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Intellectual Monopoly is an Unnecessary Evil
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Mamblog Section - Economics and Financial Services
Written by Art Carden   
Thursday, 21 May 2009

Intellectual Monopoly is an Unnecessary Evil 
May 21, 2009
Art Carden

In a rush to stimulate the economy, the Obama administration is touting various “visionary” plans to make the American economy more progressive, more innovative, and more forward-looking by subsidizing politically-motivated projects like “green” technology. These hands-on policies will be ineffective. Recent research suggests that a much more effective way to accomplish the same goals would be to eliminate intellectual monopoly and to reduce the regulatory burdens on innovators.

According to conventional wisdom in economics, temporary monopoly rights—patents—are necessary to give people incentives to come up with newer, better ideas. After all, if people who came up with new ideas could see those new ideas copied without cost by competitors, why bother spending the time and energy? Hence, we have patents.

But the conventional wisdom is wrong. In their 2008 book Against Intellectual Monopoly, economists Michele Boldrin and David Levine dropped a bombshell that will, I hope, overturn the consensus about rights to ideas. Using carefully developed theory and a host of real-world examples, they show how patents actually reduce, rather than encourage, innovation. Innovators like steam engine pioneer James Watt, devoted enormous amounts of time and energy to defending monopoly rights rather than to creating new value. Innovation and growth proceeded apace once the patents expired. In Boldrin and Levine’s opinion, this delayed the onset of modern economic growth.

As these authors argue, intellectual monopoly is an unnecessary evil. Further, it is a relic of medieval and early-modern mercantilist regulations whereby kings and nobles granted efficiency-reducing monopoly privileges to favored constituents. Eliminating intellectual
monopoly would reduce the incomes of the intellectual monopolists, but it would unleash new creative energies throughout the economy.

In his recent book The Gridlock Economy, legal scholar Michael Heller argued that intellectual monopoly reduces the pace of innovation. He notes that innovative rap music, like Public Enemy’s initial work, was an early casualty of intellectual monopoly. Demands that artists pay royalties for borrowed music sharply restricted rap musicians’ ability to innovate.

While some people might not care about innovative rap music, many care about access to life-saving new medical technologies. Heller explains how this industry is particularly susceptible to the “tragedy of the anti-commons” created by intellectual monopoly. If an invention requires multiple patented innovations to be implemented, then every individual holder of one of the necessary patents can block further innovation. This slows the pace of economic progress.

Consider another example. Would Britney Spears’s artistic output fall if her intellectual monopoly rights were rescinded? I doubt it. Ms. Spears is much wealthier than she would be in the absence of intellectual monopoly, but her wealth is largely what economists refer to as economic rent: income in excess of her opportunity cost. Eliminating her intellectual monopoly very likely would not cause her to choose another occupation, but it would lead to an increase in net creative output.

Progress is also slowed by the regulation of food and drugs, which requires years of extensive and expensive testing before a drug can be approved for sale. This means that some lives are saved because people are restricted to hyper-safe drugs, but the lives saved come at the cost of lives that are lost because the appearance of these drugs on the market is delayed. Further, other drugs that would be useful but might carry greater risks never make it to the market to begin with.

White House Chief-of-Staff Rahm Emanuel suggested that the Administration should not waste the opportunities presented by the present economic and political crisis. Right now, the administration has the opportunity to make a bold move that will stimulate the economy for generations to come. By eliminating intellectual monopoly and by liberalizing markets, we can encourage further innovation and greater prosperity.


Art Carden is an Adjunct Fellow at the Independent Institute in Oakland, California, and an assistant professor at Rhodes College (Department of Economics and Business).

 


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The Contradictions of Secretary Geithner
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Mamblog Section - Economics and Financial Services
Written by D. W. MacKenzie   
Wednesday, 20 May 2009

The Contradictions of Secretary Geithner 
May 20, 2009
D. W. MacKenzie

In a recent interview Treasury Secretary Timothy Geithner admitted that Federal Reserve monetary policy “was too loose for too long.” Geithner’s remark has been met with much enthusiasm. Is this not a major concession on his part? Has Geithner not laid the blame for the 2008 crisis squarely at the Fed’s doorstep? Some of us claim that Geithner has admitted to an Austrian explanation for the 2008 crisis. If true, this would be a major concession on Geithner’s part. Such a concession would run contrary to the policies that Mr. Geithner is supposed to implement as Treasury Secretary to President Obama.

