Those Who Don't Understand Section 230 Are Doomed To Repeal It

from the that's-not-how-any-of-this-works dept

It remains somewhat surprising to me how many people who have ideas for Section 230 reforms clearly do not understand the law and how it works. Perhaps much more surprising is that, when experts try to highlight where their analysis has gone wrong, these "reformers" double down rather than correct their previous faulty assumptions. Dean Baker is a fairly well-known economist whose views on copyright we've highlighted in the past for being quite insightful. Unfortunately, Baker seems to feel that his insight in these other areas allows him to skip the basics on Section 230, defamation law, internet business models and the like. A year ago he wrote two separate very wrong and very confused blog posts advocating for the full repeal of Section 230. Both of them misunderstand how 230 works, its interplay with the 1st Amendment, and how defamation law works.

I had planned to write a response to them last year, but never got around to it. However, Baker is still at it, and after Jeff Kosseff and I spent some time trying to explain some fairly basic principles that you need to understand in order to explore the trade-offs in any Section 230 reform proposal, Baker wrote a long thread ignoring the points we raised, and insisting that his plan for 230 reform wouldn't run into any issues. He's wrong, and despite my going back and forth with him over a dozen times, it's become clear that he has no interest in exploring or correcting the mistakes in his analysis. That said, I do think that he makes so many fundamental errors, that it might be useful to go through his thread to explain to other, more open-minded folks, the very significant challenges in these plans to reform Section 230.

Baker's latest proposal is apparently no longer the full "repeal" of Section 230 he wanted a year ago, but now just that only subscription supported sites (with no advertising) get the benefits of Section 230. As laid out in his thread, the underlying theory is that Facebook is too big, and by removing Section 230, this would force Facebook to downsize. This is wrong for a bunch of reasons, some of which we've explained before, but we'll get there. He seems to no longer support a full repeal of Section 230 because people highlighted how it harms other sites. So his new version is that Section 230 is only removed for sites that have advertising as their main business model under the (incorrect) theory that this will magically create a world where every site other than Facebook moves away from ads to subscription only, and that somehow makes Facebook smaller. Substacks for everyone!

So, again, the keys to Baker's plan seem to be that by removing Section 230 for ad supported sites, it somehow (1) forces Facebook to shrink and (2) forces paywalls all over the internet. And this is somehow good. Both assumptions are fundamentally wrong -- but it's important to understand why, because this mistake is made by too many people who haven't bothered to take the time to understand Section 230.

Section 230 does not provide an outsized benefit to Facebook -- instead, it protects everyone else significantly more than it protects Facebook.

This is one thing that many, many people fundamentally misunderstand about Section 230. They think that because Section 230 "protects" Facebook and Facebook is so big, that Section 230 protects Facebook more than it protects others, and therefore any removal of 230 protections will have a greater impact on Facebook than other sites.

The problem with this is that the real benefit from Section 230 is not the underlying protection from liability, rather it's the procedural benefits that 230 provides that help companies get out of frivolous lawsuits at an earlier stage. We've discussed this before a few times, but many people seem to miss it. There are two important issues as it relates to liability for websites in cases that try to drag them in: (1) what is the likelihood of any underlying cause of action actually leading to liability (outside of Section 230) and (2) how expensive is it to find out whether or not that liability sticks.

In the vast majority of cases, there is no underlying cause of action that will create liability. We've actually seen this in action in the few cases that get past the Section 230 hurdle. One of the most famous cases that chipped away at Section 230 protections was Fair Housing v. Roommates, in which the court determined that, while Section 230 protected Roommates.com from content that other users created, it did not protect the company from liability for the pull down menus that it created itself.

Many people think this means that Roommates.com lost the case, and very, very few people realize that years later Roommates.com still won, when the courts determined that even though 230 didn't kick the case out early, Roommates.com still didn't actually violate the law. The same is true of the other big 230 exception case, the more recent Enigma Software v. Malwarebytes case, in which the court (somewhat bizarrely) argued that Malwarebytes doesn't get Section 230 protections in cases where a malware designation might be deemed anti-competitive. But, in the end, many years later, Malwarebytes still won.

Again, the key benefit to Section 230 is not that it removes all liability, but rather that it gets cases dismissed very early on, cases that would have almost no chance if they went through the full litigation process. In other words, it's a form of protection against frivolous lawsuits, and the main mechanism involved is getting cases dismissed earlier, rather than years (and millions of dollars later). That helps smaller companies way more than it helps Facebook. Facebook has all the money in the world and it can afford to litigate these cases all the way through. It would cost the company pocket change, but the company would likely still win in the end.

