Statism

ARTICLE | Market Failure? The Case of Copyright Thumbnail

Government Failure by Gordon Tullock, Arthur Seldon, and Gordon L. Brady

How gigantically humongous and intrusive is the federal government? A traditional measure is to look at the pages of regulations in the Federal Register, which is, by now, probably the world’s largest book collection. The problem with this approach is that it takes no account of how a single bad regulation can have monstrously deleterious effects.

Copyright regulation is a good example of this. There was no universal enforcement until the very late part of the 19th century, and terms were mostly short in the early days of this regulation. In the course of the 20th century, regulations became ever more tight and the copyright terms ever longer, so much so that today, the words you sign away to a conventional publisher are theirs to keep for your lifetime plus 70 years!

One standard argument for doing this is that noncopyrighted works will not be efficiently exploited. You have to assign ownership or else the resource will vanish into the ether. No one will care about it, and civilization will lose extremely valuable literary works. Our market for ideas will be impoverished.

Now, to me, this argument seems obviously false, but that’s probably because of my own experience in publishing. I’ve seen it happen — so many times that it is predictable — that once a work has fallen out of print but is still under some kind of protection, it is mostly neglected by the heirs. No one who “owns” the work has the incentive to bring it to light, while those who care about it fear the law or don’t want to pay some arbitrary price set by the owners.

Meanwhile, when a work is public domain, there are dozens of people bidding to get it into print. This was true all throughout history, actually. The reason American school kids in the 19th century read British literature is that it was not regulated in the United States, and therefore, it could be sold very cheaply and distributed very widely. It is true today: Whether music or books, the material in the commons is far more in demand than that which is regulated. And the demand leads to the supply.

In other words, the opposite of the conventional exploitation theory is correct. The copyrighted works drop from memory, while the public domain works last and last. But of course, this observation draws from my deep involvement in the industry, and we can’t expect academic scribblers to understand anything about how the world actually works in real life.

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Government Failure by Gordon Tullock, Arthur Seldon, and Gordon L. Brady

Government Failure by Gordon Tullock, Arthur Seldon, and Gordon L. Brady

Michael Stackpole, a traditionally published author who was one of the early champions of self-publishing ebooks, has an interesting post analyzing the settlement agreed to by three of the Big Six publishers — Hachette, HarperCollins, and Simon & Schuster — involved in the alleged ebook price fixing flap. If he’s right, the Department of Justice is going to be imposing more injustice than just preventing a little self-destructive collusive fixing of high prices. This is yet another among so many many many examples of the state stepping in to prevent something only to impose that very thing itself. Yes, it looks like the DoJ is going to prevent price fixing of one sort only to impose its own brand of price fixing. But hey, it’s only a bad thing when non-state entities do it, right?

Here is Stackpole’s breakdown of the settlement  provisions:

  1. For a period of two years,
  2. Publishers will not be able to set a restricted retail price for their product.
  3. Retailers will be able to set their own price for an ebook, but they cannot discount the bookbelow their own discount. (In short, the retailer cannot sell ebooks at a loss.)
  4. Publishers cannot “retaliate” against retailers during this time.
  5. The “favored nation” status that prevented a publisher from selling at a lower price to one retailer over another is gone.
  6. The Agency Pricing discount of 30% off the top that retailers pay publishers can remain in place.
  7. There are compliance procedures being set in place (that I don’t bother discussing) so the government can make sure that the publishers are complying with the agreement.

That’s right. Provision #3 fixes an arbitrary minimum price —a price floor. Retailers like Amazon will not be allowed to sell ebooks below the price they pay publishers for them; they will not be allowed to sell at a loss. For two years. And apparently there is yet more intrusive bureaucracy being set up to monitor compliance with these new regulations for the ebook market. It’s another shovel-ready Obama jobs program!

The federal government is also going to prevent publishers from requiring retailers sell their ebooks for a certain price. In other words, it bans the agency model. Now, I’m no fan of the agency model, and I think it’s self-destructive for publishers to adopt it in order to screw their customers with high prices so that they can prop up their dead-tree book business model for a while longer. But I don’t think they should be prevented by law from doing so.

