How the Plummeting Price of Cocaine Fueled the Nationwide Drop in Violent Crime

Urban Wonk
How the Plummeting Price of Cocaine Fueled the Nationwide Drop in Violent Crime
Llewellyn Hinkes-Jones
Nov 11, 2011

Starting in the mid-1990s, major American cities began a radical transformation. Years of high violent crime rates, thefts, robberies, and inner-city decay suddenly started to turn around. Crime rates didn't just hold steady, they began falling faster than they went up. This trend appeared in practically every post-industrial American city, simultaneously.

"The drop of crime in the 1990s affected all geographic areas and demographic groups," Steven D. Levitt wrote in his landmark paper on the subject, Understanding Why Crime Fell in the 1990s, and elucidated further in the best-selling book Freakonomics. "It was so unanticipated that it was widely dismissed as temporary or illusory long after it had begun." He went on to tie the drop to the legalization of abortion 20 years earlier, dismissing police tactics as a cause because they failed to explain the universality and unexpectedness of the change. Alfred Blumstein's The Crime Drop in America pinned the cause of crime solely on the crack epidemic but gave the credit for its disappearance to those self-same policing strategies.

Plenty of other theories have been offered to account for the double-digit decrease in violence, from the advent of "broken windows" policies, three strikes laws, changing demographics, gun control laws, and the increasing prevalence of cellphones to an upturn in the economy and cultural shifts in American society. Some of these theories have been disproven outright while others require a healthy dose of assumption to turn correlation into causation. But much less attention has been paid to another likely culprit: the collapse of the U.S. cocaine market.

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Cocaine was the driving force behind the majority of drug-related violence throughout the 1980s and into the early 1990s. It was the main target of the federal War on Drugs and was the highest profit drug trade overall. In 1988, the American cocaine market was valued at almost $140 billion dollars, over 2 percent of U.S. GDP. The violence that surrounded its distribution and sale pushed the murder rate to its highest point in America's history (between 8-10 per 100,000 residents from 1981-1991), turned economically impoverished cities like Baltimore, Detroit, Trenton and Gary, Indiana, into international murder capitals, and made America the most violent industrialized nation in the world.

Then in 1994, the crime rate dropped off a cliff. The number of homicides would plummet drastically, dropping almost 50 percent in less than ten years. The same would go for every garden variety of violent crime on down to petty theft. The same year as the sharp decline in crime, cocaine prices hit an all-time low. According to the DEA's System to Retrieve Information on Drug Evidence (STRIDE) data, the price per gram of cocaine bottomed out in 1994 at around $147 (calculated in 2003 dollars), the lowest it had been since statistics became available.

Something was wrong. If anything, cocaine prices should have been skyrocketing. One of the DEA's stated objectives for the War on Drugs was to make drugs more expensive and therefore harder to access for the individual user. To get there, the DEA pursued a number of strategies: large drug busts, heavier penalties on importers and producers, and limiting access to the materials used in drug production. Even while many of those tactics produced big successes, cocaine prices still went down, not up, and crime plummeted right alongside.

In 1993, the DEA worked with the Colombian government to finally take down the Medellín drug cartel operating out of Bogota, which, at one point, was bringing in $60 million a day in drug profits. In 1994, DEA seizures brought in over 75,000 kgs of cocaine, the largest yearly haul at the time. From 1995 to 1996, they would arrest the entire hierarchy of the Cali Cartel, "the wealthiest and most powerful international criminal organization" and "the most significant enforcement action taken against organized crime leaders since the Appalachian Gangster Raid in 1957," according to the DEA's own description of the case.

The Chemical Diversion and Trafficking Act (CDTA) of 1988 gave the DEA the power to regulate chemicals and industrial machinery used in the processing of cocaine and methamphetamine by South American and U.S. drug manufacturers. A similar agreement reached that year through the U.N. Convention Against Illicit Drug Traffic helped stem the tide of international drug trafficking. In 1993, the Domestic Chemical Diversion and Control Act (DCDCA) tightened up restrictions even further, closing loopholes on various chemicals that squeaked through the CDTA regulations. In 2008, drug researchers for the University of California at Santa Cruz found that "[The DCDCA triggered] probably the largest 'supply' shock that has occurred in any illegal drug market in the United States."

But despite drug busts and stricter regulations, cocaine prices kept declining. In fact, prices have been declining since before the War on Drugs even began. An Atlantic story from 2007 noted that the price per gram for cocaine had gone from an average of around $600 in the early 1980s to less than $200 in the mid 1990s, and was down to as little as $20 per gram with ever-increasing purity. In some instances, illegal drug prices spiked in the wake of a large drug bust or the dismantling of a cartel, but the larger trend has been markedly downward. That's due in large part to the ingenuity of drug importers, who only got more sophisticated in their ability to bypass border security and avoid arrest following a significant bust, ultimately bringing in more product with time. That growing supply resulted in more competition between dealers who started supplying a higher purity product, at a lower cost, to win over consumers.

But it's not only a growing supply of product that led to the collapse of the cocaine market. Newfound competition in the form of locally-produced methamphetamines and prescription narcotics would continue to drive business away from cocaine and the inner city to the suburbs and exurbs.

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Prior to the 1990s, most methamphetamine came from Mexico via large, industrial chemical operations. The passage of laws like DCDCA hampered that industrial production, but it also pushed drug manufacturers to find alternate sources. Asia soon became a larger source for equipment and chemicals. More importantly, during this same time period home-grown meth labs appeared all over the country, as the process for cooking meth with over-the-counter allergy medicines was perfected and shared.

