Standing Against Those Who Trumpet the Economic Value of Theft
Author:  Howard Gantman
Date:  01/10/2012

Julian Sanchez, a research fellow at CATO, recently wrote a post on Cato@Liberty, which once again offers tired arguments about why the theft of intellectual property is not such a bad thing.

In his post, Sanchez’s main argument is that theft has a negligible economic impact – only some inefficiency – because theft is beneficial: that is, the consumers who access stolen content can choose to use the money they “saved” to purchase other products. Extending this argument, shoplifting has no economic impact since shoplifters can spend the money they “saved” on other products, a perspective which runs counter to treatment of crime in other “costs of crime” studies

Or taken another way, credit card fraud against consumers has no economic impact on the general economy since the person or company committing the fraud can spend his/her profits elsewhere. To support this argument, Sanchez pointed to a flawed Government Accountability Office report, which cited anonymous “experts” who viewed counterfeiting and piracy as “mainly redistributions” of wealth and thus argued that “any positive effects of counterfeiting and piracy on the economy should be considered as well as the negative impacts.” The Progress & Freedom Foundation, already accurately deconstructed the fallacy of this “expert” assessment in:  “Punk’d:  GAO Celebrates the “Positive Economic Effects” of Counterfeiting and Other Criminal Racketeering.”

Sanchez also sought to challenge the use of economic multipliers to assess the effects of piracy and counterfeiting on industry suppliers and other downstream parties.  To support this argument, Sanchez again chose to quote a portion of the GAO report citing anonymous “experts,” leaving out text that contradicted his assertions (the part excluded is in bold):  “Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment.  Nonetheless, the use of this methodology corroborates that the effect of counterfeiting and piracy goes beyond the infringed industry.  For example, when pirated movies are sold, it damages not only the motion picture industry, but all other industries linked to those sales.”

He neglected to point out that most of the economic cost of piracy studies estimate the one-time effects in one year, if copyright piracy was eliminated and that they do not generally include activity by people who would not have otherwise purchased legitimately.  He also neglected to point out the hundreds if not thousands of economic models using multipliers in a vast number of contexts.  If Sanchez is saying such models cannot be used for piracy, it’s not clear why it would then be valid to use them for measuring impacts of things like tourism, the arts, or terrorism.

In conclusion, Sanchez argued against Congressional passage of the Stop Online Piracy Act, basing his reasoning on his own faulty logic that content theft and counterfeiting don’t cause widespread economic pain.  And that’s where he is wrong – even the GAO concluded that “the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property.”

The bottom line: SOPA, and related bipartisan legislation in the Senate, the PROTECT-IP Act, will help American businesses and American workers by making it more difficult for operators of rogue websites, often based overseas, to steal American intellectual property.  These bills are supported by hundreds of businesses, consumer advocacy groups, labor organizations and intellectual property coalitions.  The time has come for Congress to protect these workers and businesses and to put tired arguments like those being made by Sanchez to rest.