Re: ECON: Intellectual Property Again

Daniel Fabulich (
Fri, 22 May 1998 22:07:47 -0400 (EDT)

On Fri, 22 May 1998, Michael Lorrey wrote:

> Yes, the act of writing a novel is a service. The resultant manuscript is a product. Do you see
> the difference? One is kinetic and the other is static.

I wholeheartedly agree. Now, suppose someone BUYS your manuscript
(static, rightfully owned) and uses this manuscript to make another
manuscript. They have stolen nothing; they have rightfully purchased
everything that is static. The only thing that changes is the
organization of THEIR ink and paper and energy, something which YOU don't
own, nor have a right to control.

> > 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.
> Because I cannot produce exactly the same service as you. However, if I were given an outline
> of the novel, descriptions of the characters, I could certainly create a reasonable facsimile
> of the novel that you would have produced. My writing the novel is a service, the resultant
> manuscript is a product.... get it yet?

I sure do. That means that I can buy a copy of your written manuscript
and do what I wish with it. It's STATIC you see, and I can do anything I
want with my STATIC property. It's MY copy of the idea: you sold it to

> No, if I do not give another manufacturer exact plans for the widget I produce, then by
> definition his widget is going to be slightly different. Even if I tell manufacturer A and
> Manufacturer B to make a widget that does Job A in Manner B, they will still be slightly
> different, but will do the same job. Cases in point:
> 1) Jeep Cherokee and Ford Explorer
> 2) F-16 Fighting Falcon and Mig-29 Fulcrum
> 3) La Cage Aux Folles (sp?) and The Birdcage


1) Non-mechanical Pencils
2) Aspirin
3) AA batteries (despite what the manufacturers tell you)

Keep in mind that widgets are mythical products with certain properties
which make them easy to work with from an economists perspecive, and that
one of those properties is "perfect substitution." In other words, one
firm's widget is just as good as another firm's widget: no better, no

> This is why it is most important to enforce property rights on it. This is why the word is COPY
> - RIGHT, or right to copy, get it?

I know perfectly well what it is, and think that it should not exist.

Would it be too much to ask that we maintain a higher level of ettiquette
here? I don't insult YOUR intelligence every chance I get.

> It is important because information is very easy to reproduce, while much more substantive
> products are not so easy to reproduce. Especially with software, if there is no way an
> individual or company can hope to get paid for its software, if the first person to buy a copy
> goes out and gives away copies to everyone, then there will be no incentive to produce software
> and the industry will die, or at least become severely retarded.

On the contrary; all this means is that the price of copies will plummet,
and as a result more people will buy the product who wouldn't before.
(This is the 40-50% of the copy market to which I have been referring.)
The market [for copies!] will GROW, not shrink, because the law of demand
dictates that when prices fall, quantity demanded increases. Meanwhile,
the number of new inventions will decrease; I argue that the copy market,
coupled with the cost of enforcement, will outweigh this loss.

> So you admit that it is a severe disincentive against invention, if an inventor is guarranteed
> to have his invention stolen the minute it goes public. How many people will be able to devote
> their lives unselfishly to producing software when they have no hope of being compensated for
> the undertaking? Far Far fewer than those at present.

It's not stolen. He's selling copies. People are doing whatever they

And YES, I'm aware that incentive will decrease and that invention will
decrease. However, we will ALSO see an explosion in the copy market, and
we will all save, as taxpayers, the cost of enforcing this law. These two
effects will OUTWEIGH the decrease in invention...

> And I replied that I think that you are out of your hat to think so...

... and you have yet to provide an economic argument which counters that.
Indeed, you completely FAILED TO RESPOND to any of my previous points,
arguing that you wanted to see real numbers. Well, as I'm sure you're
aware, these numbers don't and CAN'T exist, because this is a
MICROeconomic argument, not a macroeconomic argument; while I argue that
enforcing intellectual property will hurt GDP, I'm not saying that a
country with IP protection will have less GDP growth than another nation
that doesn't. Indeed, the best I can say is that ONE nation with IP will
do better if it stops protecting IP; because the behavior off one market
cannot ever explain the behavior of the whole economy.

I'd like to prove this more vividly. Let's take welfare for example.
Welfare sucks. It hurts the poor more than it helps them, and drags down
our macroeconomy. This can only be demonstrated through a MICROeconomic
argument: that it reduces efficiency thanks to distorted incentives which
lead to deadweight loss. How much deadweight loss? No one, not even the
best macroeconomist anywhere can tell you exactly how much. It is NOT
simply the dollar value of government expenditures on welfare, adjusted
for inflation. It's actually much much larger than that. Can you
demonstrate this? Can you show it using "real data?" (hint: any attempt
to do so must necessarily use theoretical data, in other words "uninformed
guesstimates," by your account.)

If not, then a liberal could say to you: "I don't need to show that
welfare is more ecnomically efficent than laissez-faire capitalism; the
current state of our macroeconomy is my proof: we're doing EXCELLENTLY.
Now, how to fix Social Security..."

