Mon, 21 May 2007

The nature of things

People complain about the nature of one thing, while ignoring the nature of another thing. They say that capitalism is self-contradictory, enabling profligacy and indulgence while requiring thrift and self-denial. They say that greedy capitalists buy legislators. What is to do about it? Why, pass a law to deny the nature of capitalists. But that denies the nature of politicians, which is to sell their protection -- and if that's not enough, perhaps burn a few stores to show that the protection is needed.

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Sun, 20 May 2007

It's a bargain, not a right

Ya never know what the NYT is going to print these days. A recent op-ed from Mark Helprin proposes that Congress extend copyright forever. I don't know if he is insane or merely crafty, trying to gain negative attention (say what you want, but spell my name correctly). He seems to think that property rights covers intellectual property. If it's improper to confiscate someone's car, house, or land after a period of time, why, then, it should be improper to confiscate someone's intellectual property. He has his rights wrong.

You have the right to anything you can defend, e.g. your person, your real property, your car, the things you carry around with you. You don't have a right to control something I own, e.g. a CD with music on it. You have to bargain with me to get that right. In exchange for being allowed to control copying for a limited time (that's what the Constitution says, "limited time"), I allow you to control certain uses of my property (a CD or book that I own).

Mark would revise that bargain. He would give up nothing, and I would give up control over those certain uses for an unlimited length of time. Why would he ever, even on a good day, think I would agree to that bargain? I propose a different bargain: until copyright starts expiring again (and nothing copyrighted since World War II has gone into the public domain so I don't understand why Mark is asking for what he's already getting) Mark gives up everything, and I can do anything I want with a CD or book, including rip it and post it to the Internet.

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Sat, 19 May 2007

Economists and Politicians

The difference between an economist and a politician is that the economist is sure that he doesn't understand economics, and a politician is sure that he does.

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About the poor

Someone recently said "the poor need moral education". Besides being a <gasp!> thing to say, it introduces a logical problem. The best time to give the poor this moral education is before they become poor. You know, when they're still rich, or when they're middle class.

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Thu, 17 May 2007

Patent Law is Insane

UPDATE 6/1: Eric has a response that makes me happy. Phwew!

If my friend Eric Hutchins is right in his analysis, the law is an ass. First he says that willful infringement presumes that everyone has gotten actual notice of the existance of a patent merely by the USPTO's having published the patent. That is insane given the rate at which they're granting new patents. That is insane given the bombastic manner in which patent claims are written. Everyone cautions you that only an expert can properly interpret patent claims. Very well then, non-experts cannot have gotten actual notice.

As an aside, he says that trespass is strictly defined. Perhaps, but in New York State, you cannot be charged with trespass until you have gotten notice. That notice may be in several forms. First, the land upon which you pass may show evidence of use by the owners. Second, the land may be posted in a specified manner by the owners. Third, the owner may have walked up to you and told you that you are trespassing. Fourth, the owner may have written a letter to you informing you that your passage is trespass. Any of those conditions are sufficient to charge you with trespass.

Eric also cites the statute without reference to the case law. Under the English system of law, statute and case law interact with each other to form a whole. My understanding (and I am not a lawyer) is that case law provides for remedies in the case of innocent infringement. If you did not and could not have knowledge of a patent, you are an innocent infringer. Once informed of your infringement, you must stop infringing, and you may be liable for past infringement. If continued infringement would cause irreparable harm (e.g. not repairable by compensation for past infringement), then a judge may (and often will) grant an injunction against the infringing activity.

That the law grants a monopoly on purely mental steps is also insane.

Hey software patent holders! I'm infringing your patent in my head!
We have freedom of speech, but not freedom of thought?? How can that be?

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Sat, 12 May 2007

India, Productivity, and Capital

I originally wrote this on 06 Jan 2007. On my eighth trip to India in April, I saw a cleaner using a v-shaped push broom which could collapse on itself to become narrower. Hooray, Chatrapati Shivaji International Airport! Good for you! Doesn't mean that the whole country has learned their lesson, but drop by drop a flood is born.

This is my seventh trip to India. Between them all, I've spent at least two months in India, starting in 1999. That doesn't make me an expert on India, but I have noticed a few things which are true regardless of the country.

Indians seem afraid of improvements in productivity. They very much seem to have the idea that there is a fixed amount of work. Improvements in productivity would destroy some of that work, and make the country poorer. Or perhaps more accurately, it would destroy the employment of enough voters that they resist change.

Some Indians see this perfectly. The Times of India is running an India Poised campaign for 2007. They printed that as a full-page ad in the January 2nd issue.

Intellectually, it's easy to see that improvements in productivity don't destroy work. Instead, they create the wealth that allows people to pay for more work. After all, there is always an infinite amount of work -- what is lacking is the wealth to pay for it. Emotionally, this is harder to feel, particularly when you are employed in a field in which productivity improvements destroy your job.

All over Mumbai, I have observed cleaners using these wimpy little brooms. In the USA, they would hardly even count as being a whisk broom, and yet in India, they are used to sweep vast areas. A very small capital investment in a push broom would enable them to clean in much less time. This would allow them to clean more often, or more likely, cause some of the cleaners to lose their jobs.

