Optimal intellectual property protection (part 2)

In which the state of current copyright law is discussed, a meager calculation is effected shewing the exercise of said law necessary to compensate rights-holders for their losses, and the stage is set for act 3.

The major U.S. laws currently in place to handle copyright infringement on the internet are: The United States Copyright Law, and the DMCA.  Under the former, the maximum penalty for an infringer is $150,000 dollars per copyrighted work.  An unknowing infringer--somewhat not protected by fair use provisions, but not willfully breaking the law--suffers a minimum penalty of $200 dollars per copyrighted work.  Recent rulings have indicated that the granularity of a work is on the song (as opposed to album) level.  Now, judging from iTunes, the market value of a song is about $0.99.  That's quite a mark-up.  Real world awards have reached truly astronomical levels, but let's look at a recent case, in which a judge knocked down a $675,000 dollar fine to $67,500 for willful infringement for 30 songs.  That's $2,250 a song, down from an initial $22,500 a song.

Just working with the music numbers for a moment, things look a little like this:

In 2007, the RIAA report estimates sales losses of 3.7 billion dollars with their (quite reasonable) download substitution estimator.  I'm ignoring their physical piracy numbers because they don't apply to the intarwebs points I want to make.  To make up for this they'd have to levy the minimum fine on 18,500,000 (by the RIAA estimates, 0.3% of 6 billion yearly illegal downloads), the maximum fine on 24,667, or the judge determined "reasonable" $2250 fine on 1,644,445 instances of illegal downloads.  Even the largest of these would be a tiny percentage of enforcement.  Of course, the RIAA only managed to file 20,000 lawsuits (primarily ending in settlement) by 2008 when they mostly stopped doing that on account of it being hilariously unpopular.  It seems like the settlements were generally between the "reasonable" and minimum fine levels, so the RIAA clearly wasn't going to recoup costs through these lawsuits.  Since they gave up that tactic, they have focused on the DMCA, and on producing bigger, badder, scarier versions of it. 

At issue in the DMCA and its would-be successors is the burden of enforcing copyright laws.  Basically, the DMCA explicitly prohibits circumvention of copyright protections regardless of whether such circumventions are used to violate copyright, enacts the mechanism of "takedown notices" which limit the liability of compliant online service providers (OSPs) in exchange for rapid response to notification of infringement by copyright holders, and permits subpoenas of OSPs for user identity information.  Copyright holders feel that these provisions are insufficient, and have proposed a variety of legislation holding hosting sights responsible for infringing content posted by users.  Obviously, this imposes substantial costs, risks, and responsibilities on social networks and community content sites.

All this sets things up quite nicely for part 3: actual cost-benefit analysis!
Potential costs: money of social network sites, money of taxpayers, money of RIAA and member organizations.
Potential benefits: greater compensation of copyright holders, deterrence of copyright violation.

Of course, that's only if you forget that the goal of IP law is to incentivize the development of intellectual property.  So, we'll be taking a look at the incentive maximizing level of IP protection as well.  All that to come.

Macroeconomic quicky

Recessions and depressions occur when total spending--and therefore total income--is reduced.  This reduction of total spending is brought on by an increase in demand for money, either to hold as savings or to use to pay down debt.  Once you have your head around this, the Federal Reserve remedies for depressions and recessions--lower interest rates and higher inflation--become kind of obvious: they're both just ways to increase the supply of money, and reduce the demand for it.  It also becomes obvious that government austerity exacerbates the problem; it's just one more player contributing to the reduced spending and resulting reduced income.

Obviously, there are a bunch of wrinkles in this story, but sometimes it helps to just look at the simple fundamentals of a situation.  Those fundamentals indicate we should have more government spending, higher inflation, and lower interest rates.  Since interest rates are already at 0, we've only got two options left.

Let's have a little chat about Republicans

Once upon a time, Republicans were conservatives, and followed to a significant extent the primary dictate of conservatism:

conservatism - a political or theological orientation advocating the preservation of the best in society and opposing radical changes.

