I'm not sure they've shown that prison is ineffective as a deterrent, but I've heard of studies which indicate that returns on increasingly punitive measures diminish. "Prison is a not an effective deterrent" means that no one factors it into their calculus about whether or not to commit a crime, and that seems very hard to believe.

To be quite clear, I don't believe that prison's sole value is a deterrent. I think there's an element of justice (criminals should have to pay for their crimes), an element of deterrence (prison should make criminals think twice--this feels intertwined with 'justice' and yet distinct), an element of rehabilitation (to the extent that we can rehabilitate prisoners, we should), but mostly I think there is significant social value in protecting innocent people by keeping harmful people away from innocent people.

Even if the deterrent effect is nil and even if you don't believe in justice (or for many of my fellow liberals, you reserve 'justice' for crimes that offend you, such as white collar crimes), I would still keep prisons around for the protection of the innocent. That said, I have an optimistic view on the potential for prisons.