Economics – Luke Lindsley

Intellectual Property is Common Property

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I’ve been reading Intellectual Property is Common Property by Andreas Van Gunten over the last couple of weeks and it has seriously challenged many of my intuitions on the topic of piracy and intellectual property. Specifically, its been making me think about the ethics of piracy where it fits in my moral framework. I’ll be sharing those thoughts here. First, what is piracy? Let’s look at some modern definitions:

the unauthorized use of anothers production, invention, or conception especially in infringement of a copyright – Merriam Webster

the unauthorized reproduction or use of a copyrighted book, recording, television program, patented invention, trademarked product, etc. – Dictionary.com

I think a good place to begin is to question whether or not piracy is identical to theft. Theft is universally perceived as morally wrong for reasons we will soon explore. By comparing the two, we can gather insight into why we may or may not think piracy is morally equivalent. However, even if it is true that piracy is not equivalent to theft in every respect, logically it does not follow that piracy is morally unproblematic. This is important to keep in mind.

Why is it that humans universally perceive theft as morally wrong? This is because of the harm it causes through an immediate loss of value. If I were to steal a shovel from a shed, the owner of that shovel could no longer use it. The shovel can only be owned and used by one person at a time. Therefore by depriving the owner of their possession and their ability to use the shovel- I’ve clearly harmed them.

In economics, goods that can be used by only one consumer at a time are called rivalrous goods. Rivalrous goods are almost always tangible and will have either durable or non durable characteristics. The shovel in my previous example would be an example of a durable rivalrous good. The Shovel can be used many times without being destroyed, but it can only be used by a single person. An example of a non durable rivalrous good would be an apple because once an apple is eaten it is “used up” and can no longer be eaten by others. There are also some examples of non-tangible goods that are rivalrous- notably domain names and radio bands. When people refer to theft they almost always mean the theft of rivalrous goods.

However, there are also non-rivalrous goods that exist where the cost of providing the good to an additional individual is zero. For example, Broadcast television is a non-rivalrous good because when a consumer turns on a TV set, this does not prevent the TV in another consumer’s house from working. Other examples of non-rival goods include scenic views, cinemas, national defense, clean air, street lights, and most notably intellectual property. When asking whether piracy is identical to theft, we need to ask: Can non-rival goods be stolen?

Image via wikipedia

As Andreas Van Gunten explains in regards to intellectual property:

“A text in a book or a painting on a canvas are only rival-goods in the sense that the physical manifestation of the expression cannot be consumed more than once at any given time. The expression itself is non-rival. It can be consumed by many people at the same time as long as sufficient copies of the expression exist. The proponents of the current copyright system argue that the justification of intellectual property shares the same moral grounds as the justification of physical property.¹³ But only the physical medium has a rivalry character comparable to the physical goods by which control rights may be justified. As soon as the copying of the expression, which is what copyright law protects, does not need a physical medium anymore, which means that it can be done at zero or near zero cost, it loses its rivalry character. In other words, copying is not stealing, as the proponents of intellectual property rights try to convince us.

A printed book for example can only be read by one person at a time.¹⁴ If someone takes the book away from its owner, he can now read it and the original owner cannot. What we have here are the typical characteristics of a rival-good where the postulation of control rights may make some sense. But this changes completely as soon as a digital representation of the expression is available. In this case this would be an E-Book file or a website with the same text on it. If I possess an E-Book or have access to text on the World Wide Web, I am not limited in my enjoyment of the expression when someone else makes a copy and reads the text as well. As soon as the expression is no longer bound to a physical medium, and its manifestation is realised in a digital representation, the marginal costs for the second and subsequent copies are nearly zero and therefore it loses its rivalry character and its scarcity.”

