Wednesday, 27 June 2018

The cost of vice in Canada

Another cost-of-vice report has been published, this time in Canada...

The economic cost of substance use in Canada in 2014 was $38.4 billion, or about $1,100 for every Canadian, says a report released Tuesday.

It's not a big jump from claiming that $38.4 billion amounts to $1,100 for every Canadian to claiming that every Canadian pays $1,100 a year to clean up the mess from drink, drugs and tobacco. If campaigners have not already done so, they will soon. This kind of reporting is deliberately open to misinterpretation.

There are only two estimates of this kind that are relevant to policy. If you want to implement a Pigouvian tax, you want to know what the net external costs are. If the government wants to recoup the costs to public services from the people who engage in the externality-inducing activities, you want to know what the net costs to public services are.

Studies like this do neither. They calculate the gross external costs and then add in a few gross internal costs for good measure. All savings and benefits are ignored, as are the economic benefits of production and the existing revenues from sin taxes. It would be an esoteric exercise if it were not the best way to generate a BIG NUMBER for political reasons.

Who would want to do such a thing in Canada? Step forward Tim Stockwell, the country's foremost neo-temperance advocate and a man so driven by anti-alcohol fervour that he has spent years trying to make people believe that there are no health benefits from alcohol consumption. He is also the world's second biggest source of junk science about minimum pricing.

Stockwell is the 'principal investigator' of this $1.4 million publication (now that's a real cost to taxpayers) and he has used many of the techniques that have been used to create BIG NUMBERS in Britain, Australia, New Zealand and the USA.

He includes healthcare costs, regardless of whether they are paid privately or publicly, and doesn't balance the ledger by calculating what each person's healthcare costs would have been in the absence of tobacco, drink and drugs (hint: they would usually be higher).

For alcohol, he includes $5.9 billion of lost productivity costs (38% of the total) which are mostly internal costs based on what someone would have earned if they hadn't died. Lost private income is not an external cost and it is very debatable whether it is a societal cost. We wouldn't claim that somebody creates a societal cost by refusing to have children even though those children would grow up, work and pay income tax. Taxpayers are also tax consumers. Luxembourg has a much smaller economy than India but people in Luxembourg are much richer. It's the 'per capita' bit that really matters (I wish the likes of Owen Jones would remember this when they talk about the UK being the sixth richest country in the world. It isn't even in the top 20).

To be fair to Stockwell, he doesn't do what many authors of these sort of reports do and put arbitrary values on every year of life and multiply them by the total number of life years lost, although he does weirdly claim that 851 people were killed by cannabis in 2014.

Ultimately, he reckons that the gross societal cost of alcohol is $14.6 billion per annum and the gross societal cost of tobacco is $12 billion. A further $6.3 billion comes from cannabis and opioids.

What does this tell us? Nothing, really. The policy-relevant external costs make up less than half of these totals and if they were combined with savings they would be even lower (probably negative in the case of tobacco).

All we can really say is that people use alcohol, drugs and tobacco for the private benefits, and the costs that they incur, though sometimes substantial, are mostly borne privately and are no business of the government. These activities do not incur a cost of '$1,100 for every Canadian'. They incur costs to some of the people who engage in the activities and this is part of the cost-benefit trade-off that people make when making risky decisions.

If and when there are external costs, they are more than covered by sin taxes except in the case of illegal drugs which should be legalised and taxed (as is happening with cannabis). Whatever external costs alcohol induces are comfortably exceeded by the $11 billion of alcohol taxes raked in by the Canadian government. The same is true of smoking and the $8 billion collected by the government in tobacco duty.

 In Canada, as in most developed countries, people who smoke and drink subsidise those who don't. 

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