Tag: piracy

Internet Regulation & the Economics of Piracy

Earlier this month, I detailed at some length why claims about the purported economic harms of piracy, offered by supporters of the Stop Online Piracy Act (SOPA) and PROTECT-IP Act (PIPA), ought to be treated with much more skepticism than they generally get from journalists and policymakers.  My own view is that this ought to be rather secondary to the policy discussion: SOPA and PIPA would be ineffective mechanisms for addressing the problem, and a terrible idea for many other reasons, even if the numbers were exactly right. No matter how bad last season’s crops were, witch burnings are a poor policy response.  Fortunately, legislators finally seem to be cottoning on to this: SOPA now appears to be on ice for the time being, and PIPA’s own sponsors are having second thoughts about mucking with the Internet’s Domain Name System.

That said, I remain a bit amazed that it’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating  impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the Government Accountability Office recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that—among all the dire challenges now facing the United States—this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill.

The International Intellectual Property Alliance—a kind of meta-trade association for all the content industries, and a zealous prophet of the piracy apocalypse, released a report back in November meant to establish that copyright industries are so economically valuable that they merit more vigorous government protection. But it actually paints a picture of industries that, far from being “killed” by piracy, are already weathering a harsh economic climate better than most, and have far outperformed the overall U.S. economy through the current recession.  The “core copyright industries” have, unsurprisingly, shed some jobs over the past few years, but again, compared with the rest of the economy, employment seems to have held relatively stable at a time when you might expect cash-strapped consumers to be turning to piracy to save money.

Since the core function of copyright is to incentivize the production of creative works, it’s also worth looking for signs of declining output associated with filesharing. Empirically, it’s surprisingly hard to find an effect. Rather, a recent survey study by Felix Oberholzer-Gee of the Harvard Business School concluded that “data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers” from producing more works, at least in the U.S. market.

So, for instance, Nielsen SoundScan data shows new album releases stood at 35,516 in 2000, peaked at 106,000 in 2008, and (amidst a general recession) fell back to mid-decade levels of about 75,000 for 2010. That’s against a general background of falling sales since 2004—mostly explained by factors unrelated to piracy—which finally seems to have reversed in 2011. The actual picture is probably somewhat better than that, because SoundScan data are markedly incomplete when it comes to the releases by indie artists who’ve benefited most from the rise of digital distribution.

If we look at movies, the numbers compiled by the industry statistics site Box Office Mojo show an average of 558 releases from American studios over the past decade, which rises to 578 if you focus on just the past five years. The average for the previous decade—before illicit movie downloads were even an option on most people’s radar—is 472 releases per year. (As we learn from a recent Congressional Research Service report, it’s weirdly hard to detect a strong overall correlation between output and employment in the motion picture industry, which actually fell slightly from 1998 to 2008, even as profits and CEO pay soared. One reason the growing trend in recent decades for “Hollywood” features to actually be produced in Canada or Australia.)

That’s all very nice, one might object, but wouldn’t these heartening numbers be even higher if labels and studios could recapture some of the revenue lost to illicit downloads? Well, they surely might—but it’s not nearly as clear as you’d think.

One reason is that they already are recapturing much of that revenue through “complementary” purchases. As Oberholzer-Gee observes, recording industry numbers show large increases in concert revenues corresponding to the drop in recorded music sales. That suggests that, as people discover new artists by sampling downloaded albums online, they’re shifting consumption within the sector to live performances. In other words, people have a roughly constant “music budget,” and what they don’t spend on the albums they’ve downloaded gets spent on seeing that new band they discovered.  For the firms that specifically make their money from the sale of recordings, that may seem like cold comfort, but if we’re concerned with the music industry as a whole, it’s a wash. Something similar might occur with respect to purchases of merchandise based on licensed film properties.

Another factor is that, notwithstanding projections of a “long tail” effect resulting from lower search and distribution costs in the digital era, most entertainment industries continue to operate on a “tournament” or “lottery” model, where a few hits generate jackpot revenues, sufficient to make up for losses on the majority of new products.  Unsurprisingly, the most heavily pirated movies each year tend to be the ones that are also highly successful at the box office and in DVD sales, with similar patterns in album downloads. In other words, bleeding revenue to piracy is going to be a problem to the extent that your product is a hit, in a market where the core uncertainty about this crucial fact (at the time when the decision whether to greenlight production is made) looms a lot larger than the marginal loss from illicit downloads if you are successful.

It’s a tricky but more or less tractable problem to estimate roughly how many full-time jobs you’ll need regionally to support one additional $150 million movie production next year. It’s a totally different question how aggregate sectoral employment in a volatile and evolving industry changes based on investor responses to a $150 million across-the-board drop in the size of the total film jackpot, especially given that arcane financial arrangements are one place Hollywood does show a genius for constantly adapting its business model. If you want to know how many people are getting laid off when McDonald’s revenues drop, it makes a difference whether it’s each of 13,000 franchises earning $100 less per year, or one franchise earning $1.3 million less, even though the total reduction is the same.

