Dean- aren't you being misleading here too? First, I think almost anyone who has enough book learnin' to have an opinion (besides you) thinks copyright is a proper part of a free market, just as laws against stealing are.

And, you imply that the copyright and patent issues have to do with whether those parties to the talks think these are proper parts of free markets, when in fact (to my knowledge) none do. The disputes are about how much effort governments must expend to crack down on piracy.

Dean,

You're insistence on including a lack of intellectual property rights in a definition of a free market is for the purpose of undermining support for free markets, and is contrary to a sensible definition of "free". Milton Freidman, who argued for markets to be as free as possible, understood that freedom is not anarchy, and your freedom to punch me in the face must be limited by my freedom to not be punched. He also said that a necessary condition for free markets to function is a government "setting the rules of the game", especially in regards to property rights. Because intellectual property is not tangible like a swath of land, the laws defining it's ownership must be different. A society that values creativity, inventiveness, and scientific progress must provide enough incentive for such endeavours.
Of course, a better definition of a "free market" is not your goal. Your goal is to pretend that the only way to have a "freedom" is to have anarchy, so that those who argue for free trade are seen as hypocritical. If your argument is correct, than those who argue for freedom anywhere must redefine their term if what they demand is less than anarchy. Perhaps Martin Luthor King Jr. should have said "Jurisprudence at last, jurisprudence at last, thank God Almighty, we have jurisprudence at last".

Sorry, but copyrights and patents are not part of the "free market" regardless of what Milton Friedman might say. They are government imposed monopolies that are part of a government policy to promote innovation and creative work. This may or may not be good government policy, but it is clearly policy none the less.

And, yes copyright and patent laws have been very central in recent trade agreements. Prior to TRIPs many countries had no meaningful patent or copyright laws or had laws that only applied to a limited range of products. So, these deal absolutely meant extending government monopolies to a much broader range of products than had previously been the case.

In terms of how people think about patents and copyrights, according to many prior articles in the NYT and elsewhere, people in countries like China, India, and elsewhere freely buy unauthorized copies of patented and copyrighted items without any sense of doing anything wrong. The poll supposedly talked to a representative sample of the population in each country, which would mean in many countries most of the people who were polled have no conception of copyright or patent being biblical rights.

In terms of Milton Friedman's views, if he wants us all to accept to copyrights and patents are part of a "free market" (we have better ways to finance innovation and creative work), then he knows very well that he has to pay us. I'm waiting for my check.

but Dean

the purpose of a poll is never to determine if the people understand an issue or even if they "favor" it in any meaningful way.

the purpose is to check how well your sales program is working.

and the sales program for "free" markets has been going very well indeed.

they sold it to me in college in 1964 and i believed in it until just after NAFTA was passed. just before I started actually thinking about it.

The debate isn't so much about how far the govt goes in enforcing rights, it's the scope of the rights the debate is on, and whether what is currently in place is the best model for the purported goals of the policies. They are protectionist, as Dean says, but provided there's a purpose that's fulfilled, well, fine. Intellectual property was never intended to be simply and absolutely protection of rights' owners potential income. Rather, it should do that only to the extent it is necessary to foster creativity and innovation. Dial the protection up too high, and it becomes counterproductive, benefitting one party at the expense of others and ultimately stifling innovation and commerce. I'd guess there's positions along the spectrum here, with Dean and many others at one end, saying that these policies are not necessary, they artificially restrict supply of a 'good' that has 0 marginal costs of production, are inefficient in the aggregate, so get rid of them. On the other side is the ownership interest, who have a very loud voice, that invoke the discourse of "property" "theft" and "rights" in order to protect their income stream.

The use of that kind of discourse is misleading, as Dean alludes to. These rights are solely created by government for specific policy purposes and have never been part of what was commonly understood to be the suite of natural rights an individual was entitled to as a function of citizenship. Using laws to create "property" out of intangibles is a neat trick -- creating a commodity with an income stream out of thin air, while piggybacking on the legal status of real property. As far as "theft" goes, unauthorized copying and use isn't quite the same as tangible property theft. It impairs potential income, but otherwise leaves the "asset" intact in the hands of the owner. There's no cost, just a potential loss of a future benefit. This shifting of the perception of these laws leads to the distortion in the goals of the policy. It become protection of the asset and the potential income stream at all costs, without looking at the broader purpose. Sure, protect the labour that goes into creating new works, but be clear on why you want to do that and how far you need to go.

The spreading of this "property" law globally through TRIPS is a fairly astonishing development. TRIPS is the only WTO trade (free?!) agreement that seeks to impose laws on signatories. Other agreements are about reducing barriers and ensuring a level playing field within whatever domestic legal regime exists. TRIPS says you have to have a specific legal regime with specific features in order to play. As has been mentioned, many countries haven't had much in the way of IP protection perhaps partially because it doesn't resonate within the local cultural philosophy. It sits OK with us Protestant-y Western types, as it falls within our mindset about individual effort and reward, thrift and industry etc etc. That it is imposed on societies that are more grounded in collectivized, clannish or hierarchical philosophies, for whom the concept of individual rights and ownership is an abrupt shift in thinking, suggests this is as much about an ideological project as much as an economic one.

Dean, Dingus,

The debate over how ownership of creative content is defined is important, but to argue that intellectual property rights are inherently not free market is inaccurate. While property rights for intangible goods may not have been the original intent of Bentham and others in arguing for the natural rights citizens, we are increasingly an idea economy, and to people for whom intellectual property is a livelihood, and to the rest of us who value their contributions, those rights are of increasing importance.

That collectivist, clanish, or hierarchical philosophies struggle to accept intellectual property rights would have as much to do with the fact that developing countries import a far greater amount of intellectual property than they export. Learning to adapt to "western" style intellectual property rights is an understandable precondition for access to our markets. This struggle to adapt to a capitalist society extends to physical property ownership as well, and can be seen in the case of the slow but necessary development of land ownership rights in China.