Andreas Van Gunten answer to the question ‘Can non-rival goods be stolen?’ is no. However, non-rival transactions still seem to have the possibility of being unjust and morally problematic. Interestingly enough, this seems to be particularly true if the systems in place are unable to efficiently regulate and organize non-rival good distribution. In the same way, piracy is not identical to theft, but it can still cause harm to the producers of non-rival information goods because of the free rider problem.

If we were to accept these conclusions, it would seem to me that there would be multiple levels to piracy with different ethical implications. Consider the following four scenarios:

Consume copyrighted movie without permission for private use
Consume copyrighted movie without permission and edit the content for private use
Consume copyrighted movie without permission, edit the content and share for public use
Consume copyrighted movie without permission and share for public use

In each of these scenarios we are consuming copyrighted content without permission. The variables at play here are private vs public and edited vs original. Interesting to note is that scenarios 2 and 3 are actually legal in many cases under fair use in the United States, while the others are not. The mere act of editing copyrighted content makes it “fair.” Nevertheless, from an ethical standpoint scenarios 2 and 3 are ethically equivalent to scenario 1. Scenario 4 in contrast could be argued to be ethically worse for encouraging more piracy because it is sharing the original content with the public. Thus leading to a greater free rider problem.

At a deeper level, what we are really talking about when discussing the ethics of piracy is whether or not “intellectual property” is legitimate. If it is not legitimate- as Andreas Van Gunten asserts in his book- then it can be argued that piracy is simply a way of spreading creative works and increasing human innovation. Indeed, piracy could very well be a a neutral or ethical act.

“My aim is not to try to solve these fundamental problems but to show that a society where intellectual property is common property has a better chance to prosper, independently of the question whether its basic values are more libertarian or more egalitarian. The premise is that the more cultural artefacts and the more scientific ideas are developed and produced, and the more freely human communication can happen, the more sustainable a society grows. This is the classical liberal argument for freedom of speech.^”–Intellectual Property is Common Property, Andreas Van Gunten

If one accepts Guntens premise that in a society where intellectual property is common property and “more cultural artefacts and the more scientific ideas are developed and produced, and the more freely human communication can happen, the more sustainable a society grows,” then this is a society we ought to strive for.

Nevertheless, I can sympathize with those that are skeptical of Guntens views. They appear counter intuitive to many given the ingrained cultural status quo on copyright, patents, and other property laws. Furthermore, it may very well be the case that “possessing” intellectual property individually leads to a more prosperous society than one unable to do this.

I highly recommend checking out Guntens work. Piracy will continue to remain an interesting ethical question- one that is volatile to a technological evolution and the laws and norms we set in motion.

Essays

The Paradox of Free Markets

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No individual has had a greater influence on economic policy than Adam Smith. Smith laid the foundations of classical free market theory and most notably conceptualized the idea that profit maximizing firms interacting with rational consumers in competitive markets lead to prosperous societies. [1] For this reason, Smith is frequently celebrated by free market fundamentalists as a champion of Laissez-faire capitalism.

However, despite what his contemporary followers claim, Smith recognized the limitations of the market and the necessity of government:

“According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.”- Adam Smith IV.9.51

Smith believed that it was essential for government to provide certain goods like infrastructure, banking and education because they provided the foundation in which markets could flourish. Nevertheless, Smith recognized the danger of government when their authority was used only to benefit a small number of individuals. Indeed, Smith warned again and again of the collusive nature of business interests, the formation of cabals or monopolies, and the political power this gives to the richest members of society:

“It is in the age of shepherds, in the second period of society, that the inequality of fortune first begins to take place, and introduces among men a degree of authority and subordination which could not possibly exist before. It thereby introduces some degree of that civil government which is indispensably necessary for its own preservation: and it seems to do this naturally, and even independent of the consideration of that necessity. The consideration of that necessity comes no doubt afterwards to contribute very much to maintain and secure that authority and subordination. The rich, in particular, are necessarily interested to support that order of things which can alone secure them in the possession of their own advantages. Men of inferior wealth combine to defend those of superior wealth in the possession of their property, in order that men of superior wealth may combine to defend them in the possession of theirs. All the inferior shepherds and herdsmen feel that the security of their own herds and flocks depends upon the security of those of the great shepherd or herdsman; that the maintenance of their lesser authority depends upon that of his greater authority, and that upon their subordination to him depends his power of keeping their inferiors in subordination to them. They constitute a sort of little nobility, who feel themselves interested to defend the property and to support the authority of their own little sovereign in order that he may be able to defend their property and to support their authority. Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” – Adam Smith V.1.55

