Trade, Copyright, and Poetic Justice

Don’t miss Sallie James’s excellent write-up of the ongoing WTO dispute over the American gambling ban. Hollywood is being caught in the crossfire in the dispute, as one of the remedies the WTO is considering for the US’s non-compliance with WTO rulings is allowing other countries to ignore American companies’ copyrights.

As I point out over at Techdirt, I’m not sure it makes sense to paint Hollywood as an innocent victim here. After all, Hollywood has been pushing for decades to link trade policy and copyright law, going so far as to push for provisions in recent trade deals micro-managing other countries’ copyright policies and requiring them to enact laws like the DMCA as a condition of access to American markets. Free traders rightly object when special interests try to use free trade agreements to compel countries to enact their preferred labor and environmental policies. We should be equally incensed when Hollywood lobbies try to use trade agreements to compel countries to enact their preferred copyright policies. So there’s a certain amount of poetic justice in the fact that after decades of pushing to link trade and copyright issues, Hollywood has found its copyrights in the crosshairs of a trade dispute.

James also makes the excellent point that retaliatory tariffs are an insane way to impose damages on the losing country in a WTO dispute because tariffs hurt consumers in the “winning” country at the same time it hurts producers in the “losing” country. This is another reason we shouldn’t be too upset about copyright-based penalties for the losing party in trade disputes. If damages are imposed by targeting copyright law, consumers in the winning country will actually be made better off by lower prices for the copyrighted products in question. So while it would be best if Congress repealed its idiotic gambling ban, I’m not going too upset if Hollywood’s attempts to link copyright law to trade policy come back to bite them.

Britain, Canada, Germany, Italy, Spain, and Now Kuwait

To close out a year of remarkable corporate tax cutting around the world, Kuwait has passed a bill to sharply cut its uniquely high rate. Here is the one-sentence story in the Washington Post today (page D8):

Kuwait’s parliament passed a bill to cut taxes on profit of foreign companies to 15 percent, abolishing a progressive scale established in 1955 with a maximum rate of 55 percent, in a bid to attract investments and diversify the economy.

Progressive is the past; flat is the future. 

What’s So Funny about P. J. O’Rourke?

I decided to give a young colleague a post-graduate course in political science and economics – P. J. O’Rourke’s books Parliament of Whores and Eat the Rich. So I went to my local Barnes & Noble to search for them. Not in Current Affairs. Not in Economics. No separate section called Politics. I decided to try Borders. But first – to avoid yet more driving around – I went online to see if my local Borders stores had them in stock. (An excellent innovation that Barnes & Noble should copy, for customers who like to look at the actual book before buying it, or who don’t do their Christmas shopping far enough in advance to shop online.) Sure enough, they did, in a couple of stores just blocks from the Cato Institute. Checking to see where in the store I would find them, I discovered that they would both be shelved under “Humor–Humorous Writing.” Oh, right, I thought, they’re not books on economics or current affairs, they’re humor.

Yes, P.J. is one of the funniest writers around. But what people often miss when they talk about his humor is what a good reporter and what an insightful analyst he is. Parliament of Whores is a very funny book, but it’s also a very perceptive analysis of politics in a late 20th century democracy. And if you read Eat the Rich, you’ll learn more about how countries get rich—and why they don’t – than in a whole year of econ at most colleges. In fact, I’ve decided that the best answer to the question “What’s the best book to start learning economics?” is Eat the Rich.

On page 1, P. J. starts with the right question: “Why do some places prosper and thrive while others just suck?” Supply-and-demand curves are all well and good, but what we really want to know is how not to be mired in poverty. He writes that he tried returning to his college economics texts but quickly remembered why he hated them at the time–though he does attempt, for instance, to explain comparative advantage in terms of John Grisham and Courtney Love. Instead he decided to visit economically successful and unsuccessful societies and try to figure out what make them work or not work. So he headed off to Sweden, Hong Kong, Albania, Cuba, Tanzania, Russia, China, and Wall Street.

In Tanzania he gapes at the magnificent natural beauty and the appalling human poverty. Why is Tanzania so poor? he asks people, and he gets a variety of answers. One answer, he notes, is that Tanzania is actually not poor by the standards of human history; it has a life expectancy about that of the United States in 1920, which is a lot better than humans in 1720, or 1220, or 20. But, he finally concludes, the real answer is the collective “ujamaa” policies pursued by the sainted post-colonial leader Julius Nyerere. The answer is “ujaama—they planned it. They planned it, and we paid for it. Rich countries underwrote Tanzanian economic idiocy.”

