Greenspan Examines the Economics of IP

lilgerry writes "Alan Greenspan is asking some tough questions about the correct balance between rewarding innovators and inhibiting follow-on innovators. There's not many answers here, but there's a hint that there could be some clear economic thinking coming to be added to the discussion. Several good questions raised, and in very precise terms that should get papers published on these topics for years to come."

Comments

All this patent crap can be resolved very simply

[TerryAtWork]

You shouldn't be able to patent anything that has no mass. Think about it.

Irony . . .

[Nix0n]

. . . is when Slashdot's resident hyper-socialist posts a story that links to thoughts that illuminate the problems of socialism's primary mantra: regulate everything.

Re:All this patent crap can be resolved very simpl

[martyn s]

Wait, so when you patent an algorithm, it's just a mathematical thing, therefore it has no mass, so it shouldn't patentable. What about drugs? Are you patenting the physical drug, or the method of making the drug, or what? The method of making the drug has no mass. All patents can be reduced to massless things. What exactly are you measuring for mass? It's not as simple as you make it, I don't think.

Good article for the economist crowd

[MagikSlinger]

Greenspan is saying everything that has been said on Slashdot and other venues: the laws are unbalanced towards hyper-regulation, and there's an "untamed" frontier trampling IP rights totally unaffected by the hyper-regulation.

Although said in the usual Econo-speak, one of his themes is that trying to use the court system to tame this frontier is a waste of time, and ultimately useless. Other markets don't need constant lawsuits and court intervention because everyone understands and respects the rules and have no desire to cross them. The rules seem fair and the market prices things at an appropriate level so there's little desire to break the rules by most participants.

That's Greenspans way of saying the DMCA and the Lawyer Heavy tactics are going to stunt growth. He's really suggesting that IP rules be re-written so everyone can respect them and live by them, and implicitly, the IP vendors should try learning to live in a true free market where their prices come down due to competition.

That's one of his themes.

Re:Thanks, Mr. Greenspan

[Sylver Dragon]

From the Article Header:
At the 2003 Financial Markets Conference of the Federal Reserve Bank of Atlanta, Sea Island, Georgia

I think Greenspan is plainning on having the rest of the Fed look at this stuff real critically, thus he leaves the questions open. This is, hopefully a very good thing, as it might raise some questions about congress's continued protection of Mickey. As it is, I would have to place Greenspan as one of the more influential people in the US economy today. I swear, this man farts and the DOW drops three points. I think that, if Greenspan was to state that he dislikes the current Copyright "balance", we might see some changes to it come down the pipe.
As for trying to get some good answers, you do realize that this is /. right?

It's the opposite you dolt!

[Anonymous Coward]

The whole idea behind patents is that you patent the PROCESS, not the material product. You can't patent a cheese burger or glass or steel, but you can patent the process of making the cheese burger, manufacturing and refinement of glass or steel.

You don't patent a car, you patent the DESIGN. Think about it, you can't patent matter. That's absurd. "You've got 10 molecules of naturally occruing versions of a material I've patented. You owe me XXX!"

Thinking like yours is why people people oppose anything with the word patent in it. You don't understand it at all.

Weightier Voice of Reason

[4of12]

Glad to see someone in a position of such great power and influence (arguably he is the most influential single person in American) considering these issues with deliberation.

Reform of IP laws for the better have long suffered from the impediment of entrenched special interests benefitting from the current laws.

To gain the trust of the extremely important business community, Greenspan has had to cultivate an aura of being above the fray of petty politics where insistent congressman want him to push the gas pedal to the floor just in time to make the economy "look good" right around re-election time, even if such policies are not in the long term best interest of the economy as a whole. Since Volker, the Chairman of the Fed has been the Wizard of Oz and business people like the predictability of low inflation.

Being in that position gives special credence to his words.

What if we don't want to maximize growth?

[uncadonna]

If our objective is to maximize economic growth, are we striking the right balance...

Sigh. He lost me right there. I thought our objective was to maximize joy and minimize suffering. (I guess I'm either a utilitarian or a Buddhist.) Almost everyone seems to believe that the society with the fastest-growing economy is the best society for its members, but I've never seen a coherent argument to that effect. In fact, until I see something of the sort, I'm inclined not to believe it.