The advent of improvised "shake 'n' bake" or "coffee pot" methods of methamphetamine production meant that meth could be processed in hotel rooms and basements, without the dangers of border crossings, with fewer middle men, and with a higher return for the producers. Anybody with a recipe and sufficient amounts of cold medicine and benzyl chloride could become a meth entrepreneur. It was a dangerous process that could lead to chemical explosions, but the return on investment was far greater than before. Meth sold just under the street price of cocaine and became popular in new, non-urban markets that were left untouched by the crack epidemic, away from the world of inner-city police enforcement.

The ensuing toll that meth would take on peoples' lives in the Midwest and Northwest would almost rival that of cocaine in the inner cities during the 1980s. The Department of Heath and Human Services Treatment Episode Data Set (TEDS), which tracks drug treatment center admission rates, shows an increase of over 100 percent in methamphetamine use in New Orleans, Seattle, and St. Louis, and a 200 percent increase in Minneapolis. DEA seizures of methamphetamines would almost triple from 1994-2007. In 2005, the National Drug Intelligence Center labeled meth as "the primary drug threat to the Pacific Region." The price dropped below that of cocaine and the purity tripled. Yet even in states hit hard by the meth epidemic like Oregon, felonies declined to a rate not seen since the 1960s. Crimes related to methamphetamine may have increased, but overall statewide numbers for everything from property crime, robbery, and assault all decreased.

Meanwhile, pharmaceutical opiates began to see a renaissance. Oxycontin was approved by the FDA in 1995 and quickly became an illicit recreational drug under the colloquialism "hillbilly heroin." According to Drug Abuse Warning Network (DAWN) stats from the Substance Abuse and Mental Health Administration (SAMHSA), emergency room visits related to pharmaceutical opiates like Oxycontin and Oxycodone increased ten-fold from 1994 to 2007. Sales of Oxycontin in 2001 hit $1 billion a year. The market was being flooded from every angle.

All of this competition would most affect the foot soldiers in the cocaine trade, between whom the majority of inner-city violence occurred. Thanks to the work of Sudhir Venkatesh on the underground markets of the Chicago's urban poor, we know that drug gangs are highly organized and stratified. Those at the bottom selling on street corners make very little. Most only sell drugs part-time as a means of supplementing income. Few sellers pull in substantial earnings. In a study of Washington, D.C. dealers, Venkatesh found "25 percent of the sample sold drugs no more than once a week, and these people reported monthly net earnings from the drug trade of just $50 a month." The basic conclusion is that the lack of financial opportunities in the ghetto and the promise of climbing the gang's organizational ladder kept small-time dealers accepting low wages.

And there's the missing piece in the DEA's theory. Once the margin of profit for dealing small amounts of crack cocaine disappeared, being part of the drug trade was no longer worth the persistent threat of violence or the stiff criminal penalties. A 70 percent drop in cocaine prices like the one that occurred in the mid 1990s combined with competition from decentralized sources for methamphetamines and prescription narcotics would completely eliminate the minimum wage drug dealer as a viable profession.

The same goes for turf wars, which Venkatesh saw as the source of the majority of inner-city violence. He saw the life of a drug dealer as relatively violence-free up until territory conflicts with other gangs ensued. Without the high value of cocaine as a commodity, the incentive for protracted gang wars would dwindle as well as eliminate the economy for the illegal weapons, drive-by shootings, and mercenary "warriors" needed to help defend prime dealing locations. Without profit to fight over, Vankatesh thought that "gang violence would likely return to pre-crack levels."

This also explains why there's never been a large upswing in crime related to methamphetamine use. As long as production costs stay below that of cocaine's already cut-rate asking price, the demand to be on the business end is low. If the financial incentive is low, the trade-off for entering a life of crime is low. At a certain point the decision matrix for entering a life of drug-related crime collapses for all but those with no other alternate financial sources or for those with a personal interest in the craft.

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Even though cocaine use would slowly decline, general drug use would continue unabated. DAWN statistics show that emergency room visits for illicit drug abuse increased substantially from 1994 to 2009, climbing from 449,964 to 973,000. Including narcotic analgesics like Oxycontin in that calculation increases the difference by over 50,000 visits. DEA seizures of cocaine shipments would spike to 117,000 kgs in 2007, indicating that bulk shipments hadn't subsided. Essentially, people were still buying and using drugs in ever greater quantities.

To this day, America's prison population and drug consumption remain the largest in the world. Cocaine has declined in popularity, but America's appetite for drugs of every variety is still voracious. Drug arrests have quadrupled over the last 40 years and more than four-fifths of those are for possession. That number continues to climb while the number of arrests for sale and manufacturing peaked in 1995. Even though crime overall has plummeted, people are still getting arrested at alarming rates. When limiting the focus to minority populations, the numbers are even more drastic.

This contradicts one of the central tenets of the War on Drugs, which is that the psychopharmacological effects of drug use lead to criminal behavior. Most studies show that it's in fact the competition of an unregulated market that encourages the majority of violent crime. This concept was evidenced during the prohibition era in the 1920s, a time that coincided with an increase in crime, corruption, and contempt for law.

As a counter-example, drug use in Mexico is relatively low, approximately 2 percent, whereas in America it hovers around 8 percent. Yet, violence there is at an all-time high. The market and the crime surrounding the trade might have crashed in the U.S., but the death toll has only increased South of the border ever since that region inherited the title of lead cocaine importer. Currently valued at over $3 billion annually, the Mexican cocaine market shows no signs of subsiding, and as long as such a high-valued market exists, violence will most likely follow.


http://www.theatlanticcities.com/jobs-and-economy/2011/11/cocaine-plummeting-price-nationwide-drop-violent-crime/474/