The United States thinks of itself as a free economy with lots of competition. But I am often struck by the number of petty monopolies that exist. Here is one in Montgomery County Maryland where a woman, certified to massage people, can't massage her favorite patients, horses link here. Why? Because to massage horses, you have to be a veterinarian. The case gets worse. She has also been informed that chiropractors are specifically forbidden from practicing on animals. She is suing to be allowed to massage animals but is being opposed in court by the state veterinary board and the state chiropractic board.

Doesn't survive the laugh test, does it? It would be of interest to add all these cases up and see what they cost the public.

On Marginal Revolution, Alex Tabarrok reviews Boldrin & Levine's Against Intellectual Monopoly. According to Tabarrok, the book "is a relentless, pounding, take no prisoners attack on patent and copyright law.  It joins Lessig's Free Culture and Heller's The Gridlock Economy as an instant classic and a must-read on these issues. "

I don't know much about Tabarrok but as he has published in the libertarian journal Reason Papers, in The Free Market, and has writen some libertarian-ish sounding books published by the libertarian Independent Institute (and positively reviewed in the QJAE). So I assumed he was a libertarian. But here, though he seems to recognize some (practical) problems with patent and copyright, he doesn't want to abolish the state IP system altogether.

You see, "there is a Laffer curve for innovation - more appropriability increases innovation at first but innovation declines when appropriability extends too far." So though he agrees "with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation," we should not abolish IP either. We need to try to "optimize" it, I suppose. Alas, "there is no invisible hand theorem which moves us automatically to the top of the curve".

So, though it's apparently politically impossible ever to "optimize" IP protection, to ensure that we are not "on the wrong side of the Laffer curve for innovation", and economically impossible to know we had reached this point anyway--nonetheless, wealth-maximizers like Tabarrok soldier on, advocating keeping a state-run IP system. So what should we do? "We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes." In the linked post, Tabarrok writes that he "might actually sign on to" The Medical Innovation Prize Fund Act of 2007, introduced by socialist Senator Bernie Sanders ... a bill which would not even abolish patents, but which would augment the patent system with a taxpayer-funded "medical innovation prize fund"--starting at "$80 billion per year, and increas[ing] with the growth in GDP"... ! Damn, $80 billion down the drain--puts my own little estimate that the patent system imposes around $28 billion in costs to shame!

Advocating state-funded "prizes" is about as unlibertarian as proposal as you'll see. And you don't need to do "marginal analysis" to figure that one out.

***

Update: Tabarrok here advocates using taxpayer funds to pay patentees to give up the patent rights that the federal government grants them. Why not just ... refrain from giving them the patent right in the first place? Because that would cause an "underproduction" of "innovation", by reducing "appropriability." Whatever. So he has to find a way to keep "appopriability high," and thus cannot give up a patent monopoly, or a tax-funded "subsitute" for it.

Anyway, note that the annual $80 billion taxpayer-subsidized fund--well, probably at least $82 billion by now, if we account for GDP growth since 2007, as Sanders and Tabarrok want to -- is for medical innovation only. This covers only a small slice of all patent innovation--in fact the "prize fund" also covers "non-patented products"--because, due to the patent system, "innovations without property rights are underfunded". So consider what this means. If we subsidize medical innovation to the tune of $82B a year, there is no reason not to subsidize other patentable--and even non-patentable--inventive areas. Hell, why stop there? Inventions are not the only types of innovation that should be rewarded. What about the copyright fields, like novels, painting, website design? And other areas of innovation, like boat hull designs and databases? And semiconductor maskworks, and trade secrets? And what about more fundamental research in the basic sciences? Let's see, I think the $82B for medical innovation is at most, say, 10% of all technical innovation. So we need another $820B for other technical fields. And surely the value of the artistic, boat hull design, semiconductor maskwork, and database works are at least on the same order of magnitude as the technicall innovations. So let's say it's another $ trillion, for $2 trillion. A year. To start. Now, what about basic science--physics, math, astronomy? Who can put a value on that? Well, I guess we have to--say, another cool $300B. And what about trademarks? My heavens, they are worth at least as much as patent and copyright, so let's add another trillion. So now we are up to $3.3 trillion. This is in addition to our current $2.5 trillion federal budget. So now the federal budget is, say, $6 trillion, out of about $14 trillion GDP. I'm sure our good marginal economists will assure us that this expenditure will increase appropriability--which will increase innovation, which will have a measurable value--and that this extra value will far exceed the $10 trillion or so that would need to be generated to just break even (assuming 35% of the extra wealth is taxed to replenish the $3.5T annual prize fund). Wow, what a great way to reach a $24 trillion GDP--just increase taxes by $3.5 trillion!! Genius! This never occurred to me. No wonder I'm not an economist.