OK, if you're done being apoplectic about me challenging this particular sacred cow, how about explaining this belief to me slowly and calmly, in a manner suitable for a weak-mided fool like myself who somehow misses the point.

Re:What if we don't want to maximize growth?

[Anonymous Coward]

he's the the president here man. His particular domain is the economy. Now, if you were to ask someone who only had control over the economy what he could do to maximize joy and minimize suffering he'd probably tell you to maximize economic growth because that lowers the unemployment rate and brings people out of poverty.

So yea, he's doing the right damn thing. Its not some sacred cow you're attacking. In fact, you're pretty much off-topic. Greensapn couldn't get up in his speech and say "let's repeal the PATRIOT Act" because that's not what he can do to maximize joy. To maximize joy, he makes sure the economy is strong. God man, get that chip off of your shoulder.

Re:What if we don't want to maximize growth?

[Tackhead]

> > > If our objective is to maximize economic growth, are we striking the right balance...
> >
> > I thought our objective was to maximize joy and minimize suffering.

I happen to believe on the basis of my observations that the two tend to go together pretty consistently, but I grok your point that my observation isn't universally accepted.

That said, you should understand that by definition, as Chair of the Federal Reserve, his objective is to maximize economic growth.

(And yes, it is an awesome responsibility. One word, misspoken, out of the guy's mouth, can spur traders to move billions of dollars. That's why he's extremely careful when and how he speaks. To us, this essay may read like a mild rehash of Slashdottisms, but for the Chair of the Federal Reserve, this essay is unusually forceful writing.)

Re:What if we don't want to maximize growth?

[Anonymous Coward]

Well, I think you can say that unemployment, poverty, starvation, and such lead to suffering rather than joy. So, while over-focusing on economic growth doesn't lead to joy ("The love of money is the root of all kinds of evil" - Paul, and "Growth for the sake of growth is the ideology of the cancer cell" - Edward Abbey), yet economic growth can and does cut down on some aspects of human suffering.

Re:What if we don't want to maximize growth?

[Bob Uhl]

Maximising economic growth does maximises joy and minimise suffering. The old saw that money doesn't buy happiness is, quite frankly, nonsense. Money is what buys quality food; what buys a nice home; what pays for entertainment; what purchases time off to enjoy the above things. When the economy grows, everyone is better off, the poor as well as the rich. Would you rather have 1/120,495,968,575 of $97 billion or $852 trillion?

The modern pauper commands more wealth than an ancient emperor: he wears clothing made in some other part of the world from fibres imported from yet other regions of the globe; he eats food shipped across thousands of miles and delivered fresh; he listens to music each minute of which has had hours of labour spent to maximise its value. That's all due to a growing economy. Sure, he's a pauper in relation to me--but he's a very rich man indeed in relation to the pauper of a dozen years ago, or a century, or in the time of King Edmund.

A rising tide floats all boats--consider it like that. As the size of the economy increases, each man's share of it increases. When a rich man makes money, he's got to spend it somewhere--those he spends it on (tailors, cooks, farmers, whatever) are now each a little richer; each person they money on will then be a little richer, and so on. `Well,' you may ask, `how do we ensure that the right people get that money to begin with?' That's the beauty of a free market: when everyone is free to spend his money where he will, whoever gets the most money is providing the good or service most desired. Who else could possibly claim that money? Whoever gets the least is doing the least for everyone else; how can he possibly claim more?

Two things screw up this happy arrangement: those who cannot work (and thus should and must be provided for by the rest of us), and when some external force screws up the market so that the man with the most money isn't the one who provides the most value. The first is a necessity; I have no wish to live in a world where the blind and lame are left to die because they do not produce enough. The second is as well: as long as we have government, we will have those who take more than they give. The goal is to keep that negative effect as small as possible.

Re:Of COURSE not!

[outsider007]

As for the drugs, no they should not be patentable either. So you have the cure for AIDS, but you have a patent on it, so what now *I* have to die because you are a greedy bastard?

wrong. if drugs can't be patented then nobody will be willing to pony up the cash for the research. what we need, and it sounds like what greenspan is saying, is a balance between protection for corporations of intellectual property and a protection for consumers from privateering pharmaceutical companies.

