Postscript

Posted by on . 9 comments.

Seeing as how Dean Baker wasn’t too offended by my name calling to leave a comment on the post below, I figure I should at least explain why I think his opposition to intellectual property rights is wrong. Primarily, because he seems to believe that supply and demand aren’t important concepts where IP is concerned.

Even though it’s practically costless to produce trillions of copies of a song or novel or piece of code, and even though it’s practically costless to get some (though by no means most or all) of those items for free, it’s still important to know how many people actually want them and are willing to pay for them. The profit potential of a creative act is what guides resource use. In other words, commercial failure or success is at least part of what motivates talent to pursue or not pursue innovation (and use or not use their skills elsewhere, in a way that might be better for society). Scale is important here. A $100,000 grant is a significantly different motivation than the prospect of becoming an internet billionaire or the next J.K. Rowling.

Certainly there are costs to having a system operate the way ours does, but I get the impression that Baker is significantly underplaying the costs of his proposed replacements. Consider this voucher scheme:

There would be two alternative mechanisms through which individuals could use their voucher. As one option they could have the funds paid directly by the government to the creative worker or intermediary of their choice, by indicating their selection on a tax form. Alternatively, they could pay an amount equal to the voucher directly to the creative worker or intermediary of their choice, and then file for a refundable credit on their tax return. In this case, taxpayers would be obligated to keep a record in the event of a tax audit, just as they do now for a charitable contribution.

Problems. For one, consumers don’t pay money to support creative workers, they pay money to buy goods. All books by one author are not created equal, nor are all lines of code by one programmer, and cetera; you lose a lot of information by reducing the consumer’s ability to distinguish between individual creations. Second, for all the inefficiencies Baker claims to be eliminating, he’s introducing some substantial ones, as well. The “intermediary” role could quickly become a behemoth, replacing labels and agents as antagonists of both artists and consumers. I also don’t know how one doesn’t recoil at the “save your receipt or be audited” provisions here. If this program is large enough to make a difference, it’s large enough to add layers of bureacracy to the IRS and substantial costs to consumers. Now, if I want to support an array of creative workers, I buy their products, giving them money and informing them which innovations I value. In Baker’s world, I have to spend time sending misleading signals (and getting worse products in return), I have to keep all my receipts, file a more complicated tax return, and hope I don’t get audited. Efficiency!

Two other things. First, Baker suggests that it’s improper for companies to have monopoly power. It’s true that pricing power can lead companies to underprovide goods or services relative to some socially optimal amount. But Baker seems to ignore the fact that in the absence of any pricing power, many goods and services wouldn’t be provided at all. Companies and individuals are able to display pricing power based on innovations all the time, outside of what we might consider monopolies, and we allow that because it fuels growth. Consider the Times magazine’s story on Toyota this week, where the reporter notes that a new, time-saving method of painting is kept proprietary. Toyota isn’t a monopoly, but little innovations like that allow them pricing freedom others don’t have, and that pricing freedom is the reason they develop those innovations. Strip that out of the economy at your cost. Second, and lastly, Baker seems to believe that efficiency is a sufficient reason to eliminate property rights. Not to be hyperbolic, but that’s a fairly dangerous idea. It’s hard to build a functional economy without secure property rights.

There are lots of ways to improve IP rules in this country, and lots of smart people advocate for them. Removing the concept of intellectual property rights is not one of them.

Comments

  1. Dean Baker says:
    February 22, 2007 at 1:27 pm

    I’m in a bit of a rush, but I’ll just say by way of response that this system is considerably less complex that the current system of tax deductions for charitable contributions that no one seems to have much problem with that I know of.

    I also don’t advocate eliminating patents more generally — there are differences between patents in industrial processes and consumer processes. I mention this in passing in my papers, but if you give it a moment’s thought, the issues should be apparent.