Smaller companies, on the other hand, cannot afford the costs. Getting a case dismissed on 230 grounds might cost six figures. Having to go all the way through the full litigation is more like 7 or 8 figures (depending on circumstances). Facebook can find that money in the seat cushions of their office couches. Smaller companies cannot.

Dean also appears to not understand how defamation law works at all. In his thread, he seems to think that without Section 230, if someone posted something defamatory that would automatically make Facebook liable for the defamation:

Except, that's wrong. First off, the actual bar for defamation is quite high, especially for public figures. Baker, incorrectly, seems to think that merely saying something false about a public figure is defamatory. That's not how it works. It has to meet the standard of defamation, including the actual malice standard (which is not just that you were really mad when you said it). Second, and much more important for this situation, is that if the speaker was liable, that does not automatically mean that the intermediary would be liable. Under the two key cases prior to Section 230 becoming law, Cubby v. Compuserve and Stratton Oakmont v. Prodigy, the courts had to wrestle with what makes 3rd party intermediary liability consistent with the 1st Amendment.

And the ruling in both cases would go directly against Baker's ideas here. In Cubby, the court determined that the website needed to know about the content before it became liable for it. So, in Baker's hypothetical above, Facebook wouldn't face automatic liability unless it was first provided notice that the content was potentially defamatory. And, in Stratton Oakmont, the court said that any moderation meant you were admitting to knowledge of what you left up -- thereby encouraging no moderation at all (if you don't look, you wouldn't be liable). So Baker's insistence that he'd want more moderation to happen under his plan isn't necessarily supported by the historical precedents under the 1st Amendment.

If the courts (as would be most likely) followed a Cubby-like precedent, then all it would do is create a very expensive process for any website to handle moderation, because each "notice" would likely require adjudication. As we've seen in the copyright space, this greatly favors big companies who can hire teams to review takedown notices, meaning... it favors Facebook and would destroy smaller competitors. On the other hand, if courts actually moved to a Stratton Oakmont style standard, then it would create massive incentives for every website to do no moderation at all, filling websites with garbage (which goes against Baker's desired situation in which Facebook took down more content). But in such a world, there would be so much garbage on any site that inevitably users would rely much more on recommendation algorithms to find the content they actually want to see -- and that again favors the largest companies who can invest in such tools. Like Facebook.

I asked Baker privately why he ignored these historical precedents, and he insisted that since he's talking about a new law, it doesn't matter. But any law has to comply with the basic principles of the 1st Amendment, and if you're going further than this in automatically placing liability (rather than simply removing the procedural benefits of 230) as Baker seems to want, well, that's not going to survive any level of 1st Amendment scrutiny. The NY Times v. Sullivan sets the bar for defamation very, very high. You can't just wipe that out and claim that your new lower standard ("someone said something false!") automagically applies to third party distributors.

And, in fact, we know how this plays out in practice because we've seen it in the copyright context. Given Baker's earlier research and writings into copyright, you'd hope he'd understand this, but he seems to have not bothered. In the early days of user-generated video content online, there were a large number of companies that rushed into the space. YouTube took an early lead, but there were many others, including Veoh. Both YouTube and Veoh were sued for copyright infringement. In copyright, there's no Section 230. Rather there's the DMCA 512 safe harbors, but (unlike Section 230) you have to fight out in court as to whether or not you comply with the factors to get the 512 safe harbors.

In YouTube's case, with the help of Google money, it had to fight Viacom in court for seven whole years, and it would have gone on longer, but after Viacom kept losing every single legal argument it made, the company finally agreed to settle without any money changing hands. Veoh, on the other hand, a site founded by Hollywood insiders like former Disney boss Michael Eisner, fought for many years in its similar lawsuit which it eventually won, but only three years after the company had shut down, citing the expensive litigation as driving the company out of business.

So, to recap: Section 230 gets you out of frivolous litigation much sooner, saving smaller companies millions of dollars. Without 230, the internet websites would likely still win most such cases (as they have basically every time a plaintiff gets around 230), but it would be a lot more expensive. That's a nuisance to Facebook, but it's deadly to many, many other websites.

