Optimal intellectual property protection (part 1)

You often see stuff from the MPAA and RIAA about how piracy is destroying all artists' livelihoods always forever.  The natural solution to this problem is to somehow end piracy through legislative penalties.  So what does that look like?  Let's look at some horribly skewed and biased numbers!

Apparently, there's a man named Stephen Siwek who is happy to produce research showing the devastating effects of copyright infringement.  He isn't very creative about names though; one might even think he plagiarized himself.  But don't take my word for it, look at the names of his two "studies":

For the RIAA:   The True Cost of Sound Recording Piracy to the U.S. Economy
For the MPAA:  The True Cost of Copyright Industry Piracy to the U.S. Economy

It's a little tricky, because the Sound Recording Industry is a subset of the Copyright industry, and, actually, so is the Software Industry, which I won't discuss here.  Both these studies have some important characteristics though.

• They assume substantial full price substitution rates.   In fairness, I read through the "Sound Recording" report, and found that its estimated substitution rate is 60.7% for physical piracy and 20% for digital piracy.  The 60.7% is absurdly high based on my brief survey of the literature, but the digital piracy number is actually on the low end.  The most recent research (admittedly using a sample of U. Penn undergrads... not exactly a representative demographic in any way) puts it (and physical piracy, incidentally) at between 15% and 30%.  Of course, some researchers show no effect on physical sales and slight positive effects for online and concert sales (that's on an international sample, but its methods are a little harder to follow and its credentials aren't as towering).  The "Copyright Industry" report only says "less than one", a value it claims is "conservative" on the grounds that some internal industry "estimates" claim that it is exactly one.  Furthermore, each lost purchase is imagined to have replaced one at full price and new.  
• They calculate losses in the global market. So piracy in China is lumped right in and used to justify stronger copyright enforcement in the U.S.  I mean, maybe fair enough for treaties, but in general? 
• They show "total economic output lost".  This goes beyond lost sales to include the hypothetical economic impacts up and down the supply chain of the copyright industry. 
• They neglect the obvious economic benefits to consumers of receiving goods for free. This seems particularly relevant given their lost sales model of substantial purchase substitution, and their insistence on evaluating macroeconomic effects.  Every dollar not spent on frivolous entertainment is available to be spent elsewhere, in some other industry (or in the same one, for that matter).  Effectively, they are assuming that people choose between purchasing music and "pirating while putting the money they save under a rock".
• They rely substantially on confidential and industry provided data.  Well of course they do; how else could you produce credible looking studies without any means of verification?  Well, I guess they aren't that credible looking.
• They include both physical and digital piracy.  Bootlegs, bit-torrent, mix-tape? All the same.

Anyway, the number Siwek comes up with for the cost of worldwide, savings-burying, any format, substantial pirated-copy-to-lost-new-sale substitution, all-copyright-industry piracy is:  

58 billion dollars.

So, that's a lot of money, I guess.  By contrast, if a naive but mathematically capable person tried to estimate the cost of pre-screening all copyrighted content on youtube alone through manual human curation they'd come up with something between $441,029,692 and $36,829,468,840 per year. Ahem:

37 billion dollars.

And that's just youtube! Imagine all the streaming sites and content lockers...  Plus, the comparison is unfair because youtube doesn't host software or videogames--both major contributors to that headline number.  If you chop out Software and Videogames from the 58 billion total estimate you are left with 19.256 billion dollars of loss per year (approximately, since they don't actually break this out by industry I have to do some funny stuff--basically I multiply the total loss by the percentage of direct loss in the music and media industries: 33.2%)

Now, those numbers are quite silly.  Also, they naively ignore the existence of Google's Content ID system, which basically does this automatically in software.  One might imagine it is substantially cheaper than any of the estimates of human manual labor curation.  The point (for tonight) is merely that anyone with a bit of time and some trumped up numbers can make pseudo-reasonable apocalyptic claims about the cost of enforcing or not enforcing copyright.  Next post, a closer look at the genuine economics and law of the situation.

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.

