on crime requires talking honestly about which policies have worked and which have not, without fear of being labeled as too hard or, more likely, too soft on crime. Getting smart on crime means moving beyond useless labels and instead embracing science and data, and relying on them to shape policy. And it means thinking about crime in context—not just reacting to the criminal act but developing the government’s ability to enhance public safety before the crime is committed and after the former offender is returned to society." Taking their cue from Holder, a slew of top officials have begun revamping the language they use to discuss crime and punishment.

As Kerlikowske explained to The Nation in March, shortly after he returned from a UN Commission on Narcotic Drugs meeting in Vienna, the country should not continue to think of drugs merely as a public safety problem but should start to see them as a public health problem. "My colleagues, I never heard them talk of a war on drugs," he said. "I’ve heard elected officials talk about it, but not police chiefs, sheriffs or prosecutors. They talk about it with the complexity the problem deserves."

In reshaping the national discourse on drugs, Kerlikowske touts his law enforcement credentials. He’s a tough guy, a strong policeman with thirty-seven years on the job, and he knows he commands respect. "For me, it’s a little bit like Nixon going to China," he explains. Kerlikowske has "very little concern about being labeled soft on drugs." And so he wants to talk about being "smart on drugs," instead of merely "tough." In fact, when he explains his mandate, the country’s drug czar is more comfortable using the language of public health professionals than political posturers. "The ‘war on drugs’ was a simplistic answer to this really complex problem," he says. "We have to look at talking about addiction as a disease rather than a moral failure or saying people should just stop using drugs."

For the first time in more than forty years, criminal justice trends are starting to move in a sensible direction. At the local and state levels, fiscal necessity is forcing a rethink when it comes to incarceration strategies. And at the federal level, the politics that allowed George H.W. Bush to batter Michael Dukakis with images of Willie Horton, Bill Clinton to sign an execution warrant on the brain-damaged Ricky Ray Rector and George W. Bush to push glibly for more teens to be tried and sentenced as adults is taking a back seat to smart, holistic thinking.

"Everyone I talk to around the country has been affected by drugs," Kerlikowske says. "But it’s not talked about the same way as if you had a member of your family having cancer—or even alcoholism. When I look at the drug problem, what it costs in healthcare costs, police-community relations, the Southwest border, foreign relations—every one of those things, drugs are a part. If we could recognize how inextricably linked to all of these issues drug consumption and addiction is, if we could work to address it with the complexity it deserves, that would make more sense than holding a press conference and showing a ton of cocaine or five people led out in handcuffs."

Of all the changes in tone brought about by Obama’s election, in the long run few will be more significant to the country’s well-being than those around criminal justice and drugs. Without a whole lot of fanfare, the administration is laying the foundations for a new criminal justice system model that might, conceivably, end America’s morally disastrous, fiscally ruinous, four-decade-long experimentation with mass incarceration.