Cars Cars Cars!!!

What’s wrong with the auto market today? A quote from a CNN.COM news article Detroit's auto bubble pain sums it up. “Cheap financing, easy credit conditions and attractive pricing on cars due to overcapacity in the U.S. auto market caused record sales earlier this decade.” American markets, time and time again find themselves issuing out loans and financing plans to individuals who other wise can not afford high ticket items. This is all good in the short run as a finical boost for a company, but in the long run, when people can longer afford the items the currently have, and have no way of purchasing new ones, these very industries who seemingly have the best interest of the consumer and the padding of there own packets in mind, are left hurting in the end. The American government has decided to step in and help save the failing markets, I think that this is not the responsibility of our government. Markets fail, and they come back better then before because they learn from there mistakes. Stepping in the handing out free money cause someone in accounting and marketing made a mistake is not the answer.

Localized Economics in San Francisco

Not a very catchy title, is it?  Sorry about that.  I spent some time in San Francisco recently visiting an old friend and laying the groundwork for potential jobs.  There were plenty of things about the city that interested me, but one of the most intriguing was the pervasive notion that San Francisco should be a sustainable city unto itself, and not just in an agricultural or industrial sense. 

The term coined in the article linked to this entry is "locavore," but the author moves the argument into the economic realm, contending that to weather the national (probably global) economic storm, SF ought to take measures to keep economic livelihood within the greater city itself.  In and of itself, I think this is an appealing idea, but the economic principles that are delineated in the article give me some pause:

• Require banks to set aside funds for local business loans.
  
• Local companies should be given a strong local preference on city contracts.
  
• The city should use tax policy to discourage out of town chains that "strip mine" SF
  

Commenters on the article take the sentiment even further, suggesting that city employees such as police be required to live within a certain radius of their precinct or be required to spend a certain amount of time in town when off duty, finally ending with the rousing battle cry "...the sky IS falling... we intend to use the ashes of the economic and ecological collapses to create something viable, sustainable, and green."

I find myself strangely drawn to areas where neoclassical economics appears unable to come to grips with or indeed find solutions for our current, dynamic situation, but its disheartening to me that the knee jerk reaction of many (and indeed SF is a more "liberal" city than most) is to immediately move to enact socialistic policy instead of stepping back and examining the situation from a perspective placing value on individual liberties and property rights.  Could it be that these interventionist ideas are largely responsible for the situations that we find ourselves in, and perhaps aren't the best suggestion moving forward?

Smithean or Ricardian?

Under the Smithean view, gains from trade are a result of specialization. When individuals are able to concentrate their efforts on learning a few tasks well, rather than many tasks minimally, they are much more productive. Specialization plays a large role in developing substantial economies—the assembly line practically revolutionized America’s. In contrast to Smith, the Ricardian view holds that gains from trade are the result of comparative advantage. People produce the goods they are best equipped and skilled to produce and trade for those goods that they are not as well equipped to produce. These two views have different implications for public policy concerning trade. Competitive advantage could eventually lead to “losers” as the trade network expands. Those with greater competitive advantage will force those with less to produce in areas which they are not as well equipped. Those with the most advantages win while others lose. With specialization, as the network expands, the gains from trade increase, because expanding the network increases specialization, leading to greater productivity.

If politicians hold the Smithean view of the gains from trade, it would follow that they would support policies that promote international trade. However, there is much controversy associated with this department, which leads to the conclusion that many politicians hold a Ricardian view. Or, perhaps people do not realize the gains that can be achieved through trade because of specialization. If tariffs were removed, some imports would become cheaper and the money saved could be reinvested into capital and equipment, or labor, which would lead to increased productivity in that industry (Smithean view). However, if the Ricardian view is at the forefront, the tariffs that are in place are seen as “leveling the playing field.” Those with greater comparative advantage cannot drive those with less out of business.

So where does that leave us? Which views should be the one that dictates policy? Should specialization trump comparative advantage? Or visa versa? Ludwig von Mises advocates that the greatest productivity results when the means of production are privately owned and able to move freely to where they will be best employed. This leads me to believe that government regulation of international trade should be minimal, just enough to protect private property rights and enforce contracts. As the trading network expands, the means of production will continue to be employed in their most productive areas and prosperity will result.

Oh My...

A Quote from Austin...

"The only reason I can think of why some libertarians would be against patents and copyrights is because laws like these prevent them from cheating. Obviously any person who swallows the libertarian dogma lock, stock and barrel cannot think for himself, but must be lead around by other people's ideas. So if libertarians can't rely on others ideas, they would be absolutely lost. Hence, they are against copyrights and patents.Or is it because for these laws to exist, there must be some form of government to enforce them? And as these extreme, narrow-minded libertarians know, all government is evil and hell-bent on their destruction."

