The government and job creation

[Scheavo]

Even if things seem to be doing "well", there are still problems rippling out due to fiat money and the increased opportunity costs of business. The people who receive the new credit/money first get to purchase goods before prices have had a chance to react to the newly created money. As that money circulates the economy, prices rise causing inflation and the people who get the money down stream now have additional money but at diluted value. It is even worse for folks on a fixed income since they will never see the new money, but only pay for inflation. The Government is typically the largest beneficiary of newly created money which amounts to new debt. Inflation is indirect taxation since the government can now just spend money and you pay for it at the grocery store. The public then laments the producers and big corporations for fleecing their wallet, when it was inflation due to fiat money that caused the problem in the first place.

So assuming this theory is true, why do some places within the US experience deflation, and increases in CPI?

Because you have the more money chasing the same amount of goods. You have money creation without wealth creation.

(Hopefully I didn't mess up increase in CPI with decrease in CPI, but I did use deflation, so hopefully that made it clear enough)

An increased money supply without wealth creation is inflation, I thought... I'm asking why, then, that does not necessarily happen. Few years ago, Colorado lowered it's minimum wage, because their minimum wage is tied to CPI.

[Orthogonal]

(Hopefully I didn't mess up increase in CPI with decrease in CPI, but I did use deflation, so hopefully that made it clear enough)

An increased money supply without wealth creation is inflation, I thought... I'm asking why, then, that does not necessarily happen. Few years ago, Colorado lowered it's minimum wage, because their minimum wage is tied to CPI.

That's a good question, but it is a complicated answer. Inflation can mean one of 2 things. 1. Increase in the money supply or 2. An increase in the nominal price of goods (Typically a large basket of goods). They are not necessarily related, but they are usually used interchangably which creates confusion. Many times an increase in the money supply will lead to an increase in the nominal supply of goods since we have more dollars chasing the same amount of goods. However, this is not always the case. Even if the supply of money goes up, the demand for dollars does not always go up with it. This is kind of what we are seeing today where the interest rates are sooo low and money is pouring into the financial system from the Fed, but the banks are just sitting on it. If that money is not entering circulation, the price of goods will not inflate too much, but when the banks do start to lend/spend those reserves, expect significant inflation if the Fed doesn't pull it back through sky high interest rates.

Similarly, Deflation can mean 2 different things. 1. A decrease in the supply of money, 2. A decrease in the nominal price of goods. Since the definitions are not rigorous, we can have both things happening at the same time. Due to the prior "Boom" period, we were leveraged very highly, meaning there was debt piled on debt which grows exponentially with fractional reserve banking and multiple financial instruments were tied to the same "dollar" or "asset". If that asset goes down in value, everyone tied to it loses out on it at a multiple of the ratio of the leveraging. This is why the mortgage crisis was so devestating. As a result of the huge credit levels, prices were very high compared to the base money supply. Once the bubble collapses, prices fall to come back down to reality. What's really going on is that the market is de-leveraging. In order to stop the price decreases from de-leveraging, the Federal Reserve pumps more money into the system, (inflate money supply) to bottom out the nominal decrease in prices.

The issue is further complicated by the calculation of CPI in general. The metric has changed many times over the last few decades and comparing inflation from one time period to the next is not an apples-to-apples comparison. Typically they have modified to formula to make things look better in general terms. They implemented "Substitutes" in the basket of goods and removed a lot of things like energy prices. An example of substitution may be the price of "Meat". They track the price of all meats like beef and pork. In one quarter the inflation for beef is higher than the inflation for pork, so pork is used in CPI, the next quarter, pork inflated more and beef less, so beef is used in CPI. The rationalization is that this "averages out" over time, but it's clearly not precise and has the effect of lowballing the true CPI value. I don't know the exact numbers, but I've heard reports that if they track CPI today, the same way they did back in the 80's, we would be over 10% inflation per year.

[Scheavo]

we were leveraged very highly, meaning there was debt piled on debt which grows exponentially with fractional reserve banking and multiple financial instruments were tied to the same "dollar" or "asset"

From what I've been able to research, what I know about the issue, and if I understand what you're saying (money and finances really doesn't make sense to me on some basic level), this is wherein the problem lies - banks didn't have enough actual assets to cover their guarantee's, i.e., the fractional reserve was too low. This an issue with banking in general really, and while the Fed at a hand in it, I don't see why a market-place sans the Fed would be safe from this kind of over-leveraging. The banks were doing what they wanted to do, on their own free will, by over-leveraging as they did, and the fed is responsible in that it didn't stop them from doing this (and at the same time created the conditions which made it happen).

