Intellectual works aren't scarce -- just like money

If you listen to Stephan Kinsella or his acolytes, you're probably well familiar with the argument that "Intellectual property rights should not exist" because "intellectual works aren't scarce", though this is often confusingly shortened to "IP isn't scarce". Here's Kinsella's latest compilation of the anti-IP arguments, that being one of them. (Which led to a very lengthy discussion.)

Well, I've been reading Jaron Lanier's recent book, You Are Not a Gadget, which gives a good reply (p. 102):

It is a common assertion that if you copy a digital music file, you haven't destroyed the original, so nothing was stolen. The same thing could be said if you hacked into a bank and just added money to your online account. ... The problem in each case is not that you stole from a specific person but that you undermined the artificial scarcities that allow the economy to function. In the same way, creative expression on the internet will benefit from a social contract that imposes a modest degree of artificial scarcity on information. [bold added]

I've made a similar point before: Money is information -- specifically, the relative amount that the world (believes that it) owes you. When money is stolen from you, then you can certainly force yourself to think of it in terms of

-a physical item being removed from your possession, or of
-a server having "unauthorized use".

But what's really important is the editing of that information: where before, the world thought it had a remaining balance against you of $X, now it thinks that the thieves are owed that $X. This problem persists even after you are given compensatory paper or the bank gets standard compensation for trespassing, and it's what people care about.

MMORPGs (World of Warcraft, Everquest, etc.) have already assimilated this lesson. In such online games, your money really is nothing but a database entry. It doesn't correspond, even in principle, to a physical object, just the knowledge of a relationship.

Lanier's alternate suggestion, following Ted Nelson, is that we could instead simply have an automated system that charges for each time a given intellectual work is accessed. People could "pirate" these (already freely-accessible) works by only using versions stored outside of where there access would be recorded, just as they do today when pirating works. But so long as the public regards this as wrong, and wrong for the same reason as counterfeiting, they would run into the same problem as counterfeiters. And the relatively low cost with which the works could be accessed under such a system would remove most of the sympathy for them.

I note that one particular snag of this is that people will not want to have to think of the costs each time they want to look at a book again. However, if everyone paid a fixed amount each year, and their choice of what to access only determined which fraction of that payment went to each creator, then choosing to view anything would cost nothing on the margin, further eroding any incentive to pirate.

Another parallel between IP and EM spectrum rights

I constantly bring up the EM spectrum in discussions of IP, and for good reason. It's quite difficult to justify rights in one but not the other, leading some people to unpalatable conclusions. Heck, even Stephan Kinsella, the big anti-IP poomba, isn't sure whether there should be rights to radio waves.

But recently, I've found yet another parallel. Consider the case of someone who, like in lots of instructive thought experiments, wants to block the propagation of radio waves from a nearby tower so that people can't receive them (well, extract information from them, but you get the point).

There's a device that lets you block EM waves, known as a Faraday cage. I didn't know how they work before, but it turns out that, by being made of conducting material, their electrons realign so as to produce the *opposite* field from the one around it (which superposes over it and cancels it out).

See where this is going? To protect your right to to transmit information via EM waves, you need to be able to prevent others from ... er ... instantiating the same pattern! Now, where else have people asserted that kind of right?

(By the way, first post ever from my first smartphone, the wonderful Samsung Moment. And no, unlike when Tyler Cowen promotes a product, I didn't get it for free or otherwise get paid to say that. No, the links weren't added from the Moment.)

Setting scarcity straight, once and for all

In case you haven't been following, Bob Murphy wrote a shameful op-ed on the proposed Cap-and-Trade scheme, which prompted quite a bit of criticism from me and "TokyoTom" (good summary). If Bob were merely claiming that politicians screw things up, none of us would have objected. Unfortunately, he said a lot more than that. The focus of this post will be on his claim that carbon emission caps "don't reflect scarcity".

Now, as you see in the exchange, Bob tries to claim that what he really meant was that if the carbon cap were too low, or somehow not correct, that wouldn't reflect scarcity, but otherwise it would. If you follow the exchange, you'll see how I showed that there is no possible way, based on the phrasing of his argument, that he could claim the op-ed meant that. Nevertheless, he has repeatedly gotten considerably sympathy from others (not me) with this last-ditch attempt to salvage himself from having to apologize for his op-ed, by arguing that, so long as government doesn't precisely set the cap to what the perfect, pure, austere free market would, the cap still would not reflect scarcity and he was technically correct.[1] I will now show how even this claim is wrong, by starting from a simple case, and working up to the claim Bob made.

Economic scarcity refers to the situation where "not all of society's goals can be pursued at the same time; trade-offs are made of one good against others." Now, let's see where this takes us.

Problem #1: I want to hit Bob. Bob does not want me to hit him. Does scarcity exist?

Answer: Yes, because it's impossible to satisfy the social goals of both me hitting Bob and Bob not being hit by me.

Problem #2: I attempt to hit Bob. Bob retreats to his house and locks himself inside. I attempt to bypass the locks. Does the difficulty of getting to Bob reflect scarcity?

Answer: Yes. Since my goal comes at the cost of Bob's, Bob will take measures to ensure I do not reach mine. The lock, a manifestation of Bob's desire not to be hit, therefore reflects scarcity.

Problem #3: Having such difficulty getting past Bob's locks, I instead try to act out my anger against him by sending 100 locusts down his chimney. I would have sent more, but my insurer restricted me to having only 100 locusts at any given time. Does this restriction on my ability to carry locusts reflect scarcity?

Answer: Yes. In deciding the max it will allow me to carry while maintaining coverage, the insurer must consider how badly I can hurt others with a given number of locusts, since hurting others can cause me to be liable for damage. The limit, being a mechanism by which the conflict with the desires of others not to be hurt manifests, therefore reflects scarcity.

