Economist's Defense Of Perpetual Copyright: It's Best To Just Ignore The Economics

Economics

from the wait,-really? dept

We’re rapidly approaching the time in which perpetual copyright hits its existing statutory limits — so I’ve fully been expecting an increase in arguments for why copyright needs to be extended again. Of course, the actual economic evidence doesn’t support this at all. Instead, the evidence suggests there’s tremendous value in a broader public domain. So how will maximalists argue for copyright extension? If a recent paper from economist Stan Liebowitz is any indication, it will be through strawmen and the argument that we should ignore the economics. Seriously.

Jerry Brito recently had Liebowitz join him on the Surprisingly Free podcast to discuss a paper Liebowitz wrote entitled Is Efficient Copyright a Reasonable Goal? Liebowitz, if you’re unfamiliar with him, has become the MPAA/RIAA’s favorite economist over the last few years, and they tend to trot him out in various debates over file sharing. He also seems to have what feels like a personal vendetta against economists Felix Oberholzer-Gee & Koleman Strumpf, who have repeatedly shown how weaker copyrights have benefited society. This particular paper appears to mostly consist of Liebowitz taking some of Oberholzer-Gee and Strumpf’s arguments out of context, building a strawman around them… and then arguing that we should ignore economics.

First up, he argues that there are legitimate theorists out there who believe that we shouldn’t let artists get too rich — and that those same people don’t seem to mind anyone else getting rich. In the podcast, he focuses on how basketball players get super rich, and we would all think it’s crazy to tax most of their income, even if it were shown that they’d continue to play basketball at a lower salary. He notes, correctly, that incomes above the point at which they’d still be playing basketball are a form of economic rents, and the theory is that you can tax such economic rents without doing much harm elsewhere — and that’s a “more efficient” solution. So, strawman number one is this idea that there are people who think that it’s okay to stop musicians from getting super wealthy, but who feel otherwise about, say, pro-basketball players.

He argues that there’s no way in policy to “tax” basketball players, but because we can control the length of copyright, we can (and do) levy exactly that kind of “tax” on content creators like musicians by taking away their copyright.

We don’t actually go after rents in the tax system. No one tries to remove the 90% of rents that people get if they’re top basketball players. No one says ‘well, gee, Charles Barkley, back in the day, when he was doing it, or Michael Jordan, or anybody now, we should have taken 90% of their income away, because it was all rent.’ So the textbook says we should and it would be efficient if we could, if we’re just looking to generate revenues for the government. But there’s no practical application of actually trying to do any of that.

The one place in policy where we can do something like that, is something like copyright. Because in copyright we can control the length or duration of the copyright, which largely controls the amount of rents that the creative individuals get. Now, it’s an average, but that’s something that we can do for them, that we can’t do for almost any other occupation. And that’s sort of the difference here. So we’re talking about efficiency in terms of copyright. And what’s different here is that the ownership rights that the copyright holder is given is not permanent, it’s temporary. And we control how long it lasts by the law. Every other type of ownership, to a large extent, is not considered temporary, and you get to keep ownership as long as it stays in your property or your heirs’ property.

Of course, there are all sorts of fallacies in those two simple paragraphs. First, the idea that taking away someone’s copyright 70 years after they’ve died is a form of “taxing their rents” is ludicrous. Nearly every work covered by copyright has exactly zero economic value by that point. The vast, vast, vast majority of such works are not being exploited economically at all. Furthermore, I’m having trouble thinking of economically inclined people who argue that it’s reasonable to tax 90% of anyone’s income, whether they be basketball players or musicians. While I’m sure there are some people out there who think that megamillionaire musicians earn too much, as far as I can tell, those people feel almost exactly the same about megamillionaire athletes as well. But I haven’t seen any serious arguments that we should take away 90% of the revenue those folks make. In part, it’s because of the bizarre assumption that Liebowitz slips into his explanation above: that the sole goal is maximizing government revenue. But that’s not what anyone is generally trying to do from a policy perspective. If anything, it’s quite different. They tend to look at maximizing public benefit.

