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Home Publications Blogs Beat the Press The Bigger Problem With Mankiw's Plan to Give Everything to the One Percent

The Bigger Problem With Mankiw's Plan to Give Everything to the One Percent

Friday, 21 June 2013 04:26

Chrystia Freeland notes the rapid growth in the wealth of the extremely rich. Then she follows Greg Mankiw in arguing that this growth is largely positive insofar as it resulted from people like Steve Jobs and J.K. Rowling producing great innovations or creative material enjoyed by hundreds of millions of people.

While Freeland notes problems from the resulting inequality, she does commit the same error as Mankiw in implying both that the enormous wealth of these people is a natural outgrowth of the market and that these creative people would not have been as productive absent these enormous rewards. Neither claim is remotely plausible.

The choice of Jobs and Rowling is especially ironic in this context since the wealth of both individuals is so obviously dependent on the intervention of the government in the form of patent and copyright monopolies. These monopolies are a prize awarded by the government as a way to provide incentives for creative work. These are quintessential forms of government intervention, they are 180 degrees at odds with the free market.

Of course the government could have easily structured these monopolies in ways that did not allow Jobs and Rowling to get quite as rich. Suppose the length of these monopolies was cut in half or by 75 percent. (In the good old days copyrights lasted for 14 years, subject to an option for renewal. The duration is now 95 years.) Suppose the scope was drawn much more narrowly so that these monopolies did not apply to derivative works or were not enforced with the same vigor.

Even if we decide that these prizes of government monopolies are the best way to support innovative and creative work, the fact that they are structured to allow for such enormous wealth is a decision by governments. It was not the market. Mankiw has apparently made the sort of Excel spreadsheet type error for which Harvard professors have become famous.

Btw, we have many other mechanisms already in place to finance innovation and creative work. Ever hear of universities? foundations? the National Institutes of Health? the Department of Defense, as in the Internet? These alternatives could easily be expanded and altered to replace patents and copyrights. Going in this direction may or may not be the best way to finance innovation and creative work, but the point is that the choice of mechanism is a policy choice made by governments. It is not the result of the natural working of the market.

Oh, and there is some reason to believe that the individuals who get incredibly rich through patent and copyright protection will use their wealth to ensure that patent and copyright protection become stronger and last longer and that alternative mechanisms never get seriously considered in policy circles. (How much has the Gates Foundation contributed to supporting alternatives to patents for developing drugs and vaccines?)

The other obvious flaw in the Mankiw logic is the implication that the great wealth received by a Jobs or Rowling was necessary to persuade them to be enormously creative people. The history of science is full of people who did great work without achieving anything remotely comparable to the wealth of a Steve Jobs or Bill Gates. Anyone know the names of the individuals responsible for the big breakthroughs that gave us the Internet?

How about Jonas Salk who developed the first polio vaccine, protecting hundreds of millions of people from a horrible disease? He did this work without the promise of getting as rich as a Bill Gates.

In terms of creative work, there are countless writers, musicians and other creative workers who never made any substantial sum from their work. Is J.K. Rowlings' work more valuable to society than the paintings of Vicent van Gogh, the music of Charlie Parker, or the writings of Franz Kafka? These people produced work that hundreds of millions of people have enjoyed over the decades without anything like the compensation of a J.K. Rowling.

Clearly we can structure a system in which a small number of creative people can get very rich. But that hardly implies that great wealth is a necessary incentive for generating work of great creativity.

In short, Mankiw has told us that the government has provided prizes that allow people to get enormously wealthy. He has no evidence that these prizes are the most efficient way to promote innovation and creativity, but he doesn't see anything wrong with the resulting inequality.


Note: You can find further ruminations on this issue here.

Comments (48)Add Comment
It's All About the Dosage
written by Last Mover, June 21, 2013 6:28
Funny how that works. When it comes to regulating things like negative externalities of markets, conservatives are quick to reject it on grounds it's all about the necessary "dosage" of risk to be tolerated without regulation because awareness and judgement can take care of the problem at the individual level.

Instead they say, it's about the market providing the information required to be aware and make those judgements. And that's correct in some cases. It's like trying to overregulate ordinary household bleach because it can be fatal if consumed. Rather than require a license to buy it and be subject to inspection that it's stored safely, a warning label is required. In other areas like traffic deaths and suicide deaths by gun the level of acceptable downside "dosage" is more debatable.