Bonus answer: Note that locusts are not guaranteed to hurt Bob, but the more I send, the more likely that is. So the limit on how many locusts I can have only reduces the harm to Bob in a probabilistic sense. However, the limit still reflects scarcity.

Problem #4: Same situation, but in an alternate universe. There is an intrusive government that passes laws in an attempt to minimize conflict between its subjects and thus maximize its looting; insurers of the type above don't exist. It has decreed that people may own 146 locusts, but no more. In trying to buy more than 146 locusts, a red flag goes up, and I am prevented from buying any more. Does this difficulty in buying locusts reflect scarcity?

Answer: Of course. Whatever criticism of government you might make, its decrees ultimately rule in favor of some goals and against some others. Therefore, when it hinders one goal (such a stopping locust attacks) in preference to another (such as the goals of locust-lovers in keeping collections), this is a manifestation of scarcity.

Problem #5: What if the government's limit were 23 instead? Or 100? Or 0?

Answer: Yes, it still would reflect scarcity. No matter how closely or poorly it approximates what limits would result from market processes, the above reasoning applies.

Problem #6: Scientists reveal that emitting substance X increases the probability of catastrophic damage. The governments of the world then place an overall emission cap of C. As a result of the cap, the price of doing things that result in X emission goes up. Do the higher prices from the cap reflect scarcity?

Answer: Yes, for the same reasons as in #4: the higher prices ultimately result from the (probabilistic) conflict with the goals of others. Yep, even substance X is CO2.

Problem #7: If Bob responded to the above line of reasoning (about scarcity) by saying that the proposed scheme is not a Blicknorg [2], is that responsive?

Answer: Don't be ridiculous; that's just changing the topic.

Long story short, the caps do reflect scarcity.

[1] And how would you ever learn what cap a free market would set? Why, you first have to price all resources, including and especially the atmosphere. Anyone want to take a wild, wild guess as to the ratio of the words that Bob has spent:

a) advocating that atmospheric property rights be clearly delineated,
to the words Bob has spent
b) demanding that government NEVER do a SINGLE thing to in any way define such rights?

I'll give you a hint: it's somewhere between "zero" and "can I have what you're smoking?"

[2] Actually, in the discussion, what Bob actually tried to do to refute the solid argument that caps would reflect scarcity, was claim that the caps are not a "market solution", rather than a Blicknorg. However, since he refused to ever clarify what exactly that meant, despite being asked several times, he might as well have said Blicknorg.

Bob Murphy gets scarcity wrong and won't issue a correction

A month or so ago, my perpetual foil, Bob Murphy, wrote an op-ed that I had quite few criticisms about (Mises blog a little flaky right now), but it looks like, despite what I had thought previously, Bob doesn't feel he erred. Here is the part of Bob's op-ed that I found objectionable:

Yet despite the superficial resemblance, cap and trade isn’t really a free market. The number of permits is an arbitrary scarcity imposed by government fiat. In the real market, resource prices indicate genuine scarcity. ... But if the prices of oil, coal, and other fossil fuels explode because of a cap and trade program, this won’t reflect genuine economic scarcity.... This is no more a “market price” than if the government decided to sell people permits giving them permission to sneeze.

There's no getting around this. Bob very clearly claimed that paying higher prices due to government assigning emissions rights in a case where excessive emissions hurt others, does not reflect economic scarcity. This is wrong, as I have claimed before, because -- under the assumption that all of the climate science is in order -- CO2 emissions do, in the aggregate, cause others to forgo consumption. So there's a choice: either these people get to emit CO2, or these other people get to not be flooded, not have thermohaline circulation shut down, etc. Inability for both parties to engage the consumption patterns they both want, is exactly what is meant by scarcity (though some are confused by the fact that it's a different good for each party).

Lest we think his remarks were specific to a particular poorly-run assignment of atmospheric rights (and of course Bob has totally outlined his ideas elsewhere for what would be a valid division of the atmosphere, right?), he does us the favor of comparing it to sneeze permits.

In regard to that remark, Bob responded, after I criticized him:

This may have led some readers to conclude that I was saying the very nature of the situation rendered carbon permits as illegitimate property titles, the price of which could not possibly correspond to genuine economic scarcity. However, as Silas correctly notes, if James Hansen and the guys at [RealClimate] are right, then CO2 emissions affect others just as conventional pollution does. If one agrees that one can have property rights to a clean stream etc., then in principle one could have a property right to the atmosphere and this could spawn a market in which the right to inject CO2 into this property is sold.

He then goes on to defend, irrelevantly, his claim that cap and trade "is not a market solution", a term for which he seems to use a non-standard definition and didn't define. (Bob seems to have adopted Stephan Kinsella's tactic of switching which claim he's defending so as to make his opponents' points irrelevant. If that's not what he was doing, I apologize.) But of course, such arguments don't help defend the claim under dispute, on whether higher oil prices due to permits reflect scarcity. Even if Bob can successfully support the claim that cap-and-trade "is not a market solution", that still wouldn't mean the scarcity analysis is valid.

I welcome others to read the above links, and please tell me in the comments if you think Bob's original op-ed is correct about scarcity as written, or if you don't. I think that Bob did admit it should be corrected, and even if not, he should believe so. Because even if he really was just referring to the "too few" permits case, that still wouldn't save him: issuing too few permits would just mean that the higher prices now reflect "the fact that your CO2 emissions are causing flooding in the Netherlands, not just Bangladesh" (or whatever) -- that's still a reflection of scarcity, just in favor of a different adjudication of the conflict. (Interestingly, Bob has also often worried that governments would botch such programs by -- wait for it -- issuing too many permits, which makes his unintuitive clarification of his original remark all the more unexpected.)