One of the very best articles on the AD shortfall

From The Irish Times, the implicit economics are excellent throughout, here is one paragraph:

First, the Irish criminals the Spanish gang were supplying were finding it harder to sell drugs, as pay cuts, tax rises and job losses left recreational users with less money. The Irish gangs were unable to shift larger hauls and, in any case, lacked the resources to buy in bulk, so they were ordering smaller quantities. This liquidity crisis was an unfamiliar problem for criminals used to having a river of money at their disposal.

Yet it’s not all driven by a sticky wage effect, wealth elasticities matter too:

The value of drugs seized in 2010 was the lowest for 15 years, at €30.9 million, indicating a return to the levels of activity common before the boom. Long term, the drug-seizure trend has mirrored the wider economy: after rising steadily from the mid-1990s, it peaked in 2007 and 2008, with Garda seizures of more than €100 million worth of drugs in each of those years, before declining rapidly.

Garda sources point out that most people who use drugs do so for recreational reasons and are not addicted. “It means that when they have less money in their pockets to buy drugs, they are able to stop. And that’s what we’re seeing now all over the country,” says a senior garda.

We are not as wealthy as we thought we were, and that’s especially true for the Irish.


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