Tax Cuts for the Rich

We need an “Equal Taxation Amendment” which institutes a flat tax over a legislatively set threshold (and EITC below), specifies a legislatively set capital gains rate (hopefully recognizing that it’s double taxation to begin with), eliminates the death tax, and phases out all deductions. Gotta do something to equalize corporate taxes too.

Anyone know what the numbers would be to keep the same revenue into the government today? I would guess they would be salable enough that you could demagogue the lefties who are against it as just wanting to instigate class warfare in every budget process.

Dmytri — I strongly suggest you google the phrase “broken window fallacy.”

John Rawls’ (wait, come back!) flawed conclusions for his thought experiment stem from the same flaw in his game design that often occurs. His game (in the game theoretical sense of “game”) assumed a “veil of ignorance” regarding which body the designer of a society might be born into, and thus promulgated a highly risk-averse, redistributive (“liberal”) ruleset.

The flaw, just as in Prisoner’s Dilemma, is that he is assuming you only play once. Those who are highly risk-averse have a high personal discount rate and therefore a very short time-horizon. The solution, again just as in Prisoner’s Dilemma, is to consider the game as having many turns or plays. Force an expanded time horizon and conclusions differ radically. Throw in either, say, reincarnation, or an uncertainty about when a society-designer might be born (maybe 1000 years in the future, a possibility that forces a concern about how the game has been played up ’til then), and redistribution gives way to ideas of progress, technological invention, efficiency, and other capitalist (“conservative”) concerns.

This way, the “liberal” from your citation would be looking to increase the amount of “luck” going around, and conversation would quickly turn to a method for growing the pie before we cut it. Voila, Locke’s concern for life, liberty and property seems uncannily effective as well as just.

Price has an income effect as well as a cost effect. Total Income = Total Expenditures. Monopolistic deflationary pressure can unbalance market forces in exactly the same way that state price fixing can. Economics 101.

I was going to reply to your post, Dmytri, but then I got to the following bit:

“why do you seem to have the notion that using Public money for social programs is bad, but using it for foreign military adventures is good.”

Is this some attempt at irony? To accuse me of committing a straw man and then construct one the size of the Statue of Liberty yourself? Where did I say, imply, or link to any idea resembling the one you attribute to me? I realize it is fun and easy to make up stuff, and debate is a lot more straightforward when you get to decide what your opponents say, but at the grown-up table life doesn’t quite work that way.

Sorry asg, yes that comment is a straw man in the context of our discusion, it was meant in the context of some of the stuff written on this site in general, apologies for being unclear, I should have said ‘why do some people seem to think…’

Can I take then that you agree with me that the economic justifications for war are a broken window fallacy?

Anyway, you did not answer the part of my question that was not a straw man, how can microsoft’s using it’s monopoly position and it’s intellectual property position to combat competition be described as anything other than a market inefficiency?

Brad did, unfortunately his response is unsubstantiated, how exactly do anti-competitive practices make my computer faster or better?

At the time FedEx and UPS were formed, the US Postal Service claimed it lost money on package delivery, and this was subsidized by the first class mail monopoly. This is why the government allowed competition to exist, and if the claim was true (there’s no reason to doubt it), it should have made the US post office more profitable that private firms leapt at the chance to offer this loss-leader service. Also, the Post Office had nothing resmbling “express mail” service until long after FedEx pioneered the technologies that allowed for it.

The post office is thus the one that is “cherry picking” by keeping to itself, even today, a legal monopoly on non-emergency first class mail and on the right to put stuff in your mailbox. The only reason private companies haven’t undercut standard postage and put the Post Office out of business is that they aren’t legally allowed to charge less than the Post Office or deliver non-urgent paper mail.

Note also: FedEx/Airbore/UPS even have better coverage in remote areas of the country. FedEx delivers packages “to the door” in places where the Post Office only delivers to the nearest “mail stop” that might be miles away from the recipient.

There is the Fair Wage view, which finds taxation necessary to fund certain communal activities. This is not the great element to Fair Wage philosophy. The great element lies in the statement that Wage differential should be determined only by skill and productivity, completely eliminating non-economic criterea for the setting of Income. It would state in its most ruthless form that Inheritance and Gift tax should be 100%. Milder forms state there should be a “Provide for the Children” allowance before 100% taxation. A greater importance lies in statement Wage differential should be proven in law, so that institutional and personal position should not be allowed discriminatory power, while the efforts of the Individual would still determine the largesse of his gain. lgl

I have been scratching my head about how monopolies cause deflationary pressures since I read the post earlier. Isn’t one of the criticsm if monopolies that they keep prices artificially higher? Also, I still do not see how lower prices cause lower incomes. Total Income = Total Expenditures, does not really explain it to me. Won’t lower prices on some goods make other goods less expensive relative to one’s income?

A monopoly position causes deflationary pressure on their costs, due to unchecked leverage with suppliers, the other side of this is reduced income for these suppliers.

I’m having a hard time understanding why a monopolist would have leverage with suppliers. Do you mean to say that the monopolist is actually a monopsonist in an input market and a monopolist in the output market?

