Tag Archives: public choice

New Dourado and Tabarrok Paper on Intellectual Property

I’m pleased to announce that Alex Tabarrok and I have a new working paper out from the Mercatus Center today, “Public Choice and Bloomington School Perspectives on Intellectual Property.” The paper will appear in Public Choice in 2014.

Here’s the abstract:

We mine two underexplored traditions for insights into intellectual property: the public choice or Virginia school, centered on James Buchanan and Gordon Tullock, and the Bloomington or Institutional Analysis and Development school, centered on Elinor Ostrom and Vincent Ostrom. We apply the perspectives of each school to issues of intellectual property and develop new insights, questions, and focuses of attention. We also explore tensions and synergies between the two schools on issues of intellectual property.

The gist of the paper is that the standard case for intellectual property—that a temporary monopoly is needed in order to recoup the sunk costs of innovation or creation—ignores issues raised by the two schools we investigate.

From a public choice perspective, a temporary monopoly provides enormous opportunities for rent seeking. Copyright and patent owners are constantly manipulating the political environment to expand either the duration of the monopoly or the scope of what can be monopolized. We document the evolution of intellectual property in the United States from its modest origins to its current strong and expansive state.

From a Bloomington perspective, the standard case for IP wrongly treats the commons as a kind of wasteland. In fact, numerous innovations and sprawling creative works occur without monopolization—just look at Wikipedia. Innovation occurs when the right institutional structures are in place, and intellectual property that is too severe can hamper the smooth operation of these institutions. Too much IP can harm as much as too little.

Read the whole thing, cite it copiously, etc.

Replies to Interfluidity

Steve Randy Waldman, aka Interfluidity, is wicked smart. So it was with mild trepidation that I read Nicholas Weininger’s request:

I’d like to see your take on Interfluidity’s posts about inflation-averse influencers, flights to safety, wealth as a positional good for insurance purposes, and the effects thereof on productivity. Relevant links:

http://www.interfluidity.com/v2/3487.html
https://plus.google.com/112482032780181267192/posts/5ATAa1ckps9
http://www.interfluidity.com/v2/3212.html

Alright, let’s see what I can do.

On inflation-averse influencers, I agree with a lot of the post. I’d quibble with the assumption that our current recession is 100% demand-driven. I favor NGDP targeting, and I think our problems would be less acute if we had more monetary stimulus, but I still think a lot of our problems are structural. NGDP targeting is not going to bring back the 90s.

That quibble aside, I think Waldman is totally right that we have a public choice problem. The way I think about it is that there is a public choice curve.

Superimpose the public choice curve over a dynamic AS/AD diagram, properly situated, and you will see why we are stuck. The public choice curve is meant to bolster the argument that recession is ultimately what the polity chooses, but keep in mind also one encouraging and one discouraging thought. The encouraging one is that having a polity that places a ceiling on the rate of inflation it will tolerate is actually an achievement when compared to the alternative. I lived in Brazil in the early 1980s, and while I was too young to really understand the value of money, I remember dropping a few million cruzeiros on a pack of gum. We might rightly call our current public choice curve inverted because there is an inflation ceiling rather than an inflation floor, which is much more common. Again, this is not to deny that we should have more monetary stimulus now.

The most discouraging part of the public choice curve is the bound on growth. There is a lot that a moderately-enlightened dictator could do to increase the growth rate of the economy from the supply side. I wish that people would get as incensed over the political failure on the supply side as they do on the demand side.

On the other post on the insurance value of wealth, I really disagree, not with the proposition that wealth is a kind of insurance for the wealthy, but that this has a significant real effect on employment. I think Waldman elides differences between the real and financial sector and between long and short runs.

Let’s say that Scrooge McDuck goes to his bank, withdraws his billions in $100 bills and puts them in a vault somewhere, as insurance against some improbable bad event. Aside from this, he spends only enough to keep himself alive. What are the real effects of McDuck’s insurance “purchase”? Putting aside any short-run distortions, all he is doing is leaving more real resources for everyone else to consume. Because the money in his vault is not circulating, it has no real long-run effect, at least not to a first approximation. Waldman needs to find some way to reconcile his argument, at least in the long run, with Steve Landsburg’s point about misers.

