Government Advisors don't understand economics

I'm slightly worried that anyone who reads this blog is going to start to think I get all my news from the Sun: actually I was pointed to this story by Ben Goldacre, but since he was just commenting on an article that appeared in the Sun, I think I'll quote it stight from the horse's as... mouth.

MORE than seven million Brits use illegal downloading sites that cost the economy billions of pounds, Government advisors said today.

Now, I am not an economist, but there is one very simple principle that I have managed to gather from reading only the very basic popular economics literature: a transfer of wealth is not an economic cost.

If I steal £100 from you, I have not cost the economy £100 - you have £100 less, but I have £100 more, so the economy as a whole is just as rich: all it has lost is the opportunity cost of the time I spent stealing the money instead of doing something more productive (and of the time that you spend trying to prevent me from stealing money, etc.). I would have thought this was even more obvious in the case of downloading music: when a track is downloaded one person gets richer (they own a track they didn't own before) and no-one gets poorer; some people who might deserve to get richer don't, but this is not an immediate cost to the economy.

People downloading music without paying the artists might cost the artists the net retail value of the music (although this is debatable): it certainly doesn't cost the economy that much. Goldacre's article points out that the numbers involved are utterly implausible, and that in fact they have been misreported by a factor of 10, but that's not the point: the numbers are not just implausible they are irrelevant.

A proper cost-benefit analysis of internet piracy would take into account the pleasure that people get from listening to downloaded music as well as the cost of failing to incentivise musicians to make more: people who download music are people, and their economic gains are just as real as those of record companies.