[A2k] J. Sanchez re the bogus numbers driving copyright policy

Manon Ress manon.ress at keionline.org
Fri Jan 6 05:52:38 PST 2012


QUOTE:
"Intellectual property infringement was supposedly costing the U.S.
economy $200–250 billion per year, and had killed 750,000 American
jobs. That certainly sounded dire, but those numbers looked
suspiciously high, and I was having trouble figuring out exactly where
they had originated.[...]here’s the upshot: The $200–250 billion
number had originated in a 1991 sidebar in Forbes, but it was not a
measurement of the cost of “piracy” to the U.S. economy. It was an
unsourced estimate of the total size of the global market in
counterfeit goods. Beyond the obvious fact that these numbers are
decades old, counterfeiting of physical goods imported in bulk and
sold by domestic retail distributors is, rather obviously, a totally
different phenomenon with different policy implications from the
problem of illicit individual consumer downloads of movies, music, and
software. The 750,000 jobs number had originated in a 1986 speech
(yes, 1986) by the secretary of commerce estimating that
counterfeiting could cost the United States “anywhere from 130,000 to
750,000″ jobs. Nobody in the Commerce Department was able to identify
where those figures had come from.

These are the numbers that were driving U.S. copyright policy as
recently as 2008—and I’m still seeing them repeated in “fact sheets”
circulated by SOPA boosters."
END OF QUOTE

http://www.cato-at-liberty.org/how-copyright-industries-con-congress/

How Copyright Industries Con Congress

Posted by Julian Sanchez

I’ve yet to encounter a technically clueful person who believes the
Stop Online Piracy Act will actually do anything to meaningfully
reduce—let alone “stop”—online piracy, and so I haven’t bothered
writing much about the absurd numbers the bill’s supporters routinely
bandy about in hopes of persuading lawmakers that SOPA will be an
economic boon and create zillions of jobs. If the proposed solution
just won’t work, after all, why bother quibbling about the magnitude
of the problem? But then I saw the very astute David Carr’s otherwise
excellent column on SOPA’s pitfalls, which took those inflated numbers
more or less as gospel. If only because I’m offended to see bad data
invoked so routinely and brazenly, on general principle, it’s
important to try to set the record straight. The movie and music
recording industry have gotten away with using statistics that don’t
stand up to the most minimal scrutiny, over and over, for years, to
hoodwink both Congress and the general public. Wherever you come down
on any particular piece of legislation, this is not how policy should
get made in a democracy, and it’s high time they were shamed into
cutting it out.

The bogus numbers Carr cites—which I’ll get to in a moment—actually
represent a substantial retreat from even more ludicrous statistics
the copyright industries long peddled. In my previous life as the
Washington editor for the technology news site Ars Technica, I became
curious about two implausible sounding claims I kept seeing made over
and over—and repeated by prominent U.S. Senators!—in support of more
aggressive antipiracy efforts.  Intellectual property infringement was
supposedly costing the U.S. economy $200–250 billion per year, and had
killed 750,000 American jobs. That certainly sounded dire, but those
numbers looked suspiciously high, and I was having trouble figuring
out exactly where they had originated. I did finally run them down,
and wrote up the results of my investigation in a long piece for Ars.
Read the whole thing for the full, farcical story, but here’s the
upshot: The $200–250 billion number had originated in a 1991 sidebar
in Forbes, but it was not a measurement of the cost of “piracy” to the
U.S. economy. It was an unsourced estimate of the total size of the
global market in counterfeit goods. Beyond the obvious fact that these
numbers are decades old, counterfeiting of physical goods imported in
bulk and sold by domestic retail distributors is, rather obviously, a
totally different phenomenon with different policy implications from
the problem of illicit individual consumer downloads of movies, music,
and software. The 750,000 jobs number had originated in a 1986 speech
(yes, 1986) by the secretary of commerce estimating that
counterfeiting could cost the United States “anywhere from 130,000 to
750,000″ jobs. Nobody in the Commerce Department was able to identify
where those figures had come from.

These are the numbers that were driving U.S. copyright policy as
recently as 2008—and I’m still seeing them repeated in “fact sheets”
circulated by SOPA boosters.  Finally, in 2010, the Government
Accountability Office released a report noting that these figures
“cannot be substantiated or traced back to an underlying data source
or methodology.” Now, if a single journalist could discover as much
with a few days work, minimal due diligence should have enabled highly
paid lobbyists to arrive at the same conclusion. The only way to
explain the longevity of these figures, if we charitably rule out
deliberate deception, is to infer that the people repeating them
simply did not care whether what they were saying was true. If I were
a legislator, I would find this more than a little insulting

As Carr’s piece suggests, SOPA’s corporate backers have fallen back on
new numbers, but they’re still entirely bogus:

    The Motion Picture Association of America cites figures saying
that piracy costs the United States $58 billion annually. Mark Elliot,
an executive from the U.S. Chamber of Commerce, said in a letter to
The New York Times that such piracy threatened 19 million American
jobs

Only $58 billion! We’re making progress! So where does that figure
come from? The source here is a paper released by the Institute for
Policy Innovation, and authored by one Stephen Siwek, an MBA and
principal of a consulting firm called Economists Incorporated that
produces economic analysis for hire on behalf of (among others)
businesses seeking to influence policy makers. That does not, in
itself, invalidate the research, but we should at least begin with the
recognition that we are not dealing here with impartial academic
studies produced by a university or government research agency.