I agree that the intent of these laws should be to make sure the incentives for creation exist, and that overprotection may in fact be the case in many instances. However, to insist, as Dean does, that patents and copyrights "have no place in a free market economy" is wrong.

yeah, i think i agree with anonymous. dingus made a good beginning with noting the need for finding an optimum that would encourage new ideas but then made too much of a case about "thin air."

on the other hand, maybe we could relax the patent laws which i assume are what keep the chinese from manufacturing a decent toaster or hot plate.

And I don't disagree with anon. Markets in a lot of ways are constructs of laws, and are not simply the absence of laws. But what exactly is a 'free' market anyway? What is the goal?

On the other point, a trade partner having IP laws that favour us as a "necessary precondition for access to our markets" advances our interest nicely, however it is ironic it is done under the umbrella of a liberalizing trade regime when it is in fact protectionist.

[And OK, I admit my 'thin air' veered into hot air. Rhetorical wind is fun, though, no?]

Dingus,

Markets are not constructs of laws, but laws are a prerequisite for markets to function. Free markets are the voluntary exchange of individuals.

Would insisting that a country not regularly nationalize American businesses, and imprison it's workers be a protectionist measure? No, because insistence upon a sound legal framework that recongizes the rights of U.S. citizens is a basic principal we should insist upon from our partners in trade.

The point about the distinction between physical property and claims to intellectual property is essential. When someone else uses my physical property (e.g. they take my car or move into my house), I am denied its use. When they use something to which I claim intellectual property (e.g. a song I recorded or a book I wrote), I am possibly denied an income stream. How do I get the "right" to the income stream -- it is a government policy.

Maybe some folks own a bible that tells how God defined property rights, but I am afraid I don't go to the same church. Intellectual property is a government policy for promoting creative work and innovation. It is not the only way to promote creative work and innovation and in fact it is probably not even the primary mechanism. (The government spends more than $30 billion a year on biomedical research, universities and private foundations spend tens of billions more.)

If folks want to argue for intellectual property as a god-given right that's fine, just like right-to-lifers can claim that abortion is a sin. But, I'm afraid that no one else in the world has an obligation to accept the tenets of your religion.

I am very happy to look at any policy analysis that shows that copyrights and patents are the most efficient way to finance innovation and creative work, unfortunately this analysis does not seem to exist.

Dean, Dean

i didn't hear anyone here make a religious claim.

but just to be perverse, if my copyrigight means i get the royalty from my book instead of some printer i never met underselling me, and i buy a mercedes with my royalty check, then could you at least see the faint ghost of an outline of a physical property right in my intellectual property?

to be honest my religion finds it easier to see intellectual and physical property rights as members of the same class than your patents and what other government policy for promoting creative work you have in mind.

Dean,

How do you get the "right" to physical property? It is a government policy as well. Your ownership of your house lacks divinity just like my ownership of "The Dean Baker Song".

Like you say, the problem is, that absent government action, the market will underprovide goods for which access is non excludable. You're argument is that a solution based on regulation "has no place in a free market economy", yet when "The government spends more than $30 billion a year on biomedical research" it is somehow a free market solution?

If XYZ company could legally go out tomorrow and create exact replicates of the iPod and sell them at 5% above cost, say $105, Apple would sell no more iPods, and future generations would be robbed of the 5 terabyte iPod. Your solution would be government sponsored prize for mp3 innovation? And when your next book "The United States Since 2000" comes out in 2009, will you just hope for a government book prize while I print copies of your book the day it comes out and sell the copies for $3 INSIDE bookstores? I've got news for you if that's your plan, Krugman wins the prize in 2009.

Well, anyway. I see some poor girl (ah, criminal, sorry) has been fined $220,000 for downloading 24 songs off of Kazaa (a heavy price for Sara Mclachlin --yeessh).

I have had physical property stolen from me a number of times and the police reponse has been -- meh, fuhgeddaboudit we're busy. Somehow in the eyes of the law a single copy of a Destiny's Child song is of more value to a record company than my car is to me? It's out of joint, I tells ya.

I hear nothing but religion when people start saying that they have a "right" to intellectual property. You're welcome to call the claim to physical property is religion as ell, but at least there is an argument that I can see -- physical property is exclusive. Intellectual property is an income flow.

As far as government policy, if you want to mock my views you must first know them. I have written on this and I do not advocate a government prize. I advocate individual tax vouchers [http://www.cepr.net/index.php?option=com_content&task=view&id=161]. Any, my book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer is available as a free download at www.conservativenannystate.org. Happy "stealing."

Erik L wrote, First, I think almost anyone who has enough book learnin' to have an opinion (besides you) thinks copyright is a proper part of a free market, just as laws against stealing are.

That's false; it's not obvious that government-granted and -enforced monopolies are necessary to fund the arts and sciences.

AO wrote, You're insistence on including a lack of intellectual property rights in a definition of a free market is for the purpose of undermining support for free markets, and is contrary to a sensible definition of "free".

Nonsense.

Copyright is a severe abridgement of liberty, because it gives privileged individuals the right to control the thoughts of others.

Suppose I walk down the street and hear music playing. Further suppose I have perfect pitch. Even though I didn't ask to hear the music, nor did I sign any contract, copyright prevents me from recording the score I now have in my head.

A society that values creativity, inventiveness, and scientific progress must provide enough incentive for such endeavours.

Except there's no evidence government-granted titles to intellectual "property" is necessary for this. Cf the works of Shakespeare.

Your goal is to pretend that the only way to have a "freedom" is to have anarchy, so that those who argue for free trade are seen as hypocritical.

