Cato Institute Digs Into MPAA’s Own Research To Show That SOPA Wouldn’t Save A Single Net Job

(TECH DIRT)   One of the things we’ve noticed in the debate over SOPA and PIPA is just how the other side is really lying with statistics. We’ve done a thorough debunking of the stats used by the US Chamber of Commerce to support both bills, as well as highlighted the misleading-to-bogus stats used by Lamar Smith in his support of the bill.

But every day, more bogus stats are rolled out. Julian Sanchez, over at the Cato Institute, has decided to dig into one specific bogus number, the supposed claim of $58 billion in “losses,” and to show how the numbers don’t hold up to any scrutiny. In fact, using the details of where the numbers came from, Sanchez makes the case that SOPA won’t save a single net job for the US economy. Read on to find out how.

First off, the $58 billion comes from an absolutely laughable report for the Institute for Policy Innovation, done every year by Stephen Siwek at a firm called Economists Incorporated. We’ve challenged this ridiculous number in the past, but not to the level of detail that Sanchez has here. He starts out by bringing up (as we have many times), Tim Lee’s excellent debunking of the ridiculous “ripple effects” that Siwek/IPI always use, despite them being a trick to double, triple, quadruple, etc count the same dollars:

In IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefitted by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

It turns out that the $58 billion comes from this process, making use of a dubious multiplier on a different MPAA report that claimed merely $6.1 billion in losses for the US movie industry, multiplied to about $20 billion — as the portion of the “losses” that come from movies. But, as Sanchez notes, that number itself is highly questionable:

That original $6.1 billion figure, by the way, was produced by a study commissioned from LEK Consulting by the Motion Picture Association of America. Since even the GAO was unable to get at the underlying research or evaluate its methodology, it’s impossible to know how reliable that figure is, but given that MPAA has already had to admit significant errors in the numbers LEK generated, I’d take it with a grain of salt.

Okay, but even if we assume that $6.1 billion is accurate, Sanchez explains how that’s not even what’s at stake with SOPA, since the $6.1 billion is a global number:

Believe it or not, though, it’s actually even worse than that. SOPA, recall, does not actually shut down foreign sites. It only requires (ineffective) blocking of foreign “rogue sites” for U.S. Internet users. It doesn’t do anything to prevent users in (say) China from downloading illicit content on a Chinese site. If we’re interested in the magnitude of the piracy harm that SOPA is aimed at addressing, then, the only relevant number is the loss attributable specifically to Internet piracy by U.S. users.

Again, we don’t have the full LEK study, but one of Siwek’s early papers does conveniently reproduce some of LEK’s PowerPoint slides, which attempt to break the data down a bit. Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million–which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel.

Okay. So now we’re down from $58 billion to… $446 million. That’s less than 1% of the original number. But, still, you might say, $446 million is a fair chunk of change (and the $58 billion doesn’t just include movies, but other content, like music and software). So perhaps something like SOPA still makes sense to protect a few jobs? Nope. Again, Sanchez points out how this ignores reality:

As one expert consulted by GAO put it, “effects of piracy within the United States are mainly redistributions within the economy for other purposes and that they should not be considered as a loss to the overall economy.” In many cases–I’ve seen research suggesting it’s about 80 percent for music–a U.S. consumer would not have otherwise purchased an illicitly downloaded song or movie if piracy were not an option. Here, the result is actually pure consumer surplus: The downloader enjoys the benefit, and the producer loses nothing. In the other 20 percent of cases, the result is a loss to the content industry, but not a let loss to the economy, since the money just ends up being spent elsewhere. If you’re concerned about the overall jobs picture, as opposed to the fortunes of a specific industry, there is no good reason to think eliminating piracy by U.S. users would yield any jobs on net, though it might help boost employment in copyright-intensive sectors.

In other words, we’re right back where we started. The whole thing is based on the bogus assumption that money not spent on movies (which, again, have been making a ton of money lately) somehow disappears from the economy. But that’s simply not true. So, really, why is it that anyone in the press, or in elected office, is allowed to quote that bogus $58 billion number without it being challenged?

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