Enter government protection of intellectual property. What happened? The protection itself reversed direction and soared into a a huge out-of-control negative market externality that kills incentive and undermines competition for everyone except a sliver of the winners-take-all who managed to secure a permanent free ride on one of the most exclusive, elitist economic journeys in America at everyone else's expense.

Conservatives are the usually the ones screaming to high heaven about such "unintended" consequences of regulation. But for intellectual property rights they suddenly go mute. As in 95 years for copyright protection instead of 14 years.

Dosage? What dosage? What's the problem with you socialist commies? Have you no shame? Haven't you dragged the very foundation of capitalistic property rights through the mud enough? Shut up, get out of my playpen and go make your own mousetrap or I'll sic my copyright and patent trolls on you.
Role of the length of copyright protection?
written by Heinz Roggenkemper, June 21, 2013 7:11
I totally agree the general direction of the article, but would like to point out that the length of copyright protection would not have much impact at all in the case of Rowlings and Jobs - iPod, iPhone and iPod are on the market less than 14 years, and so are 6 of the 7 Harry Potter books.
written by Ryan, June 21, 2013 7:50
I would only add that I suspect many, if not most, practice creativity not because of the promise of gaining wealth, but because it fulfills a desire. This I think explains you writing this blog, most graduate departments, and the vast majority of musicians. In short, you want to counter the argument that the possibility of becoming rich is why so many artists exist but do not actually get rich.
Rich, Very Rich, or Too Rich?
written by Bart, a Mac User, June 21, 2013 8:33

I can think of no reason why Jobs or Rowling need to make as much as they have, short of giving tons of it away in good causes like the Gates family does.
You didn't even mention the worst thing
written by Jennifer, June 21, 2013 9:26
In the article after she establishes that yes, the most rich are getting more rich, she claims that really that's good because
"many of the ultra-high-net-worth individuals flourishing in today's global economy are admirable entrepreneurs, and we would all be poorer without them."
Later, she admits that it's a problem that the middle class is being destroyed, that labor productivity has a diminished impact on wages, and that social mobility is declining-but it's a "paradox".
Seriously? The idea that we could not do without the very rich is ridiculous. The majority of the "very rich" do nothing of value-peruse the Forbes list sometime and try to identify what value to society the people on it have contributed. Alan Krueger actually identified this point in his speech, about the "lucky" versus the talented. But the idea that it is a "paradox" is the worst-it is no paradox that the richest have taken from everybody else, that's how they got rich. Until a significant portion of the population gets this, no real change will occur.

written by AlanInAz, June 21, 2013 9:39
I think there is a fundamental difference between Rowlings and Jobs. Rowlings' benefit from copyright does not stop other authors from writing similar books whereas Apple has used patents and copyrights to restrict both the use of their own products and production of competitor products.
written by Dean Kisling, June 21, 2013 11:12
re: AlanInAz
Another difference is that Rowling created the basic product herself, while Jobs led an entire team with creative input that made the product.
It would still exist
written by djt, June 21, 2013 12:11
The iPhone would still exist if Apple's cash pile were half the size.

Facebook would still exist if it was a private company with 20 employees charging $1 per year per customer for its services ad-free.

J.K. Rowling would still have written all the books she did if she got half the royalties.

It's the people that do things ONLY for the money that are the most dangerous. Because they are doing it ONLY for the money, they will do ANYTHING.
People are naturally creative
written by paul boisvert, June 21, 2013 12:20
Dean's focus on the key point is very rare: people will still do creative, valuable work even if they are not rewarded with vast riches--or even any "riches". Human beings are naturally creative, if given a reasonable opportunity to develop their skills and talents (a decent education, a reasonable amount of compensation for their work, etc.) As Dean points out, historically, the sources of creativity and innovation (as opposed to those who exploit it) upon which virtually all modern civilization is based have rarely been rewarded by undue wealth.

The opposite claim is the crucial ideological justification for capitalism--that talented people are so greedy and amoral that they will not work at creative innovation (despite enjoying doing it) unless promised a chance at vast riches. (Apparently, they will become McDonalds assistant managers or 7-11 clerks instead...)
Without a shred of supporting scientific or historical evidence, this claim is implicit in pro-capitalist discourse, and is so basic an assumption that it is rarely even identified by critics, let alone directly rebutted, as Dean has so admirably done.