Re:raises an interesting point

[idiotnot]

To put it another way: free markets are beneficial, we all agree on that. We also most note that free markets are self-organizing. Which means that most people act in a way that supports the existence of a free market.

Except that it's a chicken-or-the-egg problem. I disagree that free markets are self-organizing; trade existed, and markets emerged, mereged, and organized. Organization of this kind of thing is nearly always an afterthought, or a reaction. To take the state of nature argument, people act in a way that support the existence of free markets, only in situations where actors are of near equal standing, have something the other wants. This prevents the force or fraud angle. It would be nearly impossible for a consumer to deal with Wal-Mart in good faith without government protecting him from force or fraud.

What objectivism relies upon is that force and fraud never enter the equation between free individuals because it is antithetical to life. Hence the constant struggle between the protagonists in Rand's novels and the "looters."

When 20 million people trade files on P2P networks, they may be commiting an act which is morally wrong according to our present views, but they are merely exploiting a property of information that has always been bubbling under the surface: it can easily be copied.

This hasn't always been the case, and only technology has made it easy to copy. We've moved -- progressed to technologies that are copy-friendly for quality reasons, rather than for purposes of copying and "sharing." The fact of the matter is, Napster wouldn't have been popular if the mp3 kiddies had needed to dub everything from 45's. ....old man voice....

In my day, sonny, we made mix tapes. Darn right it was a pain in the ass. And we knew it was wrong, but we didn't have the money to buy the real tape ourselves. We were too busy buying beer and cigarettes...... :-) Well, we knew that was wrong, too.

Technology today is simply exposing the false assumption, made long ago, that information is difficult to copy.

Again, I don't think you can make that argument. We've created duplicating devices for convienience, and some people have chosen to abuse those. It's just the degree of abuse. Some of it, also, is a backlash against overwhelmingly high prices of music. I *could* make a photocopy of a thirty dollar, 350 page book, for about three dollars and fifty cents (assuming about $0.01 per page, which is what most high-end copiers do). It's just a pain in the ass, and not worth my time. If I'm real eager to read a book, and don't want to shell out the money for it, I'll go put it on reserve at the library. Barring that, I can wait the six to eight months it takes to come out in paperback. Yes, that costs more than the photocopies, but it's more portable, and easier to read. And legal.

The bottom line on filesharing is......If MP3's were a quarter or less to download from a publisher's website (and there was an easy way to be able to burn it to cd in cda format), p2p would dry up for music. It'd still be there for warez and pr0n.

A "free market" in information is therefore not self-regulating, and should not be called a free market at all. It's more like a kind of "non-laissez-faire capitalism"

I addressed that a bit above. Again, assuming adequate protections from force or fraud, laissez-faire capitalism can flourish. It just hasn't been tried very much.

We should ask ourselves, is the massive regulation required to prop up this system worth it? Or should we just fix this assumption and start anew?

The regulations that have been phased in since about 1900 have totally destroyed any opportunity for a nice, free capitalist system. And you have to be honest about the root of those regulations: Communist and Socialist influence. Alas, many people still subscribe to those morally bankrupt philosophies, so we're kind of stuck. Short of a bloody revolution, there is no way to start anew. I'm prepared to deal with the lousy situation we've got now. It's better than the alternative.

Shoot some people - we need more hospitals!

[Sanity]

So what he's saying here is interesting and balances the ideology of "intellectual property" with pragmatic reality.

The "ideology" of information as a property right is a recent fiction, copyright started as a compromise - it was never an "ideal", and that compromise has been corrupted almost beyond recognition.

I admire the simplicity of the capitalist ideal, but using it as a justification for making everything behave like property by enforcing scarcity where there is none, is an ugly perversion of capitalism, in fact, I would argue that it is the opposite of capitalism.

Capitalism is a means to manage scarcity, and it is very good at it, but artifically creating scarcity just so that capitalism may be applied is like shooting people to create a demand for hospitals:

"stop shooting people!"

"what, you don't like hospitals?"

Re:Shoot some people - we need more hospitals!

[teorth]

I admire the simplicity of the capitalist ideal, but using it as a justification for making everything behave like property by enforcing scarcity where there is none, is an ugly perversion of capitalism, in fact, I would argue that it is the opposite of capitalism.