What does invalidate the “research” is the inappropriate use of
“multiplier” effects to double—and triple—count loss estimates that
were dubious to begin with. As the GAO report notes in its typically
understated fashion:

    Most of the experts we interviewed were reluctant to use economic
multipliers to calculate losses from counterfeiting because this
methodology was developed to look at a one-time change in output and
employment.

In other words, Siwek is taking a method that’s useful for analyzing
where in the economy we will likely see the effects of demand shifts,
and pretending that it somehow reflects aggregate economic losses. As
my colleague Tim Lee has pointed out, this is Bastiat’s Broken Window
Fallacy on steroids:

    [I]n IPI-land, when a movie studio makes $10 selling a DVD to a
Canadian, and then gives $7 to the company that manufactured the DVD
and $2 to the guy who shipped it to Canada, society has benefited by
$10+$7+$2=$19. Yet some simple math shows that this is nonsense: the
studio is $1 richer, the trucker is $2, and the manufacturer is $7.
Shockingly enough, that adds up to $10. What each participant cares
about is his profits, not his revenues.

So, to stay focused on movies, Siwek takes an estimate of $6.1 billion
in piracy losses to the U.S. movie industry, and through the magic of
multipliers gets us to a more impressive sounding $20.5 billion. That
original $6.1 billion figure, by the way, was produced by a study
commissioned from LEK Consulting by the Motion Picture Association of
America. Since even the GAO was unable to get at the underlying
research or evaluate its methodology, it’s impossible to know how
reliable that figure is, but given that MPAA has already had to admit
significant errors in the numbers LEK generated, I’d take it with a
grain of salt.

Believe it or not, though, it’s actually even worse than that. SOPA,
recall, does not actually shut down foreign sites. It only requires
(ineffective) blocking of foreign “rogue sites” for U.S. Internet
users. It doesn’t do anything to prevent users in (say) China from
downloading illicit content on a Chinese site. If we’re interested in
the magnitude of the piracy harm that SOPA is aimed at addressing,
then, the only relevant number is the loss attributable specifically
to Internet piracy by U.S. users.

Again, we don’t have the full LEK study, but one of Siwek’s early
papers does conveniently reproduce some of LEK’s PowerPoint slides,
which attempt to break the data down a bit. Of the total $6.1 billion
in annual losses LEK estimated to MPAA studios, the amount
attributable to online piracy by users in the United States was $446
million—which, by coincidence, is roughly the amount grossed globally
by Alvin and the Chipmunks: The Squeakquel.

So in a fantasy world where U.S. movie pirates don’t just circumvent
blockage with a browser plugin, and SOPA actually stops all online
movie piracy by American users, we get a $446 million economic benefit
to the United States in the form of movie revenues, and presumably
comparable benefits in music and software revenues? Well, no. Remember
our old friend the Broken Window Fallacy. It’s true that some illicit
U.S. downloads displace sales of legal products. But what happens to
the money the pirates would have otherwise spent on those legal
copies? They don’t eat it! As that same GAO report helpfully points
out:

    (1) in the case that the counterfeit good has similar quality to
the original, consumers have extra disposable income from purchasing a
less expensive good, and (2) the extra disposable income goes back to
the U.S. economy, as consumers can spend it on other goods and
services.

As one expert consulted by GAO put it, “effects of piracy within the
United States are mainly redistributions within the economy for other
purposes and that they should not be considered as a loss to the
overall economy.” In many cases—I’ve seen research suggesting it’s
about 80 percent for music—a U.S. consumer would not have otherwise
purchased an illicitly downloaded song or movie if piracy were not an
option. Here, the result is actually pure consumer surplus: The
downloader enjoys the benefit, and the producer loses nothing. In the
other 20 percent of cases, the result is a loss to the content
industry, but not a let loss to the economy, since the money just ends
up being spent elsewhere. If you’re concerned about the overall jobs
picture, as opposed to the fortunes of a specific industry, there is
no good reason to think eliminating piracy by U.S. users would yield
any jobs on net, though it might help boost employment in
copyright-intensive sectors. (Oh, and that business about 19 million
jobs? Also bogus.)

Does that mean online piracy is harmless? Of course not. But the harm
is a dynamic loss in allocative efficiency, which is much harder to
quantify. That is, in the cases where a consumer would have been
willing to buy an illicitly downloaded movie, album, or software
program, we want the market to be accurately signalling demand for the
products people value, rather than whatever less-valued use that money
gets spent on instead. This is, in fact, very important! It’s a good
reason to look for appropriately tailored ways to reduce piracy, so
that the market devotes resources to production of new creativity and
innovation valued by consumers, rather than to other, less efficient
purposes. Indeed, it’s a good reason to look for ways of doing this
that, unlike SOPA, might actually work.

It is not, however, a good reason to spend $47 million in taxpayer
dollars—plus untold millions more in ISP compliance costs—turning the
Justice Department into a pro bono litigation service for Hollywood in
hopes of generating a jobs and a revenue bonanza for the U.S. economy.
Any “research” suggesting we can expect that kind of result from
Internet censorship is a fiction more fanciful than singing chipmunks.
Julian Sanchez • January 3, 2012 @ 3:07 pm




-- 
Manon Anne Ress
Knowledge Ecology International
1621 Connecticut Ave, NW, Suite 500
Washington, DC 20009 USA
http://www.keionline.org
manon.ress at keionline.org




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