So, Baker's initial assumption that more lawsuits from the removal of Section 230 would somehow force Facebook to shrink and aid smaller competitors is simply wrong. Beyond explaining all the reasons why above, we have practical examples from the copyright realm with YouTube and Veoh. And if that doesn't convince you, we even have examples from Section 230 itself. In 2018, as you'll recall, FOSTA became law -- the first major attempt to chip away at Section 230. We've spent tons of time explaining the societal damage that FOSTA has created, but it also didn't "shrink" Facebook. Instead, it did the opposite.

Right after FOSTA passed, a bunch of dating websites closed down, including Craigslist shutting down its dating vertical -- explicitly stating that the threat of liability from FOSTA made it too expensive to run. A year later, Facebook jumped in to launch its own dating app. So, smaller competitors get out of the market, and Facebook gets to jump in.

The same would happen under Baker's "reform" plan here. Smaller ad supported providers would shut down, because the cost of litigation risk would be too high. Facebook would corner the market from the few competitors out there.

Subscriptions don't magically solve any of this, they mostly make it worse

But Baker insists none of this is an issue, because his plan would encourage an internet of paywalls and subscriptions, and by incentivizing that business model, mighty Facebook would be brought to its knees. Except there's no evidence to support that either. His entire basis for arguing that this would happen is that historically people subscribed to newspapers.

But that fundamentally misunderstands the nature of the internet, social media, what makes them work, and what makes this all so important for speech.

He later suggests that if sites couldn't get enough subscription support, then that fundamentally shows they're not valuable and it's okay for them to go away.

But all of that is mixing up some very, very basic concepts. First of all, social media only works well thanks to network effects. Metcalfe's Law matters. If I subscribed to the NY Times, it makes no difference to me if you subscribe to the NY Post. There is no fundamental value difference in that case.

But for the vast majority of incredibly valuable online services -- especially those involving user-generated content that need Section 230 -- a huge part of the value is proportional to how many other people are also using that service. And that doesn't work in a subscription world. Right now, I already use a half a dozen different messaging services because different friends and family tend to rely on different ones. If I had to pay $5 to $10 a month for each one, that would not work at all. Instead, the most likely scenario is that everyone would standardize on the one that everyone uses the most. And, horrifically for me (as someone who minimizes my use of Facebook), that would mean Facebook.

Also, I really wish that Dean spoke to someone who actually had some experience in the ad business and in the subscription business. Going back a decade or so it was common for people with experience in neither to insist that the two were somehow interchangeable, and you could easily convert ad-based businesses to subscription models. Except that's not true at all, in part because of the network effects point above. For the vast, vast majority of users of any particular online service, the value they get out of the site is way below $5/month. Relatedly, the value they provide to those sites by themselves is way less than $5/month in terms of ad revenue. But the collective aspect of their usage of the site, combined with the aggregate advertising model, is what makes it work.

If you had to go subscription, you'd wipe out tons of useful services that today rely on Section 230: I can't see how Reddit, Craigslist, Nextdoor, Glassdoor, Pinterest, Yelp, Travelocity, Eventbrite, Stack Overflow, Ravelry, DuoLingo, Fandom, WikiHow, Glitch and tons of other websites would survive. Baker seems to think that you'd just need one "social media" website, and so people would subscribe to the one they like best. But so much of the internet relies on Section 230 and ads to survive, and changing them all into subscription services would be untenable for the vast majority.

End result? Again, you wipe out most of the more innovative competition, and especially clear the field for new entrants. Under this model, new entrants would need to start with a subscription model, and it's difficult to get people to subscribe to a service that has no track record... and has no users.

And, of course, Baker brushes off the idea that another impact of this is that it would only serve to help the wealthy at the expense of the poor, but it's absolutely true. There's so much value on the internet that is readily available to everyone, and Baker's plan would lock that all up... because he's mad at the amount of control Mark Zuckerberg has. But locking up all those useful services, and leaving it so that Facebook can clean up and provide all those services for free (while paying the pesky litigation costs to show that it's not liable) seems like a great long term deal for Facebook.

Just as it helped get competing dating services, like Craigslist's, shut down before opening its own service, this is why Facebook is running ads and telling Congress that it's time to "update Section 230." Facebook knows that the long-term impact of such things may raise some direct costs (litigation) in the short run, but over the long run, it wipes out the thing that Mark Zuckerberg has always feared the most: disruptive innovation that competes with Facebook and takes away their userbase.

