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The Drug Czar’s High Math

This article incorporates several mental models such as misreading cause and effect, over-reacting to short term patterns, attribution error, framing, and incentives.

John Walters had some data he wanted to make public, but he also had a credibility problem. Just two years earlier, in 2005, Walters, the country’s drug czar, had cited a hike in the price of cocaine as a battlefield victory in the war on drugs—only to see the price fall just as he was touting the increase. He was ridiculed in some quarters of the press; others decided to stop listening to him.

This time around, in the summer of 2007, Walters went looking for the most receptive audience he could find. So he zipped down New York Avenue to the headquarters of The Washington Times, the conservative daily based in the outskirts of Washington, D.C. Walters, according to a staffer present at the briefing, came with a small staff and a stack of glossy pages making the case that the United States had turned a corner in the war on drugs. Prices for cocaine, he said, were rising fast. And that, he explained, can only mean a decline in supply.

The Times wouldn’t bite. The data were suspiciously thin. Walters’ numbers showing the increased price of cocaine began in 2007. The best comparison data, which he didn’t have with him but could be found online, dated back to the first half of 2003, when the RAND Corporation gathered information for a comprehensive report. The drug czar had sat on the RAND report for a full year after it was completed in 2004 because it showed prices trending downward. The RAND study was also transparent about its methodology, whereas the new numbers Walters was touting, covering the period afterward, came with no explanation of how they were concocted.

Walters finally found a platform one month later in USA Today. Soon the story The Washington Times wouldn’t touch was all over the news. Thanks to the drug czar’s cherry-picked statistics, newspapers were crowing that America was winning the war on cocaine, particularly the effort to suppress production in Latin America.

 

While Walters was shopping his numbers around, I was in the middle of researching my book on the history of drug trends, This Is Your Country on Drugs: The Secret History of Getting High in America. So I filed a Freedom of Information Act request to get whatever data Walters had left out of his presentation. I also asked for information on the methodology and analysis. My request was rejected, even though some of what I was asking for had already been given to Sen. Charles Grassley (R-Iowa), who had repeatedly asked for the data. The Department of Justice, where the Drug Enforcement Administration (DEA) is located, explained in denying my request that there was no “public benefit” to disclosing what I had asked for.

 

Fortunately, the Obama administration disagreed. When Edward Jurith became acting director of the Office of National Drug Control Policy (ONDCP) in January, he quietly released the report that Walters had been keeping to himself, posting it on the ONDCP’s website. John Walsh of the left-leaning Washington Office on Latin America first wrote about the new numbers in April, nearly a year after the report was finished. It turns out there was indeed no “benefit” to releasing the information—for Walters, that is.

 

Rather than an “unprecedented” spike in cocaine prices, the underlying data that Walters had derived his claims from showed that 2007 featured the lowest cocaine prices on record, down 6.6 percent from 2006. Yes, the price bumped up in the middle of the year, but in his victory lap across the media the drug czar neglected to mention that the bump followed a quarter in which cocaine had reached its lowest price level since the government began keeping track in 1981. The “spike” still left cocaine costing $136.93 a gram in September 2007, 13 percent cheaper in constant dollars than the average price for 1999. This was hardly the resounding victory Walters had declared.

 

The numbers in Walters’ Washington Times handouts were just that: numbers. No explanation, no methodology, no context. In fact, the underlying data came from the System To Retrieve Information from Drug Evidence (STRIDE), derived from undercover buys, wiretaps, and other law enforcement sources of information about the drug trade. The Institute for Defense Analyses, a nonprofit research firm that contracts with the U.S. government, analyzed the data using the same methodology as the RAND researchers and produced the report that the Obama administration released. The STRIDE evidence showed a 26 percent spike in cocaine prices in the middle of 2007. Walters, who never disclosed his own methodology, had claimed the spike was 44 percent.

 

The newly released numbers and Walters’ data overlapped for 10 quarters. For three of the quarters, the new analysis showed the price of cocaine going in the direction opposite from what Walters’ numbers claimed. It’s one thing to quarrel over the size of a spike. It’s quite another to be wrong on the direction of a trend.

 

The Dollar Effect

 

It’s far from clear what caused the brief price hike in 2007. Walters unsurprisingly credited enforcement and interdiction efforts. But it’s unlikely the ONDCP and DEA really had the cocaine cartels in retreat. The more plausible explanation is that cocaine producers were targeting more lucrative markets. The rise of the euro and the concomitant decline of the dollar have made it less profitable to sell cocaine to Americans.

 

“The euro has replaced the dollar in the Western Hemisphere as the currency of choice among these traffickers, which is an extraordinary shift,” Karen Tandy, head of the DEA, told an antinarcotics conference in Spain in April 2007. “As cocaine use has declined in the U.S. dramatically, in the European market it has risen.”

 

Officials at the Spain conference said a kilogram of coke that would fetch $30,000 in the United States was worth $50,000 in Europe—and the dollar has fallen further against the euro since then. On April 1, 2007, a dollar was worth about 0.74 euro; a year later, it was worth only 0.63 euro; it’s now at about 0.7. Because of this price differential, it is theoretically profitable to smuggle cocaine out of the United States. Buried in its 2009 National Drug Threat Assessment, the Department of Justice cited the currency exchange rate as one possible explanation for decreased imports. The “declining value of the U.S. dollar provides a financial incentive for drug traffickers to sell cocaine in foreign markets where the wholesale price of cocaine is already much higher than in the United States,” the report said.

 

Size matters too. The euro is denominated in notes of 200 and 500, making transportation of large sums of money much easier, given that the biggest American note is worth only about 70 euros. When you’re moving hundreds of millions of dollars, that represents a real convenience. Donald Semesky, the DEA’s chief of financial operations, has noted that 90 percent of the €1.7 billion that was registered as having entered the United States in 2005 came through Latin America, “where drug cartels launder their European proceeds.” As the cocaine market has shifted, use along its new
trade routes has grown. A 2008 United Nations report notes increases in use not only in South and Central America but also in Africa, where seizures jumped tenfold from 2003 to 2006 and then doubled again between 2006 and 2007.

 

West African nations, which make Colombia and Mexico look like models of transparent governance, have become important stopping-off points for coke traffickers on the way to Europe. Out-of-work African youth make cheap foot soldiers, and drug runners with expensive equipment and weaponry have little to fear from airports that are barely electrified and cop cars with empty gas tanks. “Africa is under attack,” warned Antonio Maria Costa, executive director of the U.N. Office on Drugs and Crime, in a 2008 Washington Post op-ed piece. “States that we seldom hear about, such as Guinea-Bissau and neighboring Guinea, are at risk of being captured by drug cartels in collusion with corrupt forces in government and the military.” From West Africa, the cocaine heads to Spain and Portugal. In 2006, according to the U.N., Spain’s level of coke use was equivalent to America’s for the first time ever.

 

From the drug cartels’ perspective, the beauty of shifting exports to Europe is that the resulting decline in shipments to the United States can indeed lead to higher prices here. While expanding their business elsewhere, the cartels are getting more money per unit of American product.

 

So when Walters claimed we were winning the war on cocaine, he was knowingly manipulating the truth. That shouldn’t be a surprise. Walters’ deceptions were just the latest in a long history of propaganda and misbegotten federal policies in which drug enforcement marginally affected the supply of a given substance, prompting drug warriors to declare victory as Americans kept consuming narcotics.

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