Who cares what labor G.W. is earning his “fruit” from. Even if he inherited his wealth (or made it on his own) what right does someone else, or “society” have to come in and confiscate it from him? If capital really accumulated in a manner that threatens the free market, why have the Rockefellers and Morgans not become our masters? The extremely wealthy of hundred years ago are no longer really relevant to the economy, they do not control major corporations, they have largely divested themselves of the businesses that brought their families great wealth, and their wealth has actually shrunk instead of continually accumulating in the hands of the few. Much of this wealth has dissipated through more and more individuals inheriting wealth (and cutting the pie into smaller and smaller pieces), bad investments, spending, and simply giving the money away. Wealth does not accumulate in a manner that threatens free markets, there is no evidence of such an event occurring without the help of governments that create laws to protect the rich. Furthermore, in order for a free market to be free, private property (whether inherited or earned) has to be fee simple. This means claims against property can not be concocted by other groups for their benefit, whoever bought or inherited the property has the only claim to it.
Short answer, Locke is right.

So, would it be preferable to tax consumption instead of income? Would it not be less “painful” if the government extracted it’s vig from consuming rather than producing? Also, would this switch in tax policy increase how much people save (no tax on interest bearing accounts, bonds, etc.) and give more power to the consumer in how government spends?
If the government taxed consumption as opposed to income we would probably have less of a philosophical problem in the way government extracts it’s pound of flesh.

Natural Monopolies occur when there are large infrastructure costs associated with the product or service. A second set of power lines, phone lines, water pipes or natural gas pipes is too expensive and inefficient.

In the software application world, an operating system is infrastructure. As an application developer, you’ll spend a lot more money developing an application to run on two or more operating systems than just one. Hence, you’ll first develop your application to run on the operating system with the largest market share and then see if you ought to port it to something else. As a consumer, over time, you’ll go to the operating system with the largest application base. In addition, you’ll want to use the system most other people are using in order to lower your training costs and increase the pool of potential employees with the right skills. These phenomenons reinforce each other making one operating system predominate in the marketplace.

It’s all about lower costs.

Note that when the infrastructure is no longer necessary, the monopoly starts to disappear. That’s what’s happening to phone service in the US. Also, when a new infrastructure emerges, there is an initial fight over market share. In the US we see that in game system pricing.

Burgess-Jackson’s article is astonishingly silly. The only economy that will work long-term is a mixed economy. The answer to your question, Mr. Kling, is that we must continually re-balance liberty and equality, and THAT will best be done in a democracy of educated people–and there will be no end to this dance. I tend to doubt whether there will be a “reasonable compromise” that can be fixed in words, or else it would have been found by now–although perhaps something will come out of systems theory, or institutional economics?

You could at least argue that, after a few centuries of hope and counter-hope, the real outlines of our system are becoming clearer…

In contradiction to Burgess-Jackson, the idea that the rich, or any others, are entitled to all their wealth has been discussed for millenia, and usually answered in favor of a more equalizing sacrifice all the way around, for reasons from religious to moral to political to economic-technical. Each of these of course could take an essay. To outline some of the economic-technical:

Distribution: The idea that everyone could be equally rich if only they were equally ambitious and capable is false. This is because (1) technological innovation gives returns to scale, and (2) the unregulated free market allows ownership of capital assets to become more and more concentrated (that observation would be from–shudder!–Karl Marx). This leaves you defending the social-Darwinian idiocy, now abetted by the assumption that life is a “game”, or a set of games.

Not only that, but the widening distribution of income appears to continue unabated, as a natural consequence of the free-market system, NOT individual skills.

Efficiency: And on the other side, the idea that the rich should be allowed full fruits of their labor, in order to best spur competition and efficiency, is also false. Here we’ve taken a narrow theoretical result from economics (“narrow”, because it dismisses the various externals and imperfections), and matched it to the real results of the last few decades in the economy–using statistical significance–and those real results are anyway equivocal, because much of the innovation might have happened anyhow.

Burgess-Jackson’s article is also a little dishonest because payroll taxes were already raised in the Reagan Administration to make Social Security solvent (just revised upward, to the year 2050!), and the Social Security surplus, un-lockboxed, is NOW being used for general expenditures, to cover for tax cuts skewed massively to the wealthy. And we’re being told Social Security is unsustainable! So who’s entitled to what?

As for Krugman’s supposedly socialist tendencies (“nobody is entitled to anything”, “belongs to all of us in common”)–also just silly!

Why do people want simple answers of complex systems?

“Regarding the accumulation of Capital, the reason that the old empires of yester-years rich do not control today’s economy, is that there empires too have been assimulated in even larger ones. Does anybody seriously doubt that wealth is is getting increasingly more consentrated?”

Based on what? Which larger empires assimilated the smaller empires?

Yes, I doubt that wealth is getting more concentrated. Even if it were, so what?

If the current distribution of income is incorrect, what is the correct distribution of income? And who gets to decide what that number is, you? Why is the distribution you would decide to force upon society (backed by the brutality of police and miltary force) any less arbitrary than the distribution that the free market produces?

The biggest problem that 20th century American liberals (i.e. the left) SHOULD have with using government coercion to redistribute income is that throughout history the governments of the world have almost exclusively used their power to redistribute income to steal from the poor to give to the rich, not the other way around. Once you empower govenments to forcefully take without respect to the will of the people (which is what you have to do in order to take from the many to give to the few), it is inevitable that such overwhelming power will be abused in the future.

