Freakonomics: Piracy Costs the Economy $200 B. a Year? ‘These Figures Were Made Up Out of Thin Air’

Attempts to quantify the cost of IP piracy have failed, say Kal Raustiala and Chris Sprigman.


illegal downloading Freakonomics: Piracy Costs the Economy $200 B. a Year? These Figures Were Made Up Out of Thin AirAnti-piracy rhetoric holds that online piracy is a devastating force on the U.S. economy, responsible for the theft of between $200 billion and $250 billion per year and the loss of 750,000 good American jobs. “These numbers seem truly dire: a $250 billion per year loss would be almost $800 for every man, woman, and child in America. And 750,000 jobs – that’s twice the number of those employed in the entire motion picture industry in 2010,” write the economists over at Freakonomics.

But those numbers are wrong, the authors say, citing a breakdown by the Cato Institute’s Julian Sanchez. 

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,” which is polite government-speak for “these figures were made up out of thin air.”

More recently, the Institute for Policy Innovation (IPI) placed the number at $58 billion; but that reporter is methodologically flawed, Mr. Sanchez and tech journalist Tim Lee have deconstructed, and is guilty of double-counting with results that “swell the estimate of piracy losses considerably.”

So, how much is piracy hurting us? “At this point, we simply don’t know,” say the Freakonomists. “It’s clear that, at least in some cases, piracy substitutes for a legitimate transaction… In other cases, the person pirating the movie or song would never have bought it. This is especially true if the consumer lives in a relatively poor country, like China, and is simply unable to afford to pay for the films and music he downloads. Do we count this latter category of downloads as “lost sales”? Not if we’re honest.”

Then there’s the trouble of calculating the impact lost sales have on jobs. Money saved on a DVD is money that consumer is likely to spend elsewhere, possibly creating jobs in the skateboard, cereal or comic book industries.

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