Nonsense. Rather, your goal is to pretend that the only way to fund creative endeavors is through government-granted titles to economic rents.

dingus wrote, Using laws to create "property" out of intangibles is a neat trick -- creating a commodity with an income stream out of thin air, while piggybacking on the legal status of real property.

Yes, though the role of "real" property in this debate is questionable.

People are entitled to the fruit of their labor. "Real property" is commonly taken to mean land. Land ownership, as is current practically realized in the US, is theft, much more so than copyright (the comparison to patents is iffier). The income from land (which in economics is known as "rent") is a return to the landowner in exchange for no productive contribution whatsoever.

See "Are you a Real Libertarian, or a ROYAL
Libertarian?" for more details.

dingus wrote, The spreading of this "property" law globally through TRIPS is a fairly astonishing development.

I thought it's actually worse than you describe (though I can recall if the trade agreement series is TRIPS or not).

To wit, aside from intellectual property, I thought some of the trade agreements stipulate the following: if something, say water distribution, is privatized in a locality, then in the future, if the State decides to offer the service again (and I'm not talking about seizing the assets of the private organizations, but rather just possibly putting them out of business through competition (fair or otherwise)), then it has to compensate the private parties.

anonymous wrote, The debate over how ownership of creative content is defined is important, but to argue that intellectual property rights are inherently not free market is inaccurate.

Of course they're not free market. They're a state-granted title to a monopoly.

...and to the rest of us who value their contributions, those rights are of increasing importance.

Which ignores the possibility of other mechanisms of compensation for creators of intellectual content.

Learning to adapt to "western" style intellectual property rights is an understandable precondition for access to our markets.

It might be "understandable"; that doesn't make it right or just.

This struggle to adapt to a capitalist society extends to physical property ownership as well, and can be seen in the case of the slow but necessary development of land ownership rights in China.

LOL!

Of course, "land ownership rights" are necessary to a vibrant economy, insofar as collective ownership doesn't work, and insofar as exclusive use must be granted to avoid chaos.

OTOH, when government grants certain privileged agents the right to land rent (without offsetting taxes), two things happen. First, there's a harm to liberty, because those excluded from access and use of that land are not being compensated for their loss. Second, this transfer of income (much of which is generated by government itself to begin with) forces the state to rely on distortionary forms of taxation.

AO wrote, Free markets are the voluntary exchange of individuals.

Yes, but your conception of "free market" is incompatible with that principle.

First, there's nothing voluntary about intellectual property, especially and obviously so in the case of patents. Cf my example above about a passerby hearing music.

Second, there's nothing voluntary about land ownership. Someone owns land, when originally no one owned it, and there is no just process whereby ownership could be created, where "just process" means a voluntary exchange between individuals.

If land were fully taxed, it would be a different matter, because the compensation would be made to government on behalf of everyone. But it's not.

Anonymous wrote, i didn't hear anyone here make a religious claim.

Wrong. AO wrote, "Markets are not constructs of laws, but laws are a prerequisite for markets to function. Free markets are the voluntary exchange of individuals." Which is a reasonable "religious" principle. The problem is that the deduction that IP follows from this principle is fallacious.

AO wrote, Like you say, the problem is, that absent government action, the market will underprovide goods for which access is non excludable.

Not so clear.

Cf Shakespeare and Linux.

i would not argue that there are no problems with abuse of intellectual property. and i would be the last to argue that economic opinions in general are not religious in nature.

all i am saying is that while Dean knows more than i do and is smarter to boot, he is utterly failing to convince me on this pantents issue he is so passionate about. and since i rely on Dean's credibility to make arguments i consider much more important, i wish he would either find a way to be more convincing or just leave this alone.

Sorry anonymous,

you don't get veto power on what I write, but you're more than welcome not to read my material if you don't find it worthwhile.

Dean

not looking for veto power. but wondering why you are so thin skinned on this issue.

did you notice where i said i rely on your credibility?

Well Anon,

I can make an argument against copyright based on economic efficiency, and i can also make one based on free speech, but I really have no idea what would be convincing to you, so them's the breaks.

Dean

i read your blog and your books because you are the most reliably intelligent economist i know.

for some reason you are offended that i am not convinced by your arguments about patents.

and while it is only my unsupported fear that beating a dead horse in public can damage your credibility on other issues i care about... not for me, but for the kind of people i might cite you as a source to... your emotional response to my opinion makes me wonder if any honest exchange of differing opinions is ever possible.

that's something i have learned to expect from the rabid right. i can't tell you how disappointed i am to find it here.

Anon,

If you read through my blog posts, you will find that many people do disagree with me and often quite strongly. I usually enjoy going back and forth with these folks.

However, you are the only one who has suggested that I not write on a topic because I could not make myself convincing to you. When someone makes such a suggestion like that, all i can say by way of response is that if you don't like what I write, then don't read it.

Dean,

I read your paper, and your proposal is interesting. However, it contains heroic assumptions, and would not replace trademarks and copyrights even if those assumptions were accurate.

First, I am highly skeptical of the idea that 200 million people would process the necessary tax forms. That requires they incur the cost of lost time with no direct benefit. People constantly "leave money on the table" when it comes to filling out paperwork and paying taxes. See the problems in getting full enrollment in CHIP or EITC as an example; and there benefits are direct and high.

Second, with the option of copyright in place, I see no reason why record companies for whom the current system is profitable will switch willingly.

Musicians competing for tax credits need exposure through advertisement just as much as those competing for monopoly profits, which is part of the services that record companies provide. The tax system would not change the need for media exposure, booking live acts, and other necessary services of the records companies. If bands still need record companies, and record companies benefit under copyright, then they would opt to stay under copyright.

There is no way $20 billion (again, a heroic assumption) worth of spending can continue to generate the level of creative content we enjoy spending $245 billion today, regardless of the overhead costs it would save. In the long run, we all lose. If you are relying on some companies remaining in copyright, then your accepting their necessity.

