The copyright system is broken

The debates surrounding copyright and piracy generally bore me. Those engaged in the debates invariably analogize piracy and copyright infringement to either stealing or sharing, and then the debate goes nowhere from there.

That vacuousness aside, the copyright system does seem out of touch with the modern world, and it is hard to see how it could seriously be sustained into the future. To understand why, it is best to start with an explanation of what copyrights actually are. Because the copyright system has been around for so long, we have come to think that it is a natural feature of the marketplace. But, it is not.

As Dean Baker skillfully explains, copyrights are government-granted monopolies over creating copies of some media. Back in the day, this was not as difficult a thing to enforce. Creating copies of books for instance required a printing press. If someone was violating the copying monopoly of some content creator, finding the violator and dealing with them was easy to do.

However, computers have totally changed the game. The copying monopolies granted to content creators become nearly impossible to enforce when every person with a computer has the ability to break those monopolies at zero cost. Instead of realizing that this monopoly-granting scheme has fallen apart, those in the content-creating industries and the government have tried to ramp up enforcement penalties to absurd levels. Through laws like the Digital Millennium Copyright Act, the federal government has tried to simply beef up copyright instead of rethinking it altogether. This solution is not working: polls indicate that 70 percent of 18 to 29-year-olds have pirated music.

To contemplate fixing this system, it is necessary to contemplate why it was put into place at all. The basic problem copyright tries to solve is that media creation is completely uneconomical. Creating an original music file is expensive. Counting labor costs and equipment costs, music file creation can easily run into the tens of thousands of dollars. But very few people would ever pay tens of thousands of dollars for a single music file. Every recorded song would thus be a completely losing venture economically speaking.

So, if we want to make this uneconomical activity economical, government intervention is required (that’s arguable, but let’s assume). Since music file creation is uneconomical, the government permits those who create music files to have a monopoly over copying that file. In a competitive market, the price of providing a file-copying service would be $0.00. That is how much it costs to copy a file these days. But, by granting a monopoly over file-copying, the government allows the content creators to capture economic rents with their file-copying services. Because they can generate rents with their copying monopoly, producing the content to make copies becomes a profitable venture.

That solution is unworkable now because enforcing the copying monopoly will be basically impossible. So, the question then becomes: what other ways are there to make uneconomical things economical? We have examples we can look at to think about the question. For instance, almost the entire non-profit sector does work that is uneconomical. Despite this, non-profit workers are able to make money to live on due to government grants, private foundations, and donations.

Music creation could try a similar path. If the government wants to intervene to incentivize the creation of digital media, it could do so directly through grants (instead of indirectly through enforcing copying monopolies). If the state taxed every person $20/yr, it could distribute $6 billion dollars for digital artists through something like the National Endowment for the Arts. This would be equal to 100,000 artists making $60,000/yr. That is not as high as some big name artists make now, but they probably shouldn’t be making that much anyways. The only reason they presently make that much is because of the government-granted monopolies that permit them to capture outsized rents.

Digital art foundations could be set up to distribute funding to artists to make music files. Individuals could also donate directly to artists or foundations in order to support the creation of music files. In fact, the individual donation system could actually be combined with the government grant system to create a quasi-market for musical creation. The government could allow people a tax credit with some upper limit (say $50/yr) for money they donate to musical content creators. This would function the same as deductions people can make for donating to charity currently.

I am not saying all of these solutions would necessarily work, but some cocktail of them is at least worth trying. What the government is trying to do now — extend and strengthen the copyright system — is almost certain to fail. Some other set of funding ideas at least would have a chance at success.

Regulations are not the problem, but an easy mistake to make

So, small businesses do not actually rank government regulations as that big of a problem for them. They are way more concerned about the state of the economy, despite what conservatives often say. With that said, there are still some who do complain about regulations, and I am sure some of them are genuine in doing so. This seems like a strange thing to be complaining about, but I think I know why this seeming error is made: I imagine that business owners often cite regulations and taxes as a problem because they are not thinking about other firms having to endure the very same regulations.

Imagine a business owner sees that she has to spend thousands of dollars complying with certain anti-pollution regulations. She looks at her own business and thinks to herself that removing those regulations would be a great boon to her business. After all, she would save those thousands of dollars. Imagine how much more profit that would be, or how much more she could expand, and so on.

But the problem with that reasoning is that it does not take into consideration that every other competitor also faces those same regulations. According to market theory, removing a certain anti-pollution regulation from all of the businesses in this businesswoman’s industry would do her no good. If the other firms she was competing with were sufficiently competitive, reducing her costs by a thousand dollars would not be a boon for her profits or ability to expand. Instead, these apparent savings would vanish as competition would require her to reduce her prices or increase wages or whatever else depending on the nature of the industry.

But the business owner probably does not think about that. She thinks about getting those thousands of dollars, not the way in which those thousands of dollars will change the nature of the competitive market she is in (which probably wont involve her just pocketing that money). So she ends up saying that regulations is costing her a lot, and making her unable to hire new employees or expand. But in reality, removing those regulations on the entire industry she is in will probably not result in a new equilibrium where she can do a bunch of expanding or hiring.

