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How Much Do Music and Movie Piracy Really Hurt the U.S. Economy?

Kal Raustiala and Chris Sprigman of Freakonomics discuss the claims that piracy leads to $250 billion a year in loses and 750,000 American jobs lost:

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.”

And:

So what’s the real number? At this point, we simply don’t know. And this leads us to a second problem: one which is not so much about data, as about actual economic effects. There are certainly a lot of people who download music and movies without paying. It’s clear that, at least in some cases, piracy substitutes for a legitimate transaction — for example, a person who would have bought the DVD of the new Kate Beckinsale vampire film (who is that, actually?) but instead downloads it for free on Bit Torrent. In other cases, the person pirating the movie or song would never have bought it. This is especially true if the consumer lives in a relatively poor country, like China, and is simply unable to afford to pay for the films and music he downloads.

Do we count this latter category of downloads as “lost sales”? Not if we’re honest.