From Tanzania P. J. moves on to Hong Kong, where he finds “the best contemporary example of laissez-faire….The British colonial government turned Hong Kong into an economic miracle by doing nothing.”

You could do worse than to take a semester-long course on political economy where the texts are Eat the Rich and Parliament of Whores. So, bookstore owners, leave them in the Humorous Writing section for sure, but also put copies in the Economics, Politics, and Current Affairs sections.

Tag-Team Battle: Rats and Bureaucrats vs. Cats and Entrepreneurs

Tens of millions of Americans have cats in their homes, notwithstanding the possibility that some cat hair may get in their food. Bureaucrats in New York City, however, want to save consumers from this horrifying possiblity, so they fine store owners who keep cats on their premises. But the Grinches at the Health Department fail to realize that the cats are the most effective way of controlling rodents. This creates a no-win situation for entrepreneurs. They can keep a cat in the store and risk getting fined, or they can go without a cat and get fined for rodent infestation. The New York Times reports:

Amid the goods found in the stores, there is one thing that many owners and employees say they cannot do without: their cats. And it goes beyond cuddly companionship. These cats are workers, tireless and enthusiastic hunters of unwanted vermin, and they typically do a far better job than exterminators and poisons. When a bodega cat is on the prowl, workers say, rats and mice vanish. … But as efficient as the cats may be, their presence in stores can lead to legal trouble. The city’s health code and state law forbid animals in places where food or beverages are sold for human consumption. Fines range from $300 for a first offense to $2,000 or higher for subsequent offenses. … Still, many store owners keep cats despite the law, mainly because other options have failed and the fine for rodent feces is also $300. “It’s hard for bodega owners because they’re not supposed to have a cat, but they’re also not supposed to have rats,” said José Fernández, the president of the Bodega Association of the United States.

To understand what this really means, the article tells the story of Mr. Martinez, who is trying to earn a living while dealing with the mindless bureaucracy:

…last winter, a friend brought Mr. Martinez a marmalade kitten in need of a home. Mr. Martinez, who was skeptical of how one slinky kitten could fend off an army of hungry rats, set up a litter box in the back of the store, put down an old fleece jacket and named the kitten Junior. Within two weeks, Mr. Martinez said, “a miracle.” “Before you’d see giant rats running in off the streets into the store, but since Junior, no more,” he said. Junior sometimes brings Mr. Martinez mouse carcasses as gifts, which he said bothers him less than the smell that permeates his store when the exterminator’s victims die and rot under a freezer. In October, a health inspector fined Mr. Martinez $300 and warned him that if Junior was still there by the time of the next inspection he would be fined $2,000. “He wants me to get rid of the cat, but the rats will take over if I do,” Mr. Martinez said. “I need the cat, and the cat needs a home.” Because stores do not get advance notification of an inspection, Mr. Martinez is trying to keep Junior in his office as much as possible. Many bodega owners reason that a cat is less of a health threat than an army of nibbling rats. “If cats live in homes and apartments where people have food, a cat shouldn’t be a threat in a store if it’s well maintained,” Mr. Fernández said.

I don’t have much opportunity to patronize New York City bodegas, but I prefer cats over rats. Too bad the city’s bureaucracy doesn’t let the market decide which animal should take precedence.

Australian National ID Card Abandoned

This somewhat cryptic blog post at Wired reflects the delight of Roger Clarke that the Australian national ID card has been dropped by the incoming government. Clarke wrote an article in 1994 that is probably fairly regarded as the foundation of identification theory. I expanded on his thinking in my book, Identity Crisis.

In related news, Montana Senators Max Baucus and Jon Tester put language prohibiting the expenditure of federal funds for development of a national ID card in the omnibus spending bill Congress passed last week. Because the Department of Homeland Security denies that REAL ID is a national ID, this language is probably hortatory during the current administration.

Will the IRS Drive More Business Offshore?

In a baffling move, the Internal Revenue Service is poised to unilaterally change the rules for “captive” insurance companies, a policy that will drive business out of the
United States.

