The Economics of the Illegal Drug Trade

The illegal drug industry has always been a lucrative for those who pursue it. In recent years, organized crime has turned towards globalization, which has increased the amounts of money being made by top tier sellers of illegal drugs like cocaine, Ecstasy, heroin, amphetamines, and others.


According to estimates released by the United States government, people spend upwards of $60 billion dollars per year on illegal substances in America. These drugs are typically inexpensive to make and have a huge profit margin when sold at street level prices. For example, one kilo of heroin in Pakistan is $2,600. The average street price in the United States amount to as much as $130,000 a kilo, as reported by PBS’s Frontline.


The illegal drug trade is structured like any other commodities business. The biggest cartels are set up similar to any corporate organization that has a large amount of cash flow. The cartel bosses are on the top of the ladder, and the street dealers are at the bottom. The money is distributed accordingly throughout the system. Those at the top often buy legitimate businesses as cover operations and to launder the millions of dollars they keep in stash houses or storage facilities until it can be laundered and put to use again.


With a markup of anywhere from 1,300% to 2,300%, there is a lot of money in the illegal drug trade. What that does for the nation’s economy is damaging. Addicts who have to spend more on their drug of choice have less money to put to use through legitimate spending. And with most cartels being outside of the US, the bulk of the cash gets put to use in other countries. Most drug money that is earned and spent in the United States is taken out of the country for good. Add that to the amount spent to fund the drug war, and the United States economy suffers a loss of around $41.3 billion each year, according to The Economist.



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