If you want to say, “OK, the insurance function of wealth does not distort the real economy in the long run, but it has an effect in the short run,” you still have a lot of work to do. First, Waldman needs to walk back the article I referred to in the first half of this post, in which he argues that depression is a choice. Assuming, arguendo, that the wealthy disrupt the circular flow of payments somehow with their insurance demands, why can’t monetary policy fix that? On top of this, I’m not sure that the comparative statics of anything we might plausibly consider insurance work out: you would expect wealthy people to “buy insurance” during good times and “collect a payout” during bad times. But isn’t the problem the reverse, that we observe hoarding in bad times? Finally, inequality is procyclical, so it’s not as if recessions are caused by sudden outbreaks of inequality.

I’m totally willing to consider the possibility that inequality adversely affects the real economy; indeed, I share the sense that most economists probably have that a highly unequal society likely has something wrong with it. I guess I am just an inequality traditionalist who thinks more in terms of plutocracy, unholy alliances between business and government, and standard public choice. While I’m not persuaded by Interfluidity’s account of the inequality-unemployment channel, I’d be eager to read other economists discussing this question.

Peace through Political Assassination?

Bryan Caplan writes three compelling posts on the common-sense case for pacifism. The short version of his argument is that it’s wrong to kill innocent foreigners (“collateral damage”), especially when the gain in doing so is not clearly large, as it is not in many wars.

This seems like as good a prompt as any to write about an idea I have toyed with and failed to dismiss over the past few years. Instead of going to war against a country, why do we not simply put a price on the heads of the leaders of enemy governments?

Depending on whom you ask, this is currently illegal by executive order. Ford, Carter, and Reagan all ordered that, “No person employed by or acting on behalf of the United States Government shall engage in, or conspire to engage in, assassination.” This seems to have been relaxed if not officially rescinded by the Bush and Obama administrations. In any case, assassinations are plainly constitutional, since the US Constitution explicitly authorizes Congress to issue “Letters of Marque and Reprisal,” and it seems implausible that an executive order can overrule an explicit power of Congress.

A small bounty, I believe it was $25 million, was offered by the US for information leading to the capture of Osama bin Laden and other high-level Al Qaeda officials. The problem with such small amounts is that they do not induce entry into the intelligence-gathering industry. It may cause a marginal defector to turn up information, but it does not entice new firms to form in pursuit of the bounty. Something on the order of a billion dollars would probably have done the trick; note that this is still a much smaller amount than the US government has actually spent in the hunt for bin Laden.

On humanitarian grounds, a bounty system seems like it would result in fewer innocent civilian deaths than the kinds of warfare nation-states have recently been conducting. But even if you do not have this intuition, never fear, we can insert into the bounty announcement a requirement that bounty hunters abide by the strictest standards of conduct or risk disqualification.

Would bounties be effective? There’s no way to know for certain unless they are tried, but my intuition is yes. Here is Helland and Tabarrok on bounty hunters in the criminal context. I certainly would not sleep easily if there were a large bounty on my head. And while I can imagine a hypothetical army without political leadership, this would plainly not result in the kind of warfare that modern states engage in.

So it’s possible that bounties on enemy political leadership would be cheaper, more humane, and more effective than going to war. Why don’t governments use this tactic? I have two public choice explanations.

First: rent-seeking by the professional standing military. In the US, Letters of Marque and Reprisal were used relatively often (to deal with piracy) until after the War of 1812, which resulted in a standing navy. If bounties are used extensively, what justification is there for a standing military? Very little. Therefore, the professional military has an incentive to discourage the use of bounties in order to capture a larger portion of the government’s budget.

Second: collusive rent-seeking by the international political class. If one government began to make extensive use of markets in political assassination, other governments would likely do the same. This makes all politicians worse off. International belligerence would result in the death of politicians, not in the death of grunts and civilians, which they regard as expendable. Looking out for #1 means upholding the tacit agreement not to take aim at political leaders, just as in previous centuries armies used to agree not to target officers. I prefer the tighter link between “live by the sword, die by the sword.”

My guess is that if a bounty system were widely adopted, military budgets would plunge and politicians would be less belligerent. If you have additional arguments for or against this proposal, I would love to hear them. And to the Nobel Peace Prize committee, you may use the “contact” link at the top of the page to get in touch with me.

Why I am not a Liberaltarian

Will Wilkinson offers what Karl Smith calls “Liberaltarianism in one sentence.”

