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You're talking about the traditional purpose of taxation. This has not been the case since Nixon nixed the last vestiges of gold-backing of the US dollar. You seem to have no idea how the modern monetary system actually works. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 As well as here http://bilbo.economicoutlook.net/blog/?p=11218 note esp. "Given the national government can issue paper currency units or accounting information at the central bank at will, tax payments do not provide the state with any additional capacity (reflux) to spend." This is because governments which issue their own currency are not revenue constrained. There's no operational connection between deficit spending and tax collection.

Gold and silver are of limited utility, since, as you pointed out, you can't pay your taxes with them. Indeed, taxes are the government's method of enforcing usage of the currency it issues. Taxes are not for raising money, as most governments that issue their own currency are not revenue constrained, including the US. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

Your understanding is deeply flawed. I started writing a point-by-point but then realized I'd just be duplicating work that's already done more eloquently and in extensive detail. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

No, using the word "freeloading" or "free riding" is a huge red flag that you don't have a competent argument. Mark Lemly has an excellent paper in which he attacks the kind of criticism you use.

Close. Whether you have an account or not, FB is mining whatever they can get from you.

This is yet another mobile phone I'd rather not get.

Can you default out of a student loan? I thought that was one of the few debts that survives bankruptcy.

You can't "default out" of a student loan. You can "default on" a student loan by not paying the monthly bill (over a ten year period, 10% of students with loans will default at some point).

Student loans are difficult, but not impossible, to discharge in bankruptcy. To get the debt discharged, you must be able to prove show that payment "will impose an undue hardship on you and your dependents."

In 2007, out of 238,000 debtors going into bankruptcy with student loans, only about 0.1% of them sought to discharge their education debts through the bankruptcy process because of the difficulty of meeting the hardship requirement. About 50% of those who seek to discharge student loan debts in bankruptcy receive some kind of relief, with 25% getting full discharge.

So each year, only about 50 people in the US get full discharge of student loans in bankruptcy, 30 get partial discharge, and 25 get administrative relief of some kind.

I think they are blaming the wrong formula here.

Loans are rarely ever priced using Black-Scholes formula. Neither are the CDOs comprised of these loans priced using Black-Scholes. Black-Scholes is the equity option pricing model. There are variants of it used to price futures, bonds etc. but none of them went into the derivatives that caused the crash. Blaming Black-Scholes is like blaming the inventor of the transistor for someone hacking into a bank account. They are all related, but very distantly.

A much more direct formula to fault is The Gaussian Copula approach.. This formula tries to estimate the default probability of a CDO which is comprised of many loans/mortgages of varying credit-risks, maturities etc.

When CDO's became common, there was a need for a model to predict default risk on it. It was all hit-or-miss until this formula came along and everyone from bankers to buyers to rating agencies came to rely on the Copula function to estimate default probability. At its heart what the formula says that the chances of default of a CDO comprising of loans in California and Connecticut are a function of correlation of asset prices in CT and CA. Since historically CT housing prices and CA housing prices have not moved up together (dot com booms , 9/11, storms, earthquakes etc. were regional) the model predicted that a CDO comprising of a geographically diversified loan will not default. Worsening the problem was that these asset price histories only go back 30-40 years in the best case. There is no reliable record of credit histories or even houses going back to the depression. The model also completely missed the fact that there are hidden correlations in terms of a nationwide boom in house prices and that the US economy itself becomes very linked in case of disasters.

I do not like blaming formulas for disasters, but if any should be blamed, then the Copula function is more to blame than Black-Scholes.

What BBC is doing is to dust off their old documentary called "Midas Formula" which they made in early 2000's when "Long Term Capital Management" blew up. The authors of the Black-Scholes worked there, so at that time it was apposite. Now, maybe not so much.

They're looking for cash? That's funny, because the US government is not revenue constrained. There's no constitutional limit on creating any amount of money, and in fact that's one of the most important policy tools of a sovereign nation (the EU members gave that up, and it has ended with disaster except for the mercantilist Germans, as was predicted by Modern Monetary Theory many years ago). This is all the more clear when one notes that there is no operational connection between government spending and subsequent taxation or public/foreign borrowing (much like bank lending is not really reserve constrained since banks lend unconstrained during the day and borrow anything they need to make up for reserves from the overnight market--and even the Fed itself). Much of the debt is just an accounting fiction registered between the Fed and treasury (being about as meaningful as the between a husband and wife), and legally, 100% of government debt could be made in this form--there could legally be zero public borrowing and no taxation. The appearance that taxes pay for anything is just an illusion, since tax "revenue" does not make any legal constraint on spending. But borrowing is done due to custom and ideological and political considerations which are vestigial from the times of gold-backed currency--not any current legal constraints. Taxation's actual role, however, is critically important: it forces private entities to use the government issued currency. You can only pay the IRS in US dollars. More information: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 or lighter reading at http://www.cnbc.com/id/45795986 as well as http://bilbo.economicoutlook.net/blog/ and http://moslereconomics.com/ MMT has been around for quite a while and derives from the old Chartalism, but nowadays it's really starting to gain steam, and some MMT ideas have been co-opted by other economic schools. Back to the original point, government doesn't need covert means of funding agencies such as the TSA because it can do so easily with legal means. Your conspiracy theory is superfluous.