American Plutocracy

Basically, our laws and political structure give hilariously large amounts of power and protection to the wealthy.  This seems like a problem, because the vast majority of people aren't, you know, wealthy, and also because the wealthy already have a lot going for them without getting any help or special treatment.  I talked about this with respect to our tax code last post, but it applies in all sorts of venues.  Let's talk about them now:

1. Taxes - been here before but it's worth saying again.  The rich have an enormous advantage when it comes to taking advantage of tax exemptions.  Corporations (which are getting more and more like extremely wealthy people every court decision) are the most egregious example of this, with many "American" companies paying virtually no taxes as a result of complex accounting structures and multinational presences. All this made possible by complex tax codes and armies of lawyers and accountants.

2. Civil and Criminal cases - Legal fees make basically everything about the courtroom experience farcically favorable to the wealthy.  This is most awful in civil suits, where discrepancies in wealth lead to major corporations being able to bully people into settling cases that, given equal means, would assuredly go to court.  Recent examples: the GeoHotz fiasco, or any RIAA suit.  It's also pretty bad in criminal courts, where rich people have a great deal more access to effective legal council (there are public defenders, even really good ones, but that's a mixed bag), and can much more easily avoid the painful side effects of criminal suits because they can afford bail.  It's awful just how much time innocent poor people spend in prison waiting for their trial merely because they can't afford bail.  Likewise, rich people suffer significantly less from tickets and other fines and penalties, so they have much less incentive to obey laws whose violation results in such penalties.  All of this is before we even consider things like cronyism or bribery which are at least theoretically illegal.

3. Political Influence - I just recently was reading about a dinner party fundraiser hosted by the Obama campaign.  Tickets were going for 35,800 dollars.  For that price you got to eat and hobnob with the President of the United States, with only 60 other people around.  While I'm sure Obama has a fairly well established set of political views, it certainly can't hurt the agendas of the dinner guests to have a chance to chat with him.  If you consider the fact that all of the fund raising dinners, charity drives, and donation things that occur in the upper echelon of politics are attended more or less exclusively by people able to drop 35K on a dinner party then you can probably pretty quickly recognize why politicians might favor the agendas of the very wealthy.  It's almost an accident at this point, the very wealthy are the only people they're really hanging out and chatting with; how could they be expected to favor anyone else?  It get's a lot less accidental when you look at things like corporate giving and campaign donations and the like.  Money buys you media time, which gives you a disproportionately large voice in the public arena.  All of this rather handily explains items 1 and 2 in this list.  Turns out of wealth gives you a bigger voice in the making of laws, the laws will grow in favor of you.  I bet we are all surprised by this.

Taxes - how they should be (Part 2 Simple)

Complexity is the friend of the wealthy.  This causes problems all over our country, but I'm going to focus only on tax law right now.

Complexity problem 1: Wealthy people can afford lawyers and accountants, who exist entirely so that money can be made off of the complexity of our laws.  Unsurprisingly, this means that the well off are more likely to receive tax deductions &c.  They report and record their income and expenditures more carefully and they have access to experts who can maneuver the many loopholes and edge cases in our current system.

This is compounded by problem number 2: As some of you may have noticed from this income and expenditure spreadsheet, education trends with income.  That means that if you're not making a whole lot of money, it's likely that you don't have a whole lot of education or training in order to deal with the complexities of tax law, which means you probably wont be able to do as good a job as a highly trained professional expert tax payer like an accountant.  Surprise!

I'm not the first person to have noticed this, as you can see from Obama's recent budget speech, but I hope this expresses the issues succinctly.  Basically, I think tax payments should be a simple function of your income.  We should be adjusting the level of taxation to what we expected to make on average at each income level once deductions were applied, and we should leave social policy implementation out of our revenue stream.  This would have a whole pile of interesting side benefits like:

1. Taxes would be hilariously easy to calculate for people with regular salaries, which means the government could just send you a bill rather than forcing you to wade through a pile of inconvenient forms.  I'd love that.

2. Human beings might understand the tax code.

3. Politicians wouldn't be able to sneak in weird policy ideas under the guise of tax breaks.

4. Our revenue stream would be highly predictable on account of no variance being introduced by lawyers

5. We would put huge numbers of accountants out of jobs (Hurray!)