Even scarier is when socialists actually achieve the power for redistribution and use it to captivate the masses and brutalize the few as the German National Socialist (NAZI) party did in the 1930’s. Hitler redistributed incomes in a fashion that would make any socialist proud. He then used the power required to redistribute incomes and turned it on his citizens and the rest of Europe.

Joseph Stalin did the same, murdering 30 million of his own people in the name of socialism and redistribution of income. When the Kulaks resisted giving up their land and their property to be redistributed to “the people”, Stalin starved and then slaughtered them by the millions.

The founder of the American Democratic party, Thomas Jefferson, saw this very, very clearly and was absolutely opposed to concentrated government power that could accomplish such things as foreceable redistribution of income. He opposed them because he was a student of history and saw the clear and uninterupted string of tyrrants throughout history that had used government power to destroy the lives of their mostly un-willing subjects. His 20th century successors in the party he founded have ignored him and embraced all of the things he abhored.

Redistribution of income is at the root of all of the horrors of the 20th century, all of them perpetrated by governments whose ideology drove them to murder their own people at alarming rates in persuit of redistributing income. Once they had that power they used it to murder millions.

Didn’t anybody learn anything from the 20th century?

First off, I could not agree more with the last two comments (referring to Mr. Thomson and DSpears.)
In reference to “Some better questions:”, I agree those are better questions. I believe the unproductive have no right to confiscate from the productive. I believe these are rights that are created by political elites in order to cater to their constituents and maintain political power.
There is a difference between being born rich and the state forcibly confiscating and redistributing property. An individual who is given wealth through inheritance or gifts is not taking it away from someone else; that individual is not using force to take, but is simply the beneficiary of some one else’s good will. By the nature of how that wealth is transferred it is more effecient than the state confiscating and redistributing that wealth for political reasons. The redistribution of wealth by the state is more often political than economic, simply it is vote buying.
I agree when you say socialists are not interested in market liberalization, but I do not agree that all conservatives are not interested in market liberalization. There are plenty conservatives who are interested in market liberalization as there are plenty conservatives who are not interested in market liberalization. I do not agree that conservatives support market inefficiencies, many support the list you detailed many also do not support that laundry list (excluding Intellectual Property, it is private property and those who created it have the right to reap the benefits from it.) Also, the Federal government has some of the most transparent contracting around; it still has a political component, but it is more transparent than European governments. Please no rants about Haliburton, because the only other company that has the infrastructure in the Gulf region is Total Fina (a French company.)
As far as GWB, do you mean that since his paycheck is financed by taxes it is stolen? If this is main thrust of your point I couldn’t agree more. If you are alluding to something else I have do idea what you are talking about.
“world’s richest 1% consuming more ‘fruit’ that the world’s poorest 95%”, the richest 60,000,000 consume more fruit (if they indeed do) than the poorest 5,700,000,000 because they produce more. Are you saying that the poorest should live beyond their means? Or simply that we should brutalize the most productive because the poor are poor? I think we are better off “focussing on making a bigger economic pie—and not on sharing a smaller one.”
“There are two Conservative parties.” I think you have a point here. The parties themselves are more focused on conserving their political clout through government intervention.
“model of Masters and Slaves”, could you clarify this model? I have no idea what you are talking about.
Finally, apologies for the long post.

“That’s right. One should care less if Bill Gates is fabulously wealthy. The poor in this country usually live better than the wealthy living in the early part of the last century. I have such contempt for the thinking of the well meaning John Rawls. He was an economic illiterate. We should be focussing on making a bigger economic pie—and not on sharing a smaller one. ”

Exactly. Only if you believe in the fixed quantity of wealth falacy that views the world economy as a zero-sum game can you be concerned about the distribution of income. The poorest people in America are simultaneously the richest people in the world.

Wealth can be created and destroyed.

Redistribution destroys wealth by transferring it from the productive (activities that lead to capital accumulation which produce more wealth) to the non-productive (activities which tend to reduce capital accumulation). Capital accumulation is the concentration of wealth in the hands of those whose basic comsumption needs have already been met. The excess must therefore be invested in productive activities in order to maintain it’s value. Those productive activities expand the wealth of the world as a whole and increase the demand for the labor and services of those without significant capital. As John F. Kennedy said “a rising tide lifts all boats”.

The contra-example is that redistribution destroys wealth by reducing capital formation and eliminting the amount of wealth that could have been produced by the use of that capital. Ironically the destruction of wealth also reduces the demand for the labor of those without significant capital, thus making them WORSE off.

How ironic that a policy meant to benefit the poor actually ends up hurting them.

What most leftists just can’t accept is that in order for everyone to be better off, some people have to accumulate more than others in order for the whole of society to achieve their goals of elimination of poverty (i.e., the lack of basic human needs to survive without considerable physical pain). But to eliminate poverty you must accept inequality. This is the socialist paradox, of which most socialists have chosen to try to eliminate the latter at the expense of the former, then try to blame poverty on the lack of equality.