Also, how would this program solve the problem of iPods, medicine, and other IP goods we enjoy?

dean

i hardly expect anyone to take my "suggestions" so seriously. certainly would not expect you to burn your papers because i do not like them.

nevertheless i am stuck with the point of view that i have, and that point of view makes me worry that by continually hawking an idea that most people will reject out of hand, without being able to make the case, you hurt your ability to be an advocate in causes with more possibilities.

not to continue to hawk this point of view... just suggesting that it is neither so strange nor so hostile that you need to react to it with such feeling.

i offered it. you had a chance to consider it. you rejected it. that's all. no different than any other difference of opinion.

AO,

the amount of money that actually goes to support creative work (i.e. money paid to creative workers) through the copyright system is in the neighborhood of $20-$30 billion, not $245 billion. And this money is very highly concentrated, so the vast majority of people just get nickels and dimes.

As far as whether people actually send their $50-$75 to anyone, we will see. If they don't take advantage of it, then it is a very simple thing to increase the size of the voucher for those who do.

And, once a vast amount of material is available for free, fewer people will pay money for copyrighted material. I alos would not allow nutty punitive sanctions for copyright violations. The idea that people will have to pay $220,000 in fins for making a few songs avilable without permission is nuts.

Dean,

On your last point about rediculous fines I completely agree with you, and I think the RIAA and MPAA will pay for it in the long run, or I hope at least.

On the rest, I have to continue to disagree. If somewhere between 88-92% of the money spent on creative content market goes to overhead costs, what about having the money come from the government instead of consumers makes you think that proportion will change?

Your whole thesis that the system is so drastically wrong that it needs a fundamental change relies on the monopoly argument, and while creative content may have a few technical aspects of monopoly, it has more characteristics of competition.

For one thing, there are no significant barriers to entry.

There isn't a substantial difference in the capital required to make a record and get someone to listen to it than there are to creating a newsletter and getting it read.

Is it tough to "make it big"? You bet. That's what record companies try to help artists do, and that's why those who want to be "superstars" use their services. Art is hard, and finding an audience is a challenge under any policy scheme, but making everyone rich isn't a policy goal, and under the copyright scheme the incentives are great enough to generate a large and diverse supply (see the 1,500 albums reviewed at
pitchforkmedia.com every year).

Not only is there easy market entry for the artist, it's also easy for record companies. Take a look at the list of Independent U.K record labels if you don't beleive me (and keep in mind this is just U.K independents):
http://en.wikipedia.org/wiki/List_of_independent_UK_record_labels

Also, there are ample substitutes within and without the copyright scheme, another qualification for a competitive market. There are lots of artists on lots of labels who release lots of albums with lots of songs. There are substitutes within Norweigen Folk, Ukrainian Grime, and Memphis Blues. Outside of the copyright regime there are the 40-60 million peices of creative commons licensed media available free on the internet. Jonathan Coulton released a song a week for an entire year under creative commons! If you think that's an anomoly, look at the 14 creative commons record labels. Lack of substitutes cannot be an issue when people are giving unlimited substitutes away for free.

Oh and I almost forgot; there are free libraries everywhere!

The only way to consider creative content a monopoly is to look at each song, picture, or book as a good with no substitutes and each artist as the monopolist. In that sense, yes, it is technically a monopoly, but it is qualitatively competitive.

Even if you consider it a monopoly, is not being able to get 50 cent from anywhere but 50 cent worth risking our diverse, creative, and incredibly productive creative content industries which artists come to from all over the world? Even if you think the answer to that is yes, the right policy would match the costs to the benefits, and not run a high risk of reducing incentives to artists, which your policy does not.

Two final points. The only consumers who deserve our pity are the ones who get sued by the RIAA, which is indeed a problem, and deserves discussion. And second, your policy still doesn't address the problem of iPods and medicine, which we would all have less of without copyrights and patents.

i am not sure that Dean's argument against patents is at all bad when it comes to medicines.

emphasize the "not sure."

i think the argument needs to be made more specific to cases, and more careful, if it is not going to be dismissed out of hand by people who accept the idea of patents as "obvious."

AO,

Please note that my proposal does not abolish copyright, it creates competition for it. Creative workers who accept money under the AFV system are not eligible for copyright rpotection (you only get subsidized once), but others could still go this route.

My guess is that most individuals or intermediairies in the AFV system would make a point of saying that most of the money does go to the artist rather than promotion, which is why people would contribute. Would this mean that artists don't get "big?" It may well, but so what? And if most people are listening to a lot os small artists, that they don't have to pay for, then there won't be any money going to copyright protected work. Let's leave it to the market.

Dean,

AFV intermediaries wanting to say that most of the money goes to the artist is not a reason why they could provide the services that record companies do at a lower cost. There are already small labels who focus on small artists, and some of them are creative commons. Why would the money coming from the government rather than consumers allow them to operate at lower costs? You still need to generate an audience, which costs money.

and iPods and medicine?

As a musician, I have to throw in my 2 cents here...

The claim that without proper incentive artistic creativity would be stifled is so absurd and obviously false, it's hard for me to believe that educated intelligent people can actually fall for it. (I'm speaking here about artistic creative output, which may or may not apply to scientific progress.)

Just look around you, go to music venues, talk to musicians, read the bios of famous world class musicians who lived and died in dire poverty.

Do you honestly think that musicians make music and artists make art because of they are banking on the potential income stream that copyrights are designed to generate? These people create in spite of the fact that they know they will barely eke out a living in most cases.

Should musicians/artists be able to make a decent living from their work? Absolutely, just like everyone else who works. But copyrights are not necessarily the answer, and certainly not the impetus for creativity.