Finally, more demand for content being captured by the content industries is not always the same thing as demand for more content, in the sense of “a greater variety of output.” I noted earlier that the past few years have seen a significant spike in the number of movie titles released annually. But as the Los Angeles Times reported in 2008, studio executives soon began complaining about a “glut” of new movies, many of which were targeted at the same demographics, and therefore cannibalizing their own audiences. As one executive suggested, that meant that (at least in a market dominated by a few huge distributors) releasing fewer titles could yield higher profits—and, indeed, the number of titles released in the following two years dropped back to mid-decade levels. The key point here is that shifting some portion of the pirate audience to some form of legal viewing doesn’t necessarily change this basic calculus, because there’s an upper bound to the number of hours most people are going to spend watching (say) racing movies, whether they’re paying for the privilege or not. Rising demand can just as easily, for instance, bid up star salaries for a fixed number of films.

The point here isn’t that piracy by American consumers is somehow completely independent from output or employment rates in the content industries—though, again, that’s not at all the same thing as the overall U.S. employment rate. Obviously, at some level it has to have some effect. But the link is, to use the technical economic term, weirder than in many other sectors of the economy. In many industries, the relationship between consumer spending and job creation is relatively straightforward. If demand for widgets or restaurant meals rises, satisfying that demand requires a roughly linear increase in widget factories and restaurants, in hiring of widget-makers and cooks and waiters, and in purchases of the raw material inputs for those goods. Distribution of copyrighted content—and in particular digital distribution over the Internet—is a bit more complicated, for precisely the same reason piracy is an issue: once the first copy of a work has been created, an unlimited number of additional units (of the digital product) can be produced at effectively zero cost.

Let’s imagine, implausibly, that a measure  like SOPA did manage to reduce online piracy by U.S. consumers by some meaningful amount. A small potion of that reduction, the minority of downloads representing legal purchases displaced by file sharing, would translate into sales for the content industries. What form would these take? It seems reasonable to suppose that the majority of people who were previously getting their music and movies from The Pirate Bay are not typically lining up to buy shiny plastic discs at Wal-Mart. Rather, they’re probably disproportionately displacing legal digital downloads from venues like iTunes and Amazon, or subscription services like Netflix and Spotify, which are pretty clearly where the overall market is quickly going anyway.  (Apparently, literal thieves don’t even bother stealing physical media anymore.) For movies, there’s probably also some displacement of theatrical ticket sales, though as the theatrical experience is in many ways a distinct good, it’s hard to say how much substitution it’s reasonable to expect.

In the very short term, increased legal purchases of digital content wouldn’t seem likely to generate many additional jobs. If spending in the physical retail sector jumps 20 percent, shops need to hire more clerks, and their suppliers more manufacturing workers, to meet the increased demand. If spending in the iTunes store jumps 20 percent, Apple probably needs to pay a few bucks more for bandwidth and electricity, but basically everyone just gets to smile and pocket the extra profit. The jobs effects estimates we’re seeing tossed around, however, are coming from a 2007 study that would have had to employ, at the most recent, adjustments made several years before that to the benchmark multipliers the Bureau of Economic Analysis developed in 2002. Even leaving aside its many other problems, then, the job impact estimates in that study would have been largely based on legacy assumptions from a brick-and-mortar economy. (The loss estimates relied on would also, necessarily, fail to account for the recent rise of popular, legal streaming services that have likely lured many consumers back from the pirate market. There is, alas, no very good data here, but I’d wager Hulu and Netflix have done exponentially more to reduce piracy losses than enforcement crackdowns ever will.) In any event, you’d expect the most immediate effect of consumer spending shifts from widgets and restaurants to digital downloads would be, if anything, fewer net jobs.  The output and employment effects, rather, would show up in the longer term as lower returns reduce incentives to produce new content—and hire the workers needed to support that production.  For some of the reasons discussed above, though, empirically there’s just not much evidence for a dramatic effect of this kind.

No doubt piracy is costing the content industries something—or they wouldn’t be throwing so much money at Congress in support of this kind of legislation. If we could wave a magic wand and have less piracy, obviously that would be good.  But in the real world, where enforcement has direct costs to the taxpayer, regulation has costs on the industries it burdens, and the reduction in piracy they’re likely to produce is very small, it seems important to point out that the credible evidence for the magnitude of the harm is fairly thin. As a rough analogy, since antipiracy crusaders are fond of equating filesharing with shoplifting: suppose the CEO of Wal-Mart came to Congress demanding a $50 million program to deploy FBI agents to frisk suspicious-looking teens in towns near Wal-Marts. A lawmaker might, without for one instant doubting that shoplifiting is a bad thing, question whether this is really the optimal use of federal law enforcement resources. The CEO indignantly points out that shoplifting kills one million adorable towheaded orphans each year. The proof is right here in this study by the Wal-Mart Institute for Anti-Shoplifting Studies. The study sources this dramatic claim to a newspaper article, which quotes the CEO of Wal-Mart asserting (on the basis of private data you can’t see) that shoplifting kills hundreds of orphans annually. And as a footnote explains, it seemed prudent to round up to a million. I wish this were just a joke, but as readers of my previous post will recognize, that’s literally about the level of evidence we’re dealing with here.