In order to eliminate poverty people must drop their most base prejudices like jealousy, envy and class hatred. Some find it exceedingly difficult to triumph over these human failings, and are thus doomed to perpetual poverty. Others try to take advantage of these human failings in order to control them.

I have a problem with some of the previous argumets. The ‘Fixed Wealth’ fallacy certainly does not apply, yet no one has presented the ‘Declining Value of Capital Accumilation’ truism. Accumilated Capital is almost never innovative, and produces Profits at statistically an approximate half the rate of initial innovation. This is true even for the Bill Gates and Donald Trumps of the world. Their Progeny show even worse rates of Business innovation. A lot of this has to do with diminishing returns of scale, but most has to do with loss of business concept.

Retention of old wealth through Generations can be statiscally proven to slow down the pace of business initiative. The very arguments many use here to justify retention of economic profits through Generations, holds some economic fallacy. lgl

1- “world’s richest 1% consuming more ‘fruit’ that the world’s poorest 95%”, the richest 60,000,000 consume more fruit (if they indeed do) than the poorest 5,700,000,000 because they produce more.”

This is simply insane, delusional thinking, if the richest 1% is “producing more” why is it that what they are consuing is produced by the poorest 95%?

It seems to me that the laziest textile worker in all of Asia is far more productive than GWB, I would love to see anyone explain otherwise.

2- The Poor in the US are among the the poorest and most misarable in the world, even so, the Rich would quickly starve without the impressive productivity of these poor.

3- Master/Slave = Class system. Propertied (idle) class exploits unpropertied (working) class by accumulating control of the factors of production.

4- Consertvatives *ARE NOT AND CAN NOT BE* Liberals, aby more than Socialists can, they are incompatible ideologies. Conservatives believe the Elite should control the market and the government for their own benefit, they are the idiological (and sometimes biological) decendents of the Artisticrocy, the revolutions in the US and in France where precicely revolutions of the Liberals against the Conservatives. Conservatives want to *CONSERVE* (or in the modern context regress) the social structure, not allow it to change at the whim of the market. Liberals who think that Conservatives (Republicans) are on their side are dupes, just like Poor people who believe in the “Trickle Down Effect”. They are also Dupes, of course, if they believe the Democrats are Liberals. The American Politcal Spectrum is, as I said, about Gay rights, Abortion and other issues better suited for Kitchen Gossip than economic debate. Both parties are Conservative.

5- What most “Rightists” (whatever that means) can’t seem to except is that not all “Leftists” are Fabians or Bolshevics, the vast majority agree that ABSOLUTE equality is not a desirable goal, so this a straw man. The economic system, is a system, it does have rules and it needs them to survive, with any rules, Robery by Force becomes the Rule! This is the system the liberals faught against: fuedalism. Property is also a social construct, //an object deos not know who owns it// the whole idea of “ownership” is a social construct. Money as well, is an elastic fiction invented to make the market more effecient, not an actual commodity. Income Redistribution is no more far fetched or any less of a natural component of a free market that laws against theft and police to protect property, paper money, or public capacity building projects.

6- “Whater that means” is written in brackets after Rightists above, because Rightists have no ideology or economic theory, except that Might Makes Right. I believe that Liberals are leftist: they rejected the Aristocracy, the previous incarnation of “Accumulated Capital” to our current “Conservatives.” Socialists, are more on the Right, they want to rule by controlling the state (like the Crown), just like the Conservatives, they simply have different objectives. Liberals want to minimize the state. I realize I’m getting way off topic here… feel free to ignore this item if you want to keep within more traditional bounds. Anarchism is however, left, according to my way of looking at it: Right/Conservative = Authoritarian/Centralist vs Left/Liberal = Diplomatic/Laissez fair

7- Intellectual property is //not// property, it is neither exhaustible nor rivalrous and its authorship is never certain or absolute, all ideas are extensions of previous ideas, Intellectual Property is nothing more that a Conservative Market Regulation whose only objective is to eliminate competetion, it thus chills innovation and reduces the efficiency of the market.

“TERMINOLOGY PROBLEMS: there is no “incorrect” or “correct” distribution of income, there is only more or less unequal;”

We can phrase the question any way you like. What is the correct amount of inequality, and why do you get to force that definition on the population in general?

“POLICY MISUNDERSTANDING: because Bush’s fiscal policy is actually redistributing from Poor to Rich, from the prior distribution formed during the economic boom in the 90’s;”

I reject this entirely. The “rich”, i.e., the top 50% of income earners pay the vast majority of taxes in America. Letting them keep more of their own money is NOT redistribution. This confusion of terms has served leftists well over the years and I will admit is a brilliant political ruse.

“THE HAYEK FALLACY: that redistribution from Rich to Poor in a liberal democracy will lead to socialism, totalitarianism, murder, and is the basis of all horror!;”

There is no fallacy, this is the exact pattern followed by Germany starting in the 1870’s and progressing to the third reich. The fact that “social-democracy” has stagnated at the socialism phase for now is hardly a repudiation of Hayek. Hayek may have underestimated the power of the democratic impulse to restrain the more extreme forms of government depredation, but Hayek never put any sort of time frame on his predictions. We’ll see.