Geithner sees three causes behind the crisis. The first cause was, as previously noted, loose Fed policy. Oddly Geithner commented favorably on what the Fed has done over the past six months. Low interest rates are supposedly helping to turn this crisis around. So Geithner sees loose policy during the Subprime Boom as too low for too long, yet lauds an even looser policy. He explains that The Fed was too loose then when investors were too optimistic, but now that financial markets are frozen and investors are pessimistic, monetary laxity is fine. More specifically, Geithner blames “irresponsible judgments by individuals in the financial system for an unsustainable rise in debt.” Could it be that people assumed excessive debt because Fed policy was too loose for too long? Mr. Geithner is, for some reason, unable to see the connection between the low interest rates that result from loose Fed policy, and excessive borrowing.

Geithner’s second reason for the boom and bust is that the governmental supervisory system “was way behind the curve, risk built up outside of the regulatory framework,” and banks were overleveraged. According to Geithner, over the past ten years executive compensation became detached from reality, and this compensation created incentives that “overwhelmed” all the checks and balances against excessive risk taking. Geithner’s answer to this alleged problem is new government regulation to restrain risk taking, regulation of leverage, and regulation of incentive compensation. These measures are about “preventing the next boom.” Once again, Geithner has ignored the likelihood that loose Fed policy was the main driver of the Subprime Boom. Geithner is overlooking all that the Federal Government did to promote subprime lending by banks (see Anatomy of a Train Wreck: Causes of the Mortgage Meltdown by Stan J. Liebowitz.)

The third and final reason Geithner listed is that “governments were late to move. They were late to put in place the kind of forceful fiscal stimulus we now have in place . . . it took a while for people to recognize the urgency of the situation and be willing to legislate the kind of broader authority that any government needs to get through a financial crisis.” This is not surprising. Nobel Laureate Milton Friedman explained how long and variable lags prevent timely implementation of changes in government policies. There is a recognition lag to all policies, and the legislative process causes a lengthy ‘administrative lag’ in fiscal and regulatory policies.

Strangely, Geithner recognizes that the private sector has already moved to solve its own problems. In an earlier interview Geithner said:

“[T]he financial system will be dramatically different. It’s already dramatically different. Again, if you look at the scale of adjustment and restructuring in the financial system, it’s already happened. It’s profound in scope already. So if you just look at the system today relative to what it was through [sic] three years ago in terms of the institutions that existed then, and their basic shape has changed dramatically. . . . This will clean out a lot of the excesses and bad practices, and those that don’t get cleaned out just by experience and knowledge now, better regulation oversight, better rules to the game, enforced more cleanly, we’ll fix.”

Geithner’s desire for greater regulation is particularly hard to understand given his views on existing changes in the financial system. The financial system is already dramatically different because experience has cleaned out excesses and bad practices, but we need new regulations? Even if we accept the idea that the crisis derived partially from lack of regulation, Geithner’s own words indicate that that the private banks have moved faster than the Federal Government to correct faulty practices. Why then should we trust them to prevent further crises? Geithner claims that this is the “best managed crisis” because they acted “earlier and stronger” to deal with these problems, yet he also describes delays in government action as “tragic.” Of course, Geithner sees his own management as the best, and earlier efforts as weak and delayed. But he has no better ability to foresee future events, and no special powers to effect changes in policy more rapidly. If anything, recent experience indicates that the private sector moves faster in dealing with serious problems than can federal officials.

Geithner claims that he is “designing into these programs a credible capacity to dial back and exit.” For example, Obama and Geithner have an “ambitious and tough with plan with clear choices for bringing deficits down to a sustainable level.” At this point Obama’s proposed spending cuts are miniscule as compared to his planned spending increases. Given the track record of Federal Government, the likelihood of Obama’s new Federal Spending being dialed back seems quite small. In fact, the expansion of government during crises typically exceeds post crisis retrenchment[1].

The case that Geithner makes for his policies is both self-contradictory and contrary to fact. Geithner wants to build a “stronger and more sustainable recovery,” but at the same time he is promoting a more extreme version of the monetary policy that he thinks contributed to the last unsustainable boom. He is also pushing for new regulation of risk, leverage, and compensation in response to a crisis that was driven by government policies that encouraged risky Subprime lending. There is a great need for reform. What we actually need is to prevent inflationary monetary policies as well as Federal efforts to direct the economy through regulation, as these are the types of action that caused the subprime housing boom and subsequent crisis. Ironically, Geithner’s goal of preventing yet another unsustainable boom and crash can be achieved only by ignoring his advice, because his policies are based on faulty logic and a misinterpretation of available facts.


