In answering the question "How much does alcohol cost society?," it is essential to distinguish between drinking in moderation and abusing alcohol. Failure to do so leads to radically different estimates. That is because drinking in moderation is associated with better health, longer longevity, higher income and other positive benefits. However, alcohol abuse is associated with many medical conditions, domestic conflict and other negative consequences. Estimates of the economic costs of alcohol need to include benefits as well as costs
Research by the U.S. Centers for Disease Control and Prevention (CDC) and the National Institute on Alcohol Abuse and Alcoholism (NIAAA) reveals that the benefits of moderate drinking outweigh the harms from abusive drinking.
The NIAAA calculates that if all drinkers in the U.S. became abstainers, there would be an additional 80,000 deaths per year. Abstaining dramatically increases the risks of heart attack, ichemic stroke, and many other diseases and life-threatening conditions. 1
The CDC calculates that abusive drinking lead to about 75,766 deaths from all causes in 2001, a number that continues to decline. Therefore, these analyses indicate that moderate alcohol consumption saves more lives than are lost as a result of alcohol abuse. 2
This has been found in other countries as well. For example, light and moderate drinking saves more lives in England and Wales than are lost through the abuse of alcohol according to scientists at the University of London.
The researchers determined that if everyone abstained from alcohol, death rates would be significantly higher. In the words of the lead author, "alcohol saves more lives than it costs." 3
Other researchers, led by Dr. Ian White, found that in the United Kingdom, 15,080 deaths were prevented through the consumption of alcohol, while 13,216 were caused by its abuse. Thus, the use of alcohol led to a net gain of 1,864 lives. 4
Alcohol agencies tend to inflate the economic costs caused by alcohol abuse. For example, the estimate by the National Institute on Alcohol Abuse and Alcoholism (NIAAA) is actually of gross costs rather than net costs. 5 That is, the NIAAA statistic adds up all costs (including large "phantom" or false costs) without subtracting the economic benefits provided by alcohol beverages. These include income to the producers of commodities and equipment used in producing alcohol beverages, income of those who produce, distribute and sell alcoholic beverages, profits, taxes generated, and many other economic benefits to tens of millions of Americans. 6
A major phantom cost the NIAAA uses is based on "lost productivity, " which accounts for about 80% of the total estimate. 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.
If an alcoholic dies prematurely, the agency computes a career-long loss to society. But 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.
Economist Steven Barsby illustrates the problem: Take, for example, a Manhattan advertising executive who leaves a hefty annual salary of $525,000 for a high school teaching position in rustic Vermont that pays $25,000 per year. Is there an annual loss of $500,000 through the executive's working career to society? Of course not. 7 In short, garbage in, garbage out.
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. 8
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. 9 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. 10
Economists David Heien and sociologist David Pittman, utilizing standard accounting methods, determined that the annual societal costs of drinking to be about 7% of the NIAAA estimate. 11
Similarly, the Pacific Institute for Research and Evaluation (PIRE) was paid by the Underage Drinking Enforcement Training Center to generate an estimate of the economic costs of underage drinking. PIRE produced an estimate of a whopping $61.9 billion per year.
However, over 2/3 of that estimate is based on "pain and suffering," which is not an economic cost. PIRE also includes other phantom costs. Only 8.7% ($5.4 billion) of the estimate actually consists of monetary expenses or costs.
A more serious problem with the PIRE estimate is that it only looks at half the equation. Completely lacking are the economic benefits provided by underage alcohol consumption. PIRE's method is like looking at household expenses while ignoring household income. Its estimate is not only completely worthless, but is highly deceptive.
Elsewhere, PIRE estimates that underage drinkers consume alcoholic beverages valued at $18.1 billion per year. This represents an economic benefit of $18.1 billion in federal, state and local taxes, profits, wages and salaries, and income to those involved in farming, transportation, advertising, packaging, construction, and many other goods and services.
Using PIRE's own figures, the economic costs of underage alcohol consumption are $5.4 billion while the economic benefits are $18.1 billion. Thus there is no economic cost of $61.9 billion but a net economic benefit of $12.7 billion. 12
Although the United States benefits economically from underage alcohol consumption, any illegal drinking is nevertheless highly undesirable.
Although it is in the self-interest of alcohol agencies to inflate the costs associated with alcohol abuse, this very common practice is not in the public interest.