“PARTIAL CITATION: since Jefferson also despised concentration of wealth, and would have supported the estate tax;”

What exactly leads you to believe that? Jefferson despised concentrations of power, including the accumulations of wealth through collusion with government, i.e., the 18th century English mercantilist system. But the idea that he would be in favor of a tax that would transfer income from individual citizens to a powerful central government violates every Jeffersonian principle.

“The idea that wealth will be created fastest with no redistribution, ignores that the OVERRIDING economic variable is actually: total social welfare (Walras + all externalities). ”

How exaclty do you calculate a nebulous, subjective quantity such as “total social welfare” anyway? It seems that anybody can attribute any value they to please to such a thing. In the real world we can only deal with actual economic quantities denominated in dollars.

“You can in fact be certain that private capital accumulation is a fundamental necessity in our system, while maintaining that (minor) redistribution is an ongoing requirement. ”

Why is redistribution “required”? It seems like you need to answer the first question (what is the correct amount of inequality) before being able to make such a statement. What do you mean by “minor”?

Lee A., thanks for your contributions, can you please let me know what other blogs/forums you consider interesting are, either post them here or email me at dmytrik at trick dot ca

Thanks!

mcwop, please note that you have not refuted my statement: that IP is not property at all, but rather a Conservative Market Regulation that makes the market less efficient.

You simply believe that we should make the market less efficient because doing so benefits Tom Clancey!

I don’t believe this, without going too far into the topic here I simply present four facts:

– Many great works where created before the copyright regime.

– 99% of books that are written are never published (there is no shortage of supply)

– wealth distribution among writers currently is terrible (this market regulation therefore doesn’t accomplish what you say it does)

– Most IP is controlled by Capitalists not creators.

Secondly, do you really believe that 3/4 of the _Cost_ of the Book you buy results from paying Tom Clancey? It’s not even close.

Perhaps 3/4 (or more) of the _Price_ if the book is caused by a lack of competition due to IP, but that has nothing to do with Paying Tom Clancey.

For Discussion. John Locke argued that man has an inalienable right to the fruits of his labor. Is there a reasonable compromise between that view and the view attributed to contemporary liberals by Burgess-Jackson?

Yes! Burgess-Jackson joins a long line of conservative critics who attack straw-man liberals. What serious liberal has stated that all higher income people can attribute 100% of their good fortune to nothing more than luck or variables outside their control (good parents, nice neighborhoods etc.)?

Now the comprimise rests on the fact that wealth is created in partnership between the individual and the state. Take Microsoft, it would have never gotten as rich as it is today if it didn’t benefit from the following:

1. Contract law – Otherwise IBM might have ripped off their first operating system and refused to have paid them.

2. Intellectual Property – Which keeps every other corporation from just making blackmarket copies of MS’s expensive Office product and its operating systems.

3. Corporate Law- Which allows the pooling of capital and limited liability. This is probably one of the most important innovations in the last 1000 years in terms of economics.

4. Protection of private property by law – Keeps those anti-Microsoft guys from throwing rocks at their headquarters!

So is it unjust really to charge a ‘sliding scale’ for the benefits of government, charging a portion of the benefits derived from a free society and even a progressive rate structure? Take a peek at the commission structure a lot of companies offer to sales agents. To a company, a commission is a bit like a tax in that their expense goes up when sales go up & often commission rates increase for heavier sales.

We can phrase the question any way you like. What is the correct amount of inequality, and why do you get to force that definition on the population in general?

I’m not overly concerned with inequality. However, I don’t believe anyone has ever tried to target inequality in the way you suggest. I mean in the way the Federal Reserve tries to target interest rates or the overall inflation rate. Why can’t we simply assert there is such a thing as ‘too much inequality’ just like we assert ‘perfect equality’ would end up being an economic diaster.

What exactly leads you to believe that? Jefferson despised concentrations of power, including the accumulations of wealth through collusion with government, i.e., the 18th century English mercantilist system. But the idea that he would be in favor of a tax that would transfer income from individual citizens to a powerful central government violates every Jeffersonian principle.

I’m not a Jefferson scholar but I don’t believe he was so niave as to believe that large concentrations of wealth could be so easily seperated from gov’t. Certainly he would have recognized the holders of large amounts of wealth would have both the means and ability to try to influence gov’t of any type to serve their own interests.

Redistribution and socialism are different things: one is a controllable policy, administerable by an electorate, and the other is a form of government.

This is an argument I’ve had on other lists. Socialism, from everything I read, can be summarized as ‘collective ownership of the means of production (aka capital)’. A classic example of a socialist policy would be to nationalize the railroads or coal mines and run them ‘at cost’ thereby permitting lower prices to consumers while preserving workers income by cutting out the owner. Europe undertook a lot of this but the US, with some exceptions did not. At this point I think most reasonable people recognize this was an utter failure. While it may work briefly, it destroys the incentive to innovate and ends up costing more and more in stagnation every year that it is implemented.

Redistribution assumes the market is allowed to do its work and the gov’t policy simply redistributes some of the income after the fact. This is a very different policy because the former depends on the elimination of the private economy while the later depends on a private economy to exist….

A classic socialist answer to unemployment, for example, may be to take over the major industries and stop layoffs. A redistributionist policy would be to tax everyone and provide unemployment benefits to those who are laid off. In the later the private economy is free to decide who has a job and who doesn’t.

