Re: ECON: Intellectual Property Again

Daniel Fabulich (
Thu, 21 May 1998 21:53:29 -0400 (EDT)

On Thu, 21 May 1998, Michael Lorrey wrote:

> Information can certainly be treated as any other product. Since information cannot exist
> in nothingness, it needs to be represented in an arrangement of printed letters, or
> electrons, or sound waves, then it certainly has material existence and is therefore a
> product.

I disagree. Information is completely immaterial. Conisder: I am a
novelist who has written a book. I have taken energy, ink and paper and
turned them into a draft. If I submit this draft to my publisher, he
could publish it. Obviously, I have added value to the ink, paper and
energy by writing my novel. (Let's imagine for a moment that my novel is
good. :) )

However, if I gave YOU the same ink, paper and energy and told you to
write my novel, you couldn't do it. You probably couldn't even do it if I
gave you TWICE as much energy. Why? Because you would not know what my
novel says or is about: you would not have the information.

The fact that given ample matter and ample energy you could not generate
my information means that it is a very different process from widget
making, which economics presumes CAN be done by anyone with enough labor
and capital.

> A service is work, a kinetic, not a static state. Information is static like any other
> product. Transmitting information is doing work as it is a kinetic action, expending
> energy to do work, so the act of transmission is a service, and the act of agreeing to
> lend someone the use of my information for specific purposes on the condition that you do
> not reproduce my information to sell to others is also a service. The information which
> is lent is still a product.

Information is also unlike a product in that, unless I forget about it, I
can never return it to you, nor have you lost your use of it while I
borrow it. Whether or not you agree that this is a service rather than a
product, I think you must admit that this an attribute which is unique
to information; I argue that it is because of this unique property that we
should not enforce property rights over it.

> Moreover, service, or work, is the ultimate property right, unless you beleive in
> slavery. Only a slave does not have sole right to his or her own labor. An individual
> cannot have his or her work stolen from them. Intellectual property rights protect the
> product of that work, whether it is a statue, a song, a building, a machine, or anything
> else which is the result of man applying his or her intelligence to add value to
> something.

Go back and reread, and then consider my coercion point a little more
carefully. Suppose there are no property rights, and I am deciding
whether or not I am going to invent. I know that if I invent, many people
besides me will benefit. Suppose that I decide to do so anyway, FULLY
AWARE of the fact that others will benefit. Since this action is
voluntary, and not coerced, then the benefit which others would take from
my action as an externality is not stolen, but willingly given; if I was
unwilling to give it, then I would not have done so, and refused to

Now, this externality is still bad, because it means that I do not have
enough of an incentive to invent as I otherwise should. I ACKOWLEDGED
that in my last post: this was the "deadweight loss as inventors produce
fewer inventions than they otherwise would." I argued that this
deadweight loss would be OUTWEIGHED by the economic efficiency gained from
not enforcing those rights. Let's examine this more carefully.

> I understand your logic, and beleive that you are wrong in your economic evaluation.
> Without a protect of an inventors intellectual property rights, there will not be the
> same level of invention as there is when there are such protections. The human race is
> desperately dependent on advancing technology from invention that is stimulated by
> intellectual property rights incentives, only because we are stuck on one planet with an
> ever increasing population. Every increase demands greater efficiency of resource
> utilization, something which can only happen with high levels of invention. You have
> ignored the incentive effect that such protections have on technological development.

I did NOT ignore it; I specifically referred to it, and argued that it
would be outweighed by the deadweight loss due to monopoly plus the cost
of enforcement.

> Exactly, which is why your concept cannot work and maintain a decent level of
> technological advancement.

Wrong. The fact that transaction costs are not zero means that the system
of allocation of resources is inefficient; this is represented by
deadweight loss. However, enforcing intellectual property is ALSO
inefficent, as it grants monopolies over copes of ideas, resulting in more
deadweight losses, as well as incurring the cost of enforcement.

