Monday, March 27, 2006

Big bucks from dope

The leaked UK Birt Report on illicit drugs mentioned in The Australian about a month ago, is available online here at The Guardian website . This report on drugs in the UK emphasises supply-side issues. It discusses the Australian 2001 heroin drought episode as a natural experiment where supply-side restrictions have been seen as effective.

I found aspects of the report implausible or, at best unexplained. That most psychological damage, measured in terms of mental health admissions, was concentrated around heroin, methadone and cannabis use and not of stimulant abuse (ice, cocaine) seems implausible.

The supply-side discussion is old hat. Yes, interventions to reduce production are expensive and often displace production elsewhere. Traffickers are flexible in adapting to interventions and technologically sophisticated. Their profit margins are high so occasional busts don't hurt much, particularly when up-and-coming drug traffickers seek to establish dealing careers by taking heavy risks - the lure of high profits encouraging attempted shifts up supply chains. And yes, it is true that risk-minimisers 'big operators' who employ 'go-betweens', may benefit from increasing risk since prices are driven up.

But it is wrong to claim that because long-term prices show real decline that controls have been ineffective. You need to assess the counterfactual - what would have happened to prices had active interventions not been pursued.

The authors see the Australian heroin drought of 2001 as providing evidence on the effects of supply interventions. Heroin prices rose, purity fell, drug use collapsed particularly among new users and use of substitute drugs increased. But in some respects they get it wrong. They claim:
  • The drought could have been caused by overseas events and new marketing approaches by Asian syndicates not improved interdiction. But this is irrelevant - the drought provides the opportunity to examine drug use given higher prices irrespective of supply-side reasons for price increases. This illogic dominates much local debate on this issue.
  • The drought led to higher levels of admission to methadone clinics - but their own graph page 101 of the report shows the increase lasted for only as few months. Likewise their claim that the drought worsened crime was only true short-term.
  • To suggest that the switch from heroin to stimulant abuse means that the measures were ineffective is simplistic. Overdose rates fell dramatically after the drought and psychiatric complications from stimulant abuse rose strongly. There is a difficult tradeoff here in assessing damages of deaths reduced versus mental health issues which worsened.
I doubt Australian drug researchers can learn much that is particularly new from this report.

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