Dmytri Kleiner: Other than Arnold Kling on the right and Brad DeLong on the left (and they might object to that characterization, I don’t know)–along with some few other websites which they themselves have found and linked to–it is hard to find policy people in this format who are qualified, who care about the subject matter, and who think clearly and want to find the truth, no matter where that path leads–and who also have a majority of Correspondents who seriously study economics and other subjects, are literate, and try to write engagingly and well.

At these sites, while the partisanship is spirited, it always remains secondary to finding out what is really going on.

So Dr. Kling, thank you!

And Dmytri, if you find anything else, please let me know!

Can you see creative similarities in the production an oil painting and the writing of a novel?

The property that IP law protects is much more abstract. In a non-IP environment, the physical medium is still owned. Penguin Press owns the copies of Shakespeare’s Romeo & Juliet it prints. What IP creates, though, is the concept of a license which is not the actual original work itself but the information it contains.

So if I print 100 of Arnold’s columns and bind them into a book and run 10,000 copies…there is no dispute over who owns the paper, ink, glue and other materials that make up that book. But there would be a dispute over my right to sell those books because the content is Arnold’s. But it’s the actual ‘idea’ that the content represents…the actual ink blots on the paper are mine so if they were rearranged to be the text of Romeo & Juliet Arnold’s property infringement claim would disappear!

So if Stephan King writes a novel on a stack of typing paper, he sells the publisher not the typing paper but the information ‘stored’ on it. The publisher can come after me if I happen to transmit that information in any form without their permission (such as by Morse Code to a friend in Alaska).

Boonton writes – “The property that IP law protects is much more abstract.”

Of course. But you (and Dmytri) haven’t addressed what I believe is a fundamental question: Is creativity of value? If you choose to answer, please stick to economics.

If the answer is yes, then can, or should, an individual own the results of his creativity? If not, who should? (Assume that by definition creativity results in something that is distinct and unique.)

As I reread Dmytri’s posts, I note that he seems to have embraced two fundamental errors of Marxian economics. These are (1) that all value is the result of labor and (2) that ownership of all capital is the result of rent-seeking behavior. Therefore, all forms of pure creativity (and their real results, whether literary, artistic, and entrepreneurial), are not “property.” They can’t be property because no “labor” produced them.

Is creativity of value? If you choose to answer, please stick to economics. If the answer is yes, then can, or should, an individual own the results of his creativity? If not, who should? (Assume that by definition creativity results in something that is distinct and unique.)

Ok, Yes; creativity is certainly of value. Should an individual own the results of his creativity? I’m not really sure about this one. Take a ream of typing paper owned by Stephan King. Certainly he owns the typing paper, if he types a novel on it he still owns the paper with the writing on it. That’s pretty easy.

Your question is does he own the combination of words that stretch accross 400-500 pages? I suggest you ignore Dmytri’s other comments and center in on his IP statement:

7- Intellectual property is //not// property, it is neither exhaustible nor rivalrous and its authorship is never certain or absolute, all ideas are extensions of previous ideas, Intellectual Property is nothing more that a Conservative Market Regulation whose only objective is to eliminate competetion, it thus chills innovation and reduces the efficiency of the market.

He certainly has a point here. King’s typing paper is certainly exhaustible. If the next door neighbor kid breaks into his house and scribbles all over the paper, that same paper can no longer be used for typing a novel. If King owns the paper, then the kid cannot also own it at the same time…it is rivalrous. But what about a combination of 25,000 words? It’s certainly not exhaustible…in fact quite the opposite. Because I happen to have a King novel it’s not like there’s ‘one less’ combination of those words for you to read. It’s also not rivalrous. I may own a King book (paper, ink, glue) but that doesn’t mean you cannot also own the same ‘combination of words’ as an ebook or a book-on-tape.

So my inclination is to lean towards:

1. No one should own ‘creativity’. Of course it is of value, so is inspiration. Certainly it would be silly if the Greek gov’t could charge a fee to every sculpter, author, painter etc. who was inspired by Greek mythology! (Aye, but the rent seeking Greek diplomat will say ‘isn’t inspiration of value! If so, who should own it!’).

2. Given #1, you should recognize a remarkable feature of copyrights. They are not really property but simply public policy. What other type of property reverts to ‘public domain’ after a period of time?! What other type of property has to be ‘unique and distinct’ to own it? I can own the most mundane, boring, cookie cutter house in the world…yet I have all the rights that ownership grants me. Yet if I misspell bread as breaad I can’t copyright that and ‘own’ it!

mcwop, please note that you have not refuted my statement: that IP is not property at all, but rather a Conservative Market Regulation that makes the market less efficient.

Again, my argument is that IP is a Conservative Market Regulation and a Market Inefficiency. This is a fact that stands unrefuted, nor do I think it can be refuted.

A few comments/clarifications:

I have not seen definitive proof that IP law is making the market inefficient nor is a “fact”. I do agree it is a market regulation, but I would not label it “conservative”, which seems to be nothing more than an inflammatory label.