That is not to say that therefore all regulations are harmless. Removing them may not lead to more jobs or expansion of a particular firm — as the business owner thinks it will — but by bringing down prices, it could still have a net-positive effect. But that is a different argument, and it will proceed on much different grounds. We would need to discuss what the overall costs of the prevented pollution is and whether allowing that pollution to occur to decrease prices would actually increase overall efficiency.

Business owners are not thinking about things on that level though. They are thinking about their own firm. While in some marginal cases, regulations could actually be causing some issues, I suspect that in many cases business owners who complain about them are not taking into consideration the effect market competition would have on the reduced costs that deregulation of their firm would entail. The idea that the deregulation would cause everything else in their firm to remain the same, but just leave them with more cash to deal with at the end of the day is ludicrous, but an easy mistake to make.

How do we fix the deficit? End the wars, tax the rich! — And do some other things too!

Along with taxes, discussions around the deficit are made far more confusing than they really need to be. If we want to fix the long-term deficit, there are of course hundreds of different solutions. Despite having the best solutions on the deficit, those on the left are constantly depicted as totally delusional and non-responsive to the very real deficit concerns.

This is false, but the media needs some sort of narrative to keep the sides distinguished, and has consistently shied away from the class narrative that makes more sense. In any case, here is a short run-down of the left-leaning response to deficit concerns.

Social Security
Those on the right like to lump Social Security, Medicare, and Medicaid together and talk about dozens of trillions of unfunded liabilities. However, lumping the three together makes absolutely no sense when talking about the deficit because they have drastically different budgetary effects.

Social Security for instance is really fine. As I have written before (and again here), Social Security has never contributed a single penny to the debt and will not do so for another 27 years. At that point, Social Security recipients would have to take a one-time 19% benefit cut for the program to remain solvent into the infinite horizon.

Since we should avoid making that cut, small modifications need to be made in the meantime. There are tons of modifications that will do the trick. Perhaps the most popular one for those who lean to the left is to simply uncap the payroll tax. Right now, all income made over $106,800 is exempt from payroll taxes. Removing that cap would solve the long-term Social Security deficit tomorrow.

Medicare and Medicaid
While it can sometimes be misleading to group programs together, Medicare and Medicaid are best dealt in tandem because the deficit problems for each are the same: health care costs are rising at totally unsustainable rates.

I wrote a longer article all about this a short while ago, but the short of it is that the only way to fix these problems is to constrain health care costs. Since 1975, health care inflation has been more than 4%. These costs are felt across the board, both for government insurance programs and for private programs. If that is not fixed, it really does not matter what you do: things are going to be really bad.

How do we fix this? The answer again is pretty clear: adopt a single-payer healthcare system that constrains costs just like other universalized healthcare systems across the world already do. The United States spends twice as much per person on healthcare as other wealthy countries do, but does not experience any better outcomes. Fixing this totally dysfunctional healthcare system is the only way to control costs and ensure that the long-term deficits of these programs do not spiral out of control.

As Dean Baker pointed out today, if we could reduce healthcare costs in the United States as successfully as other countries have already done, that by itself would lead to budget surpluses into the infinite horizon. Implementing a universal healthcare system that controls costs — as other countries have already managed to do — is clearly the best way to keep the Medicare and Medicaid deficit in check, but it is also one of the most politically unlikely things to occur. That’s American politics for you.

Discretionary Budget
Everything that is not Social Security, Medicare, and Medicaid makes up the discretionary budget. The discretionary budget pays for all sorts of things including military, food stamps, government payroll, and so on. Fixing any discretionary budget deficits is also quite easy. As the slogan goes: end the wars, tax the rich! Well, and also get out of this recession.

The above chart from the Economic Policy Institute details some of the contributions to the current discretionary deficit problems. There are four categories: tax cuts for the rich, the wars, lost revenues, and extra spending caused by the recession. Letting the Bush-Obama tax cuts expire (tax the rich!) and ending the wars (end the wars!) would make a big dent in the discretionary budget deficit problem. But, of course, the biggest problem is that the depressed economy has destroyed revenues while also triggering government spending on social safety net programs. Once we get the economy back on track, growth and employment will resume, increasing revenue and decreasing spending. With that, we will be able to eliminate all but 2% of the discretionary budget deficit.

Conclusion
So that’s basically it. There is a plan right there that if successfully implemented would do the trick. Uncap the payroll tax cap (or make any other dozens of minor modifications to shore up Social Security); get healthcare costs under control through a single-payer system; and let the Bush tax cuts expire, end the wars, and get the economy back on track. That is not a hard to understand plan, and there simply is not a better one out there.

So, despite the present political narrative, those on the left don’t just have their heads in the sand to the reality of the fiscal situation. If anything it is the right-wing that — despite all their constant harping on the deficit — has no plan. As David Frum put it in a recent article: “Rather than workable solutions, my party [the Republican Party] is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares.” But of course, these are the guys the media touts as fiscally responsible.