So where do these improvements in productivity come from? They come from investments. Capitalists spend their money on something to help people do their jobs better, and expect to receive a fraction of the improvement in productivity.

Historically, the risk-free rate of return on capital has been 5% per year. This is the compensation that capitalists demand in return for spending their money on you, not them. Naturally, some capitalists are willing to take greater risks and get a much higher return. The successful ones get lauded, while the losers are forgotten. This has the unpleasant effect of making capitalists appear to earn money from doing nothing. They're not. They're suspending their desire to spend their money (which is worth compensating them), and they're taking a chance on not getting their money back (also worth compensating them.)

India tried going without capital during their Soviet Socialist fanboy days. They're not likely to make that mistake again. Fifty years of development (more than two generations) of wealth building lost. And since wealth is correlated with longer lifespan, this has a very human face on it.

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Drug Price Controls

Patrick writes, asking:

I got drawn into an online debate concerning price controls. Among other things, other posters claimed that price controls in other countries would not or could not affect prices here in America. I found his arguments convincing, but part of my mind could not accept it. Somehow, I cannot help but feel that's incorrect.

After a while, I thought about it, and decided that (a) it ignored the factor of time, as price increases again and again, as fewer and fewer economies pay back the prioce of drug development. Simply put, peole get used to paying higher prices. And, (b) companies might actually make more profit with lower prices. If the costs (of drug development) are evened all around, then the drug might cost less that manufacturers can sell more but retain more as profit for th next business cycle.

Still, I admit the issue is very complex. A lack of price controls elsewhere might mean lower prices here, or not, depending on other economic issues. And prices being as high as they are, they probably won't drop immediately, if they do drop. In some ways, an issue like the eternal New York housing crisis is just plain easier.

Without getting into price/demand curves, you can see that there will be a price at which every customer will generate the most profit for a seller. This price is different for every customer. But how to determine the right price (a hard problem in itself) and how do you get that customer to pay that price (a harder problem, since they'd prefer to pay somebody else's lower price). This is called price discrimination.

For books, you get the hardcover first, and then later you get the unabridged paperback. The hardcover is more profitable even beyond the extra cost of the hard cover. They differentiate over time. For movie theatres, the food is wildly more expensive than the food they prohibit you from bringing into the theatre. The ticket is one source of profit and the food is another, so those people who want the full popcorn-cum-movie experience pay the higher price.

For drugs, you have brand names (brands are a form of price discrimination), and you have markets split by countries. It's an imprecise version of price discrimination, but it's better than nothing. Drug companies will set their prices on a per-country basis to try to maximize their profits. This may sound anti-consumer, but profits give them the most incentive to create new drugs.

Price controls have no effect if they're set on the other side of the prices. If a legislator sets the price control at or above what anybody is paying, then they haven't hurt anybody. Only when a legislator sets the price below the natural market-clearing price do they create harm. If they set the price so low that there are no profits, the drug company won't bother selling. If they happen set the price controls such that the profits are sufficient for the drug company to continue selling, then the specific harm will be to cause the drug company to have a lessened interest in any specialized needs of that country. The general harm is that the next generation of drugs is paid-for by the profits from the current generation of drugs. Cut the profits and you eat your seed corn.

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Wed, 09 May 2007

Legislation vs. Law

Never confuse legislation with law. A law is something timeless, which has always existed, and which will always exist regardless of whatever legislation exists. For example, the law is that trespassing on railroad tracks when a train is present carries the death penalty and trespassing when a train is not present has no penalty at all. Wise legislation puts a penalty on trespassing on railroad tracks at all times, with the goal of averaging out the penalty.

The law is that most people will be dissatisfied from time to time with their mental state, and they will seek to change it using psychoactive substances. That's the law. No legislation can change that. Foolish legislation tries. You can tell that it's foolish because it doesn't change the law at all.

The law is that people cannot accurately estimate the magnitude of the effects of alcohol on their brain. Legislation recognizes that law by establishing a limit on the level of alcohol in the blood as evidence of impairment.

There are many more examples of laws, and legislation which complements or opposes the law. Go find your own.

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Thu, 03 May 2007

That number

09 F9 11 02 9D 74
E3 5B D8 41 56 C5
63 56 88 C0 00 00

Oh, I suppose I need to post it too.

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Wed, 02 May 2007

"Competition ensures optimal?" NOT!

Over on Cafe Hayek, Russell Roberts posts about The Power of Competition and quotes K. Williams from an earlier post:

Why is it, again, that we're supposed to believe that competition ensures that people will make optimal decisions?

What a stupid thing to say! We are not supposed to believe that because it's not true! Clearly this guy has a strawman kit, because he's built a whopper.

The answer is that competition does not ensure that people will make optimal decisions. It just ensures that people will make better decisions than anybody else in their situation. That's the same reason why it's doubtful that a J. Random will make better decisions than a CEO of a firm. Competition doesn't ensure perfection. It doesn't even ensure wisdom. It just ensures that the most foolish decision-makers will have their resources taken away from them.

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