Why (some) Governments Protect Intellectual Property

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Sinclair Davidson and Jason Potts write,

We propose a new model of intellectual property based on the stationary bandit model of government. We argue that new ideas—of the sort that become patents, copyrights and trademarks—emerge as economic rights, born global as it were into a world of roving bandits. They seek protection from a stationary bandit, who extracts tribute in return. The key insight of our new model, however, is a sharper distinction of who those bandits are.

…vulnerable subjects seek protection for their private economic property from the banditry of other governments, by registering their property with their own government, whom they trust to be powerful enough to protect it as they peacefully engage in trade and commerce throughout the world.

In return, they grant that government an exclusive right to exploit them through perpetual taxation of the property.

Pointer from Scott Sumner. This theory suggests that the country that ends up with the largest sector of copy-able products (pharmaceuticals, movies, novels, etc.) will be the country with the largest navy. Hmmm…

Cities that Attract College Graduates

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Rebecca Diamond writes,

the additional benefits college graduates gained from having access to a variety of desirable local amenities actually outweighs the negative effects of high housing costs. The 50 percent increase in the wage gap between high school and college graduates from 1980 to 2000 actually understates the true increases in economic inequality due to changes in wages, housing costs, and local amenities by at least 30%.

Pointer from Mark Thoma.

I think that the story she tells is pretty close to my model of gentrification.

1. Some high-skill enterprises locate in a downtown area. Think of the New Commanding Heights industries of health care and education.

2. This attracts well-educated professionals.

3. This attracts amenities that well-educated professionals enjoy. Bicycle lanes. Sushi restaurants. Opportunities to meet other well-educated professionals.

4. Rents and house prices go up.

5. Former residents are driven away by declines in low-skill jobs, higher housing costs, and lower propensity to enjoy bike lanes, sushi, and opportunities to meet well-educated professionals.

Gains from the Internet not in GDP

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Shane Greenstein writes,

what is the contribution of more timely information to economic productivity? Seems like many gains are not measured. If they are, where do those gains show up in national statistics? In which industries?

In fact, I can think of one way in which more timely information reduces GDP. If firms can monitor sales more carefully in real time, then they will hold less inventory. Inventory investment is a component of GDP.

Read the entire post. It lists many benefits of the Internet that do not necessarily make it into measured GDP.

Interpreting Monetary Facts

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Scott Sumner writes,

1. The Fed’s official goal is 2% headline PCE inflation.

2. PCE headline inflation has averaged 1.12% over the past 8 years.

3. Thirty year TIPS spreads are 1.66%, equivalent to 1.4% PCE inflation.

4. Top Fed officials are discussing the need to tighten monetary policy in the near future.

His interpretation is that Fed officials have been doing a lousy job of hitting their target, and they continue to send out harmful signals.

My interpretation is that the Fed cannot hit its target. Imagine that Citibank set a target for 2 percent inflation. Does anyone think that they could succeed? Well, think of the Fed as Citibank.

Instead, mainstream economists think of the Fed this way: In general equilibrium models, supply and demand conditions determine relative prices. But what about the “absolute” price level? What ties it down? We need another variable, so let’s invoke the quantity of money. Except–oops–money is very hard to define, because so many different financial instruments serve as money nowadays. So let’s just wave our hands and say that central bankers control the price level, without being able to provide a convincing account of exactly how they do so.

Reviewing a Cold-War Era Book

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I review The Quest for Community, by Robert Nisbet.

Nisbet warned that weakening of ties of work, family, and religion would give people a sense that they have lost control of their destinies, producing this sort of alienation. It seems to me that the support in this year’s Presidential primaries for the socialist politics of Bernie Sanders and the caudillo politics of Donald Trump, which shocked many observers, would not have surprised Nisbet. Nor would the recent work of Robert Putnam or Charles Murray on cultural decay.

Modernity is a Package, Continued

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Malavika Nair and G.P. Manish write,

In recent years, many thousands of so-called “untouchables,” or Dalits, members of the lowest group in the Indian caste order, have risen out of poverty to become wealthy business owners, some even millionaires.

By taking advantage of the greater economic opportunity brought about by market reforms, these Dalit entrepreneurs provide us with an important example of the power of markets, not just to bring about economic emancipation, but to fight deeply entrenched social discrimination.

In Specialization and Trade, I argue that most pre-modern specialization was similar to the Indian caste system, in that you were born into your occupation. Part of modernity is getting to choose your occupation, and markets are an essential component of that.

Feel free to return to the book’s web site to peruse and comment on the reviews. One review, by Herbert Gintis, disturbed me. He is entitled to claim that what is right in the book is not original and what is original is not right. However, I found his tone to be snotty and uncharitable, which lowers my estimate of him considerably.

An Approach to Policy Change?

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Referring to George Soros’ bid to influence elections for local prosecuting attorneys, Scott Bland writes,

His money has supported African-American and Hispanic candidates for these powerful local roles, all of whom ran on platforms sharing major goals of Soros’, like reducing racial disparities in sentencing and directing some drug offenders to diversion programs instead of to trial.

This is not my area of expertise. But if we have a huge surplus of laws on the books, then perhaps electing prosecutors who will selectively enforce the laws that you like is a powerful way to influence policy. Am I wrong about that?

The Case for Sticking with the Null Hypothesis

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Jesse Singal writes,

As things continue to unfold, there will be at least some correlation between which areas of research get hit the hardest by replication issues and which areas of research offer the most optimistic accounts of human nature, potential, and malleability.

Pointer from Tyler Cowen.

Studies that show significant effects of educational interventions are right in this wheelhouse. That is why until they are scaled, replicated, and shown to have durable effects, you should view accounts of such studies with skepticism.

College Loan Default Not Related to High Tuition?

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Jason Delisle says,

But if you get in the heads of people — and I did a focus group on this a year ago — you maybe went to school, it turns out it wasn’t for you or the school misled you, or you didn’t get a job in that field, and so you’re not really excited about paying back your $8,900 because you feel like you didn’t get anything for it.

Affluent people assume that student loan debt must be related to the high tuitions at top-tier schools with which they are familiar. DeLisle says that instead many of the defaults are occurring at lower-tier schools. The tuition and debt levels are low, but the students do not think they got anything out of the school, so they are reluctant to repay loans.

There is much more in this depressing interview. It is depressing how much of a discrepancy there is between a sensible policy on higher education and what we are actually likely to see.

Why You Don’t Have to Change Your Mind

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James Surowiecke writes,

Obamacare is being hobbled by the political compromises made to get it passed. ..

Conservatives point to Obamacare’s marketplace woes as evidence that government should stop mucking around with health insurance. In fact, government hasn’t mucked around enough: if we want to make universal health insurance a reality, the government needs to do more, not less.

Pointer from Mark Thoma.

A while back on twitter, someone pointed me to a passage from David Deutsch.

The key defect of compromise policies is that when one of them is implemented and fails, no one learns anything because no one ever agreed to it.

So, one side says that the stimulus failed because stimulus does not work. The other side says that it worked, but there was not enough of it. One side says Obamacare has not achieved its objectives because it is a flawed concept. The other side says that “government hasn’t mucked around enough.”

If you wanted to create accountability in politics, you could say, “You can have your way, but if the results do not conform to your promises, you lose power.” But things are never that clean.

With markets profits and losses ensure accountability. When your firm loses enough money, you can insist that you were right all along and just ran into bad luck, but nonetheless you go out of business.