I urge all readers to constantly identify and rebut this assumption in their own discussions of political economy--once the claim is made explicit and refuted, there remain no real arguments against changing our political economy to a rational, egalitarian, sustainable, and democratic one.
Entire premise is nonsense
written by Robert Weiler, June 21, 2013 12:45
We have hundreds of millions of lines of source code under open source licences now which ought to be sufficient to disprove the notion that huge monetary compensation is necessary to encourage people to create.
written by AlanInAz, June 21, 2013 1:31
The discussion about patents and copyrights seems to be moving into a call for equal economic outcomes that is not realistic and also not desirable. I cannot see any significant negative impact of the wealth of Jobs and Rowling on my well being. Apple and Rowling are not monopolies. Nobody forces me to buy the Potter books and Apple stuff. In fact, I own neither and am very content with my android tablet. Drug monopolies are different because they require FDA sanction (another government monopoly) and because they are essential needs that do not respond to the price setting mechanism of the agreement between a willing buyer (with choices) and seller. The argument against excessive profits and extended monopolies in the medical field seems a stronger case than complaints about music playing gadgets and children's books.
Free Market Fundamentalists only in name
written by Amit, June 21, 2013 2:06
No one is denying the right of talented people to earn more than the average - the question is how much more? The divergence of productivity and real wage growth for most since Reagan is astounding, as is the divergence of income growth for the 1% and the rest. If the work of creatives (music, books, movies) has a marginal cost of zero due to technology, why should the government intervene only for them and not for common workers displaced by technology? Creatives have alternative income sources (live concerts, theatres that people prefer to see movies in, public speaking engagements) that can and will give them a high (albeit lesser than now and IMO more realistic) income. Perhaps even a more limited monopoly as Dean suggests. But right now, when I see Tom Cruise spending millions to build an alien attack shelter, I am revolted. I mean, being a lucky sperm (looks, voice and in some cases like Bieber, nothing) is worth so much more? Really? Patents for drugs remove competition and create perverse incentives for pharma cos. Not surprising then that people like Mankiw

I admire Dean for walking the talk and making his wonderful book free of copyrights - take a bow Professor. And you made a great point about Gates - I happened to be discussing him last night after reading your blog and thought that he might be very charitable (and that's great), but he will never fight against the monopolies that made him rich.

On a related note, PK had another column today about monopoly rents. We need more discussion on the resulting inequality - just Dean and Stiglitz won't be enough. This will be a major catastrophe as we move towards (already are??) a plutocracy yet again, as we have done throughout our history. Keeping the government free from the influence of overly selfish and greedy people continues to be a challenge.
Free Market Fundamentalists only in name
written by Amit, June 21, 2013 2:10

Should read "Not surprising then that people like Mankiw and other free market morons think that government intervention is ok when it benefits them; they are shape-shifters who will use any ideology as long as it supports their objectives."
written by skeptonomist, June 21, 2013 3:32
Huge rewards are not necessary to get creative people to work - certainly not any more necessary than they are to get ordinary people (teachers, factory workers, janitors, etc.) to work. I'm sure that Rowling had no idea that her books would earn as much as they have. Even if there had been no prospect of Apple becoming as big as it is, Jobs would have worked as hard, just as a lot of other businesspeople do all the time. Anyone who starts a small business can't hope to succeed without working much harder than a typical wage earner (with one job). Claims that anyone won't work or be creative without the prospect of huge rewards are just nonsense.

The theoretical benefit of huge rewards is in the allocation of capital. Would a fixed, moderate reward cause capital to flow to really worthwhile enterprises, or even popular ones? How much capital does each innovation require, and are huge rewards really necessary in all cases? Someone has to decide where to make the investment. In the field of drug manufacturing the main expense is in research and maybe gifted researchers are needed, but they will work without the prospect of a huge payoff, nor is it necessary to attract vast capital if a beneficial drug is found. If say fusion energy were to be funded privately that would be a different matter.
written by liberal, June 21, 2013 6:07
Amit wrote,
On a related note, PK had another column today about monopoly rents. We need more discussion on the resulting inequality - just Dean and Stiglitz won't be enough.

Yes, and the first point of any such discussion is the question of why even progressive economists don't seem to understand that by far the biggest source of rent---even in a modern economy---is land rent, by about an order of magnitude.
everybody take a deep breath...., Low-rated comment [Show]
Sense of proportion
written by mrob, June 21, 2013 11:02
Instead of years, why not limit patents based on earnings. Once the owner has made 10 times the cost of development, the patent expires. Then the IP is public domain. Simple stuff that cost almost no time or money to develop would basically be public from the start. This seems fair to me.
And Mankiw doesn't allow for "The tragedy of the Anticommons"
written by John Wright, June 22, 2013 8:50
This is surprising as "Tragedy of the anticommons" is mainstream enough to have a Wikipedia entry.


