Friday, 8 July 2011

Social costs of alcohol 'are vastly inflated'

Or so says a Canadian economist whose name I forget.

Chris Kenny writes in The Australian that the social costs of alcohol in Australia have been routinely exaggerated by at least $10 billion. Kenny open his article by saying,
THE alcohol and hospitality industries are countering the threat of increased taxation by promoting new academic research that claims the negative costs of alcohol to the community have been routinely exaggerated by at least $10 billion.

This undermines a key argument used by the anti-alcohol lobby for increased excise, and represents an escalation of the robust national debate about alcohol-related health issues.

The research, conducted through the University of Canterbury in New Zealand and funded by the industry, claims that the net public costs of alcohol are lower than the amount of revenue raised in alcohol taxes.
The health fascists in Australia are pushing for higher taxes on alcohol and have consistently argued that the social costs of alcohol total $15bn, a figure from a 2008 paper by Australian academics David Collins and Helen Lapsley. Kenny continues,
But the new study by Eric Crampton, commissioned by the National Alcohol Beverage Industry Council, says most of the negative costs of alcohol are borne by private individuals and the public costs total just $3.8bn, which is less than the $4bn raised by alcohol taxes.

Dr Crampton says his study simply applies "straight down the line, neo-classical economics" to the Collins/Lapsley work.

He argues that consumers of alcohol choose to drink for their own benefit, therefore any negative impacts on themselves, such as a shorter lifespan or accident and injury, are private costs and not public burdens.

Dr Crampton's study only counts the costs to third parties, such as victims of crimes or people killed and injured by drink-drivers, not the drivers themselves.
Eric is right here, private costs should not be counted as social costs since social costs are the third party costs of an activity. That is, social costs are the costs imposed on others, not ourselves, of our activities.
Dr Crampton's work, for instance, says it is wrong to count money spent by alcoholics buying drinks as a public cost.

Likewise, we should not count the lost wages of people incarcerated for alcohol-related crimes or the out-of-pocket medical expenses of abusers of alcohol. These, he argues, are all private costs, not borne by the public.
A point to keep in mind is that only costs are being considered here. The benefits of alcohol are being ignored but for policy making purposes both benefits and costs have to be taken into account.
Dr Crampton has not studied the benefits of alcohol and says more work is required in that area to provide an accurate cost/benefit outcome.

"Consumer enjoyment forms the bulk of the economic benefit consumers receive from the consumption of alcohol and by allocating zero benefit to alcohol consumption, the earlier studies convert billions of dollars in private costs to policy-relevant social costs," he said.

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