  2. ryan says:
    February 22, 2007 at 2:06 pm

    The question isn’t whether it’s as complex as the system of charitable giving. The question is whether it’s as complex as the current system. I know you suggest it isn’t, but you seem to think that industries wouldn’t grow up around the new government program, that new bureacracies and lobbies wouldn’t develop, and that new legal issues wouldn’t arise. At any rate, there is a non-trivial difference in annual spending on charitable giving and on items protected by IP rights. Depending on how wide you cast the latter net, the difference could be massive. I also think you find many inefficiencies in charitable giving. For most people, giving is simply a tax issue, and their utility doesn’t depend all that much on how successfully the charity carries out its mission. With IPR that’s not at all the case. Consumers will suffer considerably if the quality of the goods they choose erodes.

    I’m curious to know what the difference is in industrial processes and consumer processes. Does no one consume industrial goods? That aside, is software not your idea of an industrial good?

    The thing is, utility and resources are fungible. We don’t have music money and food money, we just have money. A loss is a loss is a loss, and it’s incorrect to think that disrupting entertainment markets is costless because, you know, it’s just entertainment. If the things people buy to make themselves happy decrease in quality, that affects their incentive to work, save, and invest. When some kid invents a product that makes it much easier to do fun stuff, that frees up other resources which can go toward “industrial” production, or which might allow us to consume more fun stuff (because it’s now cheaper).

    It just seems like you view money spent to protect IPR as a waste. I view it as an investment in the protection of incentives. Paying to establish a market is often a very worthwhile thing. Now is there waste within this system? Absolutely. But the system is not a waste.

  3. tom says:
    February 22, 2007 at 4:22 pm

    The question is whether it’s as complex as the current system. I know you suggest it isn’t, but you seem to think that industries wouldn’t grow up around the new government program, that new bureacracies and lobbies wouldn’t develop, and that new legal issues wouldn’t arise.

    I’m sure these things would happen. But our system *is* pretty complex — consider the rights-clearing involved in using a copyrighted song or clip of video, or in republishing an orphaned work. It’s enough to stifle a lot of amateur wealth generation.

    I’m not saying that CEPR’s voucher scheme is the answer — it sounds pretty godawful to me. But technology is facilitating a lot of copyright infringement; because of that, it could be used to obtain metrics that could determine how to distribute the revenue from a compulsory license (Big Champagne already does this sort of tracking on behalf of the labels). Or the funds from such a license could be distributed through programs to encourage the arts, like Canada’s Polaris Prize. There’s no one-size-fits-all solution, but an industry-by-industry approach seems doable.

    I think you’re on shakier ground when it comes to patents. The system was designed to deal with mechanical innovations, and it’s showing its age. It’s pretty clear that the USPTO isn’t capable of examining some types of patents on a consistent and accurate basis. You could argue that their incredibly widespread failure to find prior art when examining software patents is a problem of execution, but I’m convinced that the system is just fundamentally flawed and will never be fixed.

    The cost of R&D for the software techniques that are commonly patented is so low that I’m not aware of any evidence that granting patents facilitates anything other than predatory litigation and patent-squatting. Real algorithmic innovations are mathematical truths and should be patentable. Specific UI implementations almost always run afoul of prior art or fail to meet the non-obviousness criterion. The one gray area where I think you could plausibly make a case is in codec design — Fraunhofer may not have created MP3 without a patent incentive, nor Microsoft the codec that’s commonly called divx/windows video 9. But I’d probably still argue that the realities of the marketplace and the pace of innovation indicate that we should be using copyright to protect these developments, not patents (and *certainly* not patents of the current term that’s granted — the tech is obsolete before the patent expires!).

    I think the need for patents on chemical, electronic and mechanical innovations is a lot clearer, although still in need of some reform to discourage things like me-too drugs. But I think the case for software patents is really, really weak.

    And business process patents? They’re a fevered MBA’s wet dream and little else.

    Anyway, I agree that there is and will remain a need for intellectual property rights. But they should exist in a form that’s pretty radically different from our current one.