It seems clear that with Republicans routinely promoting the elimination or dramatic restructuring of things like Medicare, Medicaid, and Social Security, that fundamental position has been abandoned.  But, I don't think it is right to say that modern Republicans are entirely unprincipled, or that they are merely advocating the interests of their wealthy donors (though they are certainly pursuing policies that primarily favor the wealthy).  Rather, I think the best way to view Republican ideology is through the lens of psychology.

Republicans understand the direction of human psychology, and the sorts of motivations that impact people's behavior.  It's true that higher marginal tax rates make people less excited about making more money; I've experienced that first hand.  Likewise, it's true that the leap from something for nothing to a-little-more-something for a-lot-more-work is significant.  If you stop your thinking there, then it is obvious that things like unemployment benefits and high marginal tax rates are ridiculous, silly, and probably counterproductive.

The trouble, of course, is that you can't stop there: you have to measure the size of the effect.  Basically everyone in Republican-land is assuming very-large, even dominating, effects from these psychological factors.  Thus things like "the confidence fairy", "regulatory uncertainty","bond market vigilantes", a preoccupation with "moral hazard" and the like.  Sadly, in most cases the empirical evidence seems to indicate that these psychological effects, though often real, are quite small.  The far side of the Laffer Curve--the hypothetical curve depicting the point at which increases in tax rate actually reduce tax revenues through disincentive effects--is estimated to be around a 70% tax rate.  Likewise, unemployment benefits increase unemployment rates much less than one might naively expect, especially in severe recessions like the one we are in.  As for the confidence fairy, bond market vigilantes, and regulatory uncertainty--they just don't seem to apply to our current situation.

Basically, Republicans show an interest in and a sense of human psychology which is intuitive, substantially correct, and praiseworthy.  Liberals are all too often guilty of ignoring the human, social, and psychological aspects of situations.  However, when it comes to accurately describing the way the world works, you'd be much better off dropping the psychological variables from your equations than the mechanical ones.  Or, best of all, keeping them all in and looking at what the econometrics data is actually telling you.  Doing that tends to show that optimal economic policy is much more closely aligned to Keynesian policies than Austrian ones.  Just goes to show that even if your intuitions are broadly right, it is still important to look at the data.

A little post-script:
It does seem that Republicans tend to forget their psychology when it comes to looking at regulating business.  Much, if not all, of the recent bank legislation is about avoiding the "moral hazard" created by federal guarantees on bank deposits, and for some reason that isn't subject to the same psychological rational as unemployment benefits.  Hard to see why, really, except for a sort of team "give the rich what they want" mentality.  That's a bit annoying.

Also, it's worth pointing out that a lot of people think that the financial collapse was brought on by Republican banking deregulation, and the conservatism as defined earlier would have been the exact impulse--that the rules of the past were laid down with wisdom and shouldn't be so easily cast aside--that protected us from that silliness.  In a proper conservative-liberal dichotomy, the liberals should have been pushing for the deregulation, and the conservatives should have been saying "hey man, we made those rules for a reason".

In my mind, both of these failures of Republicans to follow either their "human nature" or "conservative" ideologies is strong evidence of regulatory capture; the business interests have at least partially conquered the Republican party and put them to use on the behalf of banking against the best interests of society.

Delightfully Wonky

I thought I was going to have to do it myself, but this slide-deck from the White House puts together the graphical evidence about economic performance under Obama quite nicely.  Highly recommended for people who want to get a sense of context for the economy.

http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf

Some sustainability science of interest

I saw this article which does a nice job of summing up some of the thoughts and concerns regarding the impact of ecological damage.  I don't know why exactly this topic interests me, other than that it seems to be a part of politics where I'm right of left and left of right and don't have much in the way of company in the discourse. Still, I'll keep posting informational articles until I get bored or form some substantial opinions that can stand on their own in the company of the evidence.

Validation!

Just for the record, there are some economists just as skeptical about local foods as I am.

http://www.econlib.org/library/Columns/y2011/LuskNorwoodlocavore.html

There you go.  I'm not a crazy person.  May still be wrong, but officially not crazy.