Here we go I usually don't comment on others blogs as it is their blog, but here Austin I believe that you are talking about two differnt things. As one of your narrow-minded libertarians, I have to question whether or not you are talking about copywriting something that has been earned or something that could be earned.

Austin I have to question whether or not you are taking about property rights being exclusive in all contexts. As I believe it, libertarians argue that if one holds contractual rights in ideas, there seems to be no good reason one could not have an equally coherent property right. Also libertarians argue that one one holds the amount of power and the ability to judge those rights (copyrights) on being fair and contractual. I believe that this is where copyrights have failed....look at where they have led us today; and that is to no actual protection for the individual.

I might be completely off, or mis-understood you but here are my two cents.

P.s. government is out to get me...and you....

Logic or Persuasion?-

Hayek has been discussed several times in Economic Freedom about the theory of knowledge, but forgive me by saying this but does Hayek substantiate the subsitutions of knowledge? Probably because I am writing this late at night, I am probably losing much if any part of an argument but I will proceed. As economists or even philosophers with varied perspectives, could we agree that by loss of informal knowledge people ( sorry to Professor Eubanks) as an aggregate be subsituted with persuasion ( which could lead to popularity)? It seems that this lack of familiarity of ourselves and what we want contributes to this loss of knowledge besides providing others needs at the expense of others should ( normative) be placed in the context of logic of what we do know and the process of logic ( no Modus Ponens here just hypothetical syllogisms- never mind just mindless rant). But its not, it seems unusually reminiscent of high school and elections of student president or prom queen and king in the respect of popularity.

If an individual cannot make their decisions due to many choices wouldn't it make sense to use popularity as a temporary filabuster or a indirect series of choices. Am I hinting that many people do not want to make choices?- Yes. But do they want to make choices to benefit themselves?- Yes. So wouldn't making decision in this context mean limited choices for an individual? - Yes if the individual cannot understand their opportunities. So assuming persuasion is indeed the substitution of some informal knowledge than perhaps that is the problem with people relying on government.

Could logic be replaced instead of persuasion ( since I am assuming persuasion is harmful to an individual in this blog) ? I would guess that logic could not be entirely rectified in the loss of knowledge ( b/c that is part of the reason Hayek brings it up in the first place). So perhaps there is a level of logic and persuasion ( that I for some reason want to seperate as different entities) that will always exist together.

If I include incentives into the mix on limiting choices either through buyer,government and seller incentives, the one creating the incentives ( pick a party/ country) is limiting the choices of the citizens but under what guise or goal?

Perhaps the problem lies in the understanding that a group of individuals that have some authority can seperate the means and the ends of a problem and that infromal knowledge cannot relate to a formal action.

Are We Truly Free?

Johann Wolfgang von Goethe once said that “None are more hopelessly enslaved than those who falsely believe they are free.” I have been wondering lately if Americans could be classified as “those who falsely believe that they are free”. The more I ponder this question, the more I recognize the massive amounts of rhetoric we have been spoon fed over the years to make us believe that we are free. While I still believe that we live in the greatest country in the world, I see increasing signs of our enslavement to federal and local governments every day. I recently realized that there is hardly anything of true significance in my life that I am allowed to do without notifying some level of government – I can’t get married, open a business, build on my private property, drive a car, hire employees, burn my trash, or even home school my kids without obtaining permission from the state or federal government.

As if it wasn’t enough to have to obtain permission from the government to operate a business, now the government is even dictating to privately owned businesses the type of services they must offer to their customers. A New Jersey judge recently ordered eHarmony.com to pay $5000 in damages to a gay man, $50,000 to the New Jersey Attorney General’s office and to begin providing dating services to homosexual men and women, even though the founder of eHarmony is an Evangelical Christian. http://www.foxnews.com/story/0,2933,454904,00.html Does this mean that a male cross-dresser can now sue a women’s shoe store for not offering pumps in a size 14, a pediatrician could be sued for refusing to provide medical care to individuals over the age of 18 or that a carnivore can sue a vegetarian restaurant for not providing beef ribs and chicken on their menu? The eHarmony lawsuit, which I believe amounts to nothing more than a civil rights shake down, will open the flood gates for individuals seeking to make a quick buck off the backs of honest and hardworking private business owners and ultimately will discourage even more entrepreneurs from risking their life savings to exploitation by opportunistic moochers. Lawsuits such as this should outrage every American, for once they set a precedent, and it becomes acceptable for any level of government to dictate to private companies how to run their businesses, it is extremely difficult to gain those freedoms once again after they have been taken away.