Ahh, but there is scarcity in IP. Not in the dissemination of intellectual property, but in the creation of the intellectual property. It does take real, and scarce, intellectual resources to come up with a new idea, a new piece of fiction, a new computer game, or whatever. How are these intellectual resources to be managed without some sort of intellectual property rights?

The hospital analogy is not terribly accurate, since medical care is a scarce resource (we don't have an infinite number of doctors, for instance). A better analogy would be closing the doors to a movie theater to everyone except people who purchased a ticket, thus "artificially" creating scarcity to those people hoping to sneak in for free.

Re:Shoot some people - we need more hospitals!

[Sanity]

Ahh, but there is scarcity in IP. Not in the dissemination of intellectual property, but in the creation of the intellectual property.

IP law doesn't apply to labor - that is property by its very nature, and the law already protects that, rather it applies to the product of that labor, which isn't the same thing. As can be seen from the multitude of ways that IP law is being used to inhibit technological advancement, it is clear that IP law is a very inefficient way to ensure effective use of creativity.

It does take real, and scarce, intellectual resources to come up with a new idea, a new piece of fiction, a new computer game, or whatever. How are these intellectual resources to be managed without some sort of intellectual property rights?

Firstly, IP law doesn't cover ideas. Secondly, in answer to your question I suggest you look at Linux, FreeBSD, or any of the multitude of projects which people devoted their efforts to not for personal financial gain, but for the enhancement of society's collective wealth - and which achieve this by ignoring, or actively subverting the concept of information as property.

Re:raises an interesting point

[sbeitzel]

That's funny because by definition Objectivists are pragmatic.

That's funny, since I haven't yet met an Objectivist who wasn't more concerned with the purity of the way things ought to be than about dealing with the way things are to achieve the desired result.

I'll stipulate that in theory, Objectivists should be pragmatic. However, in practice I find that Objectivists are about as pragmatic as 2nd year philosophy majors.

Re:What balance?

[EDA Wizard]

What balance? Doesn't rewarding innovators with a patent naturally inhibit follow-on innovators?

The balance Greenspan is speaking about is "the incentive to innovate" vs. "Prohibition of innovation". Things must be protected to provide incentive, but not overly protected to prohibit follow-on innovation.

AIDS victims often advocate that AIDS drugs should be free or have their patents nationalized or invalidated so that all of those who suffer from AIDS could afford medication. The big problem with this is that if the profit motive is remove from creating AIDS drugs, companies won't risk hundreds of millions required to develop the drugs. If private companies don't pursue these drugs, AIDS victims will have to rely on new medications being created by government grant research only. This is often much slower that having several private companies competing to develop the best drug.

The balance is adequately rewarding each innovation so that people remain motivated, yet not protecting IP so much so that it effectively locks all future innovation in that area.

That charming "IF"

[Sloppy]

There's one word near the end of Greenspan's rant, that almost makes me giggle.

If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights?

Thank you for at least the pretense of making that conditional, Greenspan.

Greenspan is a former "Randroid" and even though he has been holding a job that involves government micromanagement of a certain aspect of the economy, his exposure to the other side apparently still has him meeting Planned Economists with hesitancy.

"If our objective is to maximize economic growth.." If indeed.

And as for economic growth.. my cat got sick after many years of wellness. I took the cat to the vet and wrote a check for the bill she presented me. The vet's service and my payment -- that was economic growth. And thank Allah for the coming economic growth in the construction industry in Manhattan. More illness and disaster is just what this economy needs.

Re:Of COURSE not!

[Bob Uhl]

If drug research were publically funded, who would determine which drugs are researched? How would we know which are the best drugs to research, and which not? The free market is a wonderful mechanism to determine this: if there's a lot of demand for something, then folks will see a lot of money to be made there (whoever discovers a good anti-cancer drug with no side-effects will be a very rich man indeed). Central planning, OTOH, ignores the relevant market (in this case, the drug market) in favour of the political market. Perhaps drugs would be researched based on which senator's kid was sick, or based on what crying-baby campaign ran the most ads before the elections, or what-have-you. My point is that socialist medical research would be worse than free medical research.