Since we agree that welfare is bad, yet our economy is doing well, then it
is plausible, a priori, that IP may be bad, EVEN THOUGH our economy is
doing well. And the ONLY way you can show this is with a MICROeconomic
argument, which you think you can gloss over. Well, you can't. I've
provided my microeconomic argument using sound market theories which WORK.
Care to provide your own?

> You have yet to quantify any of your claims, probably because you cannot quantify those
> claims.... come back when you get real data...

I have left myself a WIDE margin of error with 40%, using strong economic
principles which are completely valid in this example. You'll never get
better data than that; nor could you provide such numbers if we DIDN'T
have IP and you were arguing for its creation. One market cannot explain
the entire economy.

> I work in the software industry, and it is easy to create fingerprints in data and in software.
> The problem in the software industry is a refusal on the part of nations like china to enforce
> the laws they already have, because the pirates are top officials in the Communist Party.

No, the problem is that even if we DID have those fingerprints, (which
many products already do!) we'd have to monitor people's computers in
order to actually FIND THEM. Couple that with the fact that a reasonably
competent programmer can disable fingerprint protection with a crack, and
you've got a situation where in order to find the pirates, you'd have to
raid houses at random, violating our rights and wasting our time and

> its more a matter of prosecuting those in the breach. An easy way for, say, Microsoft to
> enforce its own copyright is to require that all resellers of Windows perform license checks on
> software on customers computers when the coputers are sent in for maintenance. I don't see any
> reason why Apple, Microsoft, and IBM don't get together and adopt that as an OS industry
> standard practice.

Then it will be more profitable to have your computer upgraded by a black
market computer repairman. You can't stop the market, even when you pass
laws to the contrary.

> One interesting thing I've found is that the pirate market overseas is turned a blind eye by
> most software and music producers because its a neat way to get reduced prices from their CD
> manufacturers (and consequently lowered tariff costs) by cutting a deal with the chinese CD
> producer that allows him to produce X number of CDs on the side for his own resale on the
> 'pirate' market. THis way, the music or software company can continue to make huge profits in
> markets where the CDs are sold at high retail rates, while minimizing their production and
> shipping costs. Its really just a tax dodge....

Again, this problem could be solved, REAL easy.

Now, from here on we have a real interesting phenomenon. Here's where I
provide my argument from microeconomic efficiency, and explain the
difference between the microeconomy and the macroeconomy. You just ignore
it. Funny that.

> > > 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
> > monopolization.
> >
> > > 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.
> >

OK, we're back.

> > 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.
> How does someone else know exactly how someone else organize their property?? If they haven't
> paid for the product (i.e. the information about the other person) then they cannot organize
> their property the exact same way, can they?

Too true! So I had best BUY a copy of your manuscript, and then, using my
property, organize my property just like the copies that belong to you.
You own the manuscripts and all of the words written on them; but if you
sell a copy to me, then I own a copy, with all the words written on it. I
can do with my property whatever I please, including organizing my
property just like your property.

> Duh, in sum is society.

I think we're using different words to say the same thing. Society
doesn't have the right to own property. Individuals do. The sum of the
wealth owned by individuals is not the property owned by society, but the
simple sum of the property owned by those individuals. I think we're
agreed on that.

In light of that, your statement above is not correct: otherwise we are
forced to say that the sum of the property owned by individuals IS proprty
owned by society. However, we both agreed that society HAS no rights,
especially not the right to own property, only the individuals have these
rights. Therefore, the sum of the property owned by individuals is NOT
the property owned by society.

Similarly, I assert that we should maximize the sum of the utility for
each individual; NOT the utility of the society, which is not a brain and
therefore has no utility. If I were arguing that society DID have
utility, THAT would be collectivist. THAT would be Borg-like.
Fortunately for the both of us, I'm not saying that at all.

> Destroying the incentive to invent destroys the utility of every thinking mind. Destroying the
> value of the thinking mind makes a human nothing but another animal that can be penned,
> harnessed, and slaughtered at will....

Slaughtered at will, eh? This is either some weird hyperbole, some
obscure attempt at a reductio ad absurdum proof, or a gross
misunderstanding of my argument. Obviously, I do NOT think that
individuals ought to be slaughtered at will. Nor do I think it's OK to
take away static property. I don't believe IP exists, or to put it
another way: I don't think that we should enforce the concept of IP,
because it does not maximize the sum of the utility of the individuals in

> > 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.
> I don't need to. I have the present system as my proof. Since your system is the new one, you
> need to do the quantification comparing the two. Rough percentages and uninformed guesstimates
> do not cut it.

If you would REPLY to my argument, rather than gloss over it, then I could
show you that my argument is NOT uninformed, but rather leaves a wide
margin for error. If you had only read what I had said about
microeconomic vs. macroeconomic arguments, you would understand that the
current state of the economy is NOT evidence that IP is working, any more
than it proves that welfare and social security are working (and they sure
as heck aren't).

So you DO need to provide your own argument; your macroeconomic argument
simply does not cut it.