[1] See Higgs, Robert, 1985. Crisis and Leviathan. New York: Oxford University Press.


D. W. MacKenzie is Adjunct Fellow at The Independent Institute and Visiting Assistant Professor of Economics at the U.S. Coast Guard Academy.
The views expressed in this article do not reflect official views of the Coast Guard Academy.

 


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A Time of Reckoning for the Poor
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Mamblog Section - Economics and Financial Services
Written by Alvaro Vargas Llosa   
Wednesday, 20 May 2009

A Time of Reckoning for the Poor 
May 20, 2009
Alvaro Vargas Llosa

WASHINGTON—In the last few years, an abundance of consumer demand, credit and investment coming from the rich nations combined to pull millions out of poverty worldwide. Because the bubble-induced international conditions showered every corner of the planet, it was unpopular to point out that some countries were still in need of major reforms and would not continue to prosper indefinitely.

Now that the feast is over and the day of reckoning is here, one way to sort the chaff from the wheat is to look at the 2009 Institutional Quality Index, authored by economist Martin Krause for the International Policy Network. It ranks countries according to how much economic freedom, democracy and rule of law they provide. Since countries with higher scores have attracted more funds and capital than those with lower scores in recent years, the latter will likely be in deep trouble for years to come due to the changed international conditions.

In 2007, net capital flows amounted to $929 billion in emerging countries; this year the figure will be a mere $165 billion. It sounds comical, but poor countries in the last couple of years have been lending more money to rich countries than the other way around. The drying up of international funding and investment will make competition ferocious for whatever money is available; only nations that improved their institutions when few were asking questions will get those dollars.

Having good institutions does not simply mean having an open economy. It means underpinning the open economy with the rule of law—that is, strong legal protections for persons and property. In fact, the rule of law is so crucial that countries with relatively big and bureaucratic governments oftentimes do better than those with more open economies but more precarious legal safeguards. This is why Latin America ranks behind Central Europe and Asia, or why Uruguay and Costa Rica are ranked much higher than Mexico and Peru, where economies are more open but the rule of law is weaker.

Cultural legacies may help explain the tendency of areas such as Central Europe (pre-communism) and those Caribbean islands with “common law” traditions (British colonialism) to outperform others. And historical reasons may account for the fact that Chile, where institutional stability was greater in the 19th century, tends to do better than its neighbors even when reform stalls. In any case, the evidence tells us that the countries with a greater combination of economic freedom and rule of law are going to be much more attractive in this post-bubble scenario characterized by very scarce international funding and investment.

Southeast Asia, Central Europe and Latin America are much better placed than, say, the Balkan nations or Eastern European laggards such as Russia, Ukraine and Belarus. But there are big differences within each region. The slowing down of what had been an impressive wave of reform in Vietnam and Hungary in recent years has made those countries more vulnerable than Malaysia and Slovakia to the international conditions likely to prevail in the next few years.

There is nothing predetermined about a country’s destiny: 632 million Chinese and 117 million Indians who overcame dire poverty in the last two decades attest to that. But governments that did not reform their institutions in times of plenty are now going to face popular pressure to redistribute wealth and bend or trample the law in order to meet social claims. The outcome will be even weaker institutions in those countries.

By all indications, Russia, Turkey, Argentina, Venezuela, Indonesia and Nigeria, to name but a few that profited from the commodities boom, will see their institutional flaws crudely exposed—and their populations will suffer. By contrast, those such as Peru, Colombia, Slovenia, Qatar, Botswana, Mauritius and Kuwait in which markets and the rule of law made progress, in some cases much more than in others, will probably outpace many of their neighbors.

The real stake for developing nations today is not so much the drying up of funding and investment but the winnowing and sifting process that is making clear which societies were living in the real world while others were simply dreaming. The result will be the restoration of the link between institutions and economic growth that the bubble had temporarily severed.


Alvaro Vargas Llosa
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Alvaro Vargas Llosa
 is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth: And the Future of Liberty, and Liberty for Latin America. 