This term first appeared in 1998, and if I can summarize it correctly, granted patents may actively discourage new invention because new inventions that could be viewed as infringing these patents would not be brought to market due to the difficulties of obtaining IP licences.

Eminent domain is given as an example of overcoming "Tragedy of the Anti-commons" for public works.

And to motivate innovation, prizes (including Nobel?) can function.

See the "Kremer Prize" that was won by the Gossamer Albatross with a human powered flight from England to France in 1979.
Can't patent the sun
written by jonathan, June 22, 2013 9:55
The mention of Salk should go with his reply when asked if who owned the patent on his polio vaccination: "Well, the people I would say. There is no patent. Could you patent the sun?" One of the better books about the polio vaccine is called Patenting the Sun by Jane S. Smith.
written by K, June 22, 2013 11:50
have been reading Ms. Freeland's book due to all of the wonderful press it got. So glad to see I'm not the only one who finds her arguments wanting and disconcerning. Reminded me too much of books by Thomas Friedman (sp?). the lexus and the olive tree pundit.
written by Mrrunangun, June 22, 2013 11:59
Granting of long copyright terms or big bank bailouts or other forms of government favor are a bit like fixing races. The shlub does not know the race is fixed when he bets his horse and the citizen is led to believe that the government is fostering honest competition. Instead, the people in control of government sell rents, monopolies, and subsidies. Take Jack Lew as an outstanding example of a buyer and seller of government favors. A seller in office, a buyer when in private employment. Many like him have grown dynastically rich, ostensibly by serving the public when actually serving rentiers, monopolists, and cadgers of subsidies. The shlub doesn't know there is a game on and many progressives arguing for augmenting the power of government feel free to assume government will act on behalf of the shlubs instead of the rentiers despite the obvious way the government works now.
written by McDruid, June 22, 2013 2:35
There are a couple of other problems with these particular examples.
Steve Jobs, rather famously, only took a $1 salary. He was not in it for the money but to make a "ding" in the universe.
J.K. Rowling wrote most of the first book while on the UK dole. Maybe we should think about how social programs can provide the safety net for people to create.
No surprise, Low-rated comment [Show]
The constitution treats patent and copyrights like taxes
written by Dean, June 22, 2013 3:49
I love the folks who cite the constitutional origins of copyrights and patents. Yes, the constitution gives Congress the power to impose these monopolies, just as it gives Congress the power to tax. (btw, they appear in the same section which specifically lists the powers of Congress.)

There is certainly nothing in the constitution that fixes either the length or scope of either patent or copyright protection. (For example, do copyrights extend to new formats, like the Internet? Do they extend to derivative work -- can I write a Harry Potter book?)

You won't find these items in the constitution and in fact Congress is no more obligated to create copyright and patent monopolies than it is to impose taxes. It has the power -- that's all the constitution says. If Congress were to pass laws saying no new copyrights or patents will be issued after January 1, 2014, no one would have anything resembling a legal case.
To Dean , Low-rated comment [Show]
Where were Borlaug's $Billions?
written by Perplexed, June 22, 2013 8:23
-"The other obvious flaw in the Mankiw logic is the implication that the great wealth received by a Jobs or Rowling was necessary to persuade them to be enormously creative people. The history of science is full of people who did great work without achieving anything remotely comparable to the wealth of a Steve Jobs or Bill Gates."

While most were busy bowing at the alter of those whose most impactful "innovation" was perfecting the "art" of developing & securing monopoly profits, others, whose "skill set" didn't include monopolization, go almost completely unnoticed. Perhaps if we hadn't been so busy celebrating, rewarding, and paying homage to the superior monopoly building skills of those like Gates, Jobs, their lawyers, and their lobbyists, more of the hundreds of millions alive today as a result of his innovations would know his name and accomplishments. Buying into this patent propaganda story nonsense has been an enormously expensive mistake for the "We the People" and the buyers' remorse is only beginning to set in. Not only have these protections from the competition of capitalism stymied our abilities to innovate and turned us into a "banana republic" with a wealth GINI over .87, we can no longer even discern the difference between true innovation and government granted welfare to the monopoly industry and its "beneficiaries." http://pubs.aeaweb.org/doi/pdf...jep.27.1.3

If Krugman were to just look at the history of European monarchies while he's there, he'll find plenty of "models" of how monopolies function.
There are alternatives to patents
written by Dean, June 22, 2013 9:58

there are other mechanisms for financing innovation and creative work -- surprised you haven't heard of them. Also, if you read the business press you would discover that Apple, Samsung, Google and the rest use patents to harass competitors, not protect innovation. I don't think the reporters writing these pieces are upset about people getting rich.

