What we have here is one of the standard exaggerations of our time. This applies as much to Microsoft complaining about people ripping off Windows as it does to the police or customs estimating the value of drug seizures. It’s simply not true that 16.5 tonnes of cocaine is worth $1 billion dollars.
That’s just not how markets work, not at all:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Authorities in Philadelphia have seized what they believe to be more than $1 billion worth of cocaine in what’s being described as one of the largest drug busts in U.S. history. The U.S. Attorney’s Office for the Eastern District of Pennsylvania announced Tuesday that agents had seized 16.5 tons of cocaine from a cargo ship in Philadelphia. [/perfectpullquote]No, simply not true.
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Federal, state and local law enforcement agents on Monday boarded the MSC Gayane, a cargo ship docked in Philadelphia’s Packer Marine Terminal, and found cocaine in seven shipping containers, according to a criminal complaint filed in Philadelphia federal court.[/perfectpullquote]With Microsoft and all the other people complaining about counterfeiting they estimate value at full price. If someone ripped off Windows then that loss should be valued at the full price of a copy. Yet at least some people simply never would use Windows if they had to pay for it. Therefore the actual loss to Microsoft is the average price someone would pay if they had to and did, not the full retail value of every ripped off copy.
With drugs it’s slightly different. Valuations are given at street value of the haul. That $1 billion for 16.5 tonnes comes out at $60 a gramme. Which might well be the NE US street price although that does seem a little high. But is anything worth, in bulk, the retail price?
Well, no, obviously not, eh? Apples aren’t $1.50 a lb at the orchard, are they?
But more than that, what is the difficult thing about cocaine? It’s illegal, right? They’re smuggling it in? So, the value changes rather a lot once they’ve successfully got it through customs and out into the distribution network. Had they done that yet? Nope, obviously not. Thus there’s another step down in the price, isn’t there?
Actually, this stuff would be closer in value to the wholesale price in Colombia. Something like $5 million a tonne, maybe $7 million. Call it $115 million. And that’s not just the value of what has been found but also the very reason they’re dealing in drugs. Get that out onto the streets, in 1 and 1/2 gramme baggies and it will indeed be worth $1 billion. Sure, there’s effort required to do that too – but there’s also that 90% gross profit margin, that 1,000% mark up.
Which is exactly why there is drug smuggling of course. Cocaine in bulk and outside US customs and borders is worth very much less than cocaine in the US and in retail packaging, on the street.