What Smith is describing here is the foundation of corporatism. Simply put, corporatism is the control of the state by the richest interest groups. In practice, corporations will lobby the government for things like subsidies and profit reducing regulations. Free market fundamentalists will often call this level of conspiracy “crony capitalism.” They argue that by simply reducing government size that the “free market” will naturally resolve this issue. This, however, is a misguided fantasy with no factual basis in history.

Before we go any further we must identify what a “free market” actually is, or at the very least, try to understand what it implies. Let’s look at some modern dictionary definitions:

“An economic market or system in which prices are based on competition among private businesses and not controlled by a government.” – Merriam Webster

“Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy.” – Investor Words

“An economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.” Dictionary.com

Today, the term “free market” is often defined as a market without government regulation. Implicit in this definition is that buyers and sellers would have “prices based on competition”, markets would follow the “laws of supply and demand”, and economic activity would be “unrestricted.” Immediately we can see contradictions in this concept.

The following excerpt from Understanding Capitalism demonstrates this quite concisely:

“Without government interference there is nothing to prevent interference, restriction, and subsidy by the mafia, an activity for which we have real world examples. Without government interference there is nothing to prevent the erection of barriers to free transaction, used either to extract rents, to marginalize competition, or to punish groups of people based on any number of criteria such as race, religion, gender, etc. Furthermore, there are any number of ways in which non-governmental entities can implement rules and regulations which distort the laws of supply and demand, a classic example being the National Football League’s imposition of salary caps and profit sharing across organizations.” – R.G. Price, Understanding Capitalism

So here we have a paradox. Without the government imposing rules on the market, there is nothing to stop the “free market” from restricting itself from the next powerful authority. There are countless examples of the “free market” distorting itself. To name a few:

Coca Cola paying retailers to eliminate competition

Ticketmaster obtaining exclusive contracts with venues

F.W. Woolworth discriminating against black customers

Japanese citizens erecting barriers to trade and charging tolls for the transport of goods

In each of these cases we see private actors take action to subvert the “laws of supply and demand,” distort “prices based on competition” or prevent people from transacting freely in an “unrestricted” market without any coercion from government forces. Indeed, it was the implementation of government regulation that ultimately led to a freer market in these cases.

To conclude, Smiths analysis of free markets provides a solid foundation for creating a prosperous society. However, free markets ≠ no government regulation. A freed market must have limited, but smart regulations towards the highest concentrations of capital. It must also account for externalities. And ideally, the freed market would be one that redistributes its capital to all its citizens, but I’ll save those thoughts for another time.

Essays

Pros and Cons of Universal Basic Income

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Universal Basic Income (UBI) is a concept that proposes to provide every individual with a regular and unconditional cash payment regardless of their income, employment status, or wealth. UBI has been gaining momentum in recent years, with advocates claiming that it could help eradicate poverty, reduce income inequality, and provide financial security to people. However, there are also concerns that UBI could be economically unsustainable and discourage people from working, leading to increased dependency on the state.

One of the primary advantages of UBI is that it could significantly reduce poverty and inequality. By providing a guaranteed minimum income, people who are struggling to make ends meet would have more financial stability, enabling them to meet their basic needs such as food, shelter, and healthcare. UBI could also reduce the stigma associated with traditional welfare programs, which often have complex eligibility criteria and come with social stigmatization. This includes a transfer of wealth to care takers who are currently uncompensated for their labor.