Update 2:

And get this: according to the text of socialist Sanders's draft bill, the $80 billion+ taxpayer-funded "Fund for Medical Innovation Prizes" will be administed by a "Board of Trustees for the Fund for Medical Innovation Prizes," composed of 13 members serving 4-year terms. The 13 members of the Board are:

(1) the Administrator of the Centers for Medicare & Medicaid Services; (2) the Commissioner of Food and Drugs; (3) the Director of the National Institutes of Health; (4) the Director of the Centers for Disease Control and Prevention; and (5) nine individuals to be appointed by the President, with the advice and consent of the Senate, of which: (A) three representatives of the business sector; (B) three representatives of the private medical research and development sector, including at least one representative of the non-profit private medical research and development sector; and (C) three representatives of consumer and patient interests, including at least one representative of patients suffering from orphan diseases.

Each Board member will be paid at the equivalent of an annual salary of about $140k for daily service. They'll of course have expenses paid, and a staff, and budget to hire experts and consultants.

And every year, the Fund gets public funding equal to "0.6 percent of the gross 6 domestic product of the United States for the preceding fiscal year."

Jesus, this is pure evil.

(Cross-posted at Mises Blog)

Since there has been a lot of discussion John suggested rather than having it all as comments to a single post, I create an open thread for general discussion. I will try to set up an open thread each Monday for whatever IP topics catch the imagination and see how it goes. So go ahead, and post away comments to this posting on whatever IP/Monopoly topics you'd like.

Technological Innovation and Intellectual Property

Summary:

Patents as property I

The idea that patents can be analyzed as a property system both regarding its strengths and its weaknesses seems to be gaining currency in influential circles. This post reports on a recent editorial in the Wall Street Journal.

What s wrong with software patents?

This post, continuing summaries from Patent Failure, reviews the evidence on whether software patents have a particular problem, and, if so, what it is and how it might be fixed.

Patent sharks

Summary of recent articles on patent sharks, both old and new.

IP and startups

Theoretical model explores a novel effect of patents for startup firms.

From time to time, there have been stories about countries asserting ownership of pathogens for a variety of diseases. Indonesia's Minister of Health is the latest, and the story took a darker turn when the Indonesian government accused U.S. Naval Medical Research Unit Two (NAMRU-2) scientists of profiteering off its "sovereign" viruses and allegedly manufacturing the H5N1 bird flu in a biological warfare scheme link here. As a practical matter, the H5N1 strain is not limited to Indonesia and the fear is that the most deadly strain will cross national borders and kill millions before an effective vaccine can be developed. But it is also in Indonesia's interest to have the world working on cures for its own benefit.

This isn't the usual sort of intellectual property, but the monopoly that Indonesia wants to create is certainly akin to that of copyright and equally objectionable.

Patterico seems to think so with regards to their reprinting of a blog post authored by your humble servant (without my permission).

And Patterico is right - I don't care. It certainly isn't going to cause me to lose my incentive to continue writing about topics that interest me.

Robert Levine writes in the NYTimes today about Gregg Gillis, a D J who goes by the title Girl Talk and produces musical performances composed of snippets of other people's music link here. He is pushing the limits of copyright, claiming fair use, and is distributing some of his performances as free downloads, with a request for contributions, but is looking forward to a big album and might love the publicity of a suit.

Levine speculates that Gillis hasn't been prosecuted because the RIAA is afraid of losing a precedent setting case in which large snippets were found to constitute fair use. I would guess it may also have learned that prosecuting is pretty unpopular with their music buyers.

Although this case seems to constitute an example in which fair use is expanded and copyright restricted, it is only one small example of a possible win against the ever expanding limits imposed under copyright law. Fighting these cases in court against the well heeled doesn't see to be working, so I have come to agree with Larry Lessig that the IP monopolists will only be rolled back by political action.

