This makes a great deal of sense. Consider the drug trade, for a moment. Sentencing gets tougher and the stakes go up on the individuals participating in the trade. More people are locked away for a greater length of time. Does this deter someone else from entering the market? No.
Why? Perhaps because what really happens is the price for delivering the drugs increases and along with it are potentially greater increases in profits. In the short term, there is a spike in the increase of street prices. Eventually, the market adjusts to the new levels. It expects that 'X' number of people are going to be locked away for 'y' amount of time. The price stabilizes (and probably falls slightly to reflect the stabilization) as the new paradigm is accepted.
Now the price to support the people who were formerly in the drug trade is shifted to society. These people are housed, fed, and provided a modicum of health care. Whereas before, these people were funding their own food, clothes, shelter, and perhaps no health care (or at least supplementing their income) through their trade in drugs.
Thanks for the comment, it's spot on.
The Economist does a nice article about once every year arguingly strenuously that the War on Drugs creates far more problems than it solves. Google if you're interested!