Baker's reform plan misunderstands how and why Section 230 works and where it provides the most benefit. And he misunderstands how and why network effects work online, and what his plan would do to much of the open internet. His plan would, clearly, provide Facebook significantly more power, while wiping out a stunning amount of competition. It's a dangerous plan.

Filed Under: competition, copyright, dean baker, intermediary liability, section 230

Nobel Prize Winning Economist Says Non-US Countries Have Unique Opportunity To Reform Intellectual Property

from the go-for-it dept

For well over a decade, we've noted that Nobel Prize-winning economist Joe Stiglitz has been one of the many, many economists who are skeptical of the benefits of our current patent system, noting that it appears to do a lot more harm than good, both to the process of innovation and (importantly) to the wider distribution of the gains from innovation. He's been particularly critical of pharmaceutical patents over the years. And, it appears that he may sense a somewhat unique opportunity to actually get countries around the world to actually rethink traditional patent and copyright regimes -- in part because the US, under the Trump administration, is pulling back from various international agreements and fora.

Earlier this year, along with Dean Baker and Arjun Jayadev, Stigliz authored an interesting paper about ways to rethink innovation, intellectual property and development. I don't necessarily agree with everything in the paper, but I do agree with much of it -- especially the presentation of the problems of today's systems.

Today’s global intellectual property regimes have been strongly affected by the historical evolution of IPR in the United States and in the advanced industrialised countries over the last century. Certainly, the adoption of the World Trade Organization’s Trade Related Intellectual Property System (TRIPS) reflects the understanding of the management of intellectual and knowledge advancement that prevailed in the last quarter of the previous century and the structure of economic power at that moment.

Perhaps somewhat ironically the world has coalesced on a set of institutions to manage knowledge advancement just as advanced industrialised economies have begun to run up against the severe impediments that this system entails - a system that they thought had been designed by and for themselves. Nowadays, it is widely recognised that the management of innovation in countries like the US has been sub-optimal and led to a situation that is increasingly litigious and plagued by conflicts. In fields such as information technology, a whole set of weak patents and an epidemic of over-patenting has made subsequent innovation difficult and has eroded some of the gains from knowledge creation (see Bessen and Meurer, 2008 among others). Moreover, in some areas, such as in pharmaceuticals, ever-stronger IP protections has not necessarily led to an increase in the discovery of new chemical entities (see Dosi and Stiglitz, 2014). Rather, the demands and needs of different industries become more opposed, leading to serious concerns for policy makers. There is a shrinking of the knowledge commons as even publicly funded and promoted innovation is privatised, thereby reducing both equity and efficiency. There is no agreement on what exactly ought to be done, but it is certainly recognised that the current system is not satisfactory for developed countries.

As you can tell from that snippet from the intro, there's a lot of concern about how US-driven "harmonization" of (mainly) patent rights has done more harm than good -- especially in believing in a one-size-fits-all approach. However, the paper notes that it's difficult to move away from the older setup, since so many countries were pressured into joining TRIPS (and some other international trade agreements).

The whole paper is worth reading (and it's embedded below, based on the Creative Commons license on the paper -- though, oddly, they never designate which CC license is actually being used, but I believe our posting here would be covered by all CC licenses). But beyond the paper, it appears that Stiglitz is sensing an unfortunate, if unique, opportunity to actually make other countries consider moving away from the old patent regimes: The administration of Donald Trump. Again, while the core concepts of intellectual property maximalism didn't necessarily originate with the United States (and in some areas, we've actually been laggards), there's no denying that over the last few decades, the US has mainly been the strongest supporter of putting such rules into all sorts of international trade agreements (or using those agreements to expand patent and copyright laws even beyond what we currently have in the US).

However, with a President who is extremely skeptical of international trade agreements (even if for the wrong reasons), Stiglitz has decided that it's a potential opportunity. His recent comments in South Africa make that clear. After criticizing Trump, he went on to note the opportunity:

He said developing countries must use the Trump administration as an opportunity to realise that the US hasn’t played the global leadership role it claims to have and take the initiative to negotiate new systems of globalisation, such as reforming intellectual property laws that benefit large corporates at the expense of social welfare.

Speaking out in South Africa is timely, since the country is considering a new patent law that would increase access to drugs that have been cost-prohibitive due to patents.