Recently, re-listening to the 1991 lecture "Ayn Rand, Intellectual Property Rights, and Human Liberty," by Objectivist attorney Murray Franck, I was struck by one of quotes given in defense of IP. During his lecture, Franck reads (most of) the following quote approvingly:

"When we come to weigh the rights of the several sorts of property which can be held by man, and in this judgment take into consideration only the absolute question of justice, leaving out the limitations of expediency and prejudice, it will be clearly seen that intellectual property is after all the only absolute possession in the world. The man who brings out of the nothingness the child of his thoughts has rights therein which cannot belong to any other sort of property. Land or chattels are pre-existing in some form, and the rights therein are limited in many ways, and are held in the great service of the world, but the inventor of a book or other contrivance of thought holds his property, as a god holds it, by right of creation; with his silence or inaction the sustenance and advance of millions yet to be may vanish into the great darkness again. His brain has brought the seed out of the infinite, planted it in good soil, tended it with the care that only the sower can feel. Surely the world should not deny him a share of the increase he has brought about, and if he, giving the reversion of his property for all time to his race, is granted the product of his creation for half a score of years, he should surely be secured against being plundered by the law as well as by the lawless."

Franck says the quote is from one "Forvold Solberg" [sp?], "a former register of copyrights", but my google-fu indicates that the author is one Nathan Shaler, Professor of paleontology and geology at Harvard from 1869-1906, in his Thoughts on the Nature of Intellectual Property, and Its Importance to the State (1878). It's perhaps a bit ironic that the author quoted approvingly by an Objectivist in support of IP was a racist, one-time Creationist, and author of a book about some idea's "importance to the state"!

In any event, the latter part of the quote is extremely utilitarian: "the world" should give the innovator or creator "a share" of the wealth he contributes... by giving him a monopoly on it for about ten ("half a score") years.

The first part--about how inventors are "like gods" calls to mind Rand's embarrassing justification for smoking--that it's symbolic of fire "tamed" at man's fingertips.

The quote also emphasizes very explicitly that Randians and other IP advocates believe "creation" is an independent source of rights: you hold your intellectual creation like a god, "by right of creation."

I note also that Franck says in the lecture that copyrights should survive in perpetuity.

Incidentally, I graduated from law school in 1991, the year of this lecture, and listened to it soon after, about the time I was beginning to practice IP law (1993 or so). I had recently morphed from an initial flirtation with Objectivism to Rothbardian anarcho-libertarianism. I was very interested in this lecture, since I had long struggled with Rand's weak justification of intellectual property--which was especially troubling since she claimed that "patents are the heart and core of property rights." The lecture failed to convince me; I kept searching for better justifications of IP than I'd seen from Randians. After shooting blanks for a few years, I finally came to the realization that I was unable to find a justification for IP ... because it's unjustifiable and contrary to individual rights. By 1995 I had reached my current views on IP, as can be seen in this exchange between me, Franck, and David Kelley, in the IOS Journal: Murray I. Franck, "Intellectual Property Rights: Are Intangibles True Property," IOS Journal 5, no. 1 (April 1995); Kinsella, Letter on Intellectual Property Rights, IOS Journal 5, no. 2 (June 1995), pp. 12-13; David Kelley, "Response to Kinsella," IOS Journal 5, no. 2 (June 1995), p. 13; and Murray I. Franck, "Intellectual and Personality Property," IOS Journal 5, no. 3 September 1995), p. 7 (all of these except the first are here; I find only this bad link to Franck's first piece).

In Against Intellectual Monopoly, Michele Boldrin and David K. Levine point out that the great rise in American agricultural productivity after 1930 took place when patents were not granted on plant life, especially in the case of corn. Corn varieties were patented only starting in 1974, almost half a century after the great ag productivity boom began (pp. 55-56). They state that better hybrid strains were the primary driver in the farm belt's boom.

The economic historian John Gordon Steele points to another factor in what he calls "The High Price of Farm Productivity" (scroll down a bit): Henry Ford's introduction of the Fordson tractor, which by 1922 cost less then a team of good horses. By 1930 the only farmers using horses were the Amish.

In 1900, a third of U.S. cropland was used for fodder crops; by 1930 it was used mainly for making human food. I don't know which affect was more important, but surely they both were influential.

Here is John Gordon Steele's economic history of America, An Empire of Wealth.

According to Michael Heller the cures are lost in patent gridlock. His article in Forbes has the not very pretty details.