Guns

With news this weekend of Plaxico Burress of the New York Giants accidentally shooting himself in the leg in a club in New York the NFL's policy on guns came to my mind. They almost absolutelt forbid palyers from haveing guns, and they do forbid players from having guns at any NFL function. This seems to be a direct violation of these mens personal liberty. If we have a society that protects individual liberty how is the NFL able to make their own rules that seem to ignore the constitution. Evene if a player has a licensed gun and a concealed weapons permit they are not allowed to carry it, even thought the law says different. How is this in line with a protective state governement in any way? It seems to me the NFL needs to understand what rights EVERY American citizen has including its own players.

Because Arguing is my Forte

What follows is my second reply to Austin’s most recent blog post, “This Entry is Illegal Because I’m Sure Someone Else Thought of it First.” I’ve also posted it as a direct reply, but I’m making this entry it’s own, separate post as well, because I need one for the month. In order to fully understand this particular entry I encourage you to read the already existing ones.

I’d like to start with your last point because I think it’s your most grievous error. You hit me with the fact that copyrights are in my “own best interest” and leave it as if landing a knockout punch. The problem with this is it’s also in my own best interest to can you on the top of the head and steal all your money every time I see you. So why don’t I do that too?

I realize you’re not much of a fan of philosophy so I’ll skip the discussion of Kant’s Categorical Imperative and try and phrase this purely in economic terms. My main point here is copyrights look to me like a special privilege, and thus enabling laws for them seems to be rent seeking. You’re right that on an individual level this looks fine for me, as copyrights account for most of a writer’s income. The fact that it’s essentially plundered from the rest of the economy largely goes unnoticed because the loss is spread out over the entire economy, a tiny bit from each person. Again from a single individual’s perspective this looks fine. The problem is if you allow one person to do it, you then begin allowing more and more. And eventually rent seeking is everywhere, and the damage done is massive.

Secondly, you’re flat wrong in your interpretation of patents or copyright covering only the finished product and not production. If you can find a cheaper or faster way to make a product, you are not free to proceed with it if what you‘re producing is recognizably a product that has already been patented or copywritten. Otherwise bootleg DVDs, which surely you’ll admit go through a different production process then official ones, would not be a worldwide issue. I suppose you could always sell your process to the patent holder, but their incentive to buy it would be virtually nonexistent, and they would be the only person capable of bidding on it, so even if they bothered, the price paid would almost assuredly be less then market value.

Moving on to the core of our disagreement, you still haven’t convinced me that patent protection is different from idea protection. Admittedly you are free to have the idea floating about in your head, namely because there’s no way to prevent that sort of thing. But you make an error in your analogy by equating the design in your head with Locke’s idea of nature, simply waiting for labor to be mixed with it. This is, again, due to the immaterial nature of ideas. How you mix your labor with something that has no appreciable real world value is an interesting question. In Locke’s view you mix your labor by the simple act of taking possession. If an apple is on the tree you pick it. If a mineral is in the earth you mine it, and so on. How does one do this with things that exist only in their head?

Your answer for designs is to move it from the realm of ideas into reality by actually inventing it. The problem with this is it bestows the value of possession onto every action you take. If you thought about it before you picked that apple, the action of picking now belongs to you. I suppose you could say materials need to be involved for it to actually apply as an invention, but that still makes odd things into property. Knots for example. Someone actually had to invent every knot we use. Were they entitled to profits from every knot tied? Were people secretly stealing by tying knots and neglecting to send proceeds to the knot inventor? How about recipes? Who do I owe money for the scrambled eggs I cooked today? The problem is you’re telling me I owe someone money for the things I do with my property just because they happened to do it with their property first.

But patent law is even more absurd then that. Many, many patented items have never been made by anyone, anywhere. Some of them don’t even work. The upshot is you’ve literally protected an idea in all it’s ethereal glory.

As to your supposed argument that patents don’t create monopolies, I’m not actually sure you addressed the point at all in the paragraph following its introduction. Perhaps I simply need more clarification. However, as to the point you did bring up, yes Tesla invented a different light bulb (I‘m not willing to concede “better,” because personally I‘ve always hated fluorescent lights. But to each his own), and possibly because he couldn’t use Edison’s due to patent law. But I say again, if the fluorescent bulb was truly better someone surely would have had the incentive to invent it already, simply because it is better. Consider Edison himself, nobody owned a patent on candles, and yet he still applied himself to the creation of the original light bulb. Why? Because it was better, which means there is a market for it. You don’t need patents to make people seek out better alternatives.

