"The Idiocy of Using a $200 Billion Navy
to Enforce a 140× Cocaine Premium"
by David Stockman
"Last year there were 178 million alcohol drinkers in the US, which, unfortunately, resulted in 178,000 alcohol related deaths in the US. That’s a regrettable 0.1% fatality rate among users. But alcohol isn’t illegal because America hasn’t forgotten the bitter lessons of the Prohibition disaster 100 years ago.
By contrast, the only illegal drug that comes in from Venezuela is cocaine. There is no evidence whatsoever by the Federal government’s own lights that any fentanyl comes into the US from Venezuela. So the "killer" drug they are gumming about is cocaine. Yet even then Venezuela grows zero percent of the annual US supply of about 826,000 pounds, and accounts for only 8% of US bound shipments via transit from Colombia and other sources.
Still, cocaine may well be both illegal and a dubious source of recreational stimulants for most people, but it is actually no more deadly than alcohol. To wit, according to DEA and other government agencies, last year there were about 5 million cocaine users in the USA and about 5,000 deaths from pure cocaine overdoses.
In this regard, the higher figure of 20,000 cocaine deaths per year often cited by drug prohibitionists reflects the widespread spiking of street cocaine with deadly fentanyl. The latter is far, far cheaper at 0.3 cents per dose versus versus $150 per dose for cocaine or more than 1,000X more.
In any event, the fatality rate among cocaine users purely from cocaine is just 0.1% or the same as alcohol. Yet due to Nixon’s long-running misbegotten War on Drugs, we spend billions each year trying to eradicate it—a pointless effort that now includes even the mobilization of the US Navy against fishing boats.
But here’s the thing. Using $40 billion carrier battle groups to blow-up cocaine-transiting speed boats is simply the stupidest, most irrational action ever conceived on the banks of the Potomac, and there is surely plenty of competition for that honor.
The reason is straight forward: Namely, interdiction and destruction of supply only drives up the price and drastically so—thereby making the illicit business of growing, shipping and distributing cocaine all the more profitable. In turn, this also means that the illegal cartels which distribute it are capable of spending whatever it takes to counter-act law enforcement and to compensate for the loss of product due to interdiction.
Stated differently, the idiots behind Prohibition—from alcohol to cocaine and heroin—believe that they can win by defying the law of supply and demand. They most surely cannot. The only thing supply destruction actually accomplishes is to massively increase the revenue of the drug cartels and their ability to maintain ever larger armies of ever more violent operatives to conduct their insanely profitable businesses.
For want of doubt, let’s begin with the basic facts of supply and demand. Currently, Grok 4 indicates that US cocaine consumption is estimated at 514,000 pounds per year. Among an estimated 5.0 million active users, that’s an average annual consumption of 2 ounces per user per year. That is to say, the overwhelming number of recreational users are not about to kill themselves on 2 ounces of snort.
Nevertheless, the actual supply of cocaine coming into the USA in 2024 was about 826,000 pounds, meaning that about 312,000 pounds of seizures by the Coast Guard, other border control operations and law enforcement domestically amount to nearly 61% of actual use. Yes, for a product with the inherent high price inelasticity of a recreational stimulant like cocaine, just have the cops confiscate 61% of end demand. That does make the price go sky-high!
And that gets us to the absurd economics of the so-called War on Drugs. In this case, we are talking about using hundreds of thousands of domestic law enforcement personal led by the DEA, thousands of Coast Guard and other border patrol and now $40 billion Navy carrier battle-groups to hunt down 312,000 pounds of a drug that is no more lethal than alcohol! After all, the US governments at all levels spends an estimated $100 billion per year on the War on Drugs. So even if just 20% of that is directly against the cocaine traffic, that’s nearly $320,000 per pound of cocaine interdicted!
That’s surely stupid enough, but it’s not even the half of it. Spending that much on policing, interdiction and supply destruction drives the price skyward. As shown below, the farm-gate value of cocaine paste grown in Colombia is just $382 per pound, which rises by another $525 per pound for in-country processing and delivery to shipping points, but then the cost of interdiction takes off like a bat out of hell.
The landed value in the US is estimated by Grok 4 at about $11,320 per pound. However, the shipping cost of the 826,000 pounds that makes it way to the US is not remotely the $10,340 per pound uplift from the port of export value. That 10X mark-up is plain and simple the high cost of combating law enforcement and compensating for the 61% of supplies that are lost due to interdiction on the way to end customers.
Beyond that, as also shown by the table, there is another nearly 5X mark-up on the way from illegal entry at the US border to street value at retail. Needless to say, the standard ratio of landed-price to retail for normal legal commerce is 2X, as exemplified by the case of coffee in the second column.
In all, the mark up from the Colombia farm-gate to retail is 142.5X or $54,050 per pound of product distributed at retail. By contrast, coffee beans grown in Colombia and distributed via legal commerce exhibit a mark-up of just 2.86X between farm gate and retail value per pound. The only reason the farm-gate value of cocaine is more than 100X higher than that of coffee beans is that it takes about 500X more land to generate enough cocaine leaf for a pound of paste as it takes to grow enough coffee cherries for a pound of brew.
Accordingly, were cocaine commerce to be legal and were the leaf-based paste produced at the farm level at $382 per pound to be handled by legal shipping lines and domestic drug store distributors, the street retail value would be about $1,100 per pound or 98% less than current levels. Stated differently, the prohibition cost amounts to more than $53,000 per pound. What does that $53,000 per pound cost of law enforcement and prohibition in the retail price of coke really fund? Well, violent criminal syndicates. That’s what!
And yet and yet. The Donald is compounding the insanity by mobilizing $40 billion Naval carrier battle groups to make, well, a lot more totally unnecessary crime on the streets, byways and communities of America. The misuse of power and capital described above is not an aberration. It reflects a governing class that no longer understands economics, incentives, or second-order consequences—and increasingly relies on coercion, monetary distortion, and narrative control when policy failure becomes undeniable."
