Why Seizing Drugs Barely Dents Supply

Trafficking in illegal drugs often seems to defy basic economic
principles.

When the authorities seize a trove of heroin, cocaine or marijuana,
logic would dictate a predictable effect: a shortage of supply that,
given constant demand, should drive up prices, perhaps beyond the reach
of some prospective customers.

Yet even after many sizeable, well-publicized seizures, the street
price seldom changes. Sometimes, it even drops.

Law-enforcement officials, who intercepted nearly 100 tons of drugs in
the United States last year, argue that seizures produce other
benefits. Without them, the officials say, traffickers would grow more
brazen; drugs would become so plentiful that many more people,
including teen-agers and younger children, would be tempted to try them.

Critics of the nation's drug war say that the negligible impact on
supply or price proves that seizures are largely a waste of time and
money.

Free-market theories of supply and demand seem inadequate to analyze
and develop a counter-strategy against what is, at its core, a criminal
activity. For one thing, it defies reliable economic analysis because
so much data is incomplete. For another, as it turns out, drug seizures
apparently affect warehouse inventory much more than actual street
supply.

Law enforcement officials know how much narcotics they seize. But
traffickers don't report how much they manage to sneak past police.
Americans spend about $49 billion a year to buy illegal drugs,
according to one estimate by the government.

"The numbers are, in fact, just decorations on the policy process,
rhetorical conveniences for official statements without any serious
consequences," writes Professor Peter Reuter, who teaches drug policy
at the University of Maryland. "Indeed, the irrelevance of the numbers
is itself a condemnation of drug policy decision-making."

One reliable number is the federal budget, which includes more than $15
billion this year for drug enforcement, treatment and prevention. Price
also can be monitored. And frustrated investigators acknowledge that
with the market glutted, many of the much-heralded drug seizures
haven't seemed to affect supply.

"The fact that product is coming in and prices don't change means that
it is still available at that level," said Patrick Harnett, chief of
the Narcotics Division of the New York City Police Department. "It's
going to come in and it's going to come in in hundreds of different
ways."

So much so that traffickers may have as much trouble storing it as
importing it. Investigators found a record 21.4 tons of cocaine in a
warehouse in the Sylmar area of Los Angeles seven years ago. Only this
month, six tons of cocaine were seized from another warehouse in
Tucson, Ariz.

"I think there is an incredible stockpile in this country when we knock
off 10 or 20 tons and the price doesn't increase," said Carlo Boccia,
head of the Drug Enforcement Administration's operation in metropolitan
New York.

"There's excess inventory at every stage," said Mark A.R. Kleiman, a
specialist on drug policy at the University of California at Los
Angeles. "That inventory acts as a flywheel and reduces the impact of
any shock."

Moreover, he says, the authorities typically overstate the dollar value
of confiscated drugs by calculating not the wholesale price, like
$9,000 per pound for cocaine or $40,000 for heroin, but what the
consumer might pay somewhere down the line.

Evaluating seizures by this projected street value, Kleiman said, is
like estimating losses from cattle rustling according to the price of a
steak in a New York restaurant. A more accurate measure would be the
lower cost to the trafficker of replacing the drug, which can be less
than $1,000 per pound of cocaine when it leaves Colombia.

Reuter suggested that drug syndicates build a projected loss from
seizures into their budgets, just as they set aside substantial sums
for bribes or drug couriers.

Confronting a stagnant American demand for cocaine, the Cali cartel
diversified in the early 1990s into home-grown heroin, which was
marketed, through cocaine distributors, at discounts that undercut the
price charged for Asian heroin. By last year, Colombian heroin
accounted for 62 percent of the domestic seizures of heroin, compared
to almost zero as recently as 1992, according to the Drug Enforcement
Administration.

Some experts speculate that cocaine prices have declined not merely
because of stagnating demand but also more competition among street
dealers, who have been forced to accept a smaller markup. The street
price itself -- $5 for a "nickel" vial of crack cocaine sufficient for
one mind-altering high or $10 for a "dime" bag of heroin for a single
fix -- has stayed remarkably constant. To squeeze out more profit,
dealers dilute the purity.

Recreational demand for drugs can vary widely. But among addicts,
demand becomes inelastic.

If drugs were legalized or if there was no interdiction, air-expressing
a couple of pounds of cocaine from Bogota to Miami would cost less than
$100, Reuter said. Instead, traffickers have to pay a smuggler $10,000
or more to provide the same service.

"Interdiction can claim credit for accomplishing that," Reuter told the
Senate Judiciary Committee.

It took the smashing of the Medellin cartel in Colombia to drive up
cocaine prices in 1990 before the rival Cali cartel filled the vacuum.
Cocaine itself is worthless if no one wants to snort, smoke or inject
it. "You can't even patch ceilings with it," Boccia said.

But police go after drugs to catch not just dealers, but also the
suppliers' profits, piling up in soiled, crumpled dollar bills. "When
they lose money on the way back, it really hurts them because it almost
made it home," Harnett said.