The Mismeasurement of Illegal Drug Markets

Abstract

The largest illegal market in the United States currently is that for illegal drugs. It may be, in terms of share of GNP, the largest ever. Given the low quality of estimates of income from any other illegal market, the statement is hard to challenge but I believe that one can make a reasonable case that, compared with the other candidates (e.g. prostitution, illegal gambling, counterfeiting) illegal drugs are likely to generate much higher total revenues to sellers. Certainly numbers are presented in a variety of fora, predominantly political, suggesting that it is a major economic activity both in the United States and globally. Figures such as $500 billion for world sales are thrown around quite glibly. Even brief scrutiny of the global numbers suggests that they are grossly overstated. Though drug markets are large, and involve a surprisingly large number of Americans on a parttime basis, the total value of annual sales in the United States is likely to be around $50 billion, less than 1 percent of GDP and less than 2 percent of Personal Consumption Expenditures. The global figure is likely to be no more than twice this. One hundred billion dollars represents a large market but in the context of total global trade flows of almost $3trillion, it is a very modest share