Also, most musicians do not benefit financially from their record deals due to the economics of those deals, the lack of business know-how, and the imbalance in bargaining power. If you want to get a little more insight into this, check out this piece by Steve Albini, most widely known for having produced Nirvana's "In Utero" album - http://www.rockrap.com/nomusicbiz/Albini.html

AO,

maybe they would generate a smaller audience, so what? The artist is already compensated. Also, unlike the copyright portion of the industry, the AFV folks wouldn't have to hire lawyers and thugs to enforce copyrights. And they wouldn't have to prepare propaganda courses on copyright for kindergartners (I'm serious, the industry is doing this.)That could be a very large savings.

And of course many creative workers would no doubt solicit AFV money directly, eliminating the middle man altogether.

talito,

Your argument is that musicians do not benefit from signing record deals, yet they continue to do so drove. So musicians who sign record contracts are irrational or uninformed? And yes, wish as you may, musicians do respond to monetary incentives, just like doctors, nurses, teachers, and idealists.

sorry, that should be "... yet they continue to do so in droves..." above

Dean,

"maybe they would generate a smaller audience, so what? The artist is already compensated"

No, they aren't, and that's exactly my point. When their audience listens for free and they hold out a hat to them hoping they fill out their donation paperwork, they won't be compensated. If 25% of the people that would normally buy their CD donate then they will need to generate four times as large of an audience as before!

"And of course many creative workers would no doubt solicit AFV money directly, eliminating the middle man altogether."

Solicit by means of...? Perhaps advertising? Maybe even an organized campaign to spread awareness. Perhaps they could play some live shows or do a live radio set. If only there were an industry organized around providing these services that could utilize specialization and economies of scale to deliver them at a lower cost. Let's call it "The Recording Industry".

So the savings under AFV comes from a lack of litigation costs? It's a stretch of the imagination to argue that litigation costs amount to some significant portion of the $210 billion they take in every year.

I think you have clearly failed to demonstrate:
a) that content creators would choose to use AFV rather than copyrights
b) there would be cost savings in production
c) the economic argument for taxing everyone to subsidize entertainment consumption of others
d) that the policy could apply to IP goods other than music/movies

In light of this, it is intellectually dishonest for you to continue to insist that reporters and the media accept that intellectual property rights have no place in a free market economy. You have not argued convincingly for a way to replace them, and even your policy paper proposes leaving copyrights intact. Perhaps there is an alternative, but you have not shown it.

Instead, lets focus on finding a way to end the litigation. If that were done, what little cost advantage the AFV system would have had would be gone, as would any remnant of argument for.

.... for it.

Anonymous,

Of course musicians, like anyone else who relies on money to feed themselves, will respond to monetary incentives to some degree. Otherwise, they will starve to death, just like idealists as you so cleverly point out. I thought this was too obvious to require elaboration, but apparently not.

The point is that most serious musicians make music regardless of the monetary incentives. In other words, whether copyrights existed or not, musicians would be making great music. This is very obvious if you look at the type of income most musicians make today and in the past. That includes the likes of Bach, Beethoven, countless jazz legends, and milions of others that nobody has ever heard of. In other words, art is more often created for the love of the art (though obviously not always).

A separate but tangentially related issue (maybe I should have made a clearer separation in my first post), is the fact that 99% of signed artists never make a penny from their record deals. I don't know that it is a matter of being uninformed or irrational. I think that at the time of signing it is a rational reaction considering the alternatives musicians face, and the potential upside with a record deal. Many musicians work extremely hard at their craft, and getting the attention of a major record label can be intoxicating and appear to be an open door to a whole new level of fame and fortune (and in some cases, it of course does lead to that).

Besides, there are plenty of things that people across all walks of life do that on the surface can be viewed as not benefiting them.

AO,

they are compensated through the AFV system. Is that so hard to understand -- you get a check either directly or through an intemediary. It doesn't matter if 2 billion people listen to your work and only 20 support you through the AFV system -- that was your compensation. If you don't like -- don't do it. That's a free market.

I can't demonstrate that people will use the AFV system until it is in place. Isn't that obvious? You have tens of thousands of artists that don't get anything through the copyright system. You may tell them not to take AFV money, but my guess is that most would appreciate the opportunity to get compnestaed for their work.

As far as efficiency -- more people would get more music over the AFV ystem -- zero cost, downward sloping demand curves. That means increased efficiency. It's basically defintional.
Eliminating all the waste associated with copyright enforcement is just frosting.

btw, where on earth do you get $210 billion? Recording industry revenue is around $20 billion, movies maybe $30 billion. Books around $20 billion. What else are you tossing in there?

Oh, and I forgot, even if we like copyright as good policy, that still doesn't make it a free market. I happen to think that public education is a very good policy, but I don't see how you can call that part of a free market.

AO,

sorry to pile on, but I am just really struck by the fact that two people on this post have now asked me to stop writing on this topic. I must have had close to 100 blogposts, many of which prompted harsh disagreements. I have never previously had anyone suggest that I shouldn't write on the topic. Is there some reason that proponents of copyright are so adverse to having the issue debated?

Dean,

I'll start with your last comment last and work my way up....

When a market failure exists then the laws and regulations required to correct those market failures are a part of a functioning free market. It's amazing that a PhD economist can continue to claim on one hand, a market correcting legal framework is not part of a free market, but on the other hand a (presumed) market correcting government subsidy and offsetting tax are part of free market. Astounding really. This is no pigouvian tax either, we're all taxed to pay for the entertainment consumption of some. (In anticipation of "it's a monopoly not a legal structure"; you must explain the aforementioned lack of monopolistic characteristics and ample competitiveness of creative content before you can expect anyone to accept the monopoly argument).

The $210 billion is $30 billion (from your comments above) subtracted from $240 billion from table 1 in your paper. It's wholly your number.

You have one of two choices; either the AFV system will replace copyrights fully, wherein you must consider all the costs of ending copyrights as part of the costs of AFV, or it will not, in which case it is not a replacement.

