My correct views on everything

Just kidding. For the sake of brevity, this post will be limited to my correct views on intellectual property rights.

A vigorous discussion is going on here at the Tech Liberation Front, with Tim Lee being attacked for "playing favorites" by his pointing out that Novell's deal with Microsoft is bad for open-source development, but that insofar as Novell relies on the goodwill and effort of open-source developers, it may be forced back to the path of righteousness should said developers ostracize the company. Apparently suing competitors into the ground using morally illegitimate and often legally invalid government monopolies is the free market at work, but encouraging volunteers to withhold their, you know, voluntary contributions is Just Not Okay. Fireworks ensue; check it out. The fun continues in this thread, where Noel Le defends neo-Schumpeterianism ("only the promise of temporary monopoly induces competition and innovation") to its reductio ad absurdum conclusion: without DRM, no one would have invented the iPod. He actually believes this, folks.

All of which is merely a lead-in to the point of this post, which is about the Broken Window Fallacy of intellectual property. The parable of the Broken Window, you may recall, is about refuting the claim of the onlooker who, upon seeing a window broken, asserts that just this sort of window-breaking is necessary for the economy. After all, "Everybody must live, and what would become of the glaziers if panes of glass were never broken?" What this misses, of course, is "what is not seen", what would have happened if the glass hadn't been broken: the money spent on replacing it would have been directed towards some other, productive, pursuit; perhaps a pair of shoes. As Bastiat pithily notes, "destruction is not profit." The implications for intellectual property should be transparent, but don't seem to be (though Tim Lee, unsurprisingly, gets it). So let me break it down for everyone else.

One interesting effect of US copyright law is that, as Judge Kozinski puts it, "Congress has given courts the power to order books burned." Infringing copies may be impounded and destroyed. Instead of innocent children breaking the window, we now have the agents of the state. More typically, by giving monopoly privileges of greater or lesser scope, patents and copyright (especially the derivative works right in copyright, which prevents me from, e.g., competing with Laurell K. Hamilton in offering vampire-porn featuring Anita Blake and Jean-Claude), write into law the principle that one may only buy windows from particular glaziers and their licensees.

Just as in the Bastiat story, you have the helpful onlooker who says "But everyone must live, and what would become of innovation if every innovator could have his insight copied by the first free-rider who came along?" Just as in the Bastiat story, this is wrong. What is seen is the way in which the protected firm uses his IPR to generate monopoly profits, some of which are then plowed back into R&D, generating a pleasant stream of innovation. What is not seen is what would happen in the absence of this protection: the innovator would have to keep innovating in order to maintain his market, leveraging his expertise into further productive developments, while newcomers would be able to experiment on their own with the knowledge produced by the first. Money that once went to monopoly rents would go instead to other, more productive things--including further innovation.

The neo-Schumpeterian retort is that this is hopelessly naive: innovation requires large capital investment and the reasonable hope of monopoly rents to recoup it. But this is mere question-begging, and its plausibility lies, again, with the distinction between What Is Seen and What Is Not Seen: when we give innovators monopoly privileges of this sort, we thereby tilt the playing field dramatically towards heavily capitalized firms by jacking up the costs of the inputs (eg., prior innovations, a skilled legal team, insurance against lawsuits) to production. As a result, What Is Seen is capital-intensive innovation; What Is Not Seen is the less capital-intensive innovation that the legal regime has stamped out.

And so:

• When a surgeon insists that only he should be allowed to perform a certain operation, because only then will surgeons come up with new procedures, we say (rightly): "I don't believe you."
• When the domestic auto industry says that it must be protected from foreign competition, because only then will it have the profits to innovate, we say (rightly): "I don't believe you."
• When a chef says that only she should be allowed to sell a certain recipe, because only then will the restaurant business innovate, we say (rightly): "I don't believe you."
• When a fashion designer says that only he should be allowed to sell fashions of type X, because only then will fashions innovate, we say (rightly): "I don't believe you."
• When the pizza-delivery guy says that only he should be allowed to sell pizzas, because only then will pizza-delivery innovation happen, we say (rightly): "I don't believe you."
• When a singer says that only she should have the right to sell recordings of her songs, because only then will she bother to sing at all, we should say: "I don't believe you."
• When an author says that only he should have the right to sell books he has written, because only then will he write anything, we should say: "I don't believe you."
• When a company says that only they should be allowed to let customers buy things with a single-click, because only then will anyone come up with such out-of-the-box thinking, we should say: "I don't believe you."
• When authors and investors more generally say that they should be granted the exclusive rights to their respective writings and discoveries, because only then will we have progress in the sciences and useful arts, we should say: "I don't believe you."

