Category Archives: Economics

The Undercover Economist and Drug prices

Some books change the way you think about things forever. The Undercover Economist by Tim Harford, is one of them.

Here’s a simple example of how it changes your day-to-day life.

I am often exasperated by the headlines in “The Star” – a local Johannesburg newspaper – they are generally as sensationalist as possible without being completely ridiculous and stooping to the level of “The Sun”. For some reason, this drives me around the bend – at least “The Sun”‘s headlines are sometimes funny.

Shortly after starting this book, one of their headlines read something like “12 year olds buying heroin in primary schools for the same price as dope.” I think the actual headline probably included kittens and puppies for extra effect.

So I spent a few moments analysing it, given recent readings of The Undercover Economist. Firstly, weed is definitely cheaper to produce in South Africa than heroin is to import, since it pretty much grows wild. Pricing thus isn’t reflective of the cost of production – it must be set by demand.

And what does a low price on heroin tell us? That supply exceeds demand… and the dealers are trying to offload it on whoever they can.

And it tells us that pretty much nobody sane would consider using heroin, no matter that it might cost around as much as two 500ml cooldrinks.

And suddenly, you’re reading a very different story to their “over the top” headline. Sure, there is the problem of dealers in school – but their core emotional point is suddenly meaningless. They are actually saying “overwhelming majority of 12 years are too smart to buy heroin – instead they report on dealers and their prices to teachers and newspaper salesmen.” That is great, isn’t it?

Of course, gentle reader, since some of you don’t know me, I have to tell you that you don’t use any of the above substances, with the exception of cooldrinks.

(I’ve not linked to either “The Star” or “The Sun”, as I wouldn’t want to dignify them with a higher google ranking.)