Another advantage of UBI is that it could stimulate entrepreneurship and innovation. With a guaranteed income, people would have the financial security to take risks and pursue their passions without fear of financial ruin. This could lead to a surge in small businesses and startups, leading to increased economic growth and job creation.

However, there are also several concerns with UBI. One of the main criticisms is that it would be economically unsustainable. The cost of providing a universal basic income to every individual would be enormous, and it is unclear where the funding would come from. This could lead to increased taxes, inflation, or government debt, which could have negative consequences for the economy.

Another concern is that UBI could discourage people from working, leading to increased dependency on the state. If people receive a guaranteed income regardless of their employment status, some may choose not to work, leading to decreased productivity and economic growth. Furthermore, UBI could lead to a reduction in social welfare programs, which could negatively impact vulnerable groups such as the elderly, disabled, and those with low incomes.

In conclusion, UBI has both pros and cons, and its implementation would require careful consideration and planning. While it could provide financial stability to those in need, stimulate entrepreneurship and innovation, and reduce poverty and inequality, it could also be economically unsustainable and discourage people from working. As such, any decision to implement UBI should be based on a comprehensive analysis of its potential benefits and drawbacks, as well as its economic and social impact in our future world.

Reviews

Understanding the Political Spectrum

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I recently came across a fascinating eBook, Understanding the Political Spectrum by R.G. Price. The 92 page book gives insight on the political history of the ‘Left’ and ‘Right’ and how they’ve changed throughout history. Everyone seems to have a loose interpretation of these terms, but those interpretations are abstract in nature. For example, left is liberal and right is conservative:

Price explains many political spectrum are too narrow in focus, often being one dimensional and outright nonsensical like the above. He acknowledges that some political spectrum like the Political Compass are useful tools to understanding an individuals politics, but argues that they are largely incomplete or misleading.

But what does the Political compass get right? It correctly identifies the right variables:

Price believes that power is at the root of politics. He explains there are three fundamental bases of power in modern society: The Church, the State and the Corporation. An individuals beliefs about how these powers intermingle determine ones political beliefs about the world. These beliefs become more strongly held as you move away from the center.

I agree with Price that these three are the predominant forces of power in society. These powers can vary greatly depending on where you are in the world, but their influence remains constant in modern societies.

Price expands on the political compass by unfolding the original into 4 quadrants:

The end result, is what Price identifies as ‘The Rational Spectrum’:

There are a few things on The Rational Spectrum that may raise a few eyebrows. First is the use of ‘Social Right’ and ‘Social Left’ for the vertical axis. Price explains that both the Social Right and Left don’t oppose each other on any given issue, but rather that they are both opposing Liberalism (The inner circle on the spectrum). In America today, liberalism may be more often thought of as libertarian.

Therefore liberalism is always the opposing force when discussing any social or economic issue for both the Left and Right. First, let’s look at some examples of specific social issues to give this point more clarity:

Social Right

Anti Gay Marriage vs Liberalism (freedom to marry regardless of sex)

Anti Marijuana Legalization vs Liberalism (freedom to use marijuana)

Anti Abortion vs Liberalism (freedom to terminate a pregnancy)

Social Left

Affirmative Action vs Liberalism (freedom to hire)

Gun Control vs Liberalism (freedom to buy, own and use guns)

Global Warming Regulations vs Liberalism (freedom to pollute)

Price goes onto explain that the Social Right and Social Left may even agree on some issues, but for drastically different reasons. One example he gives is the issue of pornography. The Far Right is against pornography because they believe its immoral for religious reasons. The Far Left on the other hand is against pornography because it represents the objectification of women. For Liberalism, however, pornography is perfectly acceptable because it’s just another form of human expression. Every social issue is a fight for regulation.