Debunking the "US Budget is like a Family Budget" Nonsense

Because I'm fed up with hearing this crap from even my smart informed friends, I am doing you all the favor of collecting the relevant facts, figures, and context and systematically addressing the common objections.  Please don't make me do it again.

(Mini-Summary For Lazy Readers:
On its face, the Family Budget metaphor ignores assets and misrepresents the US debt situation to make it seem more severe than it already is.  Furthermore, countries that borrow in their own currencies (not the euro states, not most "3rd world" nations because no one trusts their money) need never default because they can print any amount of money they like to service their debt.   And, none of the things we might see if we were actually in "too much" debt are even close to happening.)

The annoying meme that is being passed around looks something like this if you use the CBOs numbers for 2011:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$147,900

Looks pretty ugly, right? But then why are there all these articles and op-eds about the debt thing being overblown?  Well, probably the first thing to look at is the "Total Credit Card Debt" thing.  It turns out that that can be split into "Debt Held by the Public" (money the government owes other people) and "Debt Held by Agencies and Trusts" (money the government owes itself), so maybe the budget should look like this:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$101,300
Money Dad Owes Mom:	$46,580

That 46k doesn't seem to be a real issue so long as Mom and Dad are on good terms, and thankfully, our government agencies can't divorce the treasury.  Say Mom paid Dad's way through lawschool; but hes only a legal clerk now.  This kind of stuff happens all the time in families and few think of it as part of their debt burden.

Now, absent from the Family Budget is the rather important aspect of "assets".  This isn't by accident... the credit card debt framing makes it seem like all the money was spent frivolously, that the interest rates are high, and that nothing of value is retained by the Family.  Of course none of this accurately reflects reality, and in no place is this more egregious than in the case of foreign debt.  It turns out that one of the assets that are left out of this budget is the foreign stuff we own. We own almost as much foreign debt as we owe:


And we're actually making more money on our foreign investments than it costs us to service the money we owe them:



So where does that leave our family again?  Well according to FRED, we owe 4,660 billion dollars to foreign investors, or in the parlance of our family: $46,600.  Since our income from foreign investments exceeds our payments to foreign investors and our total foreign debt is similar in size to our total foreign holdings, I think it's fair to say that debt is a wash.  Let's look at our family now:

Family Budget

Annual Income:	$23,025
Annual Spending:	$35,981
New Credit Card Debt:	$13,628
Total Credit Card Debt:	$54,700 ( $101,300-$46,600 )
Money Dad Owes Mom:	$46,580

Well, that looks like a tough year (all that new debt), but pretty manageable in the long run so long as we can get spending under control, and that's just what we can do playing by the silly rules of the metaphor.

And those rules are very very silly.  US Government debt isn't like household or business debt for a few very important reasons.  First and foremost, the government happens to own a device called a "printing press" which is miraculously capable of printing any sum of money at virtually no cost.  Secondly, the government is capable (at least in theory) of giving itself a raise through increased taxation, and its revenue stream is much more secure than a regular family on account of it is very difficult to be fire the government, and if you did its debt would disappear anyway.  Finally, all that remaining debt ($54,700) is borrowed from US tax payers and will be payed off by US tax payers, so there's no money actually being lost to the US (though of course the US government would be better off without the debt, but that's very different from the nation of the US).  It might be more appropriate to say that the entirety of the debt in this family budget is owed between members of the family.

If that's true, though, then why would any level of debt be bad, and what signs could we see that we've really gotten to the bad level of debt?  Well, if you borrow in a currency you can't print, and primarily from other countries (like Greece) then your situation IS actually like the family budget, and you might be in trouble.  But, what if you are like the U.S.? What bad things could a large debt do to us?

1. It might increase borrowing costs or reduce access to credit by some other means (such as no one being willing to lend you money at any interest rate at all).
   