Yet, the more significant difficulty with copyright involves the fact that magic tricks themselves cannot be copyrighted. A magician could conceivably copyright the dramatic aspects of his show, and he could copyright a written description of the method behind an illusion, so that his written description of the method could not be precisely reproduced. But the magician could not copyright the method itself. The law excludes it emphatically: "In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery regardless of the form in which it is described, explained, illustrated, or embodied in such work."[USC 102(b)] Copyright law thus fails to protect the most common expression of magicians' intellectual property -- live stage performance -- as well as magicians most valuable creations -- the modus operandi behind each illusion.

At best, Teller's copyright claim hinges on the similarity of Dogge's presentation to Teller's... and does *NOT* impact Dogge's ability to sell a kit and the secrete to do the trick.

That said, however, I think Dogge should have taken Teller's offer to keep quiet about the trick, since I think it is unlikely Dogge will sell any copies of his kit. The reason I believe this is because of the amount that Dogge is asking for, which is large enough that only professional magicians are liable to take an interest in it. But professional magicians are liable to respect Teller's position as the inventor of the trick, and effectively ostracize Dogge for trying to profit from a trick that he did not create.

What's been copyrighted is the pantomime associated with the trick. Although pantomime can be copyrighted, I think that there's a few things to consider with that. For myself, I think both parties are being a bit stupid here; I think that Dogge is unlikely to make any actual money off of this, but I also think that Teller does not, and should not, have any sort of copyright claim against Dogge, and here's why:

1. Teller tried to buy Dogge out to not sell the trick to anyone else. Only when Dogge scoffed at the amount of the offer (allegedly the price of a single kit is what was offered) did Teller persue the copyright angle. As a copyright case alone, this sequence of actions is very incriminating for Teller, since it reveals that Teller's ultimate reason for objecting to this is not because he has been copied but because Dogge is selling a secret to a trick he invented. Teller may be understandably upset about this, but if he was smart enough to invent this trick, then he is smart enough to invent new ones.

2. The amount that Dogge is asking for the secret to the trick is not paltry... and is liable only to be paid by another professional magician. The problem is that it's unlikely that any honorable magician would send money to Dogge for the trick because they likely also realize that Dogge was not the inventor of the trick. Dogge is shooting himself in the foot with his choice of actions, and is unlikely to receive any payments for this.

3. Although the trick is the same as Tellers, Teller's claim is that he copyrighted the pantomime of the trick, and not the trick itself (which is uncopyrightable). This may be fine, except that we do not know how similar Dogge's routine is to Teller's in terms of the actions performed. The only similarity may be the net effect of the routine, and Dogge may not have actually copied any of Teller's motions. It's also possibly arguable that one should not be able to copyright the entire set of pantomime sequences that have a particular net effect, at least not without enumerating every possible combination of them. I would speculate that there are probably hundreds, if not thousands of ways that this trick could be preformed, even though the actual secret behind the trick is the same in each, and no two of them would be remotely similar except in the underlying secret to the trick (which would not be pantomime and would thus not be copyrightable).

4. Magicians have been figuring out how other magicians do their tricks and copying them for hundreds of years. This paper is interesting, and explains in fair detail how magcians have traditionally protected their investment in their works without relying on IP law. This paragraph, in particular, sums up why I don't think Teller should be allowed to persue this from a copyright angle:

Yet, the more significant difficulty with copyright involves the fact that magic tricks themselves cannot be copyrighted. A magician could conceivably copyright the dramatic aspects of his show, and he could copyright a written description of the method behind an illusion, so that his written description of the method could not be precisely reproduced. But the magician could not copyright the method itself. The law excludes it emphatically: "In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery regardless of the form in which it is described, explained, illustrated, or embodied in such work" (USC 102b). Copyright law thus fails to protect the most common expression of magiciansâ(TM) intellectual property -- live stage performance -- as well as magiciansâ(TM) most valuable creation -- the modus operandi behind each illusion.

This paper: Broken Promises of Privacy: Responding to the Surprising Failure of Anonymization by Paul Ohm from the University of Colorado Law School is the best summary why it won't work even if people do it: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1450006 TL/DR: There are just far too many ways to infer the real meanings from a network of hashes.

...all of those in power dance a delicate dance in keeping the oppressed down and giving them enough to live on (just barely) to avoid the pitchfork syndrome.

Yes, it's called the riot index, another form of the 'cost/benefit' ratio.