In short, piracy is certainly one problem in a world filled with problems. But politicians and journalists seem to have been persuaded to take it largely on faith that it’s a uniquely dire and pressing problem that demands dramatic remedies with little time for deliberation.  On the data available so far, though, reports of the death of the industry seem much exaggerated.

How Copyright Industries Con Congress

I’ve yet to encounter a technically clueful person who believes the Stop Online Piracy Act will actually do anything to meaningfully reduce—let alone “stop”—online piracy, and so I haven’t bothered writing much about the absurd numbers the bill’s supporters routinely bandy about in hopes of persuading lawmakers that SOPA will be an economic boon and create zillions of jobs. If the proposed solution just won’t work, after all, why bother quibbling about the magnitude of the problem? But then I saw the very astute David Carr’s otherwise excellent column on SOPA’s pitfalls, which took those inflated numbers more or less as gospel. If only because I’m offended to see bad data invoked so routinely and brazenly, on general principle, it’s important to try to set the record straight. The movie and music recording industry have gotten away with using statistics that don’t stand up to the most minimal scrutiny, over and over, for years, to hoodwink both Congress and the general public. Wherever you come down on any particular piece of legislation, this is not how policy should get made in a democracy, and it’s high time they were shamed into cutting it out.

The bogus numbers Carr cites—which I’ll get to in a moment—actually represent a substantial retreat from even more ludicrous statistics the copyright industries long peddled. In my previous life as the Washington editor for the technology news site Ars Technica, I became curious about two implausible sounding claims I kept seeing made over and over—and repeated by prominent U.S. Senators!—in support of more aggressive antipiracy efforts.  Intellectual property infringement was supposedly costing the U.S. economy $200–250 billion per year, and had killed 750,000 American jobs. That certainly sounded dire, but those numbers looked suspiciously high, and I was having trouble figuring out exactly where they had originated. I did finally run them down, and wrote up the results of my investigation in a long piece for Ars. Read the whole thing for the full, farcical story, but here’s the upshot: The $200–250 billion number had originated in a 1991 sidebar in Forbes, but it was not a measurement of the cost of “piracy” to the U.S. economy. It was an unsourced estimate of the total size of the global market in counterfeit goods. Beyond the obvious fact that these numbers are decades old, counterfeiting of physical goods imported in bulk and sold by domestic retail distributors is, rather obviously, a totally different phenomenon with different policy implications from the problem of illicit individual consumer downloads of movies, music, and software. The 750,000 jobs number had originated in a 1986 speech (yes, 1986) by the secretary of commerce estimating that counterfeiting could cost the United States “anywhere from 130,000 to 750,000” jobs. Nobody in the Commerce Department was able to identify where those figures had come from.

These are the numbers that were driving U.S. copyright policy as recently as 2008—and I’m still seeing them repeated in “fact sheets” circulated by SOPA boosters.  Finally, in 2010, the Government Accountability Office released a report noting that these figures “cannot be substantiated or traced back to an underlying data source or methodology.” Now, if a single journalist could discover as much with a few days work, minimal due diligence should have enabled highly paid lobbyists to arrive at the same conclusion. The only way to explain the longevity of these figures, if we charitably rule out deliberate deception, is to infer that the people repeating them simply did not care whether what they were saying was true. If I were a legislator, I would find this more than a little insulting

As Carr’s piece suggests, SOPA’s corporate backers have fallen back on new numbers, but they’re still entirely bogus:

The Motion Picture Association of America cites figures saying that piracy costs the United States $58 billion annually. Mark Elliot, an executive from the U.S. Chamber of Commerce, said in a letter to The New York Times that such piracy threatened 19 million American jobs

Only $58 billion! We’re making progress! So where does that figure come from? The source here is a paper released by the Institute for Policy Innovation, and authored by one Stephen Siwek, an MBA and principal of a consulting firm called Economists Incorporated that produces economic analysis for hire on behalf of (among others) businesses seeking to influence policy makers. That does not, in itself, invalidate the research, but we should at least begin with the recognition that we are not dealing here with impartial academic studies produced by a university or government research agency.

What does invalidate the “research” is the inappropriate use of “multiplier” effects to double—and triple—count loss estimates that were dubious to begin with. As the GAO report notes in its typically understated fashion:

Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment.

