Sunday, November 20, 2011

Taxation via the Market

Freedom of choice is a tax levied upon those who are unable to adapt in a dynamic spontaneous society. In a competitive market consumers must weigh various costs and benefits of goods and services in order to make buying decisions. However, it can be assumed that there are individuals less able to make such decisions. These individuals will make decisions that hurt themselves simply because they are ill informed or they simply lack the mental capacity of others around them.

As an example one could look upon the mentally handicapped, but instead, look upon an individual that is perhaps not well educated or trained and viewed by local society as responsible albeit lesser. Going to the example from the reading, one can look upon the example of music piracy: An individual could download music illegally from a torrent or peer to peer service, or they could purchase the music in either the form of a CD or a secure download from a service like iTunes. The options could be weighed as such: pirate the music for no monetary cost while risking malware, legal repercussions and potential lack of quality, or purchase the music from a 'legal' provider and run the risk of loss of data or pesky DRM software. Typically individuals with higher disposable income will choose to purchase their music and not risk flying their Jolly-Rodger high. While the inverse would also tend to be true. But, neither the pirates nor the straitlacers seem to be 'winning'. Pirates have slow computers and strailacers spend near thousands of dollars on their music collections. perhaps the real 'winners' are the individuals who are truly good at pirating. no monetary cost, high quality vinyl rips with little to no risk when downloading. These blackbearded audiophiles will go to great lengths to 'steal' their favorite music but will purchase concert tickets, and other memorabilia provided by their favorite artists.

Perhaps what the 'invisible hand' is trying to sell is not individual songs but rather popularity of music. A song is a piece of art but trying to monetize its use is rightly difficult. The best use of the song is marketing the artist. Author Neil Gaiman once believed that piracy was wrong, but when he released a free PDF copy of one of his books he noticed that the sales of that book and his other work greatly increased. The cost of a good is stratified, the cost of stealing, the cost of purchasing and the low cost of being an effective consumer.

Those who are effective consumers and can purchase a good or service at its lowest opportunity cost are using the tax of the market placed upon pirates and buyers, or those with lesser purchasing capabilities. These are the dynamic innovators. Even though their actions may incur costs upon others they breed innovation and competition lowing the aggregate costs for all.


  1. The interesting question for me is analzying what you can and cannot own. Can you own physical property? Obviously yes.

    Can you own your reputation? Well, no, that exists in the minds of others and you cannot own others' minds.

    Can you own information patterns? Electrons existing on the web? Well, we already buy and sell web pages which are just electrons storing information patterns even though we tend to think of them as "space" on the web. I haven't developed a unified set of theories to apply to intellectual property and what can and cannot be owned but it's a really interesting subject and is on my to do list.

  2. The economic argument to justify intellectual property is pretty straightforward in economics. If you don't have intellectual property rights, people won't have incentives to create, produce, or innovate if they don't see any return in their investments. Therefore, the outcome of a system without intellectual property rights is that we will have suboptimal production of these goods. Patents are the typical example of intellectual property rights. Copyrights are another one. As an economist, I can understand the argument behind patents and trade secrets. I am a little bit more suspect about the validity of the arguments behind copyrights, particularly when it comes to arts. Morally, I can understand what's wrong about making something you didn't make pass as your own.
    When it comes to the world of the net, you don't per se own a webpage, you do own a space on a server as well as lines of code.
    When Apple sues such and such for copyrights infringements, they are suing for lines of codes. Million of dollars are being spent on lawsuits and settlements by companies suing each other because one is using the same line of codes than another company has came up with.

    There is a significant literature on the topic. I would recommend starting with Richard Posner.

  3. I have always had trouble with the 'incentive for innovation' argument. Certainly an innovator will act in a more aggressive manner if they are certain of the potential for profit. However, this argument requires two assumptions I cannot condone: 1- There is an inherent need for rapid innovation, 2- the individual who holds the patent deserves all the credit. It can certainly be said that copyright law can limit innovation and competition. I believe Microsoft is somewhat notorious for spending large amounts on research only to patent the findings. They may use their findings in a new product or they may simply hold the patent for potential future litigation concerning copyright. The wheel is frequently reinvented and cat toys only need to be so complex. Of course my scope of knowledge on this subject is limited, but I find most opposing arguments simply assume that intellectual property exists.