It is unclear whether the tax agency actually has the regulatory authority to make this change, and the IRS in the past has tried to use regulations to overturn existing law, so anything is possible. In any event, a report from the Cayman Islands shows that low-tax jurisdictions are looking forward to taking advantage of the IRS’s initiative:

A recent Internal Revenue Service proposal to remove tax deductions for certain U.S. captives may drive more companies to go offshore, with Cayman and Bermuda the prime beneficiaries of the change. If approved, this proposal would eliminate the ability of U.S. captives to claim tax deductions for money set aside in reserves to pay for future claims and losses. Instead, these deductions would only be allowed at the time the actual claims are paid out, potentially leading to millions of dollars in taxes being collected up front.

…Vermont has been the only real onshore competitor for Bermuda and Cayman as large numbers of U.S. companies have turned to captives, transforming this once exotic product into a mainstream choice on the global market place.  …To date, Bermuda leads the captive market with about 870 companies, followed by Cayman (756) and Vermont (562).

Cringe-Inducing Confusion at TNR

Over at The New Republic, Josh Patashnik responds to my post on Gov. Arnold Schwarzenegger’s (R-CA) universal coverage plan. Over at Washington Monthly, Kevin Drum gave Patashnik Tuesday’s quote of the day.

It would be an understatement to say Patashnik and I don’t see eye to eye. I don’t even think we speak the same language. For example…

Market-friendly reforms?  Patashnik describes the Schwarzenegger plan as a collection of “market-friendly” health care reforms. Really.

The plan would banish market prices for health insurance. It would override market allocations of wages and benefits. It would let the state, rather than the market, decide what share of health insurance premiums will be spent on administrative costs vs. claims. It would expand government coverage at the expense of private markets. Every plank of Schwarzenegger’s plan would reduce the number of decisions made by the market and increase the number of decisions made by government.  

Certainly some insurance companies and employers would benefit, because the plan would cripple their competitors. But that makes the plan anti-competitive, special-interest legislation — not market-friendly. 

Patashnik claims the plan contains a “variety” of market-friendly reforms. If he can find even one, I’ll buy him lunch.

Libertarians = conservatives? Patashnik writes:

I can’t say I’m surprised Cato doesn’t like [Schwarzenegger’s plan], though. The conservative health care strategy works like this…

Patashnik perhaps believes that conservatives and libertarians are the same thing, or that the latter are a subset of the former. This is a source of irritation for libertarians (and probably conservatives too), for the same reasons it would irritate TNR staff to be called communists: not only is it dismissive, it’s just plain inaccurate

…endorse subsidies in theory, since it would seem unacceptably heartless to simply say that people who can’t afford medical care shouldn’t get it….

Libertarians endorse voluntary subsidies, in the abstract and the concrete, for those who cannot afford medical care. This is not because “it would seem unacceptably heartless to simply say that people who can’t afford medical care shouldn’t get it,” but because that is unacceptably heartless. 

Libertarians oppose coerced subsidies, such as the Medicaid program that Schwarzenegger proposes to defraud, because it is immoral to put someone in jail if he doesn’t want to contribute to Medicaid. Coerced subsidies are also counter-productive. (Need evidence? Look around.)  

Mind you, we don’t think these things because we’re libertarians; we’re libertarians because we think these things. 

Patashnik continues:

…Then, whenever anybody proposes a plan to actually implement subsidies, vehemently oppose it without offering any alternative plan to expand coverage.

Three things: First, a libertarian who opposes coerced subsidies is being entirely consistent. Second, libertarians have no obligation to offer an alternative plan to expand coverage, because libertarians reject that as a legitimate role for government. Third, were Patashnik to peruse the offerings of Cato health policy scholars, he would notice that most of our proposals nevertheless would expand coverage — simply because more people would have health insurance if government got out of the way.

State experimentation  Patashnik concludes:

…In other words, let states experiment — except when they actually do.

Yeah — if libertarians (or conservatives?) prefer state-level economic regulation to federal regulation, why do they complain about it when they see it? Two responses:

First, one might believe that gay marriage is an issue for the states rather than Congress, but still oppose a particular state’s proposal to suppress that freedom. My guess is that Patashnik sees hypocrisy only because he does not value the freedom to choose his health insurance or how to provide charitable care as much as he values the freedom to marry someone of the same sex. 

Second, Schwarzenegger is experimenting with the money of non-Californians. By law, half of California’s Medicaid budget comes from the feds. So the non-Californians funding his grand designs have every right to object. Moreover, Schwarzenegger proposes — in broad daylight — to further pick the pockets of non-Californians by defrauding Medicaid

I wonder, does that bother Patashnik? I’m interested to know the answer.