In other words, Siwek is taking a method that’s useful for analyzing where in the economy we will likely see the effects of demand shifts, and pretending that it somehow reflects aggregate economic losses. As my colleague Tim Lee has pointed out, this is Bastiat’s Broken Window Fallacy on steroids:

[I]n IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefited by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

So, to stay focused on movies, Siwek takes an estimate of $6.1 billion in piracy losses to the U.S. movie industry, and through the magic of multipliers gets us to a more impressive sounding $20.5 billion. That original $6.1 billion figure, by the way, was produced by a study commissioned from LEK Consulting by the Motion Picture Association of America. Since even the GAO was unable to get at the underlying research or evaluate its methodology, it’s impossible to know how reliable that figure is, but given that MPAA has already had to admit significant errors in the numbers LEK generated, I’d take it with a grain of salt.

Believe it or not, though, it’s actually even worse than that. SOPA, recall, does not actually shut down foreign sites. It only requires (ineffective) blocking of foreign “rogue sites” for U.S. Internet users. It doesn’t do anything to prevent users in (say) China from downloading illicit content on a Chinese site. If we’re interested in the magnitude of the piracy harm that SOPA is aimed at addressing, then, the only relevant number is the loss attributable specifically to Internet piracy by U.S. users.

Again, we don’t have the full LEK study, but one of Siwek’s early papers does conveniently reproduce some of LEK’s PowerPoint slides, which attempt to break the data down a bit. Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million—which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel.

So in a fantasy world where U.S. movie pirates don’t just circumvent blockage with a browser plugin, and SOPA actually stops all online movie piracy by American users, we get a $446 million economic benefit to the United States in the form of movie revenues, and presumably comparable benefits in music and software revenues? Well, no. Remember our old friend the Broken Window Fallacy. It’s true that some illicit U.S. downloads displace sales of legal products. But what happens to the money the pirates would have otherwise spent on those legal copies? They don’t eat it! As that same GAO report helpfully points out:

(1) in the case that the counterfeit good has similar quality to the original, consumers have extra disposable income from purchasing a less expensive good, and (2) the extra disposable income goes back to the U.S. economy, as consumers can spend it on other goods and services.

As one expert consulted by GAO put it, “effects of piracy within the United States are mainly redistributions within the economy for other purposes and that they should not be considered as a loss to the overall economy.” In many cases—I’ve seen research suggesting it’s about 80 percent for music—a U.S. consumer would not have otherwise purchased an illicitly downloaded song or movie if piracy were not an option. Here, the result is actually pure consumer surplus: The downloader enjoys the benefit, and the producer loses nothing. In the other 20 percent of cases, the result is a loss to the content industry, but not a let loss to the economy, since the money just ends up being spent elsewhere. If you’re concerned about the overall jobs picture, as opposed to the fortunes of a specific industry, there is no good reason to think eliminating piracy by U.S. users would yield any jobs on net, though it might help boost employment in copyright-intensive sectors. (Oh, and that business about 19 million jobs? Also bogus.)

Does that mean online piracy is harmless? Of course not. But the harm is a dynamic loss in allocative efficiency, which is much harder to quantify. That is, in the cases where a consumer would have been willing to buy an illicitly downloaded movie, album, or software program, we want the market to be accurately signalling demand for the products people value, rather than whatever less-valued use that money gets spent on instead. This is, in fact, very important! It’s a good reason to look for appropriately tailored ways to reduce piracy, so that the market devotes resources to production of new creativity and innovation valued by consumers, rather than to other, less efficient purposes. Indeed, it’s a good reason to look for ways of doing this that, unlike SOPA, might actually work.

It is not, however, a good reason to spend $47 million in taxpayer dollars—plus untold millions more in ISP compliance costs—turning the Justice Department into a pro bono litigation service for Hollywood in hopes of generating a jobs and a revenue bonanza for the U.S. economy. Any “research” suggesting we can expect that kind of result from Internet censorship is a fiction more fanciful than singing chipmunks.

The New SOPA: Now With Slightly Less Awfulness!

On Thursday, the House Judiciary Committee is slated to take up the misleadingly named Stop Online Piracy Act, an Internet censorship bill that will do little to actually stop piracy. In response to an outpouring of opposition from cybersecurity professionals, First Amendment scholars, technology entrepreneurs, and ordinary Internet users, the bill’s sponsors have cooked up an amended version that trims or softens a few of the most egregious provisions of the original proposal, bringing it closer to its Senate counterpart, PROTECT-IP. But the fundamental problem with SOPA has never been these details; it’s the core idea. The core idea is still to create an Internet blacklist, which means everything I say in this video still holds true:



Let’s review the main changes. Three new clarifying clauses have been added up front: the first two make clear that SOPA is not meant to create an affirmative obligation for site owners to monitor user content (good!) or mandate the implementation of technologies as a condition of compliance with the law (also good!). But the underlying incentives created by the statute push strongly in that direction whether or not it’s a formal requirement: What else do we imagine sites threatened under this law because of user-uploaded content or links will do to escape liability? A third clause says the bill shouldn’t be construed in a way that would impair the security or integrity of the network—which is a bit like slapping a label on a cake stipulating that it shouldn’t be construed to make you fat. These are all nice sentiments, but they remind me of the old philosophers’ joke: “You’ve obviously misinterpreted my theory; I didn’t intend for it to have any counterexamples!”

