Alcohol Abuse: The Economic Costs
by Gene Ford
Federal estimates for the costs of alcohol abuse come perilously close to fiction - or even fraud. The wildly escalating estimates cited by the National Institute on Alcohol Abuse and Alcoholism (NIAAA) betrays a soft underbelly of accounting assumptions. The latest estimate of over 148 billion dollars is indefensible in terms of modern accounting principles.
Economist David Heien and sociologist David Pittman, utilizing standard accounting methods, determined annual societal costs of drinking at around $9.5 billion. That's about 7 percent of the NIAAA figure.
The problem is that, outside of a few researchers like Heien and Pittman, no major public or private agency challenges the government fabrications. Not only are they preposterously inflated, they fail to balance the economic costs with the economic benefits. Ponder a moment the enormous contributions to the state and national economies and tax revenues from licensed beverages. Millions of jobs and billions are involved in the positive side of the ledger. Federal taxes in drinks alone exceed the Heien/Pittman estimate of real costs of abuse.
By choosing to ignore any drinking benefits, the NIAAA makes a mockery of the cost estimating process. Abuse control programs should evolve from careful consideration of the benefit as well as the liabilities.
Consider the most egregious of the agency's last assumptions called "lost productivity." At first glance, the idea that heavy drinkers drag down productivity by extended absences from the workplace seems logical. The question is, "Who loses what during such absences?" Obviously, the abuser and his or her family lose wages and, perhaps, opportunities for future career advancement. The employer may or may not lose productivity. Others may fill in for the absences or new workers engaged to maintain production levels. In real life, all burdens fall to the abuser. The NIAAA attributes nearly half of the total abuse costs to lost productivity, a fictitious concept.
If an alcoholic dies prematurely, the agency computes a career-long loss to society. This logic is worthy of Alice's Wonderland. Workers in a free society owe nothing to government or the remainder of society aside from decent citizenship and payment of taxes on real income. Therefore, society loses nothing economically.
To be fair, the NIAAA borrowed the productivity lost concept from its sister drug abuse agencies. Also in fairness, the concept is designed to inflate the problems thereby justifying increased funding, a familiar bureaucratic technique. Economists have challenged the cost allocations in other areas such as medical care, crime and social services but lost productivity is the big one.
Economist Steven Barsby illustrates the deception: Take, for example, a Manhattan advertising executive who leaves a hefty annual salary of $225,000 for a high school teaching position in rustic Vermont that pays $25,000 per year. Is there a loss of $200,000 through the executive's working career to society? Of course not. Yet this is the nonsense which NIAAA wants us to believe. 1
The economist Weinberg poses a counter-assumption. It is established that moderate drinkers earn more that abstaining workers. Research finds that real wages of moderate drinkers exceed those of abstainers by as much as 7 percent. Using the NIAAA's imagery, he calls this factor "increased productivity." He demolishes the NIAAA's projected $116.8 billion in lost productivity with a remarkably similar dollar estimate in increased productivity of moderate drinkers:
I will take their $117 billion and say all right, there is also a plus side to drinking. I will make the logical assumption that there is a modest increase in worker's productivity because of moderate alcohol use. I might use the Gross National Product as my relative scale... Now the cost figure of $116.8 billions is actually 1.2 percent of the total $9.7 trillion receipts of all business. Therefore I am making the simple assumption that the over one hundred million moderate drinkers enjoy an increase in productivity equal to the 1.2 percent of all business receipts - a total of $116.9 billion. 2
Voila, the NIAAA's "lost productivity" and Weinberg's "increased productivity" constitute an economic wash.
Heien and Pittman reject the defective lost productivity theory by applying the common accounting concepts of internal and external costs: The methodology employed by the NIAAA in making their estimates of the costs of alcohol abuse basically ignores the distinction between external and internal costs. In the NIAAA approach, no attempt is made to distinguish these costs separately. 3 External costs apply only to external parties or institutions. In other words, the lost productivity constitutes voodoo economics. Additionally, there is little credible evidence that heavy drinkers are less productive that other members of the labor force. 4
Few government alcohol statistics are ever subjected to public scrutiny. The conclusions announced each year flow through all the major print and electronic media without a murmur of protest. NIAAA statistics become gospel in editorials and discussion shows. Congress incorporates them into spurious legislation. Beltway think tanks and public policy advocacies see no vital public interest in challenging the bureaucracy. Industries are cowed with the every-present threat of reprisals.
When it comes to presenting misleading alcohol "facts," the federal agencies get a free ride. But the public pays a heavy price for this misinformation.
Gene Ford is the founder and publisher, emeritus, of Healthy Drinking magazine and the author of five books about drinking, including The French Paradox and Drinking For Health, which is an extensively documented analysis of drinking in terms of health and control issues. He is currently completing another book on the health benefits of moderate consumption of alcohol beverages. This page is adapted from that book.
filed under: Economics