You don't understand the difference between motive and intent

Thanks for the caring attitude, but I do understand the difference between motive and intent. I encourage you to expand yours. Here's some info for you:

http://en.wikipedia.org/wiki/Motive_(law)

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=921111

What you are talking about is Spoliation (seriously, that's the spelling), and it can be a jury instruction, where the judge tells the jury that they should assume that the contents of the destroyed evidence (tape, image, whatever) showed that the officer was doing whatever it was the photographer says he was doing.

It could be worked like this hypothetically: I take video of police brutality, some officers come over, rough me up, take my tape, and I yell out: "This is police brutality! I'm going to sue you! That tape is evidence!" If the cop then deletes the images, destroys the tape, etc, then he has committed spoliation. When/if I sue the cop, and depending on jurisdiction, I can either: a. File a motion for sanctions and fines because the cop destroyed the evidence; b. File a motion to have the judge tell the jury that they should assume that the tape showed the judge roughing me up; or c. File an civil complaint on the topic of spoliation alone, and then even if I lose on the battery case, I might still win on the destruction of evidence case.

Jurisdictions very, don't try this at home, try not to go out into the world with a machine that still uses tape (my hypothetical apparently took place 10 years ago). There is a decent and free law journal article on the topic in Illinois, and we are very much having the video-tape-the-police-discussion here. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536805#%23

Pretty much, in the sense that slavery and female oppression are symptoms of human behavor

Except they don't exist without laws that enforce them...

There's always going to be a bully and people who follow him, and then BAM! Instant dictator.

I'm all about not having dictators, but governments have been the most useful tool of dictators throughout history. When Hitler passed a law forbidding Jews to own guns in 1938, that was a government action. Then we have governments like the US supporting every dictator around since WWII.

Get rid of the government, and you'll find yourself needing to solve a lot of problems.

No doubt. But laziness doesn't excuse the killing of half a billion people. As Gandhi always said, "the means are everything."

How many did governments save?

You tell me (my number has easy citations). Governments saving people from other governments wouldn't count. Governments saving people from problems it created wouldn't count either.

There's a few places in the world that don't have government in any meaningful sense. Lessee... Darfur, Somalia...

Somalia's conditions are improving without a government. The fair measure is before and after, and comparing with neighbors.

Darfur was a mess because one group of people who want to be the government was at war with the other group.

Besides, who works the problems out? Everyone just magically agrees to the obvious solutions?

As I mentioned earlier, check out the works of Bob Murphy and other private law scholars, or Dubai's private law. I know in all my contracts I use a binding arbitration clause - the courts are the worst place to wind up with a problem.

My city maintains asphalt and concrete streets in poor neighborhoods. It doesn't maintain brick streets (even ones in upper middle class neighborhoods).

I don't get why you wouldn't be happier taking $50 off your tax bill and giving it to a private company (with all your other brick-street neighbors) to have a road that's in top shape. Can you expand on how your current situation is better?

If/when people lose all faith in a currency, inflation skyrockets. (...) Several of Europe's currencies were valueless during the second world war - and the first for that matter. A wheelbarrow full of money couldn't buy a loaf of bread.

Ah, but why was that? Was that because people had no faith in the currency, or was it because there simply wasn't enough bread around? War takes its toll on the production capacity of a country.

As long as people believe that a dollar bill has value, then you can trade that dollar bill for something or real value.

False. If nobody has anything of value to trade against that dollar bill, then you cannot trade it no matter how much you believe in it. When a valley in the Alps is snowed in, people there do not "lose faith" in the value of their money, but if the supply trucks are cut off, that faith isn't going to help them at all.

It's all about supply and demand. Faith is irrelevant.

The tax man can bang on the doors of every citizen in this country, but if they don't have dollar bills with which to pay their taxes, then he'll either accept some other form of payment, or do without.

... and then he calls the judge to impound their assets, which is why normal people will rather go and offer their labor in order to get money and pay taxes. Keep in mind, of course, that collecting taxes would actually become easier if people had a shitload of money due to hyperinflation.

Look, fiat money is a creation of mankind, I totally agree. You cannot eat it or do anything with it, so it has no intrinsic value. But to go from there directly to the conclusion that the value of fiat money rests only on faith is bogus. It just does not follow logically.

In particular, if you actually drill into hyperinflationary periods anywhere, you will quickly understand that faith had no causal role to play in any of them. The stories read remarkably similar, and they are always caused by some combination of factors including collapse of production in the economy caused by war or idiotic policies, together with currency pegs or foreign-currency denominated debts.

Actually, the US Federal government is also only a currency user, ever since 1913. The US Dept of the Treasury has no legal authority to create new US Dollars

The so-called independence of the Fed is all smoke and mirrors. The Fed was created by Congress, it has to operate under the rules set by Congress, and it can be undone by Congress. More importantly, even today the Fed does not operate independently from the Treasury. The Fed and Treasury coordinate their transactions to enable the Fed to manage the bonds market. Seriously, read up on it.

a pseudo-private/public institution whose owners are US banks but who is somewhat answerable to the US Congress and the President

That is quite misleading. Outside of regulatory capture (which is unfortunately a very real thing), the banks have exactly zero influence over the politics of the Fed. They are formally owners, but even the profit of the Fed is largely paid out to the Treasury.

