Saturday, January 28, 2012

Stanley Fish Gets It Wrong Big-Time on Inequality

Dean Baker on the market distortions from copyright law.--SS

In a NYT column on inequality and fairness, Stanley Fish told readers:

"Americans don’t mind if income is redistributed as long as it is done by market forces and not the government. Income equality is fine if it is 'naturally' achieved, but if it is socially engineered it can be perceived as class warfare, a plot against the well-to-do."

Three paragraphs later he poses the rhetorical question:

"Is it fair that Internet pirates in China can appropriate without paying for it the intellectual property of Americans who rely for their income on ideas they have copyrighted?"

The problem here is that copyright is social engineering. It is a government policy that redistributes money from the rest of us to the likes of Time-Warner, Disney, and Lady Gaga. The overwhelming majority of revenue raised through the copyright system goes to the entertainment corporations and a very small number of individuals. The vast majority of creative workers make little or nothing through the copyright system.

It is necessary to finance creative work, but copyright is an extremely inefficient tool for this purpose. (Here's one alternative.) It creates an enormous gap between the price and marginal cost of a product. Economists usually get upset when a tariff or other trade barrier raises the gap between price and marginal cost by 10-20 percent. In this case, items that would be free without a copyright monopoly, instead can be quite costly. This implies enormous economic losses.

In addition the enforcement of copyright is extremely expensive, especially in the Internet Age. The difficulties of enforcing this archaic system is the motive behind bills like SOPA, which would have imposed enormous costs on intermediaries to ensure that they were not being used to transfer unauthorized copies of copyrighted material.

It is also striking that Fish makes the reference to copyright specifically in regard to China's respect for U.S. copyrights. This is noteworthy because the demand for China to respect U.S. intellectual property comes to some extent as a trade-off for raising the value of its currency against the dollar.

China clearly will not give the United States everything that may be on its wish list when they negotiate. This means that the more concessions it gets in an area like respecting intellectual property, the less it will get in other areas, like raising the value of the yuan against the dollar. This is directly related to inequality, since a sharp rise in the value of the yuan would lead to many more manufacturing jobs in the United States, which in turn would increase employment opportunities and wage growth for non-college educated workers.

In short, the example that Fish wants to give as a case of fairness -- China should respect U.S. intellectual property claims -- is actually the opposite on closer inspection. It is one of the ways in which government policy is social engineering designed to redistribute income upward.

[Thanks to Keane Bhatt for this one.]

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