The big changes in the section establishing court-ordered blocking of supposed “rogue” sites appear to be intended to respond to the objections of cybersecurity professionals and network engineers, who pointed out that requiring falsification of Domain Name System records to redirect users from banned domains would interfere with a major government-supported initiative to secure the Internet against such hijacking. The updated language explicitly disavows the idea of redirection, removes a hard five-day deadline for compliance, and (crucially) says that any DNS operator (like your ISP) has fully satisfied its obligations under the statute if it simply fails to respond to DNS queries for blacklisted sites.

This is bad for transparency, in both the engineering and democratic senses of that term, insofar as it makes a government block indistinguishable from a technical failure, but it does, in a sense, address the direct conflict with DNSSEC. But as network engineers point out, a well-designed application implementing DNSSEC isn’t just going to give up when it doesn’t get a valid, cryptographically signed reply: it’s going to try other DNS servers (including servers outside US jurisdiction) until it finds one that answers.

There are two possibilities here. The first is that application designers don’t design their software properly to implement DNSSEC for fear of liability under the statute’s anti-circumvention provisions, which would be a Very Bad Thing. The second is that they’re assured they won’t be held liable for good design, in which case this whole elaborate censorship process—which was never going to be particularly effective against people who actually want to find pirated content—becomes a truly farcical pantomime, in which nobody running reasonably up-to-date clients even notices the nominal “blocking,” beyond a few seconds delay in resolving the “blocked” site. Now, if we’ve got to have an Internet censorship law, a completely impotent one is surely the best kind, but it becomes a bit mysterious what the point of all this is, beyond providing civil libertarians with a chuckle at the vast amount of money Hollywood has wasted ramming this thing through.

The other big change is to the private right of action, which previously would have allowed any copyright holder to unilaterally compel payment processors and ad networks to cut off sites that it merely accuses of infringement, or enabling infringement, or (in a baffling specimen of tortured language) taking “deliberate actions to avoid confirming a high probability” that the site would be used for infringement. That last little hate crime against English is mercifully absent from the revised SOPA, and it makes clear that only foreign sites are covered, and a judge is now required to actually issue an order before intermediaries are obligated to sever ties.

Which ultimately goes to show that the original proposal was so profoundly wretched that you can improve it a great deal, and still have a very bad idea. This is still, as many legal scholars have correctly observed, censorship by slightly circuitous economic means. The involvement of a judge should (knock on wood) weed out the most obviously frivolous complaints, but it still makes it far too easy for U.S. corporations to effectively destroy foreign Internet sites based on a one-sided proceeding in U.S. courts.

These changes are somewhat heartening insofar as they evince some legislative interest in addressing the legitimate concerns that have been raised thus far. But the problem with SOPA and PROTECT-IP isn’t that they need to be tweaked in order to get the details of an Internet censorship system right. There is no “right” way to do Internet censorship, and the best version of a bad idea remains a bad idea.

Mark Helprin’s Convoluted Case for a Large(r) Navy

Wednesday’s Wall Street Journal featured an op ed by Mark Helprin making the case for a large navy (may be paywalled). Or, at least, that was what I took away from it. To be honest, it was a little hard to tell.

I was going to let it drop, but by coincidence I was at the Naval Academy today, giving a guest lecture to two different classes, and the experience has inspired me to pick apart examine Helprin’s article.

I do so because I fundamentally agree with Helprin that we should have a strong navy. I say this because I believe that the Founders were correct to privilege the Navy over the Army (recall that the Constitution calls for maintaining a navy, but raising an Army only as required). I also have several parochial reasons for favoring the Navy over the other services: I served in the Navy; grew up in Maine, in the shadow of Bath Iron Works and the Brunswick Naval Air Station; and the name Preble is hallowed in naval history. Edward Preble (pictured), a distant ancestor, was among the founders of the American navy, and there have been several naval vessels bearing his name. The museum on the grounds of the Naval Academy is named Preble Hall.

Suffice it to say, if I believed that the U.S. Navy was in danger of losing its edge, I would support an aggressive plan to reverse its fortunes. If I thought that we could no longer defend the seaborne approaches to the continental United States, I would be calling for a crash program to reform the service. But it isn’t, and we aren’t. Helprin’s article features misleading information and dubious logic.  An argument poorly made is worse than no argument at all.