Use of the term IP, which has broad legal meaning. Based on your posts I think you are referring to intangible property, or more specifically ideas. IP includes many different legal concepts: copyright, and patents that cover works of craft or intangibles. Maybe you can calrify here.

You take issue that companies are defending their monopolies with IP law – well of course they are why wouldn’t they? IP law has been around since the 15th century. If it is there they will use it. There are interesting free market initiatives developing to combat this, since IP law seems tough to change. One example is Creative Commons. Their goal is to expand the range of creative work available for others to build upon and share. I find this fascinating that the free market has developed a back door to get work into the public domain, which makes it hard for companies such as MSFT to acquire more IP protections. Another example of creativity to deal with abusive IP law can be found at O’Reilly:

Santa Clara, CA–Technology publisher O’Reilly & Associates has launched the latest of its initiatives to shake up the intellectual property establishment. At the O’Reilly Emerging Technology Conference today, founder and CEO Tim O’Reilly announced his company’s commitment to applying the Founders’ Copyright to O’Reilly books.

I think your point is that we need regulatory IP reform, the market itself not bad, but that regulation in this area is simply bad? I sense we agree to an extent. Some examples, I do not agree with the DMCA, and think the recent extensions on copyrights before entering the public domain are harmful to the markets. I think that a patent grant for Amazon’s one-click process is stupid. On the other hand, I do see positive aspects of IP that has limited terms (10 years or less). In the end it seems that the market is developing means to deal with the shortcomings of IP.

“creative work available for others to build upon and share. I find this fascinating that the free market has developed a back door to get work into the public domain, which makes it hard for companies such as MSFT to acquire more IP protections. Another example of creativity to deal with abusive IP law can be found at O’Reilly:”

I certainly agree, but just because the market is finding a backdoor doesn’t mean the regulation is good. Black markets are a back door to wage and price controls, that certainly doesn’t make them good policy 😉

Consider this. There is no clear way to separate organized matter and the ideas which underlie its organization.

Normative economic statement – Capital formation is a process of changing materials from lower-valued uses to higher-valued uses.

Question –
What makes the difference between the two?

Answer – Ideas.

Matter can be owned as property, organized or not, while ideas cannot. Mr. King owns his typing paper whether it’s organized neatly or scatters all over the floor. The idea of typing paper being scattered on the floor, however, cannot be owned….nor can the idea of a story about a haunted mansion be owned in the sense that matter can be owned.

So to respond to your question, a creator doesn’t have a ‘right’ to his ideas in the sense that he can force, thru the state, others not to use them without paying him a fee.

Question for you: Suppose Congress reformed the copyright laws to state that copyrights will only last 15 years after the work’s creation or the death of the author (whatever is shorter). Is this a violation of property rights by the state?

Boonton-

Intellectual property rights provide an incentive to develop and market innovative ideas.

The Soviet Union had legions of smart, creative engineers and inventors but their ideas contributed little to Soviet economy, and the welfare of Soviet citizens – in comparison to, say, the experience of the United States. Consider that the Soviet creators of ideas had no property rights, and therefore couldn’t bring them to market.

Mike,

Your Soviet Union comment is almost too silly to be worth a response. The US has had regimes of strong IP and low IP & I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.

A while ago there was a book about IP whose premise was that it was a hidden asset. It’s premise was that many large companies like IBM, GE and so on are sitting on billions of dollars worth of patents that they don’t even realize they own. If only they could enforce those patents they could reap millions.

That is a textbook example of how strong IP laws can hinder economic growth. Instead of coming up with new ideas, try to link something in your competitors project to something one of your researchers did 10 years ago and sue like crazy! Like many things in economics, the devil lives in the extremes and heaven is in the middle!

Mcwop,

I agree current law somewhat disagrees but not entirely. If you made your own ice cream maker out of spare parts, the law to that property is very strongly in your favor. For example, 75 years later that ice cream maker is still your property. If, however, you simply patented an idea about an ice cream maker the ‘property’ of that patent is much more limited than real property.

So even current law recognizes that IP isn’t really property but something a bit less. Nevertheless, I feel there is a lot of danger in making IP law swing more towards the scale of regular property law. I also think the dangers of IP laws being too weak is highly exaggerated.

“How can you be so sure about the Interstate Highway System? Certainly dozens of businesses were able to add jobs because they found new markets as transportation costs were cut (as well as lowering their costs for receiving supplies). Can you show me how these gains were not really real but simply transfers from some other sector? What sector lost jobs due to the Interstate Highway system?”

The interstate highway system probably did spur economic growth and still does today. But the act of spending the money to build it did not create any jobs, the money used to pay for it was simply diverted from other productive activities. Just because people were employed in building it doesn’t mean that it was some sort of “jobs program”. The net gain was most probably zero if not negative.

The argument about whether the interstate highway system itself spurred growth through reduced costs is an entirely different argument. But I’m not aware of any cost/benefit analysis to prove that. In any event, the interstate highway system is certainly an exception, not the rule.

As for military spending, I have no problem with it, we must be safe before we can prosper. But economic growth and employment have been retarded since 9/11 due in no small part to the increase in government spending and increased regulation and security. These are real and permanent drags on the economy, which I personally am willing to accept. But I have no delusions that they come for free or will be taken from somebody else at no cost to me.