This last point highlights just how absurd the institutional setup is, by the way. The profit of the Fed is in large part due to interest that the Treasury pays to the Fed for the bonds that the Fed owns. The profit is then paid back to the Treasury. Hooray for smoke and mirrors bureaucracy!

should Congress remove that authority from the Federal Reserve (...) in the middle of the mess we're seeing, it would bring about an economic panic that would dwarf any we've heretofore witnessed.

Oh, really. Never mind the fact that such an action wouldn't even be necessary, what form do you imagine this economic panic would take? I assume it'll be like the panic that happened after Treasuries were downgraded to AA+?

Greece, Ireland, and others are all perfectly able to coin their own money at will. They need only abdicate treaties prohibiting it and fire up the printing presses. The reason they haven't done so is that it's economic suicide.

Bad comparison, because Greece and Ireland are in a very different situation. Their problem, especially in the case of Greece, is that its currency should have devalued significantly relatively to currencies of the rest of the world, but that was prevented because Greece tied itself to the Euro. Countries that do not have pegged currencies don't suffer from the same problem, because their exchange rates never go that far off-kilter.

That said, I would say that reintroducing their own currency is in fact the best thing Greece can do economically. Better to have a very painful but short cut followed by a swift recovery, than to suffer many years of economic depression. Argentina is a good example that this can work.

We've seen in Germany, Zimbabwe, and many others what happens when you attempt to coin your way out of a massive fiscal debt.

I was wondering when the inflation bogeyman would show up. Hyperinflation in Germany and Zimbabwe was never about printing too much money; that was just the spectacular side effect of other, very different problems. This is a good introductory paper. Tl;dr: in both cases, a collapse of productive capacity combined with foreign currency-denominated debts created an impossible situation. Printing money was a symptom rather than a cause.

What happens when the US pays more in debt servicing than its entire annual revenue combined and we begin borrowing for 100% of spending plus x% of the debt servicing?

Since that can only happen due to the interest that the government pays on the debt, the answer is very simple: decrease the interest rate. The interest rate is a political choice set by the Fed, after all.

If the decreasing interest rate should cause people to buy and invest instead of saving, even better: This will cause tax r

Here is what currently happens in the US. By paying a small fee a corporation and all of its owners or shareholders are granted infinite liability insurance on their personal assets. That is at the crux of the problem with corporations as designed now.That is how many people can get rich while bankrupting a company. Imagine this. You start a company get business loans (usually with government backing) transfer that money to yourself in personal income. You can keep racking up debt while transferring wealth to your person assets. Then fold the business while protecting your "own" assets.

Um, you know that's highly illegal and a US court will "pierce the corporate veil" in no seconds flat to allow creditors to get at your personal assets. It's actually also probably fraud and will get you in jail. (I am a lawyer, but I am not a prosecutor.)

Also, if you are incorporated, you are legally required to include such notice in your business's name. Hence "inc," "co," and terms like LLP, LLC, LLLP, PC, etc. for other types of business associations. This is required so that creditors know for a fact that their risk is elevated when lending to such a company.

If you don't think a bank ignores this when lending to a limited liability business association, you're monumentally ignorant of the industry.

You know why Europe surpassed the Middle East so quickly a few hundred years ago economically? Probably in part because of the corporation, which is actually anathema to Islamic law (there are very

Somalia is Better off Stateless.

Tax dollars are not paying for it. That's a common misunderstanding of modern monetary systems. Government is not revenue constrained as it creates money ex nihilo, given its the monopoly issuer of its currency, and does not have to rely on public or foreign borrowing (that some of the debt is owed to the public and foreign countries is purely a political choice; much of the debt is not real debt but an accounting fiction between treasury and central bank). Taxes are what government uses to 1) enforce usage of its currency ( since you can only pay your taxes with said currency), and 2) remove excess currency from circulation. See for example http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 and http://bilbo.economicoutlook.net/blog/?p=11218
In regards to the point you are making, the correct way to put it is that government spending power is being wasted on the wrong reasons.

I'm sure Mr Walt Disney is really enjoying the profit he's getting from his 'still-in-copyright' works, even though he died in '66.

I thought the copyright was owned by the company, not the individual - If that is still the case, I don't see your point as valid. The company is not dead.

1. Copyrights being extended long long long past 'a few years' (Mickey Mouse is still under copyright, since 1928).

I don't see anything wrong with this. Nothing ethically or morally wrong with it at all.

2. Stupid enforcing of copyrights in regions where its not avaliable anyway.

It's the copyright holder's choice to produce copies and if they don't want to produce copies somewhere, I see that as perfectly fine.

3. Copyright as a purely money making process. "Happy Birthday to you" (written in the 1800s) still brings money for the copyright holder.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1111624 - who by the way is not the creator.