2. In the government case, it might "crowd out" business investment (by soaking up all the loan-able funds or by driving up interest rates for businesses and private citizens
   
3. It might transfer large amounts of wealth from our economy to some other nation's central bank.
4. It might transfer large amounts of money from some American Taxpayers to other American Taxpayers in a systematically destabilizing way (like maybe we give all the poor people's money to very rich people and impose huge hardships)
5. It might force us to engage in money printing at a scale which produces dramatic inflation

How does that stack up against our actual situation?

1. It is currently cheaper in real terms to borrow money to pay for things than to pay for things out of current tax revenue. (because the real interest rate on government loans is negative... you can buy a bridge for 100 inflation adjusted dollars now and charge tax payers 100 dollars for it, or you can build it for 100 inflation adjusted dollars on credit and pay back your creditor with 99 inflation adjust dollars later)
2. Banks have massive excess reserves available for loaning and borrowing costs are historically low... no crowding out
3. Our government spends the vast majority of its money on buying things in america, and our net foreign debt is close to zero, so none of this money is leaving our economy.
4. Hard to say on this one.  Our current tax code is mildly progressive (rich people pay a little more than poor people), and bonds are owned primarily by rich people, so it is likely that the wealth transfer caused by debt will be largely from rich people to rich people, but if the tax code got mixed up maybe something systematic and bad could happen.  Doesn't look like a big problem so far though.
5. Inflation is. you know, average...

US Inflation Rates

A Libertarian model for Government Funding

Libertarian morality basically works around two fundamental property rights.  Each person owns their own body, and the bounty of nature is owned by all.  By trade, and by fair access to the bounty of nature, things are produced, exchanged, and improved, and the engines of capitalism start to fire.  In this model, the important thing is to ensure that property rights and contract law (which is really just an extension of property right to include the right to exchange) are protected.  Interestingly, this provides a clear area for the proper operation and implementation of government - counter to the anarcho-capitalist ideas that seem to follow necessarily from libertarianism.  Note, that the libertarian arguments for anarchism differ starkly from the arguments I have presented here earlier.  Frankly, I find the moral autonomy argument for anarchism much stronger than that of libertarianism, but I think it's worth exploring the libertarian ideas because they seem to dominate political discourse in a lot of ways.

The fundamental moral logic behind libertarianism is that each person possesses his or her own body, and all the things s/he creates using things fairly traded or gotten from the bounty of nature.  Now, the commonly recognized flaw in this kind of morality is that the "bounty" of nature isn't all that bountiful when you compare it to the entire needs of the human race over all of history.  In some sense, libertarians concede that we collectively own natural resources, but argue that they aren't scarce enough to spend time fighting over.  Unsurprisingly, this causes some issues when the resources in question really are scarce.  Another way of thinking about this is that libertarians believe that the only truly scarce resource is human labor.  Anyway, this collective ownership of natural resources combined with the scarcity problem provides what I see as an interesting niche for government.  Here's the plan.

Each nation is the sole owner of "nature" within its borders.  In other words, it owns all the land, all the air, all the sea, all the wildlife, basically all the stuff that isn't people or made by people.  It derives this right because it represents the people not just now but in the past and future... those people who collectively own all of nature's bounty.  They then rent the use of portions of that natural bounty to the entrepreneurs who want to use it.  They levy this rent... let's call it a tax... based on the market value of the nature, and on the expected risk of damage to nature by the tenant.  Just as landlords charge premiums for pets, the government might charge premiums for, say, high pollution.  The government then can invest this money in the protection and improvement of its property.  They improve their property by making it a more attractive place to live... increasing competition for the property and allowing them to increase rents. Offering universal healthcare, or utilities, or cleaner facilities, or safer business environments to occupants might all be value increasing ways to spend that money.  Now, in some sense, the government is a monopolist, but since the people who are competing for the resources it provides are in fact the owners of the government, the monopoly doesn't provide the leverage necessary to properly enable extortionary pricing. I think we can reasonably argue about whether or not this is the best way to manage the shared ownership of nature, but it does seem to be fundamentally compatible with libertarianism, which is win enough for me.  Any problems?

