"Reducing Production in Afghanistan Hurts Traffickers Everywhere, Including the Taliban."
Wrong. In December, the Guardian interpreted news of the Taliban's attempts to stockpile opium as an effort to "manipulate street prices in the west." An economist would laugh -- or perhaps cry -- at this notion. As Thomas C. Schelling pointed out in the 1960s, law enforcement and organized criminal enterprises are on the same side when it comes to the price of illicit commodities: They both want them to be higher.
Yes, entirely eliminating Afghan drug production would eliminate Afghan drug revenues. It would also be impossible. And though reducing production is possible, reducing it will also drive up Afghan export prices more than proportionally, increasing overall drug revenues.
Monopolists facing inelastic demand don't worry about production reductions -- they love them. Less production means higher revenues; this is why OPEC meets to discuss how to constrain oil production, not expand it. Counternarcotics strategy solves this coordination problem for the drug traffickers, reducing exports and increasing industry revenues -- as amply illustrated by this year's blight, which reduced production by far more than the U.S. Drug Enforcement Administration (DEA) could have managed, but also drove opium prices up over $200 per kilogram.
Retail drug demand responds to changes in retail prices -- maybe not quite proportionally, but it does respond. However, even large changes in export prices produce retail price changes that are quite modest, in percentage terms. The reason is that the value of processed heroin in Afghanistan is a small fraction of its value in the countries that consume it: A kilogram that sells for $3,000 at export from Afghanistan fetches $70,000 at wholesale in Britain, and perhaps $300,000 at retail. The price of drugs at export is such a small fraction of the final retail price that the latter would register only the largest disturbances in the former.
You would have to double the Afghan export price, for instance, to bump up the retail price in Iran by 20 percent, which in turn would suppress consumption there by only about 15 percent (using a conventional estimate for the sensitivity of consumption to price). And because Western European (and U.S.) prices are five to 20 times higher than Asian wholesale prices, those markets are among the last to be shorted when supplies are tight. So even if the Western Hemisphere's heroin exports vanished overnight, the quantity of heroin produced and exported from Afghanistan would have next to no bearing on rates of dependence or drug-related crime in the United States.
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