Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

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Tabarrok Review of Against Intellectual Monopoly

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)


Ironically, Tyler Cowen refuted the original Laffer Curve around 1984 or 85. (I say original, meaning as it applied to taxes.) Who says the top of the Laffer Curve is optimal? Libertarians want to abolish the income tax, so guess where we think we should be on the Laffer Curve. That's the point that would also maximize economic growth and employment (although not government "employment.") Ditto for the LC and innovation. As for the prizes he advocates, I think they're privately funded.
We agree with Tabarrok that there is evidence that modest IP protection encourages innovation. This is not decisive since the resulting costs of monopoly may still exceed the benefit of increased innovation. But the reason we are so strongly against IP is because of the "camel's nose" problem: a small amount of IP at best provides a small benefit - and is an invitation to have a lot of IP.

This has some relevance to the issue of the state raised by Stephan. I guess I'd call myself a "practical" libertarian. If the practical alternative to a powerful state is rule by armed gangs, for example on the Somali model, I'm forced to go with the state. But "state" covers a range of possibilities from the U.S./Western European model to the Zimbabwean model. Current IP law seems driven more by the fact that the U.S. is intent on taxing the rest of the world than an intrinsic deficiency in the way our government is organized.

On the balance I'd go with a lot less state than we have. And more competition between states as well. The great danger is that the U.S. will succeed in eliminating competition between states to innovate.

Why people think that the government can microtune the economy better than the free market can is beyond me.

It seem that whenever government interfere, it usually screws things up more than help things. I think humans are not particularly good at micro optimization of economy.

You do realize Tabarrok liked the book, don't you? :)
Stepp: "As for the prizes he advocates, I think they're privately funded."

Do you mean the ones Tabarrok is referring to? If so--why? The Sanders bill clearly takes from the treasury an amount equal to 0.6% of the GDP (IIRC).

David: "If the practical alternative to a powerful state is rule by armed gangs, for example on the Somali model, I'm forced to go with the state."

David, to my mind, the question is very simple: (a) do you agree that aggression is unjustified? and (b) do you agree that states necessarily use aggression? If so, you're an anarchist in my mind, and I don't see how this is undercut by the position that you would prefer to avoid rights-violating gang 1 more than you would prefer to avoid rights-violating gang 2.

Also, David you wrote: "the reason we are so strongly against IP is because of the "camel's nose" problem: a small amount of IP at best provides a small benefit - and is an invitation to have a lot of IP."

This is an excellent point. But isn't it true of the state itself? Even if you think a small degree of "regulation" from the state is better than none, having a state that can provide a little regulation is an invitation to have a lot (and it's bound to include IP, and too much of it, to boot!). So the only choice is to strongly oppose the state, just as you strongly oppose IP.

NPTO: "You do realize Tabarrok liked the book, don't you? :)"

Sure, and I commend him for that. But as a libertarian, I strongly oppose calls to have the feds spend $82B--especially in the name of promoting innovation.

I think prizes are a very good idea. The bad (and old) idea is to have these prizes funded from taxation.

As they say, no taxation without representation - and the more representation the better.

I suggest it would be better if the people chose how to spend their own money rather than their representatives (persuasively comforted by lobbyists).

Imagine a national lottery, where the ticket buys not a tiny chance of a prize to oneself, but a large chance that someone will be able to claim the prize in exchange for completing a specified task, e.g. developing a cure for a particular disease (the cure becoming public property). All ticket purchasers then stand to gain the value of the prize, not just one.

There's nothing to stop umpteen thousand such 'lotteries' operating for any number of popular causes. The people then decide which causes they're most interested in.

I use lottery as an analogue. One could also operate the fund as an interest bearing bond with a ten year time limit, i.e. if the prize isn't claimed, it is refunded to each contributor with interest.

Stepp: "As for the prizes he advocates, I think they're privately funded." Do you mean the ones Tabarrok is referring to? If so--why? The Sanders bill clearly takes from the treasury an amount equal to 0.6% of the GDP (IIRC).

He mentioned privately funded prized somewhere. Does he advocate the Sanders bill?

Even if you can allocate the funds in your taxes, it is still wrong. You are forced to pay for the taxes.

Why would we want the state to bully the agorists who are trying to form an economic system free of corecisions and evil monopolies?

The trouble with funding such a prize through voluntary contributions is, well, how are you going to collect enough money to make the prize worth winning?

If you fund it out of tax receipts, everyone who pays in knows that there will be a decent prize pool, because paying in is mandatory - they're getting something tangible for their money. I pay $X, and in return I get the existence of a prize pot worth (number of taxpayers * $X).

On the other hand, if you fund it through individual contributions, then my $X is only worth $X. Why should I pay $50 into this pot when I know that $50 on its own won't significantly affect the size of the prize, and thus won't add any significant incentive to do the research necessary to claim it? I might as well give that money directly to a scientist and have him do ten minutes of research; that way at least I know I'm getting something.

How about the X-prize institution? That's ought to demonstrate the feasibility of the prize system.
Well, if you're using the X Prize as a model, then it's not really about "people [deciding] which causes they're most interested in" - it's about a handful of wealthy donors making that decision. If you have $1 million to contribute, you can be more sure of getting something for your money than if you only have $100.

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