I write about some of this in my book, The End of Loser Liberalism: Making Markets Progressive. You can get a free download here http://www.google.com/url?sa=t...3060,d.dmg
More on Norman Borlaug
written by Perplexed, June 22, 2013 11:25
I almost forgot just how "unfamous" he was. As I don't believe he ever make the 400 richest list or any of the billionaires lists, many still have no idea who he was. Here's a link to an article by Jarrett Skorup published a few years after his death in 2009:

As Skorup points out: "Called 'arguably the greatest American in the 20th century,' during his 95 years, Norman Borlaug probably saved more lives than any other person." Too bad he didn't know how to create monopoly profits so his achievements could have made him a candidate to been considered a "successful" inventor. As the definition of "success" has now been altered to mean "being able to evade the competition of capitalism and amass enormous amounts of monopoly profits," he no longer qualified under this new definition for fame or fortune.

Corrected link to Borlaug article
written by Perplexed, June 22, 2013 11:35
The Problem Goes Beyond Patents and Copyright
written by High Plains Lawyer, June 23, 2013 4:57
So far, so good, but the problem really goes beyond Patent and Copyrights. The legal system as a whole gives preferences to wealth and power.

I think of it as the Great Government Rulebook, which determines who the winners and losers will be in any given situation.

Take the dissolution of a partnership under the Uniform Partnership Act. An investment of capitol is returned before there is a distribution of the assets of the partnership. An investment in labor is not.

Now consider that the vast majority of partnerships consist of one person providing the money (capitol) for the enterprise, while the other person provides labor. The person investing money is entitled to a return of his investment before the partnership assets are distributed, but the person investing time and effort gets no such return.

Similar rules can be found throughout our statutes and case law. The rich an powerful almost always receive preferential treatment.
One must also remember the innovators in a corporation do not own their patents
written by John Wright, June 23, 2013 8:10
"that you don't much like the idea of people becoming rich through their own efforts, so you have to conjure up a theory that the rewards of those endeavors are simply granted by the government"

Perhaps some are unaware that when one is employed at a typical high-tech business, any patents you are granted are assigned to the employing company.

And any ideas you have in your own time, related to the company's business, also belong to the company.

This is in the usual employment contract.

So in a sense, the patent belongs, not to the creative individual, but to a much larger group, in this case the corporation, and the incremental wealth created flows largely to the corporation, not to the prime innovator.

Note, the individual who signing the employment contract is not forced to work for the corporation. So the future patent innovator could preserve their ability to become wealthy through their own patents by remaining unemployed by the corporation.

But, I suspect the steady corporate salary outweighs the possibility of winning at the patent lottery outside the company.

And the lone innovator can have difficulty enforcing their patents. Examples are Edwin Armstong and FM radio vs RCA (patents 1941066/68/69), Robert Kearns and the intermittent windshield washer vs Ford (patent 3351836), and the Peter Roberts patent for the quick release push button ratchet (Roberts vs Sears)(patent 3208318) also see http://articles.latimes.com/19...ench-case.

The bulk of the creative work at Apple is done by people underpaid due to anti-free-market collusion among the employers
written by jm, June 23, 2013 12:30

... For years, the biggest tech companies conspired to drive down salaries by illegally agreeing not to poach one another’s workers. The Department of Justice settled with Adobe, Apple, Google, Intel, Inuit and Pixar in 2010. But now several of their former employees have launched a class-action lawsuit against these firms, and the evidence emerging from the case is devastating.

The documents show that no-poaching policies were agreed to and enforced by top executives, and HR departments observed them as ironclad rules. Among other facts revealed in a court filing last week, we learned that in March 2007, Steve Jobs forwarded Eric Schmidt a recruitment pitch that a Google employee had sent to an Apple engineer. “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote. ...