It’s best to just maximize growth rates, pre-tax distribution be damned, and then fund wicked-good social insurance with huge revenues from an optimal tax scheme.

Karl muses, “A core hope of my engagement with the blogosphere is to determine why there is so much resistance to this idea.”

My resistance to this idea is not aesthetic. Max g sounds good to me, and fair, non-distortionary social insurance would be a great improvement over what we have now. Nor is it based on a priori taxation-is-theft libertarian dogma. I don’t believe in natural rights. My opposition, if you can call it that, to one-sentence liberaltarianism is practical, intellectual, and moral.

My practical objection is, simply stated, “You can’t get there from here.” If you study public choice, the economics of politics, you learn that there is a logic to why we have the institutions and policies that we have. To invert a title from Buchanan and Congleton, we have politics by interest, not principle. Or if you’re a Caplanian, majority rule means irrational rule.

Public choice issues are unavoidable. The interests that influence the government cannot be eliminated without eliminating the government, and possibly not even then. And if we eliminated democracy and therefore irrational voters, they would simply be replaced by irrational subjects, whose irrationality would constrain the dictator as surely as voters constrain democracy. There’s no way around public choice.

Liberaltarians sometimes point to Denmark (or wherever the example du jour is) and say, “If they can do it, why can’t we?” Leaving aside the question of whether Denmark actually achieves the liberaltarian ideal, most of the world is not Denmark. Certainly America will never be Denmark. It is too big and diverse. We could eliminate the federal government and divide into 50 states or an even greater number of city-states, matching Denmark’s size, but the people of most of these polities would still possess broader divergence of interests than Scandinavians do. In practice, the US will never get anywhere near a fair and efficient social insurance system (or max g for that matter), and the sooner we can all accept this, the better.

Intellectually, one-sentence liberaltarianism is better than pure leftism because it acknowledges some parts of economic reality. To maximize growth means to adopt free trade and low marginal tax rates and to drop the preoccupation with all forms of inequality. But it also adopts one of the worst features of leftism, the idea that there is a we that can choose how society should operate (conservatives and some libertarians think this too). Society is not designed. It emerges from our interactions. I can’t fully support any ideological statement that treats growth or goodness of social insurance as knobs on a dial that we can turn.

What troubles me the most, though, about one-sentence liberaltarianism is the moral poverty of the statement as the intersection of libertarianism and liberalism. I support Will’s and Brink Lindsey’s project of bringing modern liberals and classical liberals together for dialog. I think there is something very important that libertarians can learn from the left. Leftism, at its best, draws attention to the fact that there are people who are vulnerable and can be taken from. There is a caricature of libertarianism that avoids this and should not. What I wish would emerge from the dialog is an acceptance by liberals of economic reality—all of it, including public choice and the idea that society is a spontaneous order and cannot be designed—and an appreciation among libertarians that sometimes this vulnerability is a greater threat to well-being than bad economic policy is.

I think the liberaltarian coalition that I would like to see would come out strongly in favor of prison reform and of changes in criminal law. According to a friend of mine who studies these things, if you are sent to a medium- or high-security prison these days, the guards tell you on arrival that you must join the gang of your race because they, the guards, cannot protect you in there. Victimless crimes are prosecuted with discretion that inevitably gets used against the poor and vulnerable. I would like to see discussion of why in the world there should be criminal law in the first place. If all offenses were handled through the tort system, and tort claims were tradable so that the poor could always afford to prosecute, there would be no offense where there is no harm, and justice would be less discretionary.

Liberaltarians should come out strongly for open borders. Few people are more vulnerable than those who are born, by accident, in crappy places. They should be allowed to leave and live peacefully wherever they wish, including next door to me, by both liberal and libertarian principle.

Children are highly vulnerable in our society. Liberaltarians should oppose compulsory schooling, which in many places is hard to distinguish from incarceration. This is not to say that fewer children should attend school (though they should), but that giving them the right to leave would ensure that the worst abuses are avoided.

While I am gratified that liberals are learning about the enormous benefits of free trade and the very real harms caused by occupational licensing, my libertarianism is not primarily about max g. Rather, it’s mostly a moral judgment about how we should treat each other. Neoliberalism and one-sentence liberaltarianism obscure that to the point that I can’t really identify with either, though I’d be delighted for liberaltarians to meet me where I stand.