If the latter is the case, then you must stop claiming that AFV is an alternative to copyrights, and accept that having offered no policy to replace them, copyrights are a necessary evil that must continue to exist in some degree, and therefore part of a necessary correction to a free market failure.

If you wish to claim the former then you absolutely must include the long run costs of less creative content. Which brings me to my next point...

You claim artists will be compensated through the AFV system, and I don't doubt that the occasional fan will file his proper forms, but the point isn't that they get some money, it's that they get less money; a net decrease in total compensation. Your $20 billion estimate is a) arbitrary b) relies on people giving something (time, energy) for nothing. When less money flows to creative content, less creative content will be produced in the long run. Without that cost you cannot calculate efficiency. If you want to convince people that efficiency results from your policy prescriptions then don't throw $20 billion dollars out there, ignore the long run costs, and scoff that when people reject your assumptions it's due to a lack of understanding and not because they run counter to the assumed rationality of the consumer.

And iPods? Medicine?

Dean,

On your last post:

That's an interesting question, and I certainly feel the topic of IP important and worthy of much discussion. However, I think you subvert the topic by pretending that copyrights are obviously unecessary, and that a costless, efficient, workable market based solution is available. It's a vast ovestatement, and a disservice to an important topic.

IP is important, and we should discuss it. If you had a policy that were obviously superior to copyrights, I would be thrilled, but you don't, and you can't really expect journalists and your readers to accept that the necessity of copyrights has been disproven by your policy.

AO,

The $240 billion figure referred to sales from industries in which copyrights are an important part of the price. It is not the value of the copyrighted material. If you look at the paper, you'll see that my estimate of the value of the copyrighted material in the current system is around one-tenth of this amount.

As far as Ipods and medicine, this is financed through patents, not copyrights. These are separate issues and I have written about this -- look at my website.

I am still at a loss as to why you don't think that creative workers will get compensated under the AFV system. First, from the creative workers' standpoint, the vast majority of creative workers get zero or close to zero under the copyright system. The AFV system would be a pure gain -- the opportunity to get paid which they are not getting now. If you want to insist that creative workers value copyrights more than compensation, that's fine, but I'd like to see evidence on that one.

As far as people filling out a box on their tax return or sending a check for which they are remibursed, tens of millions of people do that now for all sorts of causes they believe in. It's possible that they will have a special aversion to doing this when it comes to supporting creative workers, but it's hard for me to see why.

Also-- since we know arithmetic, if fewer people than expected contribute under the AFV, then we just raise the amount per person, it's real simple.

Finally, adopting a government policy to fix a market failure does not make that policy free market. It makes it a useful government policy, just like building and maintaining roads, airports, schools, and courts are useful government policies. You can argue that copyright is a useful government policy, but it is a government policy (government granted monopoly), it ain't the free market no matter how much you like it.

Dean,

If empirical evidence convincingly showed that no matter how you tweaked the policy, AFV would not generate a significant amount of revenue would you accept that you have not offered a replacement for copyrights?

and until a replacement is found, and if we value creative content, would you accept that copyrights are a necessary correction to a free market failure?

Last comment by me

AO,

I want the evidence and the best way to get it is to experiment with the AFV system (in competition with copyright). If your claim is right, then the experiment won't cost us anything, so I gather you support it as well.

Dean,

That depends on how the tax would be financed.I would not support taxing everyone to support the entertainment consumption of some. If you could find a way to match the cost of the tax with the benefits, than I would absolutely support testing it as an option.

However, until you have empirical evidence, you can not state that with any probability the AFV would or could replace copyrights. Maybe artists would use the system, maybe consumers would donate, maybe there would be enough AFV artists to compete with copyrighted material, maybe copyrighted material would be driven out of the market. But at each step there are ample reasons backed by economic theory to argue "maybe not".

Until you can offer that "we can conclude with a significant degree of certainty that AFV would replace copyrights with only X amount of long term costs" you cannot claim that government imposed copyrights have no place in a free market, because you have not shown a means by which the market failure would be corrected without them.

Dean

i would feel better if your reaction to my comment had anything to do with what i said and not to what you "heard."

you said if i didn't like what you said i didn't have to read it.

but i didn't say i didn't like what you said. i said i worried that by beating a dead horse in public you were hurting your credibility on other issues that i cared about...

this doesn't sound to me like calling for "no debate" on the subject. and the debate that has emerged here seems healthy to me.

what bothers me is the number of times you bring up the subject as a one liner you throw out without making the case for it, leaving the casual reader to wonder about that Baker guy with the weird ideas about patents.

debate good. finger in eye of pubic bad.

see?

I admit I'm no expert on economics, certainly not on free market theory. But something here is really confusing me.
What is the point of free markets if you call in the government to regulate every time you need to correct a market failure? Isn't one of the core principles behind free market theory that markets know best, and therefore we do not need government intervention?
Am I missing something here?

talito

refers to your earlier post

talito

i agreed with you and then you spoiled it.

artists create art because they "have to."

but that doesn't give them any claim to be paid for their art.

art is one thing. commerce is another. if you can find a way to get paid for your art... that's commerce.

Dear AO,

If you don't support taxation except on a quid pro quo basis, then you don't support taxation at all, period. You support a market mechanism. Insist on that, and the rest of the debate becomes moot as far as I can see. The only remaining alternative to copyrights is no copyrights, and that's it.

If the rest of the debate is to be worthwhile, you have to allow taxation at least for projects of which you approve.

Coberly,

I don't believe I said that artists have any claim to be paid for their art just because they create it. Can you point out where I wrote that?

My main point was that copyrights are not a necessary incentive for creative artistic output.