Jobs' contribution was to assemble, empower -- and mercilessly drive with clear aesthetic vision -- a team of creative engineers.
A correction to my earlier post and a not patented valuable public domain algorithm
written by John Wright, June 23, 2013 4:21
I reread my post and "intermittent windshield washer" should be "intermittent windshield wiper".

Also, for an example of a valuable software algorithm that was not patented, and has proven very useful for digital signal processing, is what is known as the Cooley-Tukey Fast Fourier Transform.

It was popularized by IBM in 1965 and has been referred to as the "transistor of DSP" for its importance in signal processing.

Note, IBM considered patent opportunities, however IBM elected to put the FFT algorithm in the public domain.

There was a problem with prior art as Carl Friedrich Gauss described a similar algorithm 160 years previously in 1805.

James W. Cooley wrote about this in "The Re-Discovery of the Fast Fourier Transform Algorithm" in 1988.

This re-discovery occurred without the lure of the patent process.

written by Dan Norris, June 23, 2013 8:06
I won't split hairs with you over what constitutes harassment as opposed to legitimate patent protection; I think there is too much patent litigation. However, I believe there is too much litigation in many areas of our society. I think there are too many tort cases, but I would never suggest that no injured party should be able to seek damages. Nothing in human experience is perfect, so our patent laws certainly aren't. Nevertheless, they are clearly quite useful in encouraging innovation. Your dislike for them appears to be based on the fact that they serve the purpose for which they are intended: To reward those who invest their toil and treasure in the pursuit of new inventions that improve the quality of people's lives.

You suggest there are "other mechanisms for financing innovation and creative work." I presume you mean those like you mentioned in your original post...universities, foundations, the NIH, the military. I certainly appreciate their contributions and recognize that private businesses are hardly the only source of innovation. In some areas...notably basic research...the tradeoff between risk and reward can mean that valuable work will not be undertaken by profit-seeking firms.

However, it is one thing to recognize that and quite another to suggest that those entities are a substitute for market mechanisms, including the patent system. The fact is that except for the case of medical research, none of the institutions to which you refer have shown themselves to be very good at translating innovation into products that consumers want.

Allow me to give just two examples. Much has been made about the role of the military in developing the Internet...you mentioned it yourself. Did you ever try to use the Internet before Netscape came along in 1994? I did, and it was a hopeless endeavor.

More broadly, the former Soviet Union possessed great scientific and technological talent and tried to develop institutions to capitalize on it, but life for the Soviet consumer was bleak.

Mr. Baker, I read a wide variety of opinion on topics related to economics; that's why I was on the CEPR website. I know you and others only want the best for fellow citizens and that you have strongly-felt beliefs. It is therefore with the utmost respect that I say that your obsession with "the 1%" leads you down some very strange paths. You see monopolies where market power is ephemeral, you have blind faith in "rational" disinterested planning when much that we call progress occurs serendipitously far from the myopic gaze of the planners. It's no disaster if some get rich in the process.

Dan Norris, please explain the Netscape Navigator example
written by John Wright, June 23, 2013 9:54
The Netscape Navigator arose from Marc Andreessen's and Jim Clark's desire to commercialize the Mosaic Browser co-written by Andreesen while he was a part time employee of the National Center for Supercomputing Applications (a state-federal partnership).

The original company was titled Mosaic Communications Corporation until the University of Illinois complained.

One could say the Netscape browser had its roots firmly planted in government sponsored work.

Are you suggesting that government research is poorly commercialized?

See http://en.wikipedia.org/wiki/Netscape_Navigator

written by Dan Norris, June 23, 2013 10:01
Yes, that's exactly what I said.

There's no question that Internet applications would not have been possible without government research.

What government researcher took it forward as did Jim Clark?

Of course, it's POSSIBLE, that someone could have done it, but nobody did.

Your point?
Rowling ? He must be joking ?
written by Robert Waldmann, June 23, 2013 11:59
NIH hell. Rowling wrote Harry Potter and the Sorcerer's Stone after receiving an extraordinary grant from the Scottish humanities Council. Before that she was on welfare. Her case demonstrates a cost of tough workfare which would have had her cleaning toilets or something instead of writing books.

She is quite leftist and, as widely noted, rather good with the English language. I wonder if she would be interested in debating Mankiw. He should have stuck to the example of Jobs who won't.