  4. tom says:
    February 22, 2007 at 4:26 pm

    sorry:

    Real algorithmic innovations are mathematical truths and should be patentable

    should read “should not be patentable”

    There are a lot of circumstances where there is only one optimal way to do something on a particular hardware architecture, and any number of programmers could come up with the same way to do it when they need to. Patents should exist to protect innovation that, without them, never would have occurred — not to reward the first person who manages to fillout paperwork about something that would have happened anyway.

  5. ryan says:
    February 22, 2007 at 5:04 pm

    Thanks for your thoughts, Tom.

    Please correct me if you disagree, but I feel like the things you’re saying are consistent with my argument. The way I see it, an IP regime should satisfy two conditions: first, that an innovator or artist is able to retain some rights over an innovation or creation, and second, that some mechanism is in place to allow market preferences to influence resource distribution. Baker seems to be suggesting that creative workers give up all rights over their work in exchange for some piece of a voucher pie which may or may not correspond to how useful or popular their work is. That’s not what you’re advocating.

  6. tom says:
    February 22, 2007 at 5:34 pm

    Yeah, I agree. I haven’t read all of Baker’s stuff as carefully as I imagine you have in writing these posts, but his original post didn’t strike me as specifically calling for CEPR’s scheme, just for reform in general (and potentially scrapping copyright and replacing it with something else). When he says “think of how much we would gain by eliminating all the rent-seeking behavior associated with copyright protection” and talks about making everything free I didn’t take it to mean that he was specifically advocating IP communism, but rather pointing out the gains that reform might help us (partially) achieve.

    But maybe I’m putting words in his mouth and reading too much into the post.

  7. ryan says:
    February 22, 2007 at 5:51 pm

    Well, he did say he wanted to eliminate ALL rent seeking behavior, which I don’t think is necessary. And he does link to his CEPR plans, so I think that’s sort of what he’s getting at.

    But yeah, maybe I’m not being charitable enough to him. It would be easier, however, if he didn’t insist upon calling this stuff protectionism and pointing out false hypocrisy. It’s easier to win arguments if you aren’t always trying to write that Gotcha! post.

  8. Dean Baker says:
    February 23, 2007 at 1:41 am

    sorry folks — protecting intellectual property is protectionism — even if you happen to like IPR. I don’t happen to believe that all protectionism is bad. If your mother told you that it was, and you never question what your mother says, well, i’m sorry for you. we have tools to analyze the distortions created by protection and they apply in exactly the same way to higher prices that are created by patent and copyright monopolies as higher prices created by tariffs and quotas — the arithmetic works the same way in both cases.

    In terms of alternatives, I don’t pretend to have the perfect answers — read the stuff you want to trash. i’m putting possibilities on the table. I also propose that these alternatives compete in the market with the existing copyright protected stuff. This means that there are people who still want to spend $15 on the next Britanny Spears CD, even if millions of songs are available for free download through my alternative system, then by all means they should go ahead and do so.

    My paper includes general estimates of the numbers involved. I suggest a voucher of $75 per adult for creative work. that’s not a number written in stone, but that would generate around $15 billion a year if everyone took advantage of it, which clearly everyone will not. I haven’t checked the data lately on the money the charitable deduction costs the government in taxes, but I’m a quite sure that it considerably more. (If people on average give 4 percent of their income to charities and the average dollar comes from people in the 25 percent tax bracket, that gets you $100 billion a year).

  9. ryan says:
    February 23, 2007 at 3:10 pm

    Hey, thanks for being condescending. Listen, even if one accepts that they’re conceptually the same, and they really aren’t except at some basic and essentially meaningless level, it’s a STUPID WAY TO ARGUE. You’ve arbitrarily changed the meaning of a word. I understand that you’re trying to make a rhetorical point, but it’s a lame point. It doesn’t do anything but obscure your actual argument. Which, given its contents, is probably a good decision.