That looks to me like that the copyright office had a hard time verifying things and that should be corrected.

Copyright works perfectly. The aim of copyright is to prevent an individual or company from profiting from the works of others, in order to allow the creator to enjoy the profits of their works.

I'm sure Mr Walt Disney is really enjoying the profit he's getting from his 'still-in-copyright' works, even though he died in '66.

I have no trouble with people profiting off their works for a few years. What I have trouble with is:

1. Copyrights being extended long long long past 'a few years' (Mickey Mouse is still under copyright, since 1928).

2. Stupid enforcing of copyrights in regions where its not avaliable anyway.

3. Copyright as a purely money making process. "Happy Birthday to you" (written in the 1800s) still brings money for the copyright holder.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1111624 - who by the way is not the creator.

Yes, you did something clever. Yes enjoy it. But then let the rest of us enjoy it after you're done.

The Greeks are failing because they are not the monopoly issuer of their own currency. Germany has been beggaring their neighbors with the mercantilist policies promoted by the Bundesbank ever since others fell in the trap of the Euro. The German policy of a huge trade surplus coupled with the choke hold of a common currency is at the core of the economic rot of Europe. This is what happens when people follow dated neoliberalist economics and don't understand modern monetary theory. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

Some sort of safe harbour/temporary hold system seems to be working better than anything we had before in the broadly similar context of copyright infringement, so I don't think that's an absurd place to start.

You're assuming that it works well in the case of copyright. As it turns out, not so much. You run into a whole list of problems:

-The service provider intermediaries don't have much incentive to defend their users when they can only do it by giving up the safe harbor and going to court, especially when they don't have any good way of determining who is in the right, so they generally take down anything no matter how ridiculous the request is.

-Temporarily taking down the material prevents it from having an impact. If the material is false, that's good. If the material is true, that's bad. Since you don't know whether it's true or not at the outset, you can't say whether it should be taken down. And sometimes "put it back later" just doesn't cut it: If the information is relevant to an upcoming deadline, like a vote or election, putting it up after the deadline isn't good enough. (That paper uses a true example about John McCain having his campaign videos taken down shortly before the 2008 election on the basis of spurious infringement claims.)

-The notice and take-down process requires the user to reveal their identity to have the material put back up. If the issuer of the take-down is a dangerous person, the user may fear for their safety if they reveal their identity, which will cause them not to issue a counter-notice even if the take-down is completely bogus.

-On a similar note, even if the user is completely in the right and willing to stand by their words, they may not be able to afford the litigation costs. The cost of defending a lawsuit puts the fear of bankruptcy into anyone who is telling the truth but isn't a member of the investment class. Free speech is not meant to be a right exclusive to the rich.

The paper goes through a number of other problems if you're interested.

Oops, this one fell through the cracks. Apologies for the delay in replying.
Modern Monetary Theory (MMT) is a type of modern monetary theory. Does this clear up my use of terminology? By Chartalism I mean neo-Chartalism, which is essentially synonymous with MMT.
I can clearly see that in part our disagreement has to do with you not being familiar with MMT. I highly recommend this concise but complete summary http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 I know you're not likely to read it (and I understand as we are all busy), but that would be a shame. Also, take a look at an MMT proponent's comments on Austrian economists http://pragcap.com/the-austrians-are-intrigued (to an extent he sympathizes with them). Without this background to frame the discussion, there can't be much of a discussion.
PS You misread my comment on the correlation between employment and inflation. I know very well that long term correlation has been disproved. My point is that there is far more ignorance of that fact among the, for lack of a better term, elites, than you allow for.

Minor rearrangements of existing facts can be considered to be innovative new facts.

Consider this cool paper from Aragones et al:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=643545

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1394833#%23

"...reforms had a small adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses."

Now you get FTF. And why Obama and Hatch agree on it.

Can anyone provide any kind of source, one way or the other, saying that HFT is necessary, or good, or terribly evil? I'd like to hear what actual economists think of it, rather than just laymen.

The empirical impact of HFTs on market behavior and non-HFT traders has been studied, the following paper for example:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1641387

From the abstract: "These findings suggest that HFTs' activities are not detrimental to non-HFTs and that HFT tends to improve market quality."

This is in line with the findings of most serious studies. The intuitions of most laymen fail them because they do not understand market dynamics.

In the UK, 6.2% of the general population hack their consumer products in order to improve them. If you adjust that to the part of the population that actually owns a tablet, you will probably get an even larger number.

Companies with shareholders are legally required to maximise short term shareholder value.

[citation required]

Counter-citation

Everything Old is New Again: Lessons from Dodge v. Ford Motor Company

M. Todd Henderson

University of Chicago - Law School

December 2007

U of Chicago Law & Economics, Olin Working Paper No. 373

Abstract:
There is much more to Dodge v. Ford Motor Company than meets the eye. Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. The business judgment rule protects many decisions that deviate from this standard. This is one reading of Dodge. If this is all the case is about, however, it isn't that interesting.