Seriously, Low-rated comment [Show]
written by liberal, June 24, 2013 8:16
Dan Norris wrote,
To reward those who invest their toil and treasure in the pursuit of new inventions that improve the quality of people's lives.

That's not what the Constitution says. It says the purpose of patent/copyright is to further the human knowledge. Enriching the creators of that knowledge is a byproduct of such an incentive system, but it is not the purpose of it.
written by liberal, June 24, 2013 8:20
Christ wrote,

Do you even know what a free market is?

Unlike you, he knows that so-called intellectual property rights are government-granted monopolies.

Property rights are a fundamental aspect of the philosophies from the age of enlightenment, private property rights are a necessary condition for freedom to exist.

Yawn. That raises the obvious question: what should be considered legitimate property?

I'm guessing you're just another freedom-hating crypto-feudalist, though, and have no interest in discerning true Enlightenment values (
Salk and patents
written by AlanInAz, June 24, 2013 12:51
The following is a commentary on the Biotech Now website concerning some mis-infomation about Salk and patents.

" the oft quoted Jonas Salk statement about his Polio vaccine: “There is no patent. Could you patent the sun?” Many use this statement as the moral impetus for refusing patents on medically important innovations (see Michael Moore’s Capitalism: A Love Story). Unfortunately, Jonas Salk created a myth that day by leaving out several crucial details.

As pointed out by Robert Cook-Deegan at Duke University, “When Jonas Salk asked rhetorically “Would you patent the sun?” during his famous television interview with Edward R. Murrow, he did not mention that the lawyers from the National Foundation for Infantile Paralysis had looked into patenting the Salk Vaccine and concluded that it could not be patented because of prior art – that it would not be considered a patentable invention by standards of the day. Salk implied that the decision was a moral one, but Jane Smith, in her history of the Salk Vaccine, Patenting the Sun, notes that whether or not Salk himself believed what he said to Murrow, the idea of patenting the vaccine had been directly analyzed and the decision was made not to apply for a patent mainly because it would not result in one. We will never know whether the National Foundation on Infantile Paralysis or the University of Pittsburgh would have patented the vaccine if they could, but the simple moral interpretation often applied to this case is simply wrong.”

While the debate on whether patents are the best way to incentivize medical innovation and commercialization continues, that debate should proceed without reliance on this myth regarding the history of the Polio vaccine. "

I would like to add that much of early medical research was serendipitous and often they knew not what they found, as was the case with penicilin in the early days.
Let's debate something dificult
written by jack, June 24, 2013 3:01
Baker makes two true but completely obvious points: property rights are created by governments; and we don't know if the incentives created by certain property rights are perfectly calibrated. Everybody knows this including Mankiw, so wasting much of his blog suggesting Mankiw does not know this is useless and purposely insulting (note the 'excel' comment).
With respect to the rest, Baker implies 1)maybe we don't need patents, 2)incentives are probably overly generous.
The suggestion that NIH and Universities might ‘easily’ take the place of patents belies incredible academic naiveté. Universities are themselves among the Country's largest holders of IP. Moreover, who exactly is going to finance the risk capital to develop and market these innovations? The Government? Please. Baker's cop out that this 'may or may not be' the best way to finance innovation adds nothing to this debate.
Baker might as well have argued: ”Maybe we don’t need any property rights of any kind to have a functional market. After all, property is entirely created by law, so we can change it if we feel like it. We can easily devise a system that operates without property rights.” I can think of no law of nature that makes this untrue, but I think I would be justified to be highly skeptical. Property rights have worked extremely well as a basis for market operation for a long time. The burden is on Baker to suggest a workable alternative.
The question whether the incentives created by our current IP laws are perfectly calibrated to their purposes is slightly more interesting, but Baker sheds no light on this whatsoever. His only argument is that certain specified individuals might not have required as much incentive as they received (without evidence) but of course this begs the question of whether other people were under incentivized. The issue is the average return on risk, not any particular individual’s.
We cannot know the answer to the basic ‘calibration’ question, but two facts are worth considering. First, we have had an explosion of innovation simultaneously with adoption of broad IP protection. This might just be a coincidence, but I doubt it. Second, in industries which are most reliant on IP, eg, pharmaceuticals, the return on equity has been within two standard deviations of the median, suggesting that the property rights granted were just enough to produce returns on an extremely risky portfolio.In fact, there are no patent/copyright based industries with ROEs above 3SD, which is what one might expect to see if our IP laws were really overly generous. In fact, on of the very few industries with consistently extraordinary ROE producers is the hedge fund industry, which is explicitly not based on patents, but rather on trade secrets, again suggesting that the balance between disclosure and monopoly life in the patent system is reasonable.
I am personally very uncomfortable with the idea that Mickey Mouse cartoons receive a 95 year monopoly, but not at all concerned that breakthrough cancer drugs receive 7-10 (the average length of patent protection after FDA approval), but I am willing to have a rational debate about both.