We should refuse to believe such claims not because they are never true. On the contrary, the individuals and firms making the claims often will be unable to compete, if they are forced to do so on a level playing field. But it is precisely those who need such monopoly privileges to compete who we least want in the marketplace to begin with. Competition, not monopoly, is the mother of invention.

Of course I am not denying the presence of positive externalities, nor am I denying that music, books, and technical progress exhibit them to an enormous degree. My point is rather twofold: first, to use the coercive force of state authority as a tool to internalize all positive externalities is precisely to take on the hubris of the central planner. Second, even if you are asking the planner's question, to believe that IPRs are necessary is to display a laughably narrow view of human motivation, one that entirely ignores the complexity of the choices and preferences facing real people.

This is worth elaborating on, so let's take books as an example. It's true that if it were simply impossible to make a living writing books, fewer people would write them. But even here, the number would not be zero: think of all the fanfiction writers who not only will not be remunerated but face possible legal action for their efforts. Think of the gentleman-scholars and -writers of ages past. Think of the simple fact that some people enjoy writing. Think of weblogs, for goodness' sake!

But current-profits vs. no-money is, of course, a false dichotomy--absent all copyright, authors would still get paid, though probably not as much. People are willing to pay significant premiums for brand-label prescriptions over generics, brand-label cereal over store-brand made in the same factory with the same process, etc.; do we really think that no one would buy the Authorized Edition, even if it cost a shade more? Indeed, buying books is generally an expressive rather than merely an instrumental act--if it weren't, the new-book market would have a much harder time than it currently does competing with public libraries and used books.

The planner's question, then, is whether we need copyright to properly incentivize. And when we think carefully, it becomes immediately apparent how absurd it is to think the author needs to be guaranteed the entire social surplus for this to happen, or even any significant part of it. At the technical level, we only have an inefficient allocation if, for any author whose writing is more socially beneficial than any other use of her time, there exists some activity she could pursue instead that she would find more privately rewarding. The question is whether we should expect this to be the normal state of things, without copyright, and I think the answer is clearly no. Reasons why include:

1. Comparative advantage. Authors are often not very good at other things! Just think about the day jobs that various famous authors had before they 'made it big.'
2. Non-monetary values. Being an author has rewards beyond the monetary, just as being an actor or an academic or a judge does. Those who are able to be good authors typically have preferences structures that place a high weight on the rewards that come with being one.
3. Backward-bending labor supply. When effort is rewarded more heavily, there's both a substitution and an income effect: working is now more valuable, but you're also more rich, and hence might want more leisure. Often authors work hardest and are most productive, not when they are widely acclaimed and wealthy, but when getting that chapter in on deadline is all that will keep them from being evicted.
4. Endogeneity of potential author supply. Books are not just what authors produce, they are also an input into producing future authors. Have you ever heard of an author who doesn't like reading, who didn't practically live at their local library as a youngster? Drive down prices and increase availability of current works, and you shape the preferences and abilities of the next generation, resulting in more authors later.
   

When all these factors are considered, exclusive rights start looking penny-wise and pound-foolish. Which should lead us, in this as in pizza-delivery, to give up on the planner's hopeless task, and let a genuinely free market sort it all out. The lesson is the general libertarian one: yes, perhaps government intervention could fix this particular market imperfection or that one. But by granting the state this power, you throw open the door to the most pernicious and thorough rent-seeking, and guarantee that the good you've accomplished will be far outweighed by the resulting evil.

Well, all done. To anyone who made it this far, I congratulate you, and I leave you with this lovely quote from Joseph Schumpeter, who may have been wrong but was undeniably clever: "Early in life I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria." Even he, I think, would have denied that patents should be awarded in economic theory, horsemanship, or lovemaking.