Michael Brun,

Not so. There are pigovian taxes which capture costs that the market does not, these attempt to match costs to benefits, or quid pro quo if you will. And there are public goods (the military, roads, etc) which we all benefit from and should all pay for, in which case you use the tax with the least impact. So these are acceptable taxes which do not contradict the idea that the cost of the tax be matched to the benefits. To put it very simply, if well all benefit, tax us all, if only few benefit, find a way to tax the few.

Talito,

What your suggesting is Laisse Faire market theory, which says leave everything to the markets. Free market theory says that in general things are best left to markets, but markets do fail sometimes and those the government can and should intervene to correct them sometimes. There are many caveats, rules, and differences of opinion regarding when and how intervention is optimal. You are seeing such an argument play out here.

Michael,

I thought laissez faire and free market were interchangeable. Are you saying that free market economic theory is a spectrum with laissez faire on the extreme end of the spectrum?
If free market economics legitimizes government when it suits the needs of its citizens, why not just call it a mixed economy?

Dear AO,

I admit I overstated the case in theory. But practice is another matter. First, beneficiaries need to be identified and the amount of benefit also. Second, the Pigovian tax must actually be imposed and its collection enforced. Well, then all that changes is that internet freeloaders will be charged, not with copyright violation, but with tax evasion instead.

It is true that if what Dean says is correct, the tax will be much lower than the copyright-protected margin of price over cost. That's fine, of course. But the mechanism of enforcement would still have to be the same as that protecting copyrights now; meaning all that talk of copyrights being outdated policies inherited from 16th century Venice, unsuitable to modern markets using modern technology, will just have to be ignored.

In fact, this issue of technology comes up not only here with copyrights, but also with States trying to capture sales taxes due on internet commerce. Not an easy thing to resolve.

My point--hopefully sharpened and improved in response to your reply--is that a tax levied according to consumption of a good or service will be as enforceable only as the underlying mechanism by which that good or service is to be distributed. If you want the benefit of zero-marginal-cost distribution technologies, you have to keep the marginal cost, including taxes, at zero.

Talito,

The reason for the term "free" market, is because in contrast to social democracies and social planning based economies, capitalism, or "free markets", rely on the actions of private individuals without coercion. A mixed economy would be a social democracy like our Scandinavian friends, or Bolivia.

Michael Brun,

I think your point is important, and it's exactly why there is yet to be a good solution to the problem. My hope is that someone will find a clever solution someday, but I have yet to see one. Which is why in the meantime, a copyright seems to be the only option if we value creative content in the long run. However, when Milton Friedman wrote "capitalism and freedom" in 1962, he argued that a market solution to roadways was not yet possible but technology may someday allow it, and now we have the possibility of congestion pricing for traffic. http://www.ncsu.edu/iei/io/2007/02/gridlock_and_congestion_pricin.html

So I'm optomistic.

Dear AO,

You say a copyright seems to be the only option if we value creative content in the long run. But another option is using the income tax to finance The AFV scheme Dean proposes, or something similar.

I just cannot see myself getting upset by the apparent inequity of income tax financing, though of course I have to acknowledge it. Would this be something that might seriously arouse your anger if it were to happen that way?

How about if it were funded by a voluntary check-off as for the current "presidential election fund"? That way if you get tired of all that supposed creativity and worried the national defense is being neglected, you can opt out of funding AFV and keep the money going to other government programs.

Michael,

My anger or lack of does not make a policy efficient or desirable. But yes, it would bother me. There are already a plethora of public goods which we subsize through income and payroll taxes, most of which are more public and more important than entertainment consumption (Although there is obviously much waste in government spending, so don't ask me to defend half of it). Dean's proposal is for $20 billion. Here are some comparables for 2006:

National Nucler Security Administration $9.387 billion
Renewable Energy $1.236 billion
Pell Grants $13.223 billion
The Judicial Branch $6.72 billion
Chemical and Biological Defense Program $1.021 billion
National Science Foundation $5.901
National Endowment for the Arts $.128 billion

Given the federal dollar amounts that we have attached to the importance of those public goods, yes $20 billion for entertainment consumption would bother me. Currently, we weigh their importance at $.128 billion.

If it were a "check off", do you mean the taxpayer pays additional taxes to fund the AFV or a portion of the taxes he is already paying will go to the AFV?

If your talking about the former, aren't there more worthy causes you would create a "check off" for first? There would be an opportunity cost to the check off, and it would be funding appeal advertising space for other causes.

If your talking about allocating taxes he was already paying, then it solves nothing. It's still tax revenue diverted to entertainment consumption of some, and we all pay the opportunity cost.

First a small point. If it weren't for Maplethorpe and scandals about what is art, and the not so benign rule by Lynn Cheney back in the day, the National Endowment for the Arts would not now be so poorly funded. It has seen better days. That funding level is the outcome of a clear political choice, not a baseline measure of what this country can afford in some sense.

Now for the big picture. Twenty billion dollars is currently less than 0.2 percent of US GDP. Moreover, while it would clearly be an increase in the size government sector, the increase in taxes--if we believe Dean--would be more than compensated for by the decrease in private expenditures. On average, people would experience savings. Of course, those that had before spent nothing on the arts would be a little screwed; on that we agree; I'm just talking about the average.

As for the even bigger picture, the numbers you cite illustrate to me how pitifully small the federal sector is when it comes to expenditures other than military and entitlements. Those numbers, with some allowance for preferences here and there, should all be bigger. And the argument for that would in each case include the same thought, the thought Bush uttered when vetoing the SCHIP program, that while it doesn't add a burden to the resources of this country, it shifts activities from the private to the government sector. And you can like that or hate it; but that is a more relevant issue than "what this country can afford".

I've been missing all the fun here.

