Thursday 22 October 2009

Canberra Times

The Australian version of my piece that appeared in the New Zealand Herald is out in the Canberra Times.

Life’s joys get a little lost down holes of health-cost analyses
Reports on harmful human habits should be taken with a grain of salt – or a stiff drink, ERIC CRAMPTON writes

Soon, we’ll see a report showing that the social costs of skiing are in the hundreds of millions of dollars. It wouldn’t be hard to produce a number that large. First, show that frequent skiers are more likely to have accidents than recreational skiers. Then, make the critical assumption that nobody could ever rationally decide to take risks – health is all that matters. Frequent skiers then are by definition irrational, and irrational people enjoy no benefits from their ski outings, no matter how happy they appear.

With this ‘‘zero benefits’’ assumption, every dollar spent on skiing by these harmful skiers is a social cost, as is the time these people spend skiing. Add the realised costs from those who do have skiing accidents and you’d quickly have a number in the hundreds of millions of dollars, if not billions.

We’ve seen a lot of cost measures of this sort. Tobacco, fatty foods, gambling – just about anything fun seems to cost ‘‘society’’ more than a billion dollars. Most recently in New Zealand, Business and Economic Research Ltd told us in a $135,000 report funded by the Ministry of Health and Accident Compensation Corporation that the cost of ‘‘harmful’’ alcohol use is about $5 billion a year. BERL largely followed the method proposed by Australian academics David Collins and Helen Lapsley, who recently argued the costs of tobacco, alcohol, and illicit drug abuse in Australia totalled $55 billion. But, like my hypothetical report on the costs of skiing, these reports rely heavily on what I’ll call a ‘‘healthist’’ assumption about how we should live our lives: any time we make a decision that lets us enjoy a bit of fun but with some risk to our health, that decision is considered irrational and cannot generate any real enjoyment.

Consequently, benefits are either assumed equal to zero or set to an arbitrarily low level. But is it really irrational to trade off health against other goals? I have a hard time imagining somebody for whom health isn’t good. But similarly I cannot imagine anybody for whom health is the only good. We all trade off risks to our health against other goals we seek, all the time.

If you saved a few dollars by not buying the most expensive baby car seat on the market, you decided that the very small extra increase in safety for your child isn’t worth the money. If health and safety were our only goal, the world would look very different. We would all buy cars made of padded foam rubber and drive very slowly. That we don’t is strong evidence that we have pluralistic sets of values: we are not monomaniacal healthists in our daily lives.

We accept some health risks because of the benefits we can enjoy from things like getting across town more quickly, racing down a ski field, or even enjoying more than 1.8 pints of beer a day – BERL’s cut-off point for ‘‘irrational’’ consumption. It is wrong to imagine that all risks are bad.

Of course, when we take on health risks, some people will draw the losing lotto ticket. If we tally up the social costs of driving with a mobile phone, we ought to recognise that accident costs need to be weighed up against all of the benefits that drivers enjoy from being able to take the occasional call while on the road – we shouldn’t have our thumb on the scales by assuming the benefits away.

For every skier who dies in an avalanche, tens of thousands took no fewer risks but enjoyed a great time out on the slopes; their enjoyment should count for something. And, for every drinker who dies in an accident that could have been avoided were he sober, there are countless others who simply enjoyed a good night out. Where a healthist report tallies the social costs for the unlucky few, rational policy requires putting weight on the benefits as well.

By using the language of economics without its rigour, healthist reports give the impression that their figures reflect the costs that careless fun-seekers impose on everyone else when the vast majority of their tallied costs are borne by the
individual taking on the risk. By conflating the costs that risktakers impose on themselves with the costs they impose on others, these reports help to build public support for heavily paternalistic policies. After all, who wouldn’t support crackdowns on alcohol if drinkers were really imposing roughly $5 billion in harm on society while paying only about $700 million in taxes, as suggested by the New Zealand Law Commission’s Sir Geoffrey Palmer, now overhauling New Zealand’s alcohol regulatory regime, on reading BERL’s cost report.

In reality, only a tiny fraction of healthist social costs fall on everyone else: in the alcohol case, at least in New Zealand, these net external costs roughly match the total tax take. In other words, drinkers are already roughly covering their costs, although you’d never know it from headlines screaming billions of dollars in ‘‘social costs’’. Similarly, even cost reports funded by the antitobacco lobby agree that smokers pay far more in excise taxes than they cost the public health system: it’s only when these reports add in costs borne privately by smokers that ‘‘social costs’’ begin to loom large.

The hidden cost of healthist cost reports is the slow erosion of liberty that ensues when we take them at face value. When the headlines finally tell us that the social costs of skiing are $20 billion and skiing should be banned, take the report with a grain of salt. Or a stiff drink. And enjoy yourself on the slopes.

■ Dr Eric Crampton is senior lecturer in economics at New Zealand’s University of Canterbury. His full article Public Health Paternalists is published in the spring edition of Policy magazine, the quarterly journal of the Centre for Independent Studies,

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