But Dodge is a part of the corporate law canon because it is about much more than this. This essays shows that what the Michigan Supreme Court did was actually an elegant solution to a complex legal and policy issue. The history of case and the parties also shows how many prominent aspects of corporate law and practice have long and under-appreciated histories.

Henry Ford failed twice as an entrepreneur before finding success with the Ford Motor Company. His failures, which he blamed on meddling investors, presaged not only his conflict with the Dodges, but also show the importance of allocating and exercising control rights deftly. The history demonstrates how modern techniques for allocating control rights separately from economic rights would have helped the parties avoid costly and acrimonious litigation. Perhaps most interestingly, however, the back-story of the case shows that it is not clear at all that the parties wanted to avoid litigation. Both the Dodges and Henry Ford used the legal process as a tool in what was at base a business dispute. To paraphrase von Clauswitz, litigation is business by other means. The history of this case provides a prototypical example and also shows an example of how courts can resolve disputes well in these cases.

This essay also shows how practices common today in venture capital transactions, corporate reorganizations, and other areas of corporate law and practice appear vividly in the back-story of this case. Many seemingly new ideas are not, and examining their historical roots can help us better understand them and their place in our modern understanding of corporate law.

Number of Pages in PDF File: 39

Keywords: corporate law

Do you spend 100s of millions of dollars on research to formulate new ideas and then bring them to market? Would you be able to afford to do that in a world where everyone freely copied your ideas and took them to market preventing you from ever recovering investment.

It's called competition. Why don't lawyers ask for patents on court strategies? After all, by not doing so their peers can steal those strategies and win cases without paying the original inventor of that strategy a single penny. And yet the entire lawyer profession hasn't imploded yet due to no one being interested anymore in helping their clients to the best of their abilities even though everyone else can look at how they argued the case.

No two cases are identical, you say? You can't just "take an argument" from one court case and apply it to another? Clients also care about how your ability to talk to them to figure out where they come from, what their background is and the background of the other party, and how to puzzle all the pieces together in this particular case? In fact, the most valuable part of the services a lawyer provides is not whether or not he uses some special argumentation, but rather how he tailors everything to the current case and uses whatever is most appropriate under the circumstances? Lawyers build their cases based on precedents argued by their peers? And their innovations are an inherent part of their work that they have to do to be competitive and get good results, rather than something they only do to get exclusive rights to them and get other people to pay for the privilege of doing something similar? And innovating in arguing before a court is definitely not something they stop doing because most of it becomes public without them being able to get royalties for it later?

Maybe the lawyer profession isn't that inherently different from software development after all...

And yes, there is more than philosophical rhetoric: in general, patents are some of the least used and least valued tools to ensure competitiveness for software firms (see esp. slides 14 and 15). This has been shown time and time again both in the past and in the present.

The best quote I know of is still this one from Robert Barr in a hearing before the FTC (and Cisco most definitely invests hundreds of millions in R&D, so it even addresses your point literally rather than only generally):

My observation is that patents have not been a positive force in stimulating innovation at Cisco. Competition has been the motivator; bringing new products to market in a timely manner is critical. Everything we have done to create new products would have been done even if we could not obtain patents on the innovations and inventions contained in these products. I know this because no one has ever asked me ‘can we patent this?’ before deciding whether to invest time and resources into product development.

On the other hand, I am sometimes asked whether anyone else has a patent on a product or feature that we are considering. But, despite the fact that our products are independently developed, that we do not copy, I can never definitively ‘clear’ a product or feature, or determine the costs of licensing in advance.

I.o.w., he basically said the same as the GP.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1857623

Abstract:
Threats to national security and public safety, whether real or perceived, result in an atmosphere conducive to the abuse of civil liberties. History is littered with examples: The Alien and Sedition Acts of 1798, the suspension of habeas corpus during the Civil War, the Palmer Raids during World War I, and McCarthyism in the aftermath of World War II.Unfortunately, the post-9/11 world represents no departure from this age-old trend. Evidence of post-9/11 tension between national security and civil liberties is seen in the heightened regulation of photography; scholars have labeled it the "War on Photography" - a conflict between law enforcement officials and photographers over the right to take pictures in public places. A simple Google search reveals countless incidents of overzealous law enforcement officials detaining or arresting photographers and, in many cases, confiscating their cameras and memory cards, despite the fact that these individuals were in lawful places, at lawful times, partaking in lawful activities.

