Ganesh Nana: Criticism shows writers' world view

Business and Economic Research's (Berl) recent study into the Costs of Harmful Alcohol and Other Drug Use has prompted some criticism.

In particular, there has been a critique written by economists Eric Crampton and Matt Burgess, given support by Business Roundtable Executive Director Roger Kerr in his column.

Berl soundly rejects the criticisms and we stand by the validity of our work.

But for starters, we note that the misrepresentation of a senior Treasury official's comments in regards to this report have been corrected in a letter from the Treasury to Berl.

Their letter states " ... comments were in response to second-hand information and as a result I made criticisms of the Berl research that, with hindsight, I would not have otherwise made ... I recognise that this new media attention has placed Berl in a difficult position and apologise for the part that my reported comments played in this situation."

That aside, Berl freely accepts comment and debate on our publicly released reports. However, we cannot accept criticism for not covering issues that were outside the project's terms of reference.

The project brief for this study was focused on providing detailed information on the costs of alcohol and other drug abuse to New Zealand society. Bluntly, measurement of benefits was outside the scope of the project.

Furthermore, we totally reject suggestions that we adopt assumptions to provide solutions favourable to the client. Berl's reputation has been built over 50 years and our message is clear - Berl does not write "reports to order". As is the case with this study, where robust evidence is not available, we adopt conservative assumptions or "average" values for parameters.

In contrast, the Crampton and Burgess critique uses a selection of assumptions with a cost-deflating bias, reflecting their own world view. For example, Crampton and Burgess assume that all productive resources can be fully and costlessly reallocated. But your computer does not keep writing by itself when you have a sick day. Nor may resources be freed up for others to use if a person turns up to work hung over.

In the longer run, alcohol-related work absences or premature death may reduce the human capital available to the economy. This could be a particularly substantial effect for young people whose drinking impairs their learning, experience and job prospects. Rather than cherry-picking assumptions, we use average figures based as far as possible on New Zealand data and conservative assumptions.

Setting aside the issue that the study's brief did not include considering benefits, Crampton and Burgess assert that all harmful drinking and its consequences, such as becoming addicted, are an acceptable private choice. While a large proportion of the population drink occasionally and moderately, using alcohol in a non-harmful way, many do not. But Crampton and Burgess have a world view involving consumers that are rational in their decisions about how much alcohol to drink. We would suggest that it is nonsense to argue that a drunk driver who wraps themselves around a power pole has made a fully informed, rational choice that is consistent with their long-term welfare and that such a choice should be of no concern to society.

The following paragraph from Crampton and Burgess is informative: "The economic literature on alcohol and drug use contains a number of results which confound Berl's assumptions: addiction has been found to have rational foundations, and alcohol and drug abuse tends to be a symptom of other problems ... alcohol saves many more lives than it takes and has health benefits well beyond the point where Berl says harm starts and all benefits stop." The "result" that "alcohol saves many more lives than it takes" is an assertion that requires evidence. Many would be keen to inspect this evidence.

And the idea that addiction has "rational foundations" clearly indicates a model view of a consumer that would be at variance with others' views, including those of some economists. Such a value judgment would not have been appropriate for an independent study such as ours.

Berl used an appropriate, and internationally accepted, method to tackle the task at hand - that is, to provide an estimate of the costs of harmful alcohol and drug use. Our study provides sufficient information for readers to make their own judgment about the costs of harmful alcohol use.

It is for readers to make their own judgments about the benefits of harmful alcohol use. It is for policy makers as well as the New Zealand society, not Berl, to judge what set of values they use in this assessment.

The criticisms are essentially founded on a different view of the world. It is for society to determine whether or not they share Crampton and Burgess' (and Kerr's) world view - one where the consumer is king, irrespective of the costs.

* Dr Ganesh Nana is chief economist and editor, Berl Forecasts.