The basic gist of Helprin’s op ed is that the U.S. Navy is too small. We had over 1,000 ships at the end of World War II, and now we have only 286. (I could point out that we had thousands and thousands of jeeps and propeller-powered fighter planes at the end of World War II. Now we have none. That doesn’t mean that our conventional land forces and air forces are less capable today than they were in 1945.) He goes on to explain that we need a larger navy to defeat the pirates who are assaulting ships off the Horn of Africa. Russia and China, he claims, are challenging us on the high seas, or soon will do so. He repeats the tired conventional wisdom that the global trading system depends upon a single dominant power to enforce the rules and punish wrongdoers. Great Britain served that role in the 19th century; the U.S. Navy must do so now.

None of these claims are true. Piracy is a nuisance best handled by a coalition of navies contributing forces to escort vulnerable ships, and to carry out punitive raids, not a single global U.S. sheriff that treats every body of water as though it were synonymous with the Gulf of Mexico. The United States is not, as he absurdly claims, on the cusp of the “gratuitious abdication” of our naval supremacy. The U.S. Navy dwarfs any other navy, or combination of navies, both in terms of numbers of ships, and in terms of effective striking power. The global trading system is far more resilient, and far more complex, than Helprin claims; it doesn’t make sense for the U.S. Navy to commit itself to policing every sea lane on the planet. The many beneficiaries of global trade should share in the costs of keeping the seas free and open.

There is a kernel of truth to Helprin’s contention that the Navy should not put all its eggs in “a small number of super ships [which] could be in only a limited number of places at a time.” He seems to appreciate that “the loss of just a few of them would be catastrophic.” But he doesn’t finish that thought. As with many things pertaining to military spending, it isn’t what you spend so much as where and how you spend it. In short, numbers of ships are misleading. What types of ships? At what cost? 

How you answer depends upon what you expect them to be doing. It makes no sense to fight pirates with aircraft carriers. Likewise, it would be foolish to park a 90,000-ton target in the Taiwan Strait, in range of China’s latest anti-ship missiles. A single Ford-class aircraft carrier is projected to cost, in average, about $12 billion. For reference, we could purchase at least six new Arleigh Burke-class destroyers with the same amount of money. 

In the paper that I published with Ben Friedman last year, we support the completion of the USS Ford (CVN-78), but would shift the remaining CVN funds to fielding smaller aircraft carriers that launch primarily unmanned aerial vehicles.  Meanwhile, we think it makes sense to build small, ocean-going warships that can perform escort duties and counter-piracy missions, when required. But the Navy’s current small vessel, the littoral combat ship (LCS), is designed for missions close to shore, and is far too costly. Small frigates or corvettes could be designed with similar capabilities, and at far less cost.

Helprin’s greatest error is in conflating numbers of ships with effective striking power. But he also misses the opportunity costs associated with investing too many resources in the wrong place. The true strength of our Navy is its people, including the exceptionally bright and motivated men and women who I had the pleasure of meeting with today. As they prepare to enter the fleet, the country owes it to them to give them a set of missions that is vital to the nation’s security, and to provide them with the tools to accomplish them. But we shouldn’t reflexively buy into the claim that more = better.

Week in Review: Tax Day, Pirates and Cuba

Tax Day: The Nightmare from Which There’s No Waking Up

Cato scholars were busy exposing the burden of the American tax system on Wednesday, the deadline to file 2008 tax returns.

At CNSNews.com, tax analyst Chris Edwards argued that policymakers should give Americans the simple and low-rate tax code they deserve:

The outlook for American taxpayers is pretty grim. The federal tax code is getting more complex, the president is proposing tax hikes on high-earners, businesses, and energy consumers; and huge deficits may create pressure for further increases down the road…

The solution to all these problems is to rip out the income tax and replace it with a low-rate flat tax, as two dozen other nations have done.

At Townhall, Dan Mitchell excoriated the complexity of the current tax code:

Beginning as a simple two-page form in 1913, the Internal Revenue Code has morphed into a complex nightmare that simultaneously hinders compliance by honest people and rewards cheating by Washington insiders and other dishonest people.

But that is just the tip of the iceberg. The tax code also penalizes economic growth, distorts taxpayer behavior, undermines American competitiveness, invites corruption and promotes inefficiency.

Mitchell appeared on MSNBC, arguing that every American will soon see massive tax hikes, despite Washington rhetoric.

Don’t miss the new Cato video that highlights just how troubling the American tax code really is.

U.S. Navy Rescues Captain Held Hostage by Somali Pirates

gallery-somali-pirates-pi-003USA Today reports that the captain of a merchant vessel that was attacked by Somali pirates was freed Monday when Navy SEAL sharpshooters killed the pirates. The episode raises a larger question: How should the United States respond to the growing threat of piracy in the region?

Writing shortly after Capt. Richard Phillips was freed, foreign policy expert Benjamin Friedman explained the reasons behind the increase in piracy:

It’s worth noting the current level of American concern about piracy is overblown. As Peter Van Doren pointed out to me the other day, the right way to think about this problem is that pirates are imposing a tax on shipping in their area. They are a bit like a pseudo-government, as Alexander the Great apparently learned. The tax amounts to $20-40 million a year, which is, as Ken Menkhaus put it in this Washington Post online forum, a “nuisance tax for global shipping.”

