Monday, 16 July 2007

A Penny Saved is a ...

Well, if you're one of the economists David Cameron is listening to, it's not "a penny earned" but "a loss to the economy"!

One of Cameron's  sillier policies is to extend copyright from 50 years to 70 years.  He claims that this would "add £3.3 billion to the economy".  Unfortunately, this is one of those nasty things: a penalty dressed up as a benefit.  Why?  Because actually the size of the economy is a measure of penalty to people, not benefit to people

In simple terms, it's obvious: the size of the economy is the sum total of cash leaving people's wallets!  If I keep an extra £1 in my wallet, the economy is £1 smaller.  Strangely, though, I feel £1 better off, not worse off because the economy is that little bit smaller...

So why is "growing the economy" normally seen as a good thing.  Well, usually it is an indirect measure of benefit:

Economists can't actually measure the benefit someone gets from something -- eg, a cup of tea -- directly.   (Nobody has yet invented the "aaah"-ometer.)  So instead economists have to assume the price you were willing to pay for that cup of tea is a measure of its value to you.  If you were willing to pay 20p, then you've presumably received at least twenty pence worth of benefit from it.  Market forces also help to make sure things balance up nicely.  And so the amount of money being spent in the economy is an approximate measure of the benefit people are receiving from the economy.  Usually.

But say the government issues a licence to Oxygen, Inc that allows them to charge £1 per person per day for the air we breathe.  Instantly the economy has jumped by £1 × 365 × 60 million = £21.9bn. But has anyone achieved any actual benefit? Well, no, the air is still exactly the same, it's just the public now has £21.9bn less to spend on other things.

So this is the problem: the economists assume "cost = benefit" and measured the economy accordingly.  But they can't measure the benefit of things you get for free.  So if the government makes something that would be free (eg: air, or 51 year old music) suddenly have a cost, it looks like the economy has grown (hurrah!) but all that has really happened is people are more out of pocket for no extra benefit (boo!).

Irritatingly, Mr Cameron seems to be going for the "look it'll grow the economy" boondoggle, hoping nobody will notice extending copyright is just taking extra cash from our pockets for no extra benefit.

1 comment:

Matt B said...

Lol - I had to laugh reading this thinking about the ETS Rudd's tried to push through... A massive penalty that looks good on paper and achieves nothing apart from driving our economy into the ground.

You used it as an humorous example - but they have now worked out how to tax the air we breathe!