This article examines the so-called War on Photography and the remedies available to those who have been unlawfully detained, arrested, or have had their property seized for taking pictures in public places or private places open to the public. It discusses recent incidents that highlight the growing infringement of photography rights and the magnitude of the harm that law enforcement officials have inflicted, paying particular attention to the themes these events have in common. It explores the existing legal framework surrounding photography rights and the federal and state remedies available to those whose rights have been violated. It examines the adequacy of each remedy including: (1) declaratory and injunctive relief, (2) Section 1983 and Bivens actions, and (3) state tort remedies. It discusses the obstacles associated with each remedy and the reasons why these obstacles are particularly hard to overcome in the context of photography. It then argues that most, if not all, of the remedies discussed are either inadequate or altogether impractical considering the costs of litigation. Lastly, this article will discuss the reasons why people should be concerned about the War on Photography and possible ways to reverse the erosion of photography rights.

Sure, Facebook may not see what you googled for, but they can track you while browsing external websites. Ditto for Twitter. Whenever you see the "facebook this" or "twitter that" icon on any webpage, and you are logged on Facebook or Twitter respectively... they can see where you are.
Facebook Tracks and Traces Everyone: Like This!

The debate over whether stimulus worked or didn’t is too abstract to be of much help. It’s a better use of time to look at some specific stimulus programs and projects and see how they did.

Yes. Always cherry pick first before trying to get a broader perspective. This is the best way to get off on politics rage. This is why we are talking about this right? Right?

Also, the article's source seems to be down so I don't even figure out how in world they are claiming "$7 million for each additional household served".

This is clearly a study that is not worth much without the raw data open and accessible for everyone.

Maybe a single household near a mountaintop would cost several million dollar to connect but quite a few others could be done for a thousand. So before someone can make any political conclusions it is definitely worth to look at the actual data behind this.

Of course it does not increase trust, that the website (Social science research network) is currently down.

Looking back at the Nortel patent purchase, every company involved is an entrenched incumbent that has been around for years. They all see the writing on the wall: they can't compete with free. And I don't mean free as in beer, I mean free as in freedom. Every member of the open handset alliance is free to modify their phone as they see fit and that is the single greatest contributor to their success.

Android has proven that money can be made on the First Mover Advantage alone. Every member of the Nortel patent deal knew this when they started and now they have forgotten all that. Now they run to Mommy government for protection because they don't want to work any harder than they do now. And ever dollar pissed away in litigation is being diverted from R&D.

James Bessen has done numerous studies to show that patents tend to substitute for R&D. I say that patents tend to reduce respect for the customer, too. In his most recent study, "A Generation of Software Patents", Bessen also points out that most firms these days don't patent their work and the companies that do patent are larger firms with the cash to do it. We're talking about big players in the market who've been around for a long time. He also points out that despite the small number of firms that actually patent their work, the risk of litigation has been rising dramatically.

If we cut these patents down then everyone can get back to work, innovating. Unfortunately, that will take years to wind through the courts and Congress would rather court a few really big players for contributions than thousands of little innovating companies.

Encrypted traffic presumes an expectation of privacy.

Oddly enough for 4th amendment analysis encrypted traffic enjoys no increased expectation of privacy.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=927973

You could argue that the that the 3rd amendment, rather than the fourth is more applicable to unwarranted wiretapping. (This argument proved more entertaining than prescient.)

Employing PatentSim, a multi-user interactive simulation of patent and non- patent (commons and open source) systems, this study compares rates of innovation, productivity, and societal utility. PatentSim uses an abstracted and cumulative model of the invention process, a database of potential innovations, an interactive interface that allows users to invent, patent, or open source these innovations, and a network over which users may interact with one another to license, assign, buy, infringe, and enforce patents.
Data generated thus far using PatentSim suggest that a system combining patent and open source protection for inventions (that is, similar to modern patent systems) generates significantly lower rates of innovation (p<0.05), productivity (p<0.001), and societal utility (p<0.002) than does a commons system. These results are inconsistent with the orthodox justification for patent systems. However, they do accord well with evidence from the increasingly important field of user and open innovation.

Closure? I don't think that's necessarily the case.

People expect to reap hedonic rewards when they punish an offender, but in at least some instances, revenge has hedonic consequences that are precisely opposite to those that people expect. Three studies showed that: (a) one reason for this is that people who punish continue to ruminate about the offender, whereas those who do not punish "move on" and think less about the offender, and; (b) people fail to appreciate the different affective consequences of witnessing and instigating punishment.

From psychologist Kevin M. Carlsmith.

True, the term Colosseum-Complex may seem harsh, but I like it better as a term because it implies a show. People didn't go to the colosseum to get closure, they likely went there to be entertained and in the hopes of seeing injury and death.

In this case, and perhaps in the viewing of executions, I think it's people wanting vengeance. They may think it will lead to closure, but according to Carlsmith, it often doesn't.

Besides the "Nothing to hide" argument being fallacious, why can't privacy just be privacy without someone's silly assumptions about your motivations getting in the way?

You don't want your phone number released? Don't give it to them. They don't go hoovering that kind of stuff up.

The hell they don't.

To start, 16 billion in litigation costs. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983736 And in cost of legal work in filing, royalties. Plus costs that aren't easily quantified, the R+D needed to invent around a patent. A greater emphasis on applied rather than pure science, and the cost of monopoly rents on the consumer.