Stiglitz... welcomed South Africa’s draft changes and urged the country to continue working on the paper. “Any intellectual property regime has to get a balance on innovation on the one hand and dissemination on the other,” he said.

“You should be very concerned about anything that impedes competition,” said Stiglitz, warning South Africa and other developing countries of assisting corporations like big pharmaceutical companies to establish monopolies that don’t benefit local health systems or economic growth.

Stiglitz disputed claims that stringent intellectual property laws are necessary for innovation.

“There’s a whole history of using intellectual property law to try to squelch innovation,” he said.

While I hope I'm wrong, I'm skeptical that most countries will be willing to embrace a total rethink of intellectual property systems and the problems they cause for innovation -- but it will be worth paying attention to see if other countries do start pushing back on these outdated regimes.

Filed Under: arjun jayadev, dean baker, joe stiglitz, patents, pharmaceuticals, south africa

Latest Trade Agreements Are About The Opposite Of Free Trade: Protectionism For Big Business

from the this-is-not-free-trade dept

We've been talking a lot about the various big "trade agreements" that are being worked on around the globe -- with a major focus on the TPP (Trans Pacific Partnership) and the TTIP (Trans-Atlantic Trade and Investment Pact). These are frequently referred to as "free trade agreements." But an important point that gets lost in the various debates is that, generally speaking these are not free trade agreements at all. In many ways, they're the opposite. Free trade is about removing barriers to trade -- which are, generally speaking, a good thing. But the simple fact is that for the most part we already have pretty low trade barriers with most of the countries involved in these negotiations. Instead, this is almost entirely about a combination of regulatory arbitrage, and the ability to better move money around by giant multinational companies. The economics comic artist Michael Goodwin did a nice job demonstrating all this in a comic about the TPP a while back. Here's just two panels, though I highly recommend the whole thing: Economist Dean Baker has a good article describing this in more detail as well, showing that these agreements aren't about "free trade" at all. As he notes, basic free trade generally makes sense. But, that's not what's really being discussed in these agreements:

In TPP and TTIP we are not talking about the textbook trade story. The actual trade barriers between the United States and the countries in these deals, with few exceptions, are already quite low. This means that there is little to be gained by lowering them still further.

Instead, he notes -- as we have in the past -- that these "trade agreements" are really just the opposite. They're about gifts for certain big businesses that they couldn't get through legislation:

TPP and TTIP are about getting special deals for businesses that they would have difficulty getting through the normal political process.

He lists out a bunch of examples, but here are a couple we've been focused on:

The pharmaceutical industry and entertainment industries will get longer and stronger patent and copyright protection.

Note how this is the opposite of true free trade. Longer and stronger copyrights and patents are actually barriers to trade. They're putting up regulatory barriers to the free flow of information, protecting certain legacy businesses at the expense of innovative firms. And, it's all done in secret, with basically only input from businesses. The only time voters actually get to see what's in it is when it's a done deal, and fully negotiated. At that point, the parties are too committed to actually allow any fixes that protect consumers or innovation.

So, when you hear people talking about these agreements as if they're "free trade" agreements, just recognize that calling them free trade agreements is a lie -- and it's a lie that's used to convince the gullible that these agreements must be good for the economy. And it appears to work on some people:

As Thomas Friedman once famously said in reference to his support of CAFTA, "I didn't even know what was in it. I just knew two words: free trade." Others in the media may be too sophisticated to express themselves so bluntly, but undoubtedly most share Friedman's view. Under such circumstances, there will be few politicians prepared to stand up for principle or their constituents and vote against the pacts regardless of what it is in them.

In short: people (correctly) believe that free trade is generally a good thing. Businesses recognize this -- and even though we generally have an awful lot of free trade around the globe these days, with fewer and fewer tariffs and trade barriers, governments are working on "free trade deals" because they know by calling them that, people will often support them, believing blindly that they're good things. Instead, there's very little that's actually about free trade, and an awful lot that's about propping up and protecting legacy business models, while stifling the important free flow of information.

Filed Under: corporate sovereignty, dean baker, economix, free trade, investment, isds, michael goodwin, tafta, tpp, trade agreements, ttip

Paul Krugman's Ignorant Assessment Of TPP Shows What A Nefarious Proposal It Is

from the this-is-the-problem dept

Let me start this post off by saying that I know that Paul Krugman seems to inspire... a certain kind of extreme reaction from some people, whether they support him or not. I don't fully know why this is. I think he's got some interesting insights some of the time, and I think he gets some stuff right and some stuff woefully wrong. But that's kind of true of a lot of people. Either way, I'm hoping that the discussion following this post can focus on the specifics of his discussion about the TPP (Trans Pacific Partnership) agreement, rather than tossing around ad hominems directed at Krugman and/or the reverse of that.

