The war on terror, technological change and all-new Heroin products coming soon

The story that kicked this off was this one, in today’s Guardian:

A teenage student has become the latest victim in Dallas to die from a powerful and highly addictive new street drug known as ‘cheese’. The rise of the drug, a mixture of black tar heroin and powdered headache tablets, has been described as an epidemic. Dealers often sell it at $2 a time to get youngsters hooked. Because it is snorted, teenagers do not realise they are taking such a lethal heroin-based drug.

The economics of drug-use are very, very interesting. In terms of market demand, drugs can – historically – be separated into sustainable markets (sustainable by casual use) and not. So: Alcohol, Methampetamines, THC and Cocaine, etc. People can use them without disappearing into the bottom of society. Meth/Speed/etc. and Cocaine belong, for me, in the same line of thinking (in that Cocaine really isn’t worth the money: it costs too much and does too little. For people who can’t snort hundred-dollar bills up their noses, there are the more accessible substitutes). I guess I just lump stimulants together, with the dis-aggregated markets separated by income (and being a wanker). I shouldn’t, but it is okay for this purpose, at least, to do so.

Heroin, crack cocaine, free-basing, etc. belong in a different market, one that is not really sustainable unless there is plenty of turnover of consumers. With the same stock of consumers, you do not have casual/social use: you have junkies. Hence the mention in this story of the USD2 hits being sold, to get those new consumers and breathe new life into the market.

That’s the market. For individuals, demand can be considered differently. For things like Marijuana, Alcohol, Meth, Ecstacy, LSD, etc. (they’re called recreational for a reason, after all), we probably face a demand curve familiar to the Neo-Classical market. Decreasing Marginal Benefit from consumption (addiction notwithstanding, and allowing for the fact that these impair cognition, so we aren’t talking about the usual chocolate bar examples), and some responsiveness to risk, cost, leisure/work trade-offs, etc.

Harder drugs: heroin, which is delivered mostly intravenously; crack Cocaine which is phenomenally addictive; and freebasing, either Cocaine or mixtures (speedballs, for example: mixtures of Cocaine and Heroin). These are much more likely to have threshholds, meaning two stages in the demand function. The first stage is some decision to participate at all (I’ll return to it in a minute, but the needles are a big barrier for Heroin. The risk is big for rational recreational drug users for all of these, given how addictive they are). Once that is cleared, then there is kind of a demand, but we’re talking proper addicts: the idea of marginal benefit declining with use won’t really hold (amongst other things, the assumption of rational agents goes right out the window). Freebasing and smoking crack, for example, deliver by ‘slamming’ the Cocaine (hydrochloride) into the system. It’s big, but it’s very fast – meaning users tend to re-dose much too quickly, wasting themselves completely.

So, to return to the story. Needle-less Heroin! “Cheese”: this mix of black-tar Heroin and “headache tablets” (anything up to codeine? I don’t know), which apparently resembles Parmesan (meaning so granular you’d have to be a tit to imagine snorting it would be pleasant, but that’s just me). The first hurdle for heroin: needles, risk (of disease or prosecution) have been removed. Since needles are attached to the ‘bad’ of Heroin, it also looks like the fear of addiction is ameliorated by making it look as benign (speaking in relative terms) as Cocaine or Speed, i.e. recreational Heroin – if you can imagine such a thing.

It is, of course, not. I don’t know Heroin, personally, but I understand it to be a drug to which any drug user, however much some over-dosed Warren Ellis caricature, can still fall victim. One can blow their way through all the stimulants invented, but the opioid will win its fight.

So to war and technological change. Wars bring technological change by rapidly increasing production (new guns, jets, space travel, all come from war funding, war planning and war innovation), lowering marginal costs, increasing the user-base (increasing innovation at the point of use, as well as production). Now consider the war in Afghanistan:

Britain is stoned at home and sold out in Helmand

The vast increase in opium poppy farming in Afghanistan is indicative of an inability to grasp a basic law of economics

The British government for sure knows how to do one thing. It knows how to help farmers in need. Since it arrived in Afghanistan in 2001 and was put in charge of the staple poppy crop, ministers have spent hundreds of millions of pounds on promoting it. On Monday the United Nations announced the result. Poppy production in Afghanistan has soared since the invasion, this year alone by 34%. The harvest in the British-occupied protectorate of Helmand rose by 50% in 12 months. This is a dazzling triumph for agricultural intervention.

The Guardian also ran a good follow-up story to this one, if you’re interested.

Add to this infrastructural investments that will, as surely as if by design, stabilise and massively increase exports of opium. From the perspective of the Heroin market, we have the elements that we need. Just like crack and freebase cocaine grew out of participation in the market, new supply, even cultural awareness we can expect similar from Heroin.

This new product is an example of a market adapting its product to new consumers, getting them over that threshold. Producers, suppliers, dealers, etc. have every incentive to do so: it insures against a glut by diversifying the product itself, keeps the market thick and prices/profits up. I’m sure “Cheese” won’t be the first: not with this much supply coming on-line.

Like I said. Drugs make for very interesting commodities. Their markets are naturally very interesting, but I think they’re made more so by military policing – as identified in the Guardian article, military minds tend to move directly to the idea of policing, as though that alone is the incentive required. What they in fact do is cock up a market that economists could more easily regulate otherwise (i.e. the Senlis Council’s proposal).

Slight caveat: I’ve treated stimulants as recreational drugs, here, and I accept that they are not necessarily so. However, as an economist, I am assuming a rational recreational drug user (no, seriously) can understand these drugs and use them rationally. We make, for example, the same assumptions about Alcohol and Cannabis. It’s an important distinction for the use of a two-stage demand function for harder drugs.

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