Bribes for Privatization

The privatization of education is near the top of my policy wishlist. While I’d prefer radical privatization, I think that’s essentially impossible any time soon; but vouchers seem to be gaining support. Here is my proposal for putting them over the top.

We bribe people.

My plan is to bribe the educational establishment (teachers and administrators) in failing school districts with the assets of the failing schools. The local government could implement a voucher system, and under cover of some made-up reason like retaining the spirit of the public schools, give the building, land, and other assets of the local schools to the teachers and administrators. Equity could be determined by whatever method the establishment thought was fair, such as seniority. The new equity holders could decide whether to organize as a for-profit school, a non-profit school, or to divest the assets by selling them to entrepreneurs who wanted to start a new school or use the assets for other purposes.

I am convinced that this is good public policy. Consider the following two premises:

P1. Many schools, especially in the inner cities, produce little or nothing of value.

P2. The educational establishment is able to block any real efforts at reform.

If you buy these two premises, then the bribe is actually costless to the local government. Think about the property rights in the school assets as divisible into rights of control and residual claimancy. If you accept P2, then you concede that the establishment already has rights of control. Nothing can be done with the assets without the consent of the establishment. If you accept P1, then you must acknowledge that the right of residual claimancy is worthless to the local government. Giving residual claimancy to the establishment does not adversely affect the local government or its citizens because it wasn’t doing them any good in the first place. If in exchange for nothing the government gets real educational reform, then it is good public policy, no?

One may object that this is rewarding failure, which it is. But the status quo rewards failure on an ongoing basis. At least under my proposal, there is an end to the rewarding of failure.

Or is there? This is the real danger. If, after divesting the bribe, the establishment is able to resurrect demand for a public school system, then the local government will be in worse shape than where it started. It will continue to have schools that fail and it will have to pony up more money to reestablish the public schools. That would be a disaster, but nevertheless, I think the upside on the plan is good enough that someone should give it a try.

The Public Choice of In Vitro Meat

The transhumanist publication h+ Magazine has an article explaining Eight Ways In-Vitro Meat will Change Our Lives. It’s a fun read, if a little misleading at times. The author predicts that in vitro meat will be widely available, if not dominant, in 3-10 years. While I think that a few cultured meat products are likely to be in stores and restaurants within a decade, they are likely to be reconstituted meats like chicken nuggets and sausage, not steaks and poultry breasts. We are probably two decades or more away from the rosy scenario h+ envisions (but what else would you expect from a transhumanist?).

In vitro meat has intrigued me since I first heard about it around five years ago. As h+ argues, the technology could result in meat that is cheaper, healthier, safer, more humane, tastier, and more environmentally friendly. Cheaper meat means better nutrition and less starvation in developing countries. As Omega-3s replace saturated fats, doctors might advise their patients to eat more red meat. No more swine flu. And your Meat is Murder t-shirt will be an irrelevant anachronism.

Yet despite all its promise, I suspect that the full realization of this technology will be significantly delayed for political reasons. A large fraction of the population will be repulsed by the idea of meat created in giant vats. It will not be enough for this group to abstain from eating such meat; they will agitate for an outright ban so that no one can eat it. Furthermore, at least one group has a financial stake in banning in vitro meats: ranchers. In typical Bootleggers and Baptists fashion, funding from ranchers combined with populist hysterics will be enough to induce politicians to heavily regulate, if not ban, this technology.

The regulation will have a compounding effect on the populist hysterics. There are economies of scale in regulatory compliance—in light of the regulation, efficient meat producers will be large meat producers. Large corporations are unpopular, especially when contrasted with idyllic and mythological ranchers and family farmers. And if it ever appears that the ranchers are about to fold, people will whine about how big business is turning cows into an endangered species.

The h+ article predicts that in vitro meat will be successful in Europe before anywhere else, cheerfully oblivious to the fact that Europe has one of the least friendly regulatory environments for genetically modified food. While cultured meat is not (or not necessarily) genetically modified, it will almost certainly be just as heavily regulated, and for many of the same political reasons.

I hope I am wrong about these predictions. I am glad that environmentalists and animal rights activists will be on the other side of the issue. Maybe they will carry the day. Even if that is the case, the political system is enough of a wild card that anyone making rosy predictions about the future should consider whether governments will hinder or cripple the new technologies that will make it so excellent.