Source: Drug Warrant

17 May 2010

Supply-side drug warriors have generally taken the position that the idea behind eradication and interdiction is that you drive up the price of the illegal drugs (and in fact, people like John Walters used to get extremely excited over isolated local reports of increased prices for some drugs).

Problem is, they never really took it past that step. It was almost like an underpants gnomes version of drug policy

1. Reduce supply

 2. Prices go up, making it harder for people to buy it.

 3. ???

 4. Win the drug war

The problem is, that any first year economics student could tell them that step 2 is not an end result, but rather a temporary economic glitch. If step 2 actually happens, then that sends information into a feedback loop that stimulates supply.

The actual formula looks a little more like this…

1. Reduce supply

2. Prices go up, making it harder for people to buy it.

3. Increased demand and higher profits attract additional producers, increasing the supply

4. Prices go down, making it easier for people to buy it.

Rinse and repeat. … at great cost.

At the same time, supply-side drug warriors have told us that if they didn’t constantly slow the supply of drugs, there would be an almost infinite expansion of drug use — that more drug availability would always equal more drug users (and thereby abuse and social costs, etc.).

Again, someone who didn’t sleep through the last half of their beginning economics course, could tell them about a thing called elasticity of demand. Now this one’s a little more complicated, and there are a lot of factors involved, such as substitution, etc., but basically it says that a product that is more price elastic is more likely to have demand affected by price (a higher price, people stop buying it; a lower price, people buy more), whereas a product with price inelasticity is less likely to be affected by price.

With illicit drugs, most are relatively inelastic (except for the substitution factor), so that a drop in price will increase use somewhat, but only to a point, at which time no more people wish to use that drug or consume more of it.

These basic economic lessons that destroy the entire concept of the billions of dollars we spend on supply-side drug war were almost perfectly demonstrated in two unrelated articles recently.

Mysterious Blight Destroys Afghan Poppy Harvest

Up to one-third of Afghanistan’s poppy harvest this spring has been destroyed by a mysterious disease, according to estimates revealed Wednesday by United Nations officials, potentially complicating the American and NATO military offensives this summer in the country’s opium-producing heartland. […]

Besides fueling the propaganda war, the blight might also help the insurgency by giving prices a boost. Reduced production is causing prices for fresh opium to soar as much as 60 percent, after years of declining prices, according to the executive director of the United Nations Office on Drugs and Crime, Antonio Maria Costa.

While there is no evidence that the disease will return next year, the rising prices may make it harder to persuade farmers to give up the crop, he said.

The price increase is also raising by hundreds of millions of dollars the value of opium stockpiles held by traffickers and insurgents. The opium trade is believed to provide the Taliban with a large portion of their budget. […]

While farmers were suffering, [Costa] said that if the increased prices persisted, they would deliver “a very significant windfall” for drug barons and insurgents who control thousands of tons of opium stored in Afghanistan and other locations.

Yes, even the head of the UNODC recognizes that even a “naturally-occurring” temporary reduction in supply does no good, because it encourages more producers to enter the market and makes the black market more profitable for the criminals who control it.

And yet, the US is spending 2/3 of its drug war budget on supply-side efforts.

… and on the other side of the drug war economics lesson…

Plummeting Marijuana Prices Create A Panic In California by Michael Montgomery at NPR

The war on drugs and frequent raids by federal drug agents have helped support the local economy — keeping prices for street sales of pot high and keeping profits rich.

But high times are changing. Legal pot, under the guise of the California’s medical marijuana laws, has spurred a rush of new competition. As a result, the wholesale price of pot grown in these areas is plunging. […]

Mendocino County Sheriff Tom Allman says some growers can’t get rid of their processed pot at any price.

“We arrested a man who had … 800 pounds of processed,” Allman says. “Eight hundred pounds of processed. And we asked him: ‘What are you going to do with 800 pounds of processed?’ And he said, ‘I don’t know.’” […]

“What’s happening is the people that don’t have quality product aren’t selling it,” Blake says. “So they’re the ones that are creating this panic. So it really comes back down to that, just like in every other agricultural industry. When you get too many vineyards and too many people growing vines out there, then only the good ones make it.”

And now you know more about economics than our government.

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