BERL freely accept comment and debate on our publicly released reports. The project brief for this study was focussed on providing detailed information on the costs of alcohol and other drug abuse to New Zealand society. Measurement of benefits was clearly outside the scope of the project. We cannot accept criticism for not covering issues that were outside the project’s terms of reference.
This raises to me the question of why the hell did the Government spend $135,000 on a report that won’t be of great use for decision makers, as it deliberately ignores benefits. I’m not angry at BERL – I’m angry at the Ministry of Health and ACC for wasting our money.
Crampton and Burgess have done a detailed ten page response to BERL’s response. First they note:
Prior to corrections, we had found net external costs of $146.3 million. Our adjustments produce a net positive figure for alcohol consumption: net external annual benefits totalling $37.8 million, an overall adjustment of $4,832 million from BERL’s original estimate. However, given the margin of error in work of this sort, we would regard both our initial figure and our corrected figure as suggesting external costs roughly equal to collected tax revenues.
It is worth noting that our adjustments were made without access to BERL’s calculations, our request for access declined by BERL on 15 May on grounds of protecting intellectual property. We provided BERL with an early draft of our paper seeking comment in case we had erred in our reverse-engineering of their figures; now, nearly a month later, they have raised objections leading to an adjustment totalling only $36 million. We not aware of any substantive errors that remain in our critique; we welcome additional feedback.
They also look at the issue of benefits being excluded:
Regardless of the terms of reference, BERL’s treatment of benefits in their report is integral to their headline costs calculation. As BERL correctly points out at page 173 of their report, private costs can only be counted as social costs if there are no offsetting private benefits:
BERL’s treatment of private benefits adds $2.2 billion of private costs to their headline costs for alcohol. Plainly, and regardless of the scope of the RFT, BERL’s treatment of benefits is material to their method, directly affecting their measurement of the costs of diverted resources, and more subtly affecting all of their other cost measures.
It does sound like BERL is trying to have it both ways. Crampton/Burgess compare drinking to skiing:
Consider, by analogy, skiing: a risky, but enjoyable activity.
If we wished to count the “social costs” of skiing and wanted to include all of the costs borne by those skiers who broke their legs while skiing, we would need to weigh those costs against the benefits enjoyed by all of the skiers who made it down the slope without accident. Alternatively, we could consider only the external costs of skiing. Counting all of the private costs as social costs by virtue of an unsupported assumption that gross benefits are zero does not provide a useful cost figure.
And this is the crux. If you ignore benefits, you can find any activity has horrible costs. If you ignore benefits, it would be logical to conclude that skiing should be restricted or banned.
And their conclusion:
BERL has chosen not to defend its economic cost report on grounds of economics. Instead, BERL’s main strategy has been to attack the personal values and world view of its critics. BERL’s use of analogies suggesting our personal acceptance of murder and drink driving are in the nature of personal smears. BERL disingenuously continues to allege that our results hinge on perfect rationality and perfect information, in spite of our repeated rebuttals of that point. Their complaint that benefits are out of scope and beyond criticism is obviously incorrect: their treatment of benefits is the basis on which private costs are included alongside external costs. BERL’s treatment of benefits defines the methodology.
Most seriously, BERL has not explained what policy makers can do with a cost report that by BERL’s admission has no policy relevance absent benefits. Without this explanation, we are left to observe that the methodology used by BERL produced very large headline cost figures, their report repeatedly mischaracterised those costs as welfare measures, that these costs were misinterpreted by at least one group of policy makers and BERL did not to our knowledge make any attempt to correct this misinterpretation until after our critique of their work was released and picked up by the mainstream media. It is this non-response by BERL that motivated our review.
Identifying a use for BERL’s report on the important issue of alcohol misuse is a matter that remains unexplained
Hopefully the next time the Ministry of Health and/or ACC has to front up to a select committee, an MP or two can ask them that exact question. And ask for our $135,000 of taxes back.Tags: ACC, alcohol, BERL, economics, Eric Crampton, Matt Burgess, Ministry of Health