I guess I would just use an analogy to say why this matters to me; we can all agree that a car is a dangerous vehicle, when used improperly. Should the fact that it can be used so improperly mean that we shouldn't use cars at all? The Fed, or a system like it, could be potentially dangerous for every reason you give, but it doesn't compare where we might be without the Fed. What would the American economy look like without the Fed? To what extent is our very lively hood, being so distant from the farm and our basic nutritional survival, dependent upon a "bubble" and a "distortion" of the free-market? We're better off using cars, even given their hazardous potential.

The issue is further complicated by the calculation of CPI in general. The metric has changed many times over the last few decades and comparing inflation from one time period to the next is not an apples-to-apples comparison. Typically they have modified to formula to make things look better in general terms. They implemented "Substitutes" in the basket of goods and removed a lot of things like energy prices. An example of substitution may be the price of "Meat". They track the price of all meats like beef and pork. In one quarter the inflation for beef is higher than the inflation for pork, so pork is used in CPI, the next quarter, pork inflated more and beef less, so beef is used in CPI. The rationalization is that this "averages out" over time, but it's clearly not precise and has the effect of lowballing the true CPI value. I don't know the exact numbers, but I've heard reports that if they track CPI today, the same way they did back in the 80's, we would be over 10% inflation per year.

This is where I start to bow out of the intellectual debate, becuase I don't have experience in the numbers to know what's true. There could be some other rationalization for using the different number that makes perfect sense, or it could all be bullshit.

Either way, thanks for the response. Interesting to hear about the CPI, even if I'm not sure what to make of it (I'll defer to the experts).

[Riceball]

CPI is a measure of consumer prices, but is generally accepted as the key measure of inflation because its the most comprehensive survey of prices available. Also, if you subscribe to the belief that economics is all about the consumer, it makes sense to track consumer prices as the most appropriate measure of inflation.

Its also why, largely, interest rates on housing are used as an inflation targetting mechanism, as increases/decreases in borrowing/lending rates change consumer demand, which as has been said manipulates the supply and demand for money in the economy. As I've said a number of times, the Fed doesn't have to worry about inflation right now, its the lack of demand in the economy that should be their concern and thats why they are trying to pump as much money into the economy as humanly possible.

This pushes up the opportunity cost of holding onto money, which under normal circumstances leads people to spend it and invest it. But because everyone is so shaky and so intent on keeping their own house in order (assuming they have a house, or even a job) that they aren't doing anything.

EDIT: Yet another timely article discussing central banks and interest rate targetting:

https://www.businessspectator.com.au/bs.nsf/Article/central-banks-interest-rates-inflation-economic-cr-pd20111021-MTRDL?OpenDocument&src=sph

[Orthogonal]

we were leveraged very highly, meaning there was debt piled on debt which grows exponentially with fractional reserve banking and multiple financial instruments were tied to the same "dollar" or "asset"

From what I've been able to research, what I know about the issue, and if I understand what you're saying (money and finances really doesn't make sense to me on some basic level), this is wherein the problem lies - banks didn't have enough actual assets to cover their guarantee's, i.e., the fractional reserve was too low. This an issue with banking in general really, and while the Fed at a hand in it, I don't see why a market-place sans the Fed would be safe from this kind of over-leveraging. The banks were doing what they wanted to do, on their own free will, by over-leveraging as they did, and the fed is responsible in that it didn't stop them from doing this (and at the same time created the conditions which made it happen).

Another excellent observation. The use of fractional reserve banking in a free-market is a hotly debated topic. There are those that say it is outright fraud by creating unsecured credit. Others say it is purely a voluntary situation as long as it is done in the open. Ultimately, it would be impossible to police and enforce so the truth lies somewhere in the middle. In a true free market sans the Fed, over-leveredging would still occur. However there is one big difference. The banks are on their own. The Fed cannot bail them out. By having the Fed as a lender of last resort, they create a moral hazard which allows banks to be far riskier than they otherwise would be if they were on their own. Without the Fed, the riskiest banks would all go out of business in the event of a major deleverage event. One of the major arguments in favor of the creation of the Fed was to prevent this type of event from occurring in the first place. The thought was that a central bank would be able to push/pull as necessary to keep the market stable. Unfortunately, this has not been the case.

