Fall Through the Cracks Friday – How Bad for the Economy is Piracy?

On this weeks fall through the cracks Friday, we’re talking about piracy.  Not pirates like Johnny Depp, but pirates like Bit Torrent.

The supporters of the much talked about SOPA (Stop Online Piracy Act) have said that online piracy is a huge problem, one which costs the U.S. economy between $200 and $250 billion per year, and in addition, more than 750,000 American jobs.

Our friends at Freakonomics found that this might not be true.  Their analysis:

The good news is that the numbers are wrong — as this post by the Cato Institute’s Julian Sanchez explains. In 2010, the Government Accountability Office released a report noting that these figures “cannot be substantiated or traced back to an underlying data source or methodology,” which is polite government-speak for “these figures were made up out of thin air.”

More recently, a smaller estimate — $58 billion – was produced by the Institute for Policy Innovation (IPI). But that IPI estimate, as both Sanchez and tech journalist Tim Lee have pointed out, is replete with methodological problems, including double- and triple-counting, that swell the estimate of piracy losses considerably.

So, this moves into a discussion on the Freakonomics website about what the actual impact of piracy is, especially when considering lost sales.  Is it right to include a sale lost to someone who may have never had the urge to purchase a product in the first place, but obtained it simply because it was there and free?

An interesting read by the guys who take statistics and turn them inside out.

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