The reason ships are being hijacked along the Somali coast is because there are still ships sailing down the Somali coast. Piracy is evidently not a big enough problem to encourage many shippers to use alternative shipping routes. In addition, shippers apparently find it cheaper to pay ransom than to pay insurance for armed guards and deal with the added legal hassle in port. The provision of naval vessels to the region is an attempted subsidy to the shippers, and ultimately consumers of their goods, albeit one governments have traditionally paid. Whether or not that subsidy is cheaper than letting the market actors sort it out remains unclear to me.

Appearing on Russia Today, Friedman discussed the implications of the increased threat and what ships can do to avoid future incidents with Somali pirates.

Since the problems at sea are related to problems on Somali land, what can Western nations do to decrease poverty and lawlessness on the African continent? Dambisa Moyo, author of Dead Aid, argued at a Cato Policy Forum last week that the best way to combat these issues is to halt government-to-government aid, and proposed an “aid-free solution” to development based on the experience of successful African countries.

Obama Lifts Some Travel Bans on Cuba

The Washington Post reports:

President Obama is lifting some restrictions on Cuban Americans’ contact with Cuba and allowing U.S. telecom companies to operate there, opening up the communist island nation to more cellular and satellite service… The decision does not lift the trade embargo on Cuba but eases the prohibitions that have restricted Cuban Americans from visiting their relatives and has limited what they can send back home.

In the new Cato Handbook for Policymakers, Juan Carlos Hidalgo and Ian Vasquez recommend a number of policy initiatives for future relations with Cuba, including ending all trade sanctions on Cuba and allowing U.S. citizens and companies to visit and establish businesses as they see fit; and moving toward the normalization of diplomatic relations with the island nation.

While Obama’s plan is a small step in the right direction, Hidalgo argues in a Cato Daily Podcast that Obama should take further steps to lift the travel ban and open Cuba to all Americans.

Topics:

Fighting Piracy through Nation Building?

Even though I was on vacation last week, I followed the story of the Maersk-Alabama and Captain Richard Phillips with great interest. And I exulted when three of the four pirates met their end. The safe return of the Maersk-Alabama and her entire crew was a clear win for the cause of justice, and could serve as a model. Future efforts to protect ships from pirates are likely to include some combination of greater vigilance on the part of the shipping companies and crews, in collaboration with the navies of the many different nations who have an interest in keeping the sea lanes open and free. (This is one of the themes that I develop in my new book, and that I will discuss next Monday at Cato.)

We do not need to reorient our grand strategy to deal with pirates. We don’t need to reshape the U.S. Navy to fight a motley band of young men in leaky boats. As my colleague Ben Friedman has written, piracy is a problem, but decidedly minor relative to many other global security challenges.

But some are criticizing the approach taken to resolve last week’s standoff. They say that the only way to truly eliminate the piracy problem is to attack and ultimately clean out the pirates’ sanctuaries in lawless Somalia. This “solution” fits well with the broader push within the Washington foreign policy community that would deal with our security problems by fixing failed states.

I have gone on at length, usually with my colleagues Justin Logan and Ben Friedman, on the many reasons why an overarching strategy for fixing failed states is unwise and unnecessary. I won’t expand on that thesis here, other than to point out that of all failed states in the world, Somalia is arguably the most failed. “Fixing” it would require a massive investment of personnel, money, and time — resources that would be better spent elsewhere.

Mackubin Owens offers one of the more intriguing defenses of this approach in a just published e-note for the Foreign Policy Research Institute. Owens likens a strategy of fixing Somalia to Gen. Andrew Jackson’s military operations in Florida, a story that features prominently in John Lewis Gaddis’s Surprise, Security and the American Experience. As Owens notes, when some members of President James Monroe’s cabinet wanted to punish Jackson for exceeding his mandate — in the course of his military campaign he captured and executed two British citizens accused of cavorting with the marauders who had attacked American citizens — Secretary of State John Quincy Adams jumped to Jackson’s defense and proposed a different tack. He demanded that Spain either take responsibility for cleaning up Florida or else give it up. And we all know what happened. Under the terms of Adams-Onis Treaty of 1819, Florida became a territory of the United States. Some 26 years later, it became our 27th state.

I’ve vacationed in Florida many times. Walt Disney World is wonderful for the kids; I’ve been there six times. I spent three memorable days watching March Madness in Miami a few years back. Spring training baseball is great fun. Adams couldn’t have imagined any of these things when he acquired a vast swampland; he cared only that Florida under Spanish control, or lack thereof, posed a threat.