9/11 impact on the economy

It was proposed to me that one possible reason for the results of the "unexpected" difference between the Bush and Clinton economies (that is, that the Clinton tax increase preceded larger growth than did the Bush tax cut), was that 9/11 had a strong negative impact on the economy.  It seemed like a reasonable point, so I looked into it.  It turns out that a report on the subject was prepared for congress.  Short summary: 9/11 didn't have much economic impact.  Summary from the report:

The Economic Effects of 9/11:
A Retrospective Assessment
The tragedy of September 11, 2001 was so sudden and devastating that it may be difficult at this point in time to write dispassionately and objectively about its effects on the U.S. economy. This retrospective review will attempt such an undertaking. The loss of lives and property on 9/11 was not large enough to have had a measurable effect on the productive capacity of the United States even though it had a very significant localized effect on New York City and, to a lesser degree, on
the greater Washington, D.C. area. Thus, for 9/11 to affect the economy it would have had to have affected the price of an important input, such as energy, or had an adverse effect on aggregate demand via such mechanisms as consumer and business confidence, a financial panic or liquidity crisis, or an international run on the dollar.
It was initially thought that aggregate demand was seriously affected, for while the existing data showed that GDP growth was low in the first half of 2001, data published in October showed that GDP had contracted during the 3rd quarter. This led to the claim that “The terrorist attacks pushed a weak economy over the edge into an outright recession.” We now know, based on revised data, this is not so. At the
time of 9/11 the economy was in its third consecutive quarter of contraction; positive growth resumed in the 4th quarter. This would suggest that any effects from 9/11 on demand were short lived. While this may be true, several events took place before, on, and shortly after 9/11, that made recovery either more rapid than it might have been or made it possible to take place. First, the Federal Reserve had eased credit during the first half of 2001 to stimulate aggregate demand. The economy responds to policy changes with a lag in time. Thus, the public response may have been felt in the 4th quarter giving the appearance that 9/11 had only a limited effect. Second, the Federal Reserve on and immediately after 9/11 took appropriate action to avert a financial panic and liquidity shortage. This was supplemented by support from
foreign central banks to shore up the dollar in world markets and limited the contagion of 9/11 from spreading to other national economies. Nevertheless, U.S. trade with other countries, especially Canada, was disrupted. While oil prices spiked briefly, they quickly returned to their pre-9/11 levels.
Thus, it can be argued, timely action contained the short run economic effects of 9/11 on the overall economy. Over the longer run 9/11 will adversely affect U.S. productivity growth because resources are being and will be used to ensure the security of production, distribution, finance, and communication.

Cool Charts about Taxes and GDP

I've seen several interesting charts about the impact of tax rates on the economy, but I'm generally frustrated with the small amounts of data presented, so I looked up the source data on revenues, real GDP growth, and top tax rates to make a sweet chart.  On a related note, here's a post about the Reagan tax increases that Republicans should read.

Now onto the good stuff.  Below are reproductions of the charts (in order of information density) from the "several interesting charts" links, as well as the one I made myself.  If you're curious about how some economists interpret this data, read the source posts.

Large interactive version of my chart is here.
Small static image below:

Structural Unemployment Followup: Why I am not a Luddite

My structural unemployment post generated a surprising amount of interest, but I think my point got buried by my lead.  Here it is:
I don't really think we'll ever see massive structural unemployment.

I think that people who are really worried about this miss the key point that makes massive automation possible to begin with: it's much much cheaper than people.  If the means of production are hilariously cheap, the goods themselves are going to be hilariously cheap.  In a wholly automated world, the share of income necessary to ensure a decent standard of living is going to be itty-bitty-tiny.

