I am going to a talk organised by ACIl Allen Consulting tomorrow on “Counting the Costs of Alcohol”. The main point made in their initial discussion paper is that some people believe the gross costs of alcohol should be targeted while others think that only the external costs should be included. This is a very old debate so I hope something new comes out. As a matter of fact governments do target reducing the gross costs of alcohol – these include, for example, the health costs that people pay for themselves. The external costs of alcohol consumption (and for that matter cigarette consumption and gambling) are low relative to the gross costs and to the taxes that governments collect. My attitude is “so what?” Consumers make many irrational decisions when they consume addictive and mind-altering alcoholic products partly because decisions are taken by the very young who have enormous discount rates that moderate substantially as they move into their twenties. To be fair ACIL Allen do recognise that people do incur costs that they don’t recognise – what most of us call “internality costs”. But the rational addiction model that provides a point of reference for them is a crock of nonsense – the theory is deficient (the optimal control techniques Becker and Murphy use are wrong) and the idea that agents internalise all costs of using products over their lifetime is a priori nonsense of a scale that only Chicago-bred economists could ever believe.