Anyway, it appears that Krugman has decided to discuss the TPP agreement after many of his readers asked him to weigh in. And his response is basically to dismiss the entire agreement as not really being a big deal one way or the other. The entire crux of his analysis can be summed up as: trade between most of the countries in the negotiations are already quite liberalized, so removing a few more trade barriers is unlikely to have much of a consequence. Therefore, the agreement is no big deal and he doesn't get why people are so up in arms over it.

On his basic reasoning, he's correct. There's little trade benefit to be gained here. In fact, some countries have already realized this. But that's why the TPP is so nefarious. It's being pitched as a sort of "free trade deal," and Krugman analyzes it solely on that basis. That's exactly what the USTR would like people to think, and it's part of the reason why they've refused to be even the slightest bit transparent about what's actually in the agreement.

Instead, the TPP has always been a trade liberalization agreement in name only. Sure, there's some of that in there, but it's always been about pushing for regulatory change in other countries around the globe, using trade as the club to get countries to pass laws that US companies like. That's why there's an "IP chapter" that is entirely about building up barriers to trade in a so-called "free trade" agreement. It's why a key component of the bill is the corporate sovereignty provisions, frequently called "investor state dispute settlement" (in order to lull you to sleep, rather than get you angry), which allow companies to sue countries if they pass laws that those companies feel undermine their profits (e.g., if they improve patent laws to reject obvious patents -- leading angry pharmaceutical companies to demand half a billion dollars in lost "expected profits.")

Krugman judging the TPP solely on its net impact on trade is exactly what TPP supporters are hoping will happen, so it's disappointing that he would fall into that trap. Thankfully, economist Dean Baker, who does understand what's really in TPP, was quick to write up a powerful and detailed response to Krugman that is worth reading.

However it is a misunderstanding to see the TPP as being about trade. This is a deal that focuses on changes in regulatory structures to lock in pro-corporate rules. Using a "trade" agreement provides a mechanism to lock in rules that it would be difficult, if not impossible, to get through the normal political process.

To take a couple of examples, our drug patent policy (that's patent protection, as in protectionism) is a seething cesspool of corruption. It increases the amount that we pay for drugs by an order of magnitude and leads to endless tales of corruption. Economic theory predicts that when you raise the price of a product 1000 percent or more above the free market price you will get all forms of illegal and unethical activity from companies pursuing patent rents.

Anyhow, the U.S. and European drug companies face a serious threat in the developing world. If these countries don't enforce patents in the same way as we do, then the drugs that sell for hundreds or thousands of dollars per prescription in the U.S. may sell for $5 or $10 per prescription in the developing world. With drug prices going ever higher, it will be hard to maintain this sort of segmented market. Either people in the U.S. will go to the cheap drugs or the cheap drugs will come here. 

For this reason, trade deals like the TPP, in which they hope to eventually incorporate India and other major suppliers of low cost generics, can be very important. The drug companies would like to bring these producers into line and impose high prices everywhere. (Yes, we need to pay for research. And yes, there are far more efficient mechanisms for financing research than government granted patent monopolies.)  

Hopefully Krugman can be convinced to rethink his initial analysis after investigating more of what's actually going on with the TPP agreement, and will no longer be fooled into thinking it's actually about trade. Of course, this is part of why the USTR is so secretive. The more they can get people thinking it's about trade, the less they'll realize it's actually about exporting bad regulations to favor a few crony-connected industries.

Filed Under: dean baker, free trade, paul krugman, tpp, trade, transparency, ustr

Economist: Copyright Is An Antiquated Relic That Has No Place In The Digital Age

from the modern-mercantilism dept

For many years I've been pointing out the basics of economics concerning concepts like "free" and the importance of marginal cost to pricing in an efficient market. After one such recent post, I got an angry email from a college professor who has worked in the entertainment industry for many years, telling me that clearly I had never taken an economics class. That, of course, is not true. I took a great many economics classes, and learned the economics I talk about here on the site from some of the best economists around. Either way, I do wonder what this same individual would say upon reading well known (and greatly respected) economist Dean Baker's latest column about how The Pirate Party has got it right on copyright:

Near the top of the list of the Pirate Party's demons is copyright protection, and rightly so. Copyright protection is an antiquated relic of the late Middle Ages that has no place in the digital era. It is debatable whether such government-granted monopolies were ever the best way to finance the production of creative and artistic work, but now that the internet will allow this material to be instantly transferred at zero cost anywhere in the world, copyrights are clearly a counter-productive restraint on technology.