Other things that keep me from going Luddite:

1. Entertainment:  Celebrity is a huge part of our entertainment industry, and you pretty much need a person in order to get that kind of cult following.  Even if robots can make better music, you can't sleep with them after a show.  Likewise, it's kind of hard to obsess over the day to day social lives of disembodied machine spirits.  Plus, even if we do hit the singularity, a machine intelligence is going to have a profoundly different experience from your typical meatbag, and I suspect that will show up as differences in our art and culture.  Also, just a side note, I have seen absolutely no evidence to discount the belief that human beings would gladly have 100% of their waking hours taken up with various forms of entertainment.  Filling that time could make a lot of jobs.
2. Self Enhancement:  I don't really think people are going to just ignore the possibility of making themselves a lot sweeter with technology.  Genetic engineering, biomedical augmentation, and all sorts of undreamed-of technical muckery are likely to show up in the not-so-distant future and make the smartest humans a lot smarter, the strongest humans a lot stronger &c.  This mostly speaks against Reid's points in the comments regarding machines getting strictly better than people.
3. Scarcity (all gone):  We normally call technological progress "productivity gain" for a reason - the average worker can produce quite a lot more.  In our hypothetical, we basically have infinite productivity (it takes, on average, zero people to make a product).  I think the technical term for this is a post-scarcity economy.  Read the references to hear (at length) about what people think of that.
4. Redistribution: As Demosthenes pointed out, and Jared Bernstein corroborates the wealthiest few people have taken the majority of recent productivity gains.  Right now we're still pretty tolerant of that, but I can imagine some serious Marx-style revolutions if the trend continues deep into double digit unemployment.

Jobs, Structural Unemployment, and Technology

So pretty much since the invention of technology (which was, you know, pretty early on) people have been freaking out about how technology is going to take up all the jobs and leave a bunch of people permanently unemployed. This is where we got the luddites. But, as many of you may have noticed, the fact that we don't employ nearly as many farmers or textile artisans as we used to hasn't caused massive unemployment (though the recent recession certainly has).  Generally, this is because we start wanting (and getting) new things when making old things becomes so easy we don't need a bunch of people to do it.  Roughly speaking, we see this as a growth in GDP per capita, an increase in wages, and higher standards of living.  Great news for everyone, right?

Anyway, I always enjoy seeing articles like this one.  For those of you too lazy to click, the mises blog notes that computer science has done wonders at making large numbers of lawyers redundant.  I love this, but I think it kind of points to an unfortunate possibility.  In the long run (and I mean the really long run; this isn't something that I worry about for the next 25-50 years), I think the vast majority of current human endeavors will be done by robots and computers.  We're getting good at this stuff.  We're killing jobs that require advanced degrees, and there are much lower lower bounds on paying for computers and robots than there are on paying for people.  Now, some professions are going to be more or less immune to this trend.  Academic research is going to require people for the foreseeable future, likewise computer programming, and pretty much anything that takes significant social interaction - say PR, but also prostitution (I hope... a world of robo-prostitutes is probably morally preferable, but really creepy), sales, live entertainment, &c.

Now, the concern of many is that these technological gains are going to cause structural unemployment.  That is, people will be unemployed in a systematic way.  Maybe all jobs with IQ requirements below 120 will be able to be done cheaper by a computer or robot, which means in turn that we would expect more than half our population to be permanently unemployed... not good.  If you look at the first two jobs I list as computer proof (research, programming) you can see why people might worry about this, but the linked article and the rest of the list (PR, sales, live entertainment, and other forms of prostitution) show that this isn't necessarily the case.  Technology makes the work of smart people easier too, and if work is easier you either hire fewer people (and get the same amount done) or get more done.  Unless we see a strong systematic trend in the situation that can't be overcome with education &c then we don't really have to worry terribly much about long term structural unemployment.

Another, perhaps less commonly voiced concern is that the increased technological productivity is going to dramatically change the economic landscape.  Most people will be employed doing "frivolous" (computer unfriendly) things, or else professionally learning or telling computers what to do (most likely a combination of the two).  Artists, musicians, and writers are already a much larger part of our economy than at any point in history, especially in the highest echelon of wealth, and I would fully expect this trend to continue and extend into the lower income brackets.  I'm not sure what this sort of civilization would look like or whether it would be a good thing.  Something to think about.