Here is where the parallels to the present day get complicated. I’ll admit that I’ve never been to Somalia. Perhaps they have their own version of South Beach, or could have some day. But I’m frankly baffled by the mere intimation that our national security is so threatened by chaos there that we need to take ownership of the country’s — or the entire Horn of Africa’s — problems.

And yet, that is what many people believe. And this is not a new phenomenon. In many respects, we have chosen to treat all of the world’s ungoverned spaces as the modern-day equivalent of Spanish Florida.

Max Boot and Robert Kaplan compare U.S. military operations in the 21st century to the westward territorial expansion of the 19th century. In 1994, Kaplan authored one of the seminal works in this genre, “The Coming Anarchy,” in which he advised Western strategists to start concerning themselves with “what is occurring … throughout West Africa and much of the underdeveloped world: the withering away of central governments, the rise of tribal and regional domains, the unchecked spread of disease, and the growing pervasiveness of war.” Less than two years later, William Kristol and Robert Kagan wrote, “American hegemony is the only reliable defense against a breakdown of peace and international order.” Boot in 2003 advised Americans to unabashedly embrace imperialism. “Afghanistan and other troubled lands,” he wrote, “cry out for the sort of enlightened foreign administration once provided by self-confident Englishmen in jodhpurs and pith helmets.”

Americans have resisted such advice, and with good reason. The world will not descend down the path to total ruin if the United States hews to a restrained foreign policy focused on preserving its national security and advancing its vital interests. That is because there are other governments in other countries, pursuing similar policies aimed at preserving their security, and regional — much less global — chaos is hardly in their interests. The primary obligation of any government is to defend its citizens from threats. Curiously, our conduct in recent years suggests that U.S. policymakers doubt that other governments see their responsibilities in this way. Indeed, we have constructed and maintained a vast military largely on the grounds that we, and we alone, must police the entire planet.

In The Power Problem, I quote Machiavelli, who noted in his discourses: “Men always commit the error of not knowing where to limit their hopes, and by trusting to these rather than to a just measure of their resources, they are generally ruined.” I continue:

As Machiavelli would have predicted, the notion of what Americans must do to preserve and advance our own security has steadily expanded over the years to encompass the defense of others. Seemingly unconstrained by the resources at our disposal, we are driven by our dreams of fashioning a new global order. But we are also driven by false fears. We believe that we can only be secure if others are secure, that insecurity anywhere poses a threat to Americans everywhere. If someone on the other side of the planet sneezes, the United States is supposedly in danger of catching pneumonia. The putative cure is preventive war. Such geostrategic “hypochondria” has gotten us all into much trouble over the years. We would be wise to take measure of our relative health and vitality, and not confuse a head cold with cancer.

[Cross-posted from PSA’s Across the Aisle]

Pirates as Proto-Governments? You Bet!

I have to confess I don’t understand why Roger Pilon and Ilya Shapiro are criticizing our colleagues Ben Friedman and Peter Van Doren below.  At the risk of being cast as yet another cog in the insidious piratofascist fifth column, I’d like to defend Ben and Peter.

Roger and Ilya reproach Ben and Peter for likening pirates to “pseudo-governments” and mount an impassioned defense of the nation-state as deserving a place in a different category from pirates.

On the distinction between the two, they write: “A tax, at least in principle, and most often in practice, is a charge for a service rendered –- not necessarily a wanted or an evenly distributed service, to be sure…”  To be sure, indeed!  There’s a term for charging people for an unevenly distributed and unwanted service.  It’s called racketeering.  Their description of taxation could apply quite well to a mafia.

Roger and Ilya would prefer to keep pirates and governments in two discrete categories but provide little reason why other than the above.  But if they dislike the analogy, their problem is not with Ben or Peter or Noam Chomsky or St. Augustine, but rather with a body of well-developed academic literature.  In particular, one of the preeminent scholars of the formation of national states, the late Charles Tilly, wrote a famous book titled Coercion, Capital, and European States that would help color in the gaps for them.  The short version is that European elites came to form national states as a means for protecting their fiefdoms from other proto-states, which frequently had predatory aims, and that this process sometimes had the incidental effect of protecting the populaces that lived under state jurisdiction and could be used as means for making war against the neighbors.

Tilly also wrote a well-known essay titled “War Making and State Making As Organized Crime” that makes the following claim: “Banditry, piracy, gangland rivalry, policing, and war making all belong on the same continuum.” Tilly went on:

In retrospect, the pacification, cooptation, or elimination of fractious rivals to the sovereign seems an awesome, noble, prescient enterprise, destined to bring peace to a people; yet it followed almost ineluctably from the logic of expanding power. If a power holder was to gain from the provision of protection, his competitors had to yield. As economic historian Frederic Lane put it twenty-five years ago, governments are in the business of selling protection … whether people want it or not.

Governments and pirates both “put the victim to a choice between two of his entitlements – his freedom and his property.”  In the literature on state formation, this isn’t a controversial point.  I’m really surprised to see that it is for two libertarians.