History bears me out on this. Any student of economics knows that free markets invariably produce better outcomes overall than do centralised economies. Yes, there are always losers--but in a free market their loss is less, and there are less of them, than otherwise. Consider the US, in which being overweight is a greater problem amonst the poor than is malnutrition: because of our (relatively) free markets, the standard of living of everyone has increased.

Were drug research socialised, we can expect that the overall quality of drugs, and hence of medicine, would be less than it would otherwise be. So your scheme has ended up killing and crippling millions. Sharp.

Production is not Distribution

[whig]

Greenspan writes:

"More generally, in the physical world, the usual situation is that each additional unit of output is more costly to produce than the previous one; that is, production, at least eventually, is characterized by increasing marginal cost. By contrast, in the conceptual world, much of production is characterized by constant, and perhaps even zero, marginal cost."

This is a common economic confusion of production with distribution. The production of an intellectual work is not the same thing as its reproduction, but economic theories evolved in the past have no conception of this.

To take Greenspan's example, creation of an on-line encyclopedia, the fact that "the cost of reproduction and distribution is near zero" does not enter into the cost of actual production, i.e., the foregoing creation.

What economists like Greenspan are attempting to do is justify ex post facto a regime that compensates those who reproduce and distribute works, when what is really needed is an economic model that compensates the producers of intellectual works. The two may often be assumed to be one and the same, but this is often (perhaps rarely) the case.

Re:raises an interesting point

[rzbx]

"I disagree that free markets are self-organizing..."

Then you go on about fraud. Free market is a market where the supply and demand are not regulated. Where does fraud come in to play? If free markets aren't self-organizing, then who is doing the organizing?

"This hasn't always been the case..."

Hence the reason he wrote "according to our present views."

"for quality reasons, rather than for purposes of copying and "sharing.""

Actually, we are moving towards more sharing of information, only corporations and certain groups and individuals are resisting it. The distribution of information and sharing it has been constantly increasing technology wise. Slashdot is one example, should I give you thousands of others? Yes, quality is a factor, but copying and sharing is a more important when it comes to ideas and information. You can't get better quality than a perfect digital copy.

He wrote "Technology today is simply exposing the false assumption, made long ago, that information is difficult to copy."
then you responded
"Again, I don't think you can make that argument."

I think he can make that argument. Look at it one more time. You then go on about how some have abused the convenience of copying. Humans do this. We make things more convenient. That is why we invented the bike, the car, the phone, the plane, etc.

"Communist and Socialist influence. Alas, many people still subscribe to those morally bankrupt philosophies..."

The whole idea behind these philosophies was to bring about equality. These philosophies are not perfect and also something you should know THEY WERE NOT PRACTICED AS THE FOUNDERS INTENDED. Communism in theory was very good, but that was in theory. Still, ideas within the philosophy are very important. Some of them should be taken very seriously. The capitalistic system is not perfect and neither is any other. Instead, one should acknowledge this and adapt to create a better system.

Re:Of COURSE not!

[GlassHeart]

The free market is a wonderful mechanism to determine this: if there's a lot of demand for something, then folks will see a lot of money to be made there

No, the free market will direct research towards the drugs that are profitable, not where there is a great humanitarian demand. For example, if AIDS is mostly an African problem, then nobody will be researching AIDS drugs because Africans cannot afford expensive drugs.

Re:Of COURSE not!

[Planesdragon]

Its friggin mathematics, it is the laws of the Universe

Oh, for crying out loud...

Mathematics is just a language. A logical language with nuiances of logic and a necessary language for computers, but it's just a language.

The universe got by for billions of years before the invention of mathematics, and it'd get by without mathematics, too.

Re:Of COURSE not!

[brunes69]

If drug research were publically funded, who would determine which drugs are researched? How would we know which are the best drugs to research, and which not? The free market is a wonderful mechanism to determine this

Umm, this is ridiculously false. First off, the free market is only good for determining how much money something is worth, not for determining how much society will benefit from something. And to answer the firts point, the same way everything else in public policy is done, the people* decide what drugs are to be researched.