To Liberal
written by Dan Norris, June 24, 2013 4:52
Some of you guys like semantic diversion so much that one might think you simply can't accept the truth when it's in front of your face.

OF COURSE the purpose of the Constitution's grant of power to the Congress wasn't to reward people unless they they came up with inventions that "promoted science and the useful arts." Are you suggesting we ignore what follows: "By securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries?"
written by Chris Engel, June 25, 2013 12:43
How did this clown "Christ" stumble upon a CEPR blog? Must have mis-clicked while he was fapping to old von Mises manuscripts.

Free market is supposed to mean no government intervention. You can't just say that patent monopolies and other forms of government market interventions are suddenly "free market". You can alter the term and say that it represents somehow a more "fair" market, but it's certainly not a "free market". And how about all the biotech and IT companies who rely on government subsidies and innovation? Maybe you should read a book, namely Dean Bakers numerous books!
Uh, Steve Jobs didn't actually CREATE anything....
written by david helveticka, June 25, 2013 12:02
Well, Steve Jobs didn't actually CREATE any new technology--his so-called "innovations" were merely taking this and that from the public sector, like in the case of the GUI, stole it from Xerox, which developed under a government contract. Even the Apple operating system is based on Linux code.

It was ridiculous for Apple to sue Emachine for attching a laptop computer to a desktop screen, which is simply all that an imac is. It is ridiculous for Apple to sue other manufacturers because the graphic interface on their tablets and cell phones looks too much like an iphone graphic interface. There is nothing unique or special about itunes, it's a media download site.

These are real abuses of the patent system, and Apple should not be allowed to stifle lower cost competition.
re: many patents were discovered by government funded research...
written by david helveticka, June 25, 2013 12:13
Many patents were discovered by researchers being PAID to do research by the government, while employed at some University or hospital...then this so-called "innovator" takes a patent out on the results of his government funded research, and rapes the public, when by rights his research is in the public domain.

The private sector is very good at commercializing government funded innovations, and maybe to reward their effort, they should get some protection so as to benefit from their effort at commercializing their research.

But when their profit from commercializing real technology they discovered while employed by the government through grants or public funded institutions becomes abusive, the government should step in and strip them of their so-called "property rights"...

Actual research is innovation is one thing, while merely commercialization of that innovation is an entirely different thing.

How do you determine when profit from commercialization is abusive to the public. Well, for instance, many drugs that cost $100 a month to the consumer, but manufacturing cost is only $10 a month.
David Helvetika
written by Dan Norris, June 25, 2013 4:09
You appear to have misconceptions about patents on government work. Among other things, note that the federal government itself is the holder of most American patents.


You also have a strange definition of "abuse." It is not uncommon for a pharmaceutical company to invest $500 to $1 billion in developing a new drug and then be able to produce each marginal dose for a pittance. Of course, if the investment is not recovered by selling the drug, it won't be made. As Mr. Baker could explain to you, you are talking about the difference between marginal cost and full cost.

As with many commenters to Mr. Baker's original post, you appear to have your mind made up about a variety of things and just make up your "facts" as you go along. Your gratuitous use of the word "rape" in the first paragraph rather gives the game away.

Rowling again
written by Royal Canadian Bandit, June 27, 2013 4:44
Others have pointed out that JK Rowling was supported by various forms of government funding while writing the first Harry Potter book.

*After* the success of that book, JKR became incredibly wealthy. She could then have moved from the UK to a lower-tax jurisdiction. In theory, she could have written the subsequent books just as well in Guernsey or the Cayman Islands.

Instead, JKR chose to remain in the UK with its relatively high income tax. Suppose that because of this, her net annual income was $30 million instead of $50 million. The marginal utility to JKR of that extra $20 million was less than the advantages of staying in the UK. This is a very clear demonstration that JKR did not need the incentive of low tax rates in order to keep writing Harry Potter books.

It would be amusing to see Mankiw's head explode if this was explained to him.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.