I would suspect that in a true free market for banks, there would be some who operate at 100% reserves and others who operate at some fractional reserve. Both the banks and the consumers would then accept the risks of doing business with either. The market would try many different approaches and settle on the ideal "fraction" based on risk/reward. This fraction would probably change over time, much like interest rates.

EDIT: One other thought since it is specific to the mortgage crisis. After the dot com bust, the Fed lowered interest rates to 1.25% I believe to push credit into the market. Housing ended up being the big push for all this credit. We also had the Community Reinvestment Act that encouraged loans to sub-prime to get people into home ownership. Interest rates were very low for a long time and a bubble was created. It popped and the rest is history. yes, there were shady lenders pushing loans that shouldn't have happened. Yes there were complex derivitaves that should not have been AAA, but those are all secondary, the whole process was driven by artificially low interest rate. In a free market for interest rates, this is very unlikely to occur. Hypothetically speaking, assume there was a huge push for housing. Banks were pushing loans and there was lots of flipping. In order to fund this, we need a lot of credit. Banks would quickly max out their loans and would need to seek new reserves to continue to push the housing boom. The only way to do that in a free market is to increase their interest rates on deposits/cd's etc. If the housing boom continued, the banks interest rates would climb and the sub-prime mortgages would quickly become unprofitable. The bubble would never have occured.

I guess I would just use an analogy to say why this matters to me; we can all agree that a car is a dangerous vehicle, when used improperly. Should the fact that it can be used so improperly mean that we shouldn't use cars at all? The Fed, or a system like it, could be potentially dangerous for every reason you give, but it doesn't compare where we might be without the Fed. What would the American economy look like without the Fed? To what extent is our very lively hood, being so distant from the farm and our basic nutritional survival, dependent upon a "bubble" and a "distortion" of the free-market? We're better off using cars, even given their hazardous potential.

The problem with the Fed is that it is a Monopoly. There are no ifs/ands/or buts. What they say goes, and everyones actions and decisions are influenced by what they do. It's ludicrous to think that a small cadre of bankers can coordinate the financial direction of millions of people with differing wants and needs in a continuously changing, dynamic economy.

[Rathma]

Orthogonal, you keep saying that the crisis wouldn't have happened if the banking industry was in a true free market. But you obviously believe in some regulation since you have a problem with monopoly (a laissez fair market would lead to competition to eliminate competition so monopolies would be inevitable). So what would the minimum regulations required?

[Orthogonal]

Orthogonal, you keep saying that the crisis wouldn't have happened if the banking industry was in a true free market. But you obviously believe in some regulation since you have a problem with monopoly (a laissez fair market would lead to competition to eliminate competition so monopolies would be inevitable). So what would the minimum regulations required?

You misunderstand my argument then. Semantics I suppose. A monopoly (oligopoly) is a provider of goods and services that is a single source provider by decree of the state (Like municipal utilities and the Fed). Entry into the market is barred artificially through regulation or law. Monopolies can only exist with the sanction of government. Under a free market, a monopoly cannot exist. If a company emerges as a sole provider of a good, that is because it was due to market forces. (Most efficient, consumer preference, location or niche). However, there are no artificial barriers preventing someone new from entering the field.

Competition in a laissez faire market does not lead to a monopoly sole provider of a good. If a company is making a lot of money being the sole provider of a good, that opens up a huge opportunity for entreprenuers to take part in the action which creates new competition and lowers the relative profits approaching equilibrium. Large companies benefit from regulations on their industry because they are easier to absorb than for smaller companies which limits competition. They also lobby for special interest and receive limited monopolies on particular idea's through the patent system to lock out competition. In laissez faire, they have none of this and their size is self regulated through the profit/loss mechanism. The larger a company becomes, the harder it is to calculate efficiency and waste creeps in. This is an opportunity for smaller companies to break in.

[rumborak]

The government does not create jobs because it cannot create wealth.

