Patent Failure

This week I’m filling in for libertarian blogger Megan McArdle at the Atlantic. Yesterday I finished a three part discussion of Patent Failure, an excellent new book on the patent system by James Besson and Michael Meurer.

The use of the phrase “intellectual property” to describe patents and copyrights has become so commonplace that we barely give it a second thought. I think that’s unfortunate, because the question of whether patents can sensibly be considered a kind of property is an empirical question, not merely a matter of semantics or tradition.

In my first post, I discuss the key characteristics of a patents system — clear boundaries and positive incentives for innovation, and argue that the patent system tends to fulfill those characteristics with respect to the chemical and pharmaceutical industry. In my second post, I shift my attention to the rest of the patent system, and show evidence from Bessen and Meurer that the patent system seems to be creating dis-incentives for innovation in industries other than chemicals and pharmaceuticals. Finally, in my third post, I suggest that the problem is a lack of clear boundaries, and discuss some of the reform proposals Bessen and Meurer offer to fix the patent system’s problems.

The best thing about the book, from my perspective, is that it takes the idea of patents as property seriously and then tries to bring some empirical evidence to bear on whether the patent system behaves the way we expect a property rights system to behave. Because of the analytical clarity of their approach, it gives us a meaningful yardstick with which to judge potential reforms.

Alaska Will Not Implement REAL ID

Passed into law Wednesday:

Section 1. AS 44.99 is amended by adding a new section to article 1 to read:

4 Sec. 44.99.040. Limitation on certain state expenditures. A state agency may not expend funds solely for the purpose of implementing or aiding in the implementation of the requirements of the federal Real ID Act of 2005 (P.L. 109-13, Division B).

High Wire

I recently received a complimentary copy of Peter Gosselin’s new book,  High Wire: The Precarious Financial Lives of American Families.   Mr. Gosselin is the national economics correspondent for the Los Angeles Times.  Here is an excerpt from the book jacket:

 The recent downturn seems to have brought an end to some of the strongest, smoothest growth in American history–a performance that economists found so sweet they dubbed it the “Great Moderation.”  Yet even in boom times, the economy was caught in a cross-current. … [T]he cross-current was neither the product of a misapprehension nor the nation’s normal ups and downs.  Instead, it was the result of a quarter-century long conversion of the nation’s economy from one of checks and balances to barely tempered free markets.

Interesting.  Query: What baseline (pdf) is Mr. Gosselin using?

“Dog Bites Man” Passes for Legal News These Days

“The Supreme Court this week made big news because it hardly changed the law at all,” reports The Washington Post. “The court broke no new ground in deciding that workers are protected from retaliation for complaining about discrimination, just as they are protected from discrimination itself.”  The story goes on to quote part of this press release that I wrote yesterday:

The Gómez-Pérez and Humphries rulings reinforce what should be readily apparent to objective Court-watchers: The Roberts Court is neither necessarily “pro-business” nor “conservative.” Instead, the Court evaluates the legal merits of each case and rules accordingly. Even where the Chief Justice disagreed with his colleagues (and notably with an opinion written by Justice Alito), in the Gómez-Pérez case, the disagreement was a technical one over statutory language and structure – and not anything that involves judicial philosophy or competing theories of constitutional interpretation. The most interesting thing to note from these cases is the difference in the justices’ views of stare decisis, the principle that the Court places heavy weight on its own precedent. Whereas Chief Justice Roberts and Justice Alito (and perhaps others) no doubt disagreed with the precedent upon which the Humphries decision relied, they went along with Justice Breyer’s reasoning that such disagreement over statutory interpretation does not justify overturning precedent. Justices Scalia and Thomas, on the other hand, consider that the risk to legal stability from overturning precedent to be less than the harm from perpetuating the earlier error. Whatever the significance of this difference of opinion, it is not an ideological dispute.

Perhaps more importantly, as I (and apparently others) said to this reporter over the phone, Roberts and Alito are likely to be more accommodating of incorrect but established precedent when they pertain to statutory interpretation rather than constitutional rights.  This is because Congress can always itself “overrule” an erroneous body of statutory construction by passing a new law – but of course the Court has the final word on constitutional issues (barring a constitutional amendment).

More generally, though, the above analysis, relating as it does to technical statutory construction that only reinforces existing law, would not normally be front-page (or, in this case, page A2) news.  The nature of the cases to which the Roberts Court grants review, however – more technical, business issues instead of red-meat “culture war” stuff – suggests that we could be in for more “dog bites man” stories in future.

The Global Flat Tax Revolution

There’s good news and bad news in the world of tax policy. The good news is that a growing number of nations now have flat tax systems instead of so-called progressive tax schemes that punish people for contributing more to economic growth. The bad news is that the United States is conspicuously absent on the list of flat-tax jurisdictions. Defenders of the internal revenue code often argue that a flat tax is an impractical idea, but this new video (narrated by yours truly) demonstrates that the flat tax is working very well and spreading rapidly as nations compete to offer more attractive tax policy to the world’s investors and entrepreneurs.

One small correction is already necessary. The video states that there are 24 flat tax jurisdictions, but it has recently been shown that Trinidad & Tobago is now a member of the flat tax club. Hopefully, the list will grow rapidly and the video will quickly be outdated.

Surprise! Stadium Predictions Flawed

The Washington Examiner reports:

Attendance at Nationals Park has fallen more than a quarter short of a consultant’s projections for the stadium’s inaugural year, cutting into the revenue needed to pay the ballpark bonds and spurring a D.C. Council member to demand the city’s money back.

The District’s ability to pay down the debt on the publicly financed ballpark depends in part on the number of people who show up to the games, David Catania, independent at-large, wrote in a letter Tuesday to Chief Financial Officer Natwar Gandhi. 

A study was commissioned in 2005 by Gandhi’s office. Written by Los Angeles-based Economics Research Associates, the report predicted attendance at the 41,000-seat ballpark would average 39,130 in year one, dropping to 32,737 in year four.

But paid attendance through 28 games has averaged only 29,141, Catania said, 26 percent lower than the consultant’s estimates. The Nationals are drawing the 15th-best crowd in baseball, according to ESPN, with a team that is in last place in the National League East and a 22-31 record as of Wednesday.

“It appears now,” Catania wrote, “that ERA may have seriously overestimated ticket sales, which represents a major portion of stadium-related revenues.”

Gandhi says it doesn’t matter, the bonds can be paid off with attendance as low as 10,000 per game. Which raises the question: if it’s that easy to pay for the stadium, why didn’t the multi-millionaire team owners agree to pay for it themselves?

Of course, these economic projections for subsidized stadiums are always vastly overstated. As Dennis Coates and Brad Humphreys wrote in a 2004 Cato study criticizing the proposed stadium subsidy, “The wonder is that anyone finds such figures credible.”

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,” Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports — or a possible negative effect.

In Regulation magazine, (.pdf) Coates and Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

And yet millionaire owners and mayors with Edifice Complexes keep commissioning these studies, and council members and editorial boards keep falling for them.