“You are missing the point. Gov’t in Jefferson’s time did not re-distribute money to others, they purchsed things & this provided the gov’t with power since they usually purchased armies, prisons, fortresses and so on. The idea of collecting money just to send it back out (redistribution) was foreign in Jefferson’s time. ”

Are you suggesting that Jefferson would have discarded all his Republican, Minarchist principles and be in favor of profligate taxes if he thought the money would be redistributed instead of used to for the government to buy things? I seriously doubt that.

“Are you suggesting that Jefferson would have discarded all his Republican, Minarchist principles and be in favor of profligate taxes if he thought the money would be redistributed instead of used to for the government to buy things? I seriously doubt that. ”

This is getting into the subject of Speculative Historical Fiction, and not economics, why not look at a Contemporary liberal thinker, Milton Friedman, who proposed the Negative Income Tax as a Redistribution system.

Money and Property are both social constructs of the Market, which are not natural but rather invented, Redistribution is just a refinement of the model to make it more efficient, it does not make the market less efficient any more than grounding makes an electric circuit less efficient.

Market efficiency depends on Perfect Competition, disproportional Accumulated Capital is a barrier to perfect competition.

The interstate highway system probably did spur economic growth and still does today. But the act of spending the money to build it did not create any jobs, the money used to pay for it was simply diverted from other productive activities. Just because people were employed in building it doesn’t mean that it was some sort of “jobs program”. The net gain was most probably zero if not negative.

The argument about whether the interstate highway system itself spurred growth through reduced costs is an entirely different argument. But I’m not aware of any cost/benefit analysis to prove that. In any event, the interstate highway system is certainly an exception, not the rule.

I’m not sure you’ve made up your mind here. Either the system boosted economic growth or it didn’t. BTW, ‘created jobs’ is too vague to really use in an economics discussion. Jobs are not all equal. Two $75K a year jobs are certainly not worse than 3 min wage jobs yet if you restrict ourselves to ‘created jobs’ we will fall into this trap. Looking at GDP is better because that represents the sum of goods and services produced by our economy.

You seem to be attacking from two different fronts without being clear.

1. The Keynesian argument would be that the System created growth by putting $ in the hands of the workers that built the highways who then boosted demand by spending those dollars.

2. The supply-side argument would be that the system made the cost of doing business for everyone lower thereby allowing an expansion of output. Hence if the Panama Canal was destroyed today in some horrible accident, it would hurt the world economy even though most of the work building the canal was done long ago and the maintaince is relativly small in comparision.

Are you suggesting that Jefferson would have discarded all his Republican, Minarchist principles and be in favor of profligate taxes if he thought the money would be redistributed instead of used to for the government to buy things? I seriously doubt that.

No but I’m not sure Jefferson would have opposed the ‘safety net’ reforms that arose in the 19th and 20th centuries. Remember, Jefferson was an enemy of big business in a time when over 90% of the population were farmers and you’d be hard pressed to find a non-agricultural business with more than 20 employees.

IMO, it’s pretty dangerous to try to extrapolate what he would have made of the industrial revolution, the corporate revolution & the boom-bust nature of the business cycle that it drives if he had lived to be 200+ years old. It is important to recognize the type of powerful central gov’t he feared would arise in the US would have looked more like Louis XVI of France rather than FDR’s New Deal.

“Your Soviet Union comment is almost too silly to be worth a response. The US has had regimes of strong IP and low IP & I have not seen any evidence that strong IP promotes economic growth or the discovery of new ideas.”

Boonton, perhaps you didn’t notice that your statement is a non-sequitur. My “silly” point was that new ideas are of no value unless they can be commercialized.

‘My “silly” point was that new ideas are of no value unless they can be commercialized.’

A silly point indeed, not only does it suffer from an overly narrow idea of value, but it somehow misses the point that since IP makes the market less efficient it thus //limits// the commercialization of ideas.

“But not so fast Dmytri.”

Just pointing that Mike Evert’s statement, that without copyright you could not know of a writer, is a fallacy, which it is, as my examples show.

I have avoided debating the Incentive issue here as it is not relevant to the argument I proposed in this thread: Microsoft is not an efficient producer.

I have tried to confine my argument to saying that IP is a market inefficiency, which my syllogism shows (although I have wandered considerably)

Many people believe that IP is a beneficial market inefficiency, I think those people need to understand that what they are supporting is a Conservative Market Regulation.

Personally, I don’t believe that the Market is ever benefited by protectionist policies for incumbents (Conservatism), if a case can be made that the Market can not manage a certain factor of production effectively, and therefore some sort of corrective inefficiency needs to be introduced (such as arguments made regarding Residential Rents and Wages) then I prefer a redistributionist or even socialist model to conservatism.

If there really are certain types of Creative works the Market can be demonstrated to provide in insufficient quantity, Public Institutions that promote the creation of such works can provide the needed incentive (Grants, Prizes, Wages) while keeping the intellectual benefits available to all who wish to bring them to the marketplace.

However, these deficiencies are more likely to happen in Medicine and Science than they are in pop horror novels, where I can not imagine a supply problem, except maybe oversupply.

Again, all this is my personal belief, the only thing I am //insisting// is that IP //is// a Market Inefficiency.