The question is not which system is inefficient and which is not; the
question is which is LEAST inefficient.

> Intellectual property enforcement costs are extremely low, because it is very easy for
> the public to know when a product is a knock off or not.

If each buying person gains equal utility from a copy as they do from the
original (an extremely likely presumption when we're talking about pure
information) then it becomes profitable to buy your goods from the black
market rather than from reputable dealers. And if you think the black
market for information is easy to break, the software industry has NEWS
for you.

Even today, software copyrights simply aren't enforced on a wide scale; to
do so would require monitoring everyone's personal computers and
wire-tapping the whole Internet; it's completely impossible to
discover/prevent if the pirates are using encryption for anonymity and
transmission. You'd have to outlaw cryptography in order to even come
close to eliminating software piracy.

Software piracy is probably the highest costing market upon which to
enforce intellectual property; music probably comes in a close second
(it's a black market which is unevenly enforced so you can't get official
numbers for this sort of thing). However, even if the cost due to
enforcement is lower for some goods than for others (your mailing list,
perhaps), you STILL have the problem of deadweight loss due to
monopolization of copies. Basically, I'm covered by BOTH effects: the
cost of enforcement AND monopolization.

> Granted they have gone up in
> recent years, but only because we have opened our economy wide to the Chinese, who have
> no respect for intellectual property, nor any other type of property or individuality, it
> seems. Rather than looking at pirating as a positive externality, look at the cost of
> enforcement as an externality created by pirates that everyone has to pay. If trade with
> pirate economies were cut off, our cost of intellectual property enforcement would go
> down again.

Your logic is dizzying: the more the positive externality happens, (which
this is, by definition,) the more we have to pay to stop it from
happening! Of course, if we weren't trying to pay for IP's enforcement,
then we would circumvent that part of the problem entirely.

> You have to date, only guessed. Since the current situation is one where intellectual
> property is respected and enforced, I think that the onus is on YOU to prove your point
> with real numbers. Until you do, all we can think of your ideas is that they are quaint
> fantasy with no basis in fact.

Guessing? Only so as to provide extra precision. If you'd like I can
stick to being very general, based on what we already know. We already
know that the cost to an individual of producing another copy of a piece
of information is low, and that it does not increase significantly when
lots of people are producing lots and lots of copies. Therefore, we know
that the production of copies is nearly completely elastic. (HOW near is
what I was trying to guess.) Since the marginal revenue curve for
monopolies is half of the demand curve, we know that it will strike the
P=0 line at 0.5Q, where Q is the quantity demanded when P=0. If the
marginal cost curve were completely elastic, then the market for copies
would shrink by 50% thanks to monopolization. Again, since it is only
nearly completely elastic, deadweight loss is is only nearly 50%; I
guessed 40%, which gives me a large margin for error.

> I think that history shows that lack of intellectual property enforcement causes
> invention to be severely undervalued. Looking at how national borders create natural
> limitations on intellectual property rights, and how making such rights enforceable
> across borders via tools such as GATT it seems rather clear that prior to enforced
> intellectual property rights, invention was severly undervalued, and the rates of
> productivity growth suffered as a result. Today's startling increases in productivity
> just a few years after GATT are proof that expanding the incentive to invent expands the
> rate of invention and therefore the rate of productive growth

Oh, there's no question that the rate is affected. I agree: when the
incentive goes up, invention goes up, and when incentive goes down,
invention goes down. That's not what I'm on about. What I'm saying is
this: we know both that the market for copies is slashed by at least 40%
when IP is enforced, and that the cost of enforcement is non-trivial. Is
monopolization's deadweight loss plus the cost of enforcement GREATER than
or LESS than the deadweight loss due to decreased invention? I say
greater; you know why.

> Considering that you have refused to respond to my refutation of your assertion that an
> invention is a monopoly, your argument does not stand. Any engineer will tell you that
> there are always many many ways to solve a problem. Only problems are unique. Invention
> is not a monopoly market.