Your contention then, seems to be that the patent made the process of seeking alternatives faster, and I’ll concede this point. However, I don’t think it is necessarily a good thing. What you’ve done in this case is create false incentives. Because an entrepreneur’s access to the original invention is restricted they see more reason to create an alternative, but the market hasn‘t dictated a need for that yet, and may well be resistant to it as a result. Interestingly your fluorescent bulb example is a perfect analogy for this. Yes the patent probably brought us the fluorescent bulb sooner then we otherwise would have had it. But to what purpose? Edison’s light bulb began to appear everywhere. What of Tesla’s? It took years and years before widely being adopted. So we got it earlier, yes, but we did not use it until we would have begun to look for it anyway. Remember tampering with one person’s incentives to invent does nothing to change anyone else’s incentives to buy. And an invention need not exist until someone actually wants it.

Finally, I do you think you’ve missed the most important part of the argument. In theory laws exist in order to protect us from harm, either to ourselves or our property. But what harm is patent law protecting against? I say again, it is impossible to steal a design in the conventional sense because by copying it I have not deprived you of it in any way. You may continue to use it exactly as you have in the past, or now see new incentives and choose to act in a different manner, but the fact remains you have just as much of your design, and just as much right to it, as before I copied it. What harm has been done?

Leave god out of it.

It is not secret to us Economists that interest groups use governments coercive power to force others to do or not do something. There are many active interest groups in Washington, but there is one interest group in particular disguised as something benevolent that is seeking--and has been seeking for some time-- to infrindge on all of our civil liberties. I am talking of course of the extreme right wing, god loving christians, who feel that they need to honor god by not buying alcohol or cars on Sunday and therefore nobody else should be able to either. As humans, we tend to have a short attention span but it was only last July that the Law banning alcohol sales--above 3.2%-- was repealed. Alcohol sales are still prohibited in grocery stores, every day of the week and automobile sales remain illegal on Sundays in Colroado. I wonder how much potential revenue has been lost over the years by forcing liquor stores and car lots to stay closed on Sunday. For those of us not looking at a Calender, thats 1/7th of the week and 1/2 of the weekend. Its funny to me that the stereotypical god loving christian is a republian. And republicans tend to be the ones who are in favor of free markets, and yet it is the people in favor of free markets (for the most part) that are choking the life out of the economy by restricing markets.
All I can say is, I'm glad people have started looking towards reason and rationality instead of a devine power to better their lives. If the owners of liquor stores wanted to have one day off a week they could still close their doors on Sunday....I have yet to find a liquor store closed on Sunday since the law was repealed last july.
Personally, if you want to believe in god thats great, but god is not an economist so lets leave him out of economic issues.

This Entry is Illegal Because I'm Sure Someone Else Thought of it First

I've been trying to come up with a valid, sound reason why someone would be against copyrights and patents, but I just can't see it. Property rights are the foundation of a capitalist economy. They are the foundation of a liberal society. It is the protection of such rights that is the raison d'etre of government. Property rights are, in a nutshell, paramount.

Copyrights and patents are laws designed to protect property rights. Where is the disconnect? Why are certain libertarians against this protection of our rights? I've heard the absurd idea that copyrights and patents seek to protect thoughts and words. That is ridiculous. They protect our inventions and our particular modus operandi for solving problems. They very clearly protect our property.

The arguments against copyrights and patents are baseless. They do not seek to stop people from thinking, or of using someone's existing idea to come up with another idea. For instance, Thomas Edison had a patent on a particular design of a lightbulb. Nikola Tesla won a bid to light the world's fair in 1893, but he couldn't use Edison's design for his lightbulbs. So what did he do? He came up with a another design for lightbulbs. Patent haters would have you think that a patent protects the idea of a lightbulb, but this is clearly not the case. What the patent did do, however, was encourage Tesla to become more creative and create competition for Edison. And patents are evil so we shouldn't have them?

The only reason I can think of why some libertarians would be against patents and copyrights is because laws like these prevent them from cheating. Obviously any person who swallows the libertarian dogma lock, stock and barrel cannot think for himself, but must be lead around by other people's ideas. So if libertarians can't rely on others ideas, they would be absolutely lost. Hence, they are against copyrights and patents.

Or is it because for these laws to exist, there must be some form of government to enforce them? And as these extreme, narrow-minded libertarians know, all government is evil and hell-bent on their destruction.

Now I'm sure I angered a lot of people (at least in my imagination, because for me to have angered a lot of people, a lot of people will have had to have read this entry. I'm guessing at most two will). So let me qualify this piece by saying that most libertarians are rational, sound-minded individuals with some great ideas. I am only talking about those extreme, weak-minded, blind, irrational, and yes, silly libertarians that actually believe their narrow, ignorant view of the world is truth.

© Austin Frindt, 2008.