So, already, we’re down a bizarre rabbit hole. How did we get here? Well, not surprisingly, if we look at the actual paper, it seems to come from Liebowitz’s obsession with Oberholzer-Gee and Strumpf. He regularly cites that paper as supporting this strawman. Yet if you read their actual paper, it does not (as Liebowitz claims) “imply” that it’s socially beneficial to pay creators less. Instead, all that Oberholzer-Gee and Strumpf point out is that there are many reasons why people create outside of copyright, and that a weakening of copyright does not, necessarily, harm the incentives to create, but might provide significant additional benefits to the public.

In the podcast, Jerry Brito valiantly pushes back on some of the more extreme arguments that Liebowitz makes, pointing out that claiming that putting works into the public domain is the equivalent of taking away someone’s high salary is making the classic mistake of arguing that copyright is no different than scarce property. It descends into the same old argument, where Liebowitz claims that Brito is arguing in favor of “stealing” and pulls out the silly argument that his position would apply equally to “stealing” a car. Brito points out that this is untrue, and his concern is that copyright, unlike traditional property rights, is actually a restriction on what others can do with their own private property (i.e., you can’t make a copy of a work whose copy you already hold). Liebowitz refuses to concede the point, other than the minor concession that non-rivalrous goods are somewhat different than rivalrous ones. But, of course, that difference is everything… and Liebowitz pretends it’s insignificant.

Jerry Brito (JB): Let’s say you wrote a book, and I want to use my printing press to make a copy of it. I can’t do that.

Stan Liebowitz (SL): Right. Not without getting permission.

JB: Precisely.

SL: Absolutely. That’s what copyright does. But that’s essentially a property right. You can’t come and use my car without my permission. That’s what property rights do.

JB: Sure, but the reason we might want to cut off the rent in the copyright space, where we just want to cut it off where they’ve earned enough to induce them, whereas we wouldn’t want to do that for basketball players, is simply that, in the copyright space, you’re limiting what I can do with my property. My physical property. My printing press. I can’t use my printing press to make a copy of your book. It’s affecting me. Whereas Michael Jordan performing well, doesn’t really affect me one way or the other.

SL: Well, you can print anything you get the rights to print. I don’t think it affects your freedom any more than it restricts your freedom to drive my car whenever you want to.

JB: No, but when I drive your car, then you can’t drive it. But if I use my printing press to make copies of your book, you still have your book.

SL: I no longer have the earning capacity that I have from writing the story.

JB: Which is why we have copyright. And the question is at what point should it end?

SL: That’s right. And you’re talking about the non-rivalrous consumption aspect of intellectual property.

JB: Exactly. At what point should the limit on my freedom be lifted?

SL: Because it’s an issue where you want to have the freedom to generate revenues from an item that I created. That’s one aspect of it. I’m not sure we should give you that freedom, just as we shouldn’t give you the freedom to sell my car. I mean yes it’s true that one’s rivalrous and one’s not rivalrous. But I create the story. Why should you be allowed to generate revenues on a story that I created?

JB: I guess I’m…

SL: What does that have to do with your freedom? We do view the property right differently on copyright than we do on other items, but I’m not sure we should. You claim there’s a difference in freedom and I’m saying, ‘no, just as you can’t take my car without my permission, I don’t see why you should be able to take my story without my permission.’

JB: Let’s not get too deep into this, but I’d simply say…

SL: I mean you want the freedom to steal, is what you’re saying.

JB: Well, no…

SL: It infringes on your freedom.

JB: No, no, no…

SL: If you consider an item, and we’ll say let’s treat it like other property, then yes, my story is my story. And you want to steal it.