Who woulda thunk. China has no wealth at all.

rumborak

[Rathma]

Orthogonal, you keep saying that the crisis wouldn't have happened if the banking industry was in a true free market. But you obviously believe in some regulation since you have a problem with monopoly (a laissez fair market would lead to competition to eliminate competition so monopolies would be inevitable). So what would the minimum regulations required?

You misunderstand my argument then. Semantics I suppose. A monopoly (oligopoly) is a provider of goods and services that is a single source provider by decree of the state (Like municipal utilities and the Fed). Entry into the market is barred artificially through regulation or law. Monopolies can only exist with the sanction of government. Under a free market, a monopoly cannot exist. If a company emerges as a sole provider of a good, that is because it was due to market forces. (Most efficient, consumer preference, location or niche). However, there are no artificial barriers preventing someone new from entering the field.

Competition in a laissez faire market does not lead to a monopoly sole provider of a good. If a company is making a lot of money being the sole provider of a good, that opens up a huge opportunity for entreprenuers to take part in the action which creates new competition and lowers the relative profits approaching equilibrium. Large companies benefit from regulations on their industry because they are easier to absorb than for smaller companies which limits competition. They also lobby for special interest and receive limited monopolies on particular idea's through the patent system to lock out competition. In laissez faire, they have none of this and their size is self regulated through the profit/loss mechanism. The larger a company becomes, the harder it is to calculate efficiency and waste creeps in. This is an opportunity for smaller companies to break in.

The word monopoly doesn't refer only to monopolies granted by the government. Not sure where you got that. But anyways, my question was about what you thought the minimum regulations should be. Are you implying that you believe no regulations should be applied? Banks are already too big to fail - you think its acceptable to let banks grow bigger by merging further?

[Orthogonal]

The word monopoly doesn't refer only to monopolies granted by the government. Not sure where you got that. But anyways, my question was about what you thought the minimum regulations should be. Are you implying that you believe no regulations should be applied? Banks are already too big to fail - you think its acceptable to let banks grow bigger by merging further?

This is why the discussion is difficult to have because the word monopoly is not rigorously defined. I'm using the definition of monopoly as sole control over a particular geographic region or industry by force. In a free market, if there is only one company providing a good or service, they are not a monopoly because competition can enter the field at any time. There are no barriers to entry.

Contrary to popular belief, the Fed isn't exactly a private entity, they are a government sanctioned entity created by Congress that has a priviledged status and a special relationship with Congress and the US Treasury. They are a quasi-private/public joint venture.

To answer your question, I do not believe there should be any regulations. Banks have only gotten "too big to fail" precisely because of regulation and the Fed, not in spite of it.

EDIT: Found a good video addressing some of these concerns.
https://www.youtube.com/user/stefbot#p/search/1/nOBD6v8g1F4

[PraXis]

The government does not create jobs because it cannot create wealth.

Who woulda thunk. China has no wealth at all.

rumborak

They have a ton of our treasury bonds, but they're going to have a housing bubble that will make ours look tiny in comparison when it bursts.

[Scheavo]

The word monopoly doesn't refer only to monopolies granted by the government. Not sure where you got that. But anyways, my question was about what you thought the minimum regulations should be. Are you implying that you believe no regulations should be applied? Banks are already too big to fail - you think its acceptable to let banks grow bigger by merging further?

This is why the discussion is difficult to have because the word monopoly is not rigorously defined. I'm using the definition of monopoly as sole control over a particular geographic region or industry by force. In a free market, if there is only one company providing a good or service, they are not a monopoly because competition can enter the field at any time. There are no barriers to entry.

Except, ya know, the barriers the monopoly puts in place. Buying out competition to make it so there isn't any competition, driving prices so low that competitors can't compete, then raising prices, or just sheer out extortion/bribery/threat's of violence.

[antigoon]

Wasn't the inception of these regulations during the industrial revolution, when concentrations of wealth and power proved that they couldn't be trusted to function unchecked?

Deregulation doesn't seem like it's something we just need to try because we won't actually know how it will work out until we do. There was a reason the regulations were created in the first place. And unless I'm completely off base, that reason was actual abuse, not hypothetical abuse.

[Scheavo]

Apparently those companies only did what they did because of the government.

[rumborak]

The government does not create jobs because it cannot create wealth.

Who woulda thunk. China has no wealth at all.

rumborak

They have a ton of our treasury bonds, but they're going to have a housing bubble that will make ours look tiny in comparison when it bursts.