Now let’s look at the horizontal axis. Perhaps less surprisingly, this deals with economics and is what is traditionally meant by the terms “Left” and “Right.” However, Price makes a unique distinction in that Laissez-faire Capitalism is a centrist idea rather than a far right one which many other political spectrum’s claim. Price argues that the far right is actually Corporatism which wants regulations to reduce competition and create Oligopolies. The far left or Socialism in contrast, wants regulations on businesses so that their benefits are shared across society.

Similarly, the moderate left advocates for Social Democracy while the moderate right advocates for corporatistic capitalism. Social democracy is a mixed economy where capitalism is retained, but social welfare provisions are in place to make capitalist’s activity tolerable to society at large. I encourage you to read this article to better differentiate this and socialism. Likewise, corporatistic capitalism is in favor of corporate power, but to a lesser extent then the far right.

Here is a list of historical figures and groups and where they would place on the Rational Spectrum:

I highly encourage everyone to read Price’s work. You can buy his Ebook here.

Blog

Ethics and Economic Justice

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“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” – Franklin D. Roosevelt

I have been reading David Parfit’s book Reasons and Persons the past couple of months and I must say, it’s been a wild ride. I recommend it to anyone that subscribes to utilitarian ethics and having their world views pushed to the limit. It may seem farfetched to some, but I suspect Parfit will go down as one of the greats in the history of philosophy.

The book covers a variety of loosely related topics, but I want to focus on the type of utilitarianism he concludes from his arguments: Prioritarianism. Prioritarianism holds that the goodness of an outcome is a function of overall well being (Utilitarianism) with extra weight given to worse off individuals. Let’s look at an example to sharpen the distinction between the two.

Imagine a two-person society: its only members are Jim and Pam. Jim has an extremely high level of well-being, is rich, and lives a blissful life. Pam, by contrast, has an extremely low level of well-being, is in extreme poverty, and lives a hellish life.

Now imagine that we have some free resources ($10,000 for example) that we may distribute to the members of this society as we see fit. Under normal utilitarian circumstances, the $10,000 will generate more well-being for Pam than it will for Jim. Thus giving the money to Pam would be the morally correct choice. However, let’s imagine slightly different circumstances.

Jim, for whatever reason, even though he is already filthy rich and very well-off, would gain just as much well-being by receiving the $10,000 as Pam would. Suddenly utilitarians don’t have a preference on who gets the money because both Jim and Pam’s well-being would increase the same. Prioritarianism on the other hand would give the money to Pam, because she is worse off than Jim.

Furthermore, prioritarianism doesn’t act just as a tie breaker for well-being, sometimes it favors priority over a small amount of well-being in order to emphasize compassion. So if Jim were to somehow gain more well-being from the money than Pam, Prioritarianism still wouldn’t necessarily favor him. It is important to note that the amount of well-being traded for priority is arbitrary, but in most cases we can rely on common sense. But why is that?

Well there is a good reason: There are diminishing returns on the value of goods and money. Would Jim be able to tell the difference between having 1 billion dollars and 1.00001 billion dollars? No, he wouldn’t have a clue. In fact there have even been studies, including a prominent one by Princeton University Researchers, that money doesn’t buy happiness after one earns $75000 a year.

It is estimated that it is around this point where money is no longer a primary concern in ones life. People can focus on health, relationships and leisure’s without the stress of paying the bills at the end of the month, which is a real fear for millions of Americans.

If you subscribe to prioritarianism ethics, a certain amount of wealth redistribution becomes fundamental to a healthy and moral society. In a society where Walmart’s Walton family (one of many examples) owns more wealth than the bottom 42 percent of Americans combined, millions of which are living in poverty and struggling to survive, can a rational person really argue that this disparity in wealth is ethical?

Welfare state capitalism may currently be the best economic model, but its inability to redistribute wealth fairly will continue to raise questions on how it can be improved. Economic justice isn’t about equality. It’s about removing the gross excess at the top to help prevent suffering for those at the bottom.