As every graduate of an introductory economics class knows, the market works best when items sell at their marginal cost. That means we maximize efficiency when recorded music, movies, video games and software are available to users at zero cost. The fees that the government allows copyright holders to impose create economic distortions in the same way that tariffs on imported cars or clothes lead to economic distortions.

The major difference is that the distortions from copyright protection are much larger. While tariffs on cars or clothes would rarely exceed 20-30 per cent, the additional cost imposed by copyright protection is the price of the product. Movies that would be free in a world without copyright protection can cost $20-$30. The same is true of video games, and the price of copyrighted software can run into the thousands of dollars.

Baker goes on to suggest some alternative means to fund such creative works in a world without copyright, including ideas like "artistic freedom vouchers" that would give people a refundable tax credit on supporting creativity, on the condition that any of the creativity funded by such money would not be able to protect it with copyright for a period of time. I find such program interesting, though I do wonder if they'd even be necessary. As we've been seeing over and over again, all sorts of interesting new business models are springing up that have nothing to do with copyright. As there is demand for creativity, I fully expect more and more such models to continue to show up as well. What I fear is that the focus by those who benefit excessively from the monopoly rents and protectionism of copyright, will lead to cutting off innovation or killing off interesting and more efficient business models, before they have a chance to evolve.

Contrary to what some like to say about me, I am not convinced that copyright should be done away with completely. I do think that it needs significant reform. I just want that reform to be based on actual evidence and understanding of basic economics rather than faith and the demands of those who have benefited excessively from it, over those who have been held back because of it.

Filed Under: dean baker, economics, free, marginal cost, pirate party

Government-Funded Textbooks: Let's Not And Say We Did

from the bad-ideas dept

One of the retorts I sometimes hear when I criticize our current system of overly broad copyright protection is that the only alternative is government funding of copyrighted works. This is not, of course, what most of us are advocating, and there's every reason to think that a properly balanced and limited system of copyright protection (along with some clever business models) can create plenty of incentives to produce creative works without asking the taxpayer to pay for them. However, every once in a while you come across someone who really does want the government to fund creative works. Dean Baker, for example. is pushing his plan to have the government pay for college textbooks that would then be placed in the public domain for public consumption.

This is a bad idea for a bunch of reasons. For starters, there's no reason to think that government-funded textbooks would be any good. Financing textbooks by selling them to students ensures that textbook publishers have an incentive to produce books that meet the needs of students, or at least their professors, and to improve textbook quality over time. In contrast, if textbooks are financed by taxpayers, the textbooks that get produced are likely to be determined more by politics and bureaucracy than by the needs of the customers. The result is likely to be a lot of mediocre textbooks focused on topics that federal officials think are needed, rather than what will actually get used. Second, there's a basic issue of equity here. College students tend to come from families that are wealthier, on average, than the general public. Less than half of young people attend four-year colleges. So it seems a little perverse to tax everybody in order to subsidize the textbook purchases of relatively privileged college students. Means-tested financial aid programs are much better at reaching students who really need the help. Finally, it's worth asking whether we want to take the risk of politicizing the content of college curricula. We already have enough politics involved in deciding what goes into textbooks used in public high schools, which are publicly-funded. Do we really want the federal government put in charge of deciding what kind of textbooks the country's college students need?

What's really needed, I think, is to find ways to leverage the web for lower-cost distribution of instructional materials. There's no reason to think that college students 20 years from now will still be getting course information from giant paper books. Whether textbooks are replaced by Wikipedia-style collaborative textbook projects, by companies selling site licenses to websites full of instructional materials, by ad-supported instructional websites, or by some business model nobody's thought of yet, there's every reason to think competition from the web will revolutionize the textbook market in the coming years and give both instructors and students more choices about how information is disseminated. We ought to let that process play itself out, and not get the government involved in deciding what should be in our textbooks.

Filed Under: copyright, dean baker, government funded, public domain, textbooks