You are evading the argument. You are repeatedly arguing that having government services being part of the economy is toxic because it can not create wealth. The example of China, a country that has remarkably bootstrapped itself out of poverty, shows how completely wrong your notion is.

rumborak

[Orthogonal]

Except, ya know, the barriers the monopoly puts in place. Buying out competition to make it so there isn't any competition, driving prices so low that competitors can't compete, then raising prices, or just sheer out extortion/bribery/threat's of violence.

Buying out companies isn't a barrier to entry... but it is a reduction in immediate competition. This is costly and usually requires debt. If Big Corp is buying out small companies, that just creates entreprenureal opportunities to create new companies in the field in order to either be bought out, or to easily compete against a company saddled with more debt.

Driving prices lower than the competition is by definition being competitive, that is a good thing for consumers. If they later raise their prices, they lower the barrier to entry for new competition. Extortion/bribery/Threats are criminal and dealt with the law... it's not relevant to economic theory.

Wasn't the inception of these regulations during the industrial revolution, when concentrations of wealth and power proved that they couldn't be trusted to function unchecked?

Deregulation doesn't seem like it's something we just need to try because we won't actually know how it will work out until we do. There was a reason the regulations were created in the first place. And unless I'm completely off base, that reason was actual abuse, not hypothetical abuse.

The initial thrust of regulations during the mid 19th century were in direct response to prior intervention that started with Lincoln and his pro-corporitist policies, aka mercantilism. If you are interested watch this video. (It is rather long).

https://www.youtube.com/watch?v=wu9SI0ZwtbM

[Scheavo]

Extortion/bribery/Threats are criminal and dealt with the law... it's not relevant to economic theory.

Lol, when your economic theory does away with all actual law, it is certainly relevant. It's nice to intellectually divide up the world, and to imagine that there is something like the economy which is separate, unique and has it's own rules... but in the real world, the economic field is influenced by such things as extortion, bribery and threats. It is perfectly valid to discuss the realism of an economic theory, especially when it flies in the face of common sense. You can't just try and disqualify something becuase it doesn't fit nicely with your economic theory.

[rumborak]

Buying out companies isn't a barrier to entry... but it is a reduction in immediate competition. This is costly and usually requires debt. If Big Corp is buying out small companies, that just creates entreprenureal opportunities to create new companies in the field in order to either be bought out, or to easily compete against a company saddled with more debt.

But it doesn't create competition. I have worked for exactly such a company, and the field they are in has been stagnant because they either buy emerging companies and essentially stop their product line, or they just sue those companies to death. When you are a monopoly, you have no interest in progressing, because all that does is lower your profit.

rumborak

[Rathma]

Or in the words of John D. Rockerfeller, "Competition is a sin."

[Orthogonal]

Lol, when your economic theory does away with all actual law, it is certainly relevant. It's nice to intellectually divide up the world, and to imagine that there is something like the economy which is separate, unique and has it's own rules... but in the real world, the economic field is influenced by such things as extortion, bribery and threats. It is perfectly valid to discuss the realism of an economic theory, especially when it flies in the face of common sense. You can't just try and disqualify something becuase it doesn't fit nicely with your economic theory.

Economic theory has nothing to do with laws, political theory deals with legality. Extortion, bribery and threats fall under political theory exclusively.

But it doesn't create competition. I have worked for exactly such a company, and the field they are in has been stagnant because they either buy emerging companies and essentially stop their product line, or they just sue those companies to death. When you are a monopoly, you have no interest in progressing, because all that does is lower your profit.

Without more specifics its hard to comment on this, but I'd be willing to bet there were many other factors in play that effected this situation.

[Scheavo]

Economics theory may have nothing to do with what we're talking about, but economics in practice does. I'd say any theory which doesn't account for reality isn't worth considering.

[rumborak]

Without more specifics its hard to comment on this, but I'd be willing to bet there were many other factors in play that effected this situation.

No, seriously, there are no "specifics" that might paint another picture altogether. The company is called Nuance Communications, and everybody knows it's their business model. Crush and swipe away the competition so that the existing products can stay the same and maintain their profit margin under Nuance's virtual monopoly.
Even their own employees refer to it as either Mordor or The Black Hole, since they have gotten used to being shut