In the midst of the war in Iraq, the war on terror, and the Bush Adminstration’s war on Social Security, Americans may perhaps be forgiven for having forgotten that their government is still waging a "global war on drugs" that costs at least $30-$40 billion per year, and also causes a great deal of other political, social, and environmental damage at home and abroad.
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As indicated in the adjacent chart, after more than three decades of this hallowed effort, drug enforcers have failed to produce any increase whatsoever in the real retail street price of illegal drugs.
Retail cocaine prices, for example, are much lower than when the drug war started. Similar charts could be also drawn for opium, marijuana, and the bevy of other new "designer drugs" that have been introduced in the last decades – a rational economic response to prohibition.
Of course, hard-core defenders of the anti-drug campaign may argue - just as Prohibitionist moralizers did about booze prices in the 1920s - that retail drug prices would be even lower, except for the war on drugs.
But it seems more likely that supply-side interdiction has failed to have any consistent impact, partly because improvements in drug dealer productivity – as many economists on all sides of the political specrum have predicted.
The collapse in retail drug prices is also consistent with the embarrassing fact that opium production has recently exploded in US-occupied Afghanistan.
The decrease in prices is also exactly what one would expect from a successful "decartelization" program, like the one that the US Government pursued with such fervor against Pablo Escobar, "Gacha" Orejuela-Rodriguez, and Manuel Noriega.
In the 1980s and 1990s that effort employed quite a few "drug busters," and provided endless material for TV and film scripts. But at the end of the day, it basically just helped to increase supply.
Now, after five years of saturating Colombia with chemical herbicides, the US government and their allies in Colombia have also failed to reduce the number of hectares under coca cultivation.
Indeed, the total area under cultivation in Colombia at the end of 2004 was slightly greater than at yearend 2003. Coca cultivation in Peru and Bolivia, have also recently been expanding. All this is consistent with a the "balloon" model, in which destroying coca in one place only increases the incentives to plant elsewhere.
It also appears likely that – like every other profit-motivated farmer on the planet – coca farmers, as well as cocaine laboratories and distributors, are not sitting still, but are working hard to improve per-hectare productivity.
This means they don’t require nearly as many hectares to produce a given amount of coca, as they used to. In calculating its estimates of "potential output," the US DEA assumes a constant 4.26 kilos of potential cocaine output per hectare of coca cultivation; UN "drug experts" assume a constant 3.56.
Even if we give the DEA the benefit of the doubt, however, it estimates that in 2004, Bolivia, Peru, and Colombia produced enough coca to make more than 640,000 kilos of pure cocaine. While this is 28 percent lower than the average potential output in 1996-2001, it is still enough coca to produce more than 2.5 billion grams per year of retail street-cut cocaine.
At today’s New York City street price for an "eight-ball" – $150 for an eighth of an ounce, or $43 a gram – even if just 20 percent of this potential output made it through, that’s a $22 billion annual market. Those who are waiting for supply-side interdiction to "win the war on drugs" will have to wait a long time.
Indeed, if one operative definition of insanity is to
"do the same thing over and over again, expecting a different result," by this definition, US drug enforcement policy is bouncing off the walls.