We must assume that the engineer's ability to route aroun IP is not a
significant effect, otherwise IP has NO economic effect at all: whenever
you try to patent your idea, I invent another one just like it and you
gain nothing. If this is true, then the only difference in costs between
enforcing IP and not enforcing IP is the cost of enforcement; and that's
in MY favor, not yours.

However, if we assume that IP cannot be so easily routed around, as we
must if we think IP will have any effect, then we must observe that IP is,
by its very definition, granting the inventor monopoly rights over copies
of their idea. This is how we define IP; there isn't any argument to be
made here. And, since in this market copies are cheap and supply is
elastic, the market for copies suffers at least 40% losses thanks to

> I don't need to. The present economy is my own proof. YOU need to come up with proof that
> economic growth would be higher without such protections. That the US has one of the
> highest levels of intellectual property protections, along with among the top 3 or 4 per
> capital incomes/standards of living, and among the highest economic and productivity
> growth rates for a nation at its state of development (a third world with a 50% growth
> rate doesn't mean anything if they are starting from nothing.)

I'm making a MICROecnomic argument, not a macroeconomic argument. As you
well know, there are hundreds of thousands of effects which have positive
and negative effects on the economy, many of which are present in the US
and not in other areas (or vice versa). The only macroecnomic argument
which I can present is that microeconomic efficiency, as a trend, leads
towards greater GDP. However, the behavior of one market can never be
used to predict the behavior of the economy as a whole. Microeconomic
markets tend to clear and/or equilibrate; they have no business cycle.
The macroeconomy is practically the antithesis of this model.

If I am right, then IP is just one of the galaxy of factors which hold
America back from greater growth, none of which alone could possibly
explain our growth rate.

> No, theft is when someone benefits from someone else without that persons permission or
> acquiescence.

If there are no IP rights, and the inventor invents despite knowing this,
then the inventor has, by necessity, acquiesced.

> To fail to protect the product of an individuals mind is to declare that
> all minds are slaves to society, that the individual has no rights at all. That is a
> collevtivist, subjectivist, post modern scam if ever I heard one.

Well, how does this sound: I declare that individuals have a right to
their physical property and energy, and that anyone has the right to
organize their property in any way they want, even if they organize their
property just like someone else's property.

Doesn't sound very collectivist to ME.

> Fails to maximize the utility of what or who?? Society? Sorry, society has no rights, and
> is not entitled to its own utility. Lack of intellectual property is enslavement of the
> mind to the collective. Bye Bye BORG.

What striking rhetoric. No, not the utility of society, but of all of the
individuals in society, in sum. Just like how America's wealth is not the
wealth owned by America, but the wealth owned by every individual in
America (and that's the way it should be!), I refer to net utility as the
utility possessed by every person in the nation.

See? Not collectivist.

> Hardly. As history has shown intellectual property works (American history). Lack thereof
> does not work (most everywhere else's history)

Whether IP works or doesn't work is the subject of debate; it cannot be
demonstrated by looking at GDP, as many nations which DO have IP are
nonetheless doing poorly macroeconomically; the behavior of one market
does not dictate the success of the whole.

> Are you utilitarian or libertarian. There is a distinct difference.

My ethical principles are utilitarian. Because of that, I certify that I
do not believe in or advocate the initiation of force as a means of
achieving political or social goals. You decide whether that makes me a
libertarian or not.

> You have yet to objectively and scientifically demonstrate that it is a bad law. The only
> dead weight here are those who steal the product of another's mind.

Monopolization objectively leads to deadweight loss. I have argued that
the law is bad for this reason. Now it's time for you to show how the
deadweight loss under my system is bigger than the deadweight loss under
your system as well plus the cost of enforcement.

By the way, would you consider increasing the margins on your mailer?
Your text stretches more than 80 characters across my screen.