In terms of tax evasion for the $20 billion needed to finance the system, under pretty standard stories that is dwarfed by the dead weight loss associated with copyrights. The basic story is that we are talking about a tax equal to approximately 0.14 percent of GDP or 0.7 percent of the federal government's current tax take. This would create very limited incentive for additional evasion. While the deadweight loss associated with items like CDs selling for $15 in physical copies or even downloads of $5-$10, when they could be made available for free, is quite large. A first approximation would be about 50 percent of current revenue. That does not count the additional costs associated with enforcement, nor the distortions of the system due to copyright preventing the creation of new content.

In terms of the injustice being done because some people might not benefit at all from any the material produced under this system, I guess I'll cry another day. How many people will listen to none of the music, view none of the video material on their computers or television or at movie theaters. Sure, there will be someone, somewhere, but this is not ordinarily how we make public policy. There are people that don't go to national or local parks, libraries, or for that matter use modern medicine (why give NIH $30 billion a year?), we ordinarily design policy based on how it affects the bulk of the population. It is unfortunate that they are a few people that may not benefit, but if this is the basis for deciding policy, then we would not spend money on anything.

Dean,

When talking about the deadweight loss you need to estimate a supply curve. If copyright holders were induced to sell at perfectly competitive price, in the long run the supply curve would not go below the average cost of producing an album, or those artists would cease producing albums. Granted, that price would likely be well below the current prices charged, but that is the nature of monopolistic competition, of which creative content shares many more characteristics.

Government intervention in a natural monopoly can go either way in terms of economic efficiency. Government intervention in the case of monopolistic competition is a much harder argument to make. As you have shown before, you don't have estimates beyond conjecture for any effects, and as such you have not made a convincing argument.

The difference between these goods and goods that the government should provide is that those goods are pure public goods, meaning non-rivalrous and non-excludable, and/or provide positive externalities. Creative content is generally excludable and provides no positive externalities. The NIH for instance funds medical research which generates significant externalities, and creates public information which is non-rivalrous and non-excludable. Defense is a pure public good in that it is non-excludable and non-rivalrous. Yes, there is a lot of stuff the government does do that does not fit these definitions (parks), and they do so at a loss of economic efficiency. But having bad policy in some areas does not justify bad policy others.

Michael,

If I can sum up your argument: we spend a lot of money on defense and less on other things, people prefer a lot of other things more than they prefer a lot of defense, ergo spend more on other things. People having a preference for some goods over others is not a justification for the government spending money on them.

As far as the increase in taxes being more than compensated for by the decrease in expenditures, I don't beleive Dean. Each dollar spent on music is someone elses dollar earned. The governments involvement can only decrease the amount of music created and transfer wealth from creator to spender.

Dean,

Would you agree that we cannot conclude with any certainty that AFV would replace copyrights with only X amount of long term costs?

AO,

can you explain how government subsidies for creative work "can only decrease the amount of music created?"

btw, if there is no copyright protection, then the supply curve is vertical at a price of zero. you don't have to estimate it. There is a long-term issue about the future production of music (that is what we are discussing), but for music already created, there is nothing to argue over or estimate.

and, AO copyright is government involvement. No matter how much you might like it, it is a government policy, not part of the free market.

Make that a horizontal (not vertical) supply curve at a price of zero.

Dean,

Right, music already created has a supply curve at zero, but to talk about meaningful costs, we would want to look at the long term supply curve. Which would be how I described it above.

And can a free market economy exist without some government policy?

If not, then some government policy is a necessary condition for a free market, thus always a part of a free market.

Whether or not this specific policy qualifies is a pertinant discussion, but not all things which are government policy are not part of a free market economy.

Dean and AO,

Tax evasion is only partially responsive to the amount of tax. Part of it has to do with the size of the transactions cost. If I don't want to type in my credit card number and all that rigmarole to pay the Pigovian excise tax, I'll join the millions who get parking tickets because they can't be bothered to hoof it down to the meter in time. It's not the expense in money only, but also convenience. The income tax is a one time "fixed cost" inconvenience; and that's one reason I like it.

AO only:

I made a good faith effort and cannot make head or tail of the first paragraph of your reply to me. How should the gov't decide on spending money?--Or do you agree with Bush, the gov't has no business spending money, period?

As to your second paragraph, I agree money not spent is not earned and that that's important. I imagine the impact of the reduced overall expenditure will be felt much more by publishers, distributors, advertisers, etc. than by the artists themselves. I guess I'm OK with that; but since my opinion is of only limited value, the thing to do is perhaps think through how the market structure in this field will be altered if Dean's proposal is implemented.

Dean,

I hadn't addresse your question:

'"can you explain how government subsidies for creative work "can only decrease the amount of music created?"'

You have not shown any reason why musicians under AFV would have less overhead costs than musicians under copyright. Advertising, production, and distribution costs won't decrease. You've repeatedly said that AFV musicians can go right to the people, or through intermediaries. Those are the options copyright artists have too, but by and large they go through intermediaries, i.e. record companies. There's no reason AFV artists wouldn't need to do the same.

Look at Radiohead. They're a popular band with a dedicated fan base who are giving their album away digitally, yet they are still looking for a record label to sign to. Clearly a valuable service is provided even for those who can go right to the audience and without copyright.

Unless you can show how AFV would significantly cut production costs, decreasing the amount of money that flows to the creative content industry will decrease the amount that flows to artists.

Also Dean, maybe you can answer my question:

"can a free market economy exist without some government policy?"

AO,

absolutely, a free market must be supported by government policies. And those policies are government polices -- they can take different forms -- they are not part of the free market.

On the point of the amount of music/artistic material created, you have insisted it would decline if we gave people AFVs. I have no idea how you think that putting more money into the creation of creative work will lead to less, so I really can't begin to respond.

Actually, the dollar is immediately borrowed by the Government and put to use in all the things they do. In a way the Trust Fund is a type of forced savings. The payee eventually gets back the principal with interest when he retires or is disabled. Any kind of retirement savings does the same thing, though private retirement funds obviously invest much more in the private sector.