Stabilization is Chaos: “Monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown.”
— F.A. Hayek, 1932

The federal government is also going to prevent publishers from retaliating against retailers for the prices they set. Also, no more contracts that stipulate publishers can’t sell to other retailers at a lower price. In other words, the state is going to short circuit the market process by preventing publishers from putting any kind of meaningful pressure on retailers and vice versa. No jockeying for position in the ebook market. Forget letting consumers decide and the best business model win. The United States federal government prefers stasis — the maintenance of a status quo of its own making.

But wait, there’s more. Stackpole does the math and argues that far from preventing publishers from fixing high prices for consumers, the settlement will actually disincentivize both publishers and retailers from setting lower prices:

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Sharis Pozen

DoJ Assistant AG Sharis Pozen

Sharis Pozen
DoJ Assistant AG Sharis Pozen

Get this: The federal bureaucrat who last month started the litigation against Apple and book publishers for ebook pricing is the same person who, back in the stone age, represented Netscape in its lawsuit against Microsoft.

Recall that Microsoft was trying to give away its Internet Explorer to computer users for free. Netscape went nuts and got the government to clobber Microsoft for being so nice to consumers. It put the company through litigation hell and even demanded that Microsoft change its operating system code to untie it from IE.

The person’s name is Sharis Pozen, and she is acting head of the Justice Department’s antitrust division and a political appointee of the Obama administration. She claims that she is threatening state violence against Apple and publishers for pricing collusion — and that it’s her job to protect consumers.

Interesting. She began her career trying to protect the rights of an old-line company to rip off consumers. To her, a price of zero was unfair competition. She was sure that a browser should be a paid product. The progress of history flattens that argument. Today, dozens of companies beg you to download their browser for free. Browser use is all over the place, sort of like a free market. There is no Microsoft monopoly, contrary to the overheated predictions.

Given that history, one might suppose she would retire from public life and maybe go into flower arranging or something. Instead, she is still at it. Last year, she denied a proposed merger between T-Mobile and AT&T that would have improved your cell service. This year, she says that a deal between publishers and Apple is harming consumers, so she has to act.

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The Hunger Games

The Hunger Games

Whatever good you have heard about The Hunger Games, the reality is more spectacular. Not only is this the literary phenom of our time, but the movie that created near pandemonium for a week from its opening is a lasting contribution to art and to the understanding of our world. It’s more real than we know.

In the story, a totalitarian and centralized state — it seems to be some kind of unelected autocracy — keeps a tight grip on its colonies to prevent a repeat of the rebellion that occurred some 75 years ago. They do this through the forced imposition of material deprivation, by unrelenting propaganda about the evil of disobedience to the interests of the nation-state and with “Hunger Games” as annual entertainment.

In this national drama and sport, and as a continuing penance for past sedition, the central state randomly selects two teens from each of the 12 districts and puts them into a fight-to-the-death match in the woods, one watched like a reality show by every resident. The districts are supposed to cheer for their representatives and hope that one of their selected teens will be the one person who prevails.

So amidst dazzling pageantry, media glitz and public hysteria, these 24 kids — who would otherwise be living normal lives — are sent to kill each other without mercy in a bloody zero-sum game. They are first transported to the opulent capitol city and wined, dined, and trained. Then the games begin.

At the very outset, many are killed on the spot in the struggle to grab weapons from a stockpile. From there, coalitions form among the groups, however temporary they may be. Everyone knows there can only be one winner in the end, but alliances — formed on the basis of class, race, personality, etc. — can provide a temporary level of protection.

Watching all this take place is harrowing to say the least, but the public in the movie does watch as a type of reality television. This is the ultimate dog-eat-dog setting, in which life is “solitary, poor, nasty, brutish, and short,” in the words of Thomas Hobbes. But it is also part of a game the kids are forced to play. This is not a state of nature. In real life, they wouldn’t have the need to kill or be killed. They wouldn’t see each other as enemies. They wouldn’t form into evolving factions for self-protection.

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