It continues in that vein. Perhaps for way way too long. It’s not hard to pick out the series of logical fallacies that Liebowitz relies on there. He doesn’t differentiate between actually taking something (such that the original person no longer has it) and making a copy of the work, such that there are now more copies in the world. Those two situations are extraordinarily different both conceptually and economically. He refuses to recognize the simple fact that the very basis of copyright is restricting the freedom of others (perhaps for legitimate reasons — but restricting them nonetheless). He doesn’t seem to recognize that the ability to benefit (profitably or not) off the works of others is not a horrible thing — and, in fact, it’s a key piece of how economic growth works. That is, Liebowitz appears to be arguing against economic growth, by suggesting that all externalities are inherently “bad,” contrary to nearly all economic literature on the subject.

He also tosses out the ridiculous paired fallacies that (1) ignoring the copyright takes away all “earning capacity” from a work and (2) taking away earning capacity represents a real harm or loss. Neither is true. There are still plenty of ways to benefit without copyright, and uncaptured earning capacity is a marketing problem. It means you failed to convince someone to pay. That’s it. If Liebowitz’s argument that harming someone’s “earning capacity” is somehow an unfair removal of their property rights — which is exactly what he claims above — is accurate, then he would appear to be against all competition. That is the very nature of competition, of course: to try to take away a competitor’s earning capacity, such that the revenue that might have gone to a competitor goes to you instead.

In the paper itself, thankfully, Liebowitz’s argument is somewhat more thought out and nuanced, though still not at all convincing. He shows the traditional curves of demand vs. marginal cost and marginal revenue — and the price and quantity produced under the different circumstances, arguing that:

Under a regime of competitive production of reproductions (no copyright), the equilibrium price of a reproduction is Pc (equal to marginal cost, MC) and the quantity of reproductions purchased is Qc. There is no profit earned in the market for reproductions since the market is assumed to be competitive.

However, as we’ve discussed for years, this simplistic analysis assumes a static market, and one where the producer does not innovate or provide differentiated, scarce value above the product itself. That is, musicians can (and do!) create additional value that they get people to pay for that can’t be copied, such as the personal connection between the artist and the fan, a live show, physical merchandise, the beneficial feeling of supporting an artist, etc. In other words, the classical analysis is way too simplistic, and ignores how everyone, whether dealing with rivalrous goods or non-rivalrous goods, prevents price from being pushed to marginal cost: by adding additional scarce value. The problem is when you focus solely on the non-rivalrous good, and assume that there are no additional scarcities (tangible or intangible) that can be created around it. While Liebowitz does make a nod to this fact later in his paper, he doesn’t spend much time on it.

The end result of all of this? Liebowitz more or less admits that his argument does not make economic sense, and then still seeks to justify perpetual copyrights.

Let’s remember that the key point I’m trying to make is one that is not particularly amenable to economic analysis. I don’t deny that it’s efficient to sort of weaken copyright to a certain balancing point. What I’m saying is that we can do that, we have the tools to do that, and no one finds it particularly morally objectionable to weaken copyright to get to what is the proper balance. The point of my paper is that if we were doing it the way we’re saying we would like to, we would be removing rents from the creators of copyrighted works, because that’s how you get the balance that’s most efficient. But we don’t go reducing rents elsewhere in the economy, say from basketball players.

In other words, the argument here is: because basketball players are rich, we shouldn’t reduce copyrights, because then musicians might not become quite as rich.

Of course, those arguing for increasing taxes on the rich might disagree about the claim that no one wants to “tax” the super rich in other fields. But the larger point here remains… well… confounding. Liebowitz makes a number of assumptions that simply don’t make economic sense — and even then admits that his conclusion doesn’t make economic sense — but still suggests that perhaps copyright should be perpetual… because, in his view, we don’t tax other professions.

There are still a few more years before the real battle over copyright extension heats up, and I fully expect that we’ll be seeing some crazy arguments between now and then for why copyright should be extended, but if this is the best that the MPAA and RIAA have got right now, they may want to seek some additional help.

Filed Under: copyright, copyright extension, economics, perpetual copyright, rent, stan liebowitz