Full Biography and Recent Publications
(c) 2009, The Washington Post Writers Group

 


New from Alvaro Vargas Llosa!
The Che Guevara Myth and the Future of Liberty

Nearly four decades after his death, the legend of Che Guevara has grown worldwide. In this new book, Alvaro Vargas Llosa separates myth from reality and shows that Che’s ideals re-hashed centralized power—long the major source of suffering and misery for the poor. Learn More »»

 


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Rape and Healing
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Mamblog Section - Rape, Sexual Assault and Abuse
Written by James Landrith   
Tuesday, 19 May 2009

Cara from The Curvature on What Does It Mean to Heal?

I know that not all survivors suffer from some sort of post-traumatic stress. I cannot speak to those experiences. In fact, I cannot speak to a single experience that is not my own. But I sure as hell know that almost 11 years later, I definitely don’t feel “healed.” Better, certainly. I don’t think about being raped every day, after all. But I don’t know when I will. I don’t know if and how it will happen. Subconsciously, it also affects my relationships with regards to trust; I know this.

So healed? Healed? No. No, I am not fucking healed. And while I wouldn’t begrudge finding out someday that I’m wrong, I’ve basically accepted that “healed” is something I’m never going to be.

In short, I am okay. I have been okay for some time, and I will be okay. But I will never be the way I was pre-rape, or “get over it.” To go back to this “bruising” metaphor — you can’t see the bruises unless you look for them, and they don’t hurt in just general life. But if you press on them, fuck yeah, there’s pain.

Like Cara, I've wondered about healing too. I'm trying, but I don't see it as a destination I'll find and then be all better forever again. Am I better now than I was a year ago when the memories came back to smash me to bits? Yes. Am I healed?

No. Fuck. No. 

I have good days, where I don't see her or feel her or sense her. Then, I have days like I did yesterday when I wanted to scream, cry, put my fist through a wall and curl up in a ball all in one afternoon.

While things are improving, the end result is that I was still raped and that has deeply transformed me in ways you can see and in ways you cannot. Cara's analogy with the surgery scars was perfect.  There was a change made that cannot be unmade.  I will continue to get better, but there is no going back.  There is no mental eraser to make it all go away.

If you find one, let me know...

This entry also posted at: http://remodel4life.blogspot.com/2009/05/rape-and-healing.html

 

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Last Updated ( Tuesday, 19 May 2009 )
 
Coalition Letter on Government Transparency
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Advocacy and Letters - Advocacy and Comment Letters
Written by Coalition   
Monday, 18 May 2009

May 18, 2009

Dr. Beth Noveck
Office of Science and Technology Policy
Executive Office of the President
725 17th Street Room 5228
Washington, DC 20502

Dear Dr. Noveck,

On behalf of the undersigned organizations concerned with government transparency, we write to request you announce a formal process for public input on developing recommendations to make government transparent, collaborative, and participatory. Additionally, given President Obama’s determination to create "an unprecedented level of openness in Government," we ask you make publicly available comments received from agencies, agency employees, or the public related to the development of an Open Government Directive.

As advocates for government openness, we are heartened by President Obama’s commitment to make the federal government transparent. We are especially pleased that on his first day in office, President Obama issued his "Memorandum on Transparency and Open Government." We are deeply concerned, however, that of the 120 days given to develop recommendations in President Obama’s "Memorandum on Transparency and Open Government," almost 90 percent of the allotted time has passed with no structured process for public input. We understand that the process for gathering public input on the Open Government Directive was delayed until President Obama named a new Chief Technology Officer (CTO). Now that Mr. Aneesh Chopra has been named to the position, we believe it is crucial that you announce a structured process as soon as possible. We also ask that you consider requesting the President to extend the deadline, to give the wider stakeholder community time to engage and allow further public participation.

It has been reported the White House intends to disclose recommendations on the Open Government Directive to the public for comment using social media technologies. While we appreciate and support the administration’s innovative use of technological venues to increase participation, we urge you to also undertake a formal 60-day notice and comment process, as used during both the regulatory review and scientific integrity processes. The formal 60-day process using the Federal Register is the typical comment process; publishing the recommendation in the Federal Register will also increase participation among members of the public who are not comfortable with social media technologies.

