Want an inflation hedge? Try drugs. Even historically high rates of inflation won’t necessarily lead to steeper prices for illegal substances like cannabis, MDMA, cocaine, and heroin. Not only do prices remain stable over the years, but quality has stayed the same and even improved in some cases. Why are illegal drug markets seemingly immune to inflation?Â
Inflation Â
Inflation is quite the buzzword these days. Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year, by using the consumer price index. It’s probably one of the most familiar words in economics, as inflation has historically been responsible for initiating long periods of instability in numerous countries across the globe. And we’re seeing a great deal of it in the United States lately. Â
While inflation hasn’t been as dramatic these last couple years as it was immediately after the COVID-19 pandemic and shutdowns, the cost of goods is still rising. U.S. inflation rate for 2022 was 8.00%, a 3.3% increase from 2021. U.S. inflation rate for 2021 was 4.70%, a 3.46% increase from 2020. This year so far, the annual inflation rate for was 3.7% for the 12 months ended September, according to U.S. Labor Department data published on Oct. 12, 2023, but we will know the real stats after the end of the calendar year. Â
Even though inflation is slowing down, the problem is that salaries never caught up. When we compare the average cost of a home in 2022, which was $349,000 and has gone up since then, with the average price from 2000 at $119,000; then factor in the minimum wage from those same years, $5.15 and $7.25 respectively, we can see some major discrepancies. Â
Wages went up 40.8 percent over a 22-year period, meanwhile, the cost of housing has increased by 193.3 percent. And it’s not just the cost of housing, but everything is going up – groceries, gas, utilities, clothing, even little stuff like streaming and other memberships have doubled, even tripled, over the last couple of decades. The only product left that seems to have completely dodged inflation-related price spikes (beside Arizona Iced Tea), are illicit drugs. Â
Street drug pricesÂ
What’s interesting about street drugs, is that pricing is pretty standardized. They fall into a range, but overall, they have remained relatively stable over time. For example, when I was growing up, and eighth of flower was always $40-50. Sure we have more options now, even less than $10 in some markets, but overall, the price of a top-shelf eighth is still around $25-40. Â
According to Teodora Groshkova, principal scientific analyst at the European Monitoring Centre for Drugs and Drug Addiction, it was believed to be due to a method known as “skimpflation”, where suppliers reduce the quality of whatever they are selling to offset rising production costs, but this does not seem to be the case here. Â
“Any change in the [wider] market would typically be reflected in the drugs’ purity,” Groshkova says. “So far, however, the potency of cannabis products and the purity of other illicit drugs are increasing or at minimum staying the same.” Â
How criminal organizations and other illegal drug producers have managed to skirt the pressures of inflation remains a mystery. While some might be going the “skimpflation” route to save some money, and others are horizontally integrating their businesses by controlling both import and distribution, that’s likely not the case for everyone. Groshkova suggests another possibility, which is quite simple, that drug dealers make so much money they’re able to better mitigate inflationary issues. “They’d rather not, but they can”, she adds. Â
Pharmaceutical drug pricesÂ
Perhaps even more interesting than the stability of street drug prices, is the fact that while illegal substances have actually gone down in price overall, legal pharmaceutical drugs have been increasing. And even though this has been happening since the 1990s, it seems the problem has compounded in recent years. Per a Medicare study published in February 2022, prices increased faster than rates of inflation for more than half of all the drugs they cover between 2020 and 2022. Â
A total of 3,911 drugs saw prices increases that were greater than inflation rates during that time period. Additionally, out of their 25 top selling medications, 23 percent were subject to price hikes. So nearly every single one of their most popular drugs, that they already make a lot of money on, were subject to price hikes. Â
It’s so bad, that President Biden signed The Inflation Reduction Act of 2022 into law on August 16th of that year. Among other things, the bill includes several provisions to lower prescription medication costs for people with Medicare and reduce overall drug spending by the federal government. The legislation has strong bi partisan support, as well as support from the general public who are struggling to deal with rising and already high drug prices. Â
Artificial inflation and price gouging Â
Let’s break it all down real quick. The prices of legal products are going up while quality is dropping. Meanwhile, manufacturers of illegal products are raising the quality and keeping consumer prices the same, even less, for many drugs. To me, this indicates that much of the rapid inflation we’re seeing in other industries is artificial, driven by shady politicians, or, the companies themselves. Â
Inflation can be an elusive foe: quietly making off with our savings and chunks of our paychecks and stealing away everything from vacations to favorite foods. Everyone agrees inflation is happening. What they don’t agree on is whodunit. The main suspects differ across party lines. Many economists and politicians on the right say inflation has been caused by government spending and various aid programs (stimulus checks, student debt forgiveness, Biden in the White House with the public purse).Â
Many economists and politicians on the left point to the war in Ukraine (for pushing up oil prices, which bleeds into most everything else), and also greedy companies, many of which, despite tales of supply chain snarls and rising costs, have been bringing in record profits. (Corporations, in aisle 4, with the price gun.)Â
It’s worth noting that corporate profits reached an all-time high this year with many companies seeing record profits. This, naturally, raises some eyebrows. If companies are struggling with costs and supply chains so much, where are all of these billions in profits coming from? It begins to seem like all of this corporate crying about rising costs might be a case of crocodile tears, as companies jack up prices for all of us.Â
Rakeen Mabud is chief economist for the progressive think tank Groundwork Collaborative. “Companies are taking a spoonful of sugar off the … backs of families who are all really struggling to get by,” she said. Mabud has sat in on dozens of corporate earnings calls and says she often hears CEOs bragging about how much they were able to raise prices. Â
Final thoughts Â
For the time being at least, consumers are unlikely to notice any dramatic changes to the cost of getting high. drug prices inflation
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