No, they are not fair use. Remixes require permission from the original author to create, and distribute, and require royalties be paid to be performed live, just like covers. Here are articles by people who agree and disagree with the idea that remixes should be made fair use, but they both confirm that they are not fair use now.

I mean, if I'm not doing anything wrong, what's the problem if Google, the goverment, or such, track me?

By all means read the paper 'I've Got Nothing to Hide' and Other Misunderstandings of Privacy, it will give you lots of reasons for why this is a fallacy. Also recommended reading is Bruce Schneier's blog post about the subject.

I found a research paper on the issue:

It says that in the short term you gets $0.11 of traffic reduction for every $1 spent on new roads.

I also found a summary page, that notes some interesting research results:

[F]or every 10 percent increase in roadway capacity, traffic increased 9 percent within four years' time.

and

The phenomenon of induced traffic works in reverse as well. When New York's West Side Highway collapsed in 1973, an NYDOT study showed that 93 percent of the car trips lost did not reappear elsewhere; people simply stopped driving. A similar result accompanied the destruction of San Francisco's Embarcadero Freeway in the 1989 earthquake. Citizens voted to remove the freeway entirely despite the apocalyptic warnings of traffic engineers. Surprisingly, a recent British study found that downtown road removals tend to boost local economies, while new roads lead to higher urban unemployment. So much for road-building as a way to spur the economy.

Of course, this shouldn't be surprising at all, it's simple economics. While there is likely to be some upper threshold to how many car trips the citizens of an area will reasonably make, however, I suspect it's high enough that it would be impractical to build and maintain enough road infrastructure to reach that plateau.

This guy knows more about the markets and the economy than you or the vast majority of respected "economists" ever will.

For one, I am not an economist, and I never claimed to be one. For another, if you are making sweeping statements like that, you'd better back them up. The man does not even have a single publication, peer reviewed or otherwise, on either RepEc or SSRN.

I'm sorry, but it would be akin to a random blogger on physics claiming to know more about "physics" without having a single peer reviewed or refereed publication on the topic.

And the big difference is that he's willing to tell the truth.

...and what truth would that be? We all know what some of the symptoms are, and we all know directionally what the solutions at addressing those symptoms might be. But that in no way makes us capable or knowledgeable in understanding -- much less fixing -- the root cause of the problem. My wife's grandmother watches House and thinks she can be a doctor, and random guys read yet another "expert" and think they know everything there is to on fixing the economy. Oh the irony.

The garbage you spew forth is typical of what the main stream media feeds the populace and you do a disservice to people as a whole by repeating it. Let me guess, you finished a couple of university courses on Keynesian economics and now you're the expert who parrots "supply & demand!" in any thread economical...

What garbage have I spewed forth? Calling forth some skepticism? But I suppose if you cannot refute the argument, why not resort to unintelligent, ad hominem attacks, right?

Denninger was a Tea Party'er before they got high-jacked by the fools that now run it in a completely different direction. He no longer has anything to do with them and frequently rails on their antics. Denninger is also NOT a "hardcore gold standard" guy, so that shows how misinformed the slurs against him are.

I could care less for his party affiliations -- I am more interested in his content and qualifications, both of which are suspect at best.

Seriously, he's one of the few beacons of light in the sea of misinformation and outright bullshit coming from the usual suspects.

How so? Please explain.

Let's face it. Markets are complex systems, not unlike the ecology of our planet. Even after lifetimes of study, we've barely grazed our understanding of the subject. Modern markets as we know are really, really young, and incredibly complex. What more, unlike nature's ecology, market dynamics include a feedback and randomness introduced by the human element.

Anyone who has the gall to say that they've "understood" such a system, or worse yet, offer solutions in fixing the problems thereof, better have some pretty mighty empirical data to back them up. The people who caused this problem were two-penny "economists" who did not understand such systems, and Karl Denninger is no less a charlatan than any of them.

Please do read Daniel J. Solove's article:
"I've Got Nothing to Hide" and Other Misunderstandings of Privacy
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=998565

Daniel Solove makes a good case that imbalance between the power of the individual vs society (government and/or corporations) invariably precedes upheaval.

There's a very interesting paper that documents that extrinsic rewards (like profits) actually hinder the creative process in some areas. The paper documents the origins of the copyright/patent system as being a replacement for an earlier system where 'patents' were given as 'rewards' by monarchy, based on 'favoritism' rather than on anything to do with creativity -- somewhat akin to the modern day 'knighthood's being granted as a reward by monarchy to some individuals who 'please the monarchy' (in these days, more often for contributions that benefit the society or country of the monarch).

The idea that they were needed as a reward for creativity became a later justification for continuation of copyright/patents under anglo-saxon law.

But the paper cites references that show that in reality, copyrights and patents often have the opposite effect -- they do not inspire further creativity and actually hinder the process!

Very interesting read: Intellectual Property's Great Fallacy.