We understand some agency employees collaborated and shared ideas about specific issues regarding the Open Government Directive using the Office of Management and Budget’s MAX system. Agencies may also have provided formal input on the development of the Directive. In the interest of transparency and collaboration, we urge you to make the comments from agencies and agency employees public, along with any other suggestions you have received so far. We believe the release of these comments to the public would be helpful in understanding the positions held within and outside the government, and better identify problems and solutions in a collaborative fashion. We also note that the administration’s new Freedom of Information Act (FOIA) guidance encourages such records to be affirmatively disclosed on a discretionary basis. Such action would demonstrate a commitment to the principles set forth on open government by the administration.

We appreciate your attention to these issues, and we look forward to working with you on developing recommendations to make the federal government transparent, collaborative, and participatory. Representatives of our organizations would be happy to meet with you or your staff to discuss our requests in more detail.

Sincerely,

Patrice McDermott
OpenTheGovernment.org

Gary Bass
OMB Watch

David Swanson
After Downing Street

Mary Alice Baish
American Association of Law Libraries

Chris Finan
American Booksellers Foundation for Free Expression

Caroline Fredrickson
American Civil Liberties Union

Lynne Bradley
American Library Association

Chip Pitts
Bill of Rights Defense Committee

Terry Francke
Californians Aware

Ari Schwartz
Center for Democracy and Technology

Anne Weismann
Citizens for Responsibility and Ethics in Washington

Michael Surrusco
Common Cause

Bob Fertik
Democrats.com

David Sobel
Electronic Frontier Foundation

Marc Rotenberg
Electronic Privacy Information Center

Judy Braiman
Empire State Consumer Project

Martin E. Visnosky
Erie County Environmental Coalition

John Richard
Essential Information

Bob Cooper
Evergreen Public Affairs

Tirso Moreno
Farmworker Association of Florida

Suzanne A. Delaney
Feminists for Free Expression

Mark P. Cohen
Government Accountability Project

Rick Hind
Greenpeace

John Chelen
Hampshire Research Institute

J.H. Snider, MBA, Ph.D.
iSolon.org

Nancy Tate
League of Women Voters of the United States

Michael Ostrolenk
Liberty Coalition

Mary Treacy
Minnesota Coalition on Government Information

James Landrith
The Multiracial Activist

Joan Bertin
National Coalition Against Censorship

Charles Davis
National Freedom of Information Coalition

Meredith Fuchs
National Security Archive

Duane Parde
National Taxpayers Union

Susan Maret
Progressive Librarians Guild

Danielle Brian
Project on Government Oversight

David Banisar
Privacy International

Elizabeth O’Nan
Protect All Children's Environment

Peter Suber
Public Knowledge

Dave Aeikens
Society of Professional Journalists

Doug Newcomb
Special Libraries Association

Ellen Miller
Sunlight Foundation

Tim Donaghy
Union of Concerned Scientists
Scientific Integrity Program

Dane vonBreichenruchardt
U.S. Bill of Rights Foundation

Stephen Buckley
UStransparency.com

Kathy Van Dame, Policy Coordinator
Wasatch Clean Air Coalition

Toby Nixon
Washington Coalition for Open Government

Bill Will
Washington Newspaper Publishers Association

Ricci Levy
Woodhull Freedom Foundation

Individual signatories, additional information for identification purposes only

Eric Bender, Reference Librarian
LA Law Library

Richard Doherty M.D., ret.
University of Rochester and Stanford Medical Schools

J. William Leonard, Former Director,
Information Security Oversight Office
Leonardtown, MD

Holly Gale
Law Librarians of Puget Sound

Romola Georgia
Palo Alto, California

Anne R. Grady
Natick, MA

Dwight Hines, Ph.D.
IndyMedia

Faye E. Jones, Director and Professor
The Florida State University,
College of Law Research Center

Karen Lasnick, Manager of Library & Research Services
Bryan Cave LLP

Cliff Li
CEO, CommerNet, Inc.

John F. Necci, Law Library Director and Associate Professor of Law
Beasley School of Law at Temple University

Naraya Stein
Haiku, Hawaii

Virginia Swain
Institute for Global Leadership, a Service of Excelsis

Lisa Thornton
Lisa Thornton Inc.

Kiyul Uhm, Associate Professor Daegu University,
Director of the Freedom of Information Center

John W. Whitehead, President
The Rutherford Institute

Caitlin Wills-Toker, PhD
University System of Georgia Electronic Core Curriculum
Gainesville State College

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