Drinkers pay for themselves [update 3]

A big “hello!” to Leighton Smith’s listeners.

Leighton argues that as long as you and I are paying the medical bills of irresponsible drinkers, then irresponsible drinking is everybody’s business.

But, as a simple matter of fact, you’re not paying their medical bills.  You’re not paying their medical bills, because the taxes that are already extracted from drinkers more than make up for their external costs, including their public health costs.

Don’t take my word for that.  Listen to University of Canterbury economist Eric Crampton and Victoria University economist Matt Burgess, who concluded after extensive analysis just last year that the “external costs [of alcohol consumption are] roughly equal to collected tax revenues.”  They conclude, unequivocally

    “We find net external costs to be zero once full account of excise taxes is made.”

Or as Eric summarised on his blog yesterday:

    “Matt and I found last year that collected alcohol excise tax revenues exceed tallied external costs of alcohol misuse, which include the public health costs. It's consequently pretty depressing when we keep reading folks claiming that alcohol tax increases are a good idea because of the costs of drunks to the emergency room system. Those costs can be good reason for doing something like punishing actual behaviours that lead to costs while drunk, like drunk and disorderly or fights or drink driving. But they're not reason for hiking the tax: the tax already covers those costs.

So much for the argument that the “external costs’ of alcohol consumption make the consumption of alcohol everybody’s business. 

And no wonder the Crampton & Burgess report was not included in the Law Commission report.

• Read the full 42-page Crampton & Burgess report here:
  ‘The Price of Everything, The Value of Nothing: A (Truly) External Review Of BERL’s Study Of Harmful Alcohol and Drug Use’

UPDATE 1:  Yes, yes, I know the extraction of excise taxes is immoral. And I know the spreading of costs from some drinkers to other drinkers by means of the extraction of excise taxes is equally as iniquitous.  But as long as you accept the system that extracts taxes by force, and returns just a small portion of those taxes in the form of a government-run health system, then you’re stuck with arguing on that basis when you’re arguing about “costs” and “benefits.”

UPDATE 2: Eric points out in the comments that not only did the Law Commission not include Eric and Matt’s analysis as part of their recommendations (analysis which readers might remember, utterly demolished the earlier analysis on which the Law Commission was relying) but has instead commissioned further research that Eric says “could well be described as an orchestrated litany of lies.”

Naturally, he’s begun the task already of unravelling it. See:

• Marsden Jacob on alcohol – Eric Crampton’s blog
• Palmer report - initial thoughts – Eric Crampton’s blog

UPDATE 3: Why this focus on “external costs”?  Matt Nolan explains the way economists think when they’ve got their socks economist’s hats on:

    “Remember the simple fact that, as long as we believe people are responsible, have better information on themselves, and are better able to make choices regarding themselves then arbitrary regulation (or some lesser combination of these points), then we shouldn’t focus on the entire ‘social cost (private + external costs)’ associated with alcohol when regulating.
    “The focus should only be on the external cost – the cost placed on other individuals from the choice of one individual.  The private costs are already being taken account of when the choice is made.
    As a result, if the calls of a 50% increase in excise tax are not based just on true external costs, but also broader private costs, they are asking for ‘too much tax’ in a strict ‘efficiency’ sense.  They may be doing this as they genuinely dislike alcohol (although the risk of unintended consequences spring to mind here--namely people drinking more alcohol beverages if the cost-per-alcohol-unit is lower, and also people brewing their own), or because they think people are inherently stupid.  However, neither of these reasons seems like a good justification for policy.”