History bears me out on this. Any student of economics knows that free markets invariably produce better outcomes overall than do centralised economies

Not when it comes to things of public welfare. Why do you think the US has what is generally regarded to be one of the worst health care systems in the first world, and the most expensive drugs? Why do you think senior citizens have to smuggle drugs across the border because they cannot afford them themselves? Answer: because health care in most all EU nations and Canada and Australia are publicly funded, and have massive publically funded drug research programs, because they try to look after the people, whereas the US is just interested in making a quick buck.

Re:Of COURSE not!

[GlassHeart]

In case you haven't noticed, AIDs is one of the most medically researched topics.

Sure, but not because of the tens of millions afflicted in Africa. Some African nations had started to distribute "illegal" generics, because their dying population cannot afford the patented drugs.

I'll repeat it for you. The free market, by definition, optimizes for profit. If AIDS research costs $5B and earns $6B, while a special drug for an ailment only Bill Gates has costs $5B and he's willing to pay $10B, free market will invest in Bill Gates' drug.

The fact that AIDS is hotly researched is because many relatively rich people are affected. Many diseases (TB, for example) that primarily affect poor third world countries are neglected by the free market, because there's no money there.

The free Market is the only way. If it was supported by public research, that would mean MORE taxes as well as Political influence.

No, many health issues are not best handled (nevermind only handled) by private industry. It will lead to abuses like:

• "Poor people diseases" getting too little funding
• "Rich people diseases" getting too much funding
• Unnecessary medication. Remember their objective is to sell you as many pills as possible without killing you or otherwise making you stop buying.

A better approach is a hybrid. Let private industry work on "rich people diseases", because there the demand aligns with profit, where private industries work best. However, somebody has to take care of the neglected diseases.

Re:raises an interesting point

[Alsee]

>Technology today is simply exposing the false assumption, made long ago, that information is difficult to copy.

Again, I don't think you can make that argument. We've created duplicating devices for convienience, and some people have chosen to abuse those.

Claiming that it is an "abuse" is begging the question.

To claim that P2P and related technologies are an "abuse" is to assume things that the parent poster has explicitly claimed are false assumptions. You can't proove he is wrong by assuming he is wrong.

Yes, someone on slashdot has actually used "begging the question" correctly LOL.

Lets throw out all assumptions for a second. The purpose of law is the common benefit. The benefit of intellectual creations is roughly the number created times their distribution.

Strong copyright protections attempt to increase the motivation to create more, and it allows publishers to make a large investment in distribution.

The internet completely changes this balance. The cost of distribution approaches zero. There is no longer a need for large investments in distribution. Distribution costs are pure wasteful overhead, eliminating this is a huge increase in efficiency. The internet allows a huge increase in distribution.

I believe the best way to maximize the public benefit (creation times ditribution) is with "classic" copyright protection. Strong protection for all commercial use (which has always been easy to catch and prosecute) and broad fair-use for all noncommercial use (which has always been nearly impossible to catch and prosecute).

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business process patents...

[eversunsoft]

I attended a lecture at CMU yesterday by Michael Shamos, a noted patent attorney. His comment was that very many bad patents are being granted. They are granted not because they are good ideas, but rather, because of the way the system works.

Patent examiners are overworked and underpaid. As a result, many are foreigners, and can barely speak passable English. Additionally, they only search against other previously patented ideas when deciding the fate of a new patent.

As a result, a patent like 1-click by amazon is quickly approved. Since business process patents were only in existence from the late 90s, no one had the chance to patent this obvious business idea.

ds

Re:raises an interesting point

[Alsee]

Except that you're making as assumption that law is for the common benefit. I could point out many instances where that's not the case.

Yes, I assumed the purpose of law (and government) is for the common benefit. Unfortunately I agree with you that in practice far too many laws get passed that are not for the common benefit.

Me: Strong copyright protections attempt to increase the motivation to create more, and it allows publishers to make a large investment in distribution.

Clarification, I was talking about the primary motivation for creating copyright in the first place.

For some items, this is true [but]... durable item still needs a means of distribution... [specialization] could spend more money

Yes all correct. I'm not quite sure where you are going with this though. Are you just pointing out that I skipped these kinds of cases? I guess I intuitively glossed over them because there is usually no conflict in these cases, everything works fine either way. The conflict is always over things that can be P2Ped.

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