Basic laws of economics

I think the first half of Simon Jenkins' article in today's Guardian is largely correct. Efforts to curb heroin supply from Afghanistan have gone poorly. I worry that he attributes too much of the failure to incompetence and not enough to conditions; like the shortage of troops last year when the Helmand insurgency really got going. Pointing out that wouldn't be worth a post though.

It is the second half of his article that troubles me as it is entirely premised on this little nugget:

"Every schoolchild economist knows demand will always attract supply."

Jenkins thinks he's really bloody clever but his little "basic law", as the blurb at the beginning of the article calls it, is clearly untrue. Consider this example:



I would love to own a talking taco that craps ice cream. There is clearly demand for such a product and yet I've never found a supplier. That's because it is impossible to produce. Similarly my demand for going into space is unlikely to be sated any time soon. It cannot be provided at a price I can afford to pay.

Now, drug demand will usually be relatively inelastic, it will only fall slowly with rising prices, because addiction makes addicts willing to absord quite a high increase in price, they'll steal if they need to. Still, the idea that it is impossible to seriously reduce the quantity of something bought and sold through increasing the cost of supply alone is obviously wrong. If we make using heroin as expensive as going to space then people won't be able to afford it and heroin addiction will plummet.

The important question is, therefore, whether it is practicable to increase the price enough that heroin users start giving up. Understanding that question requires the kind of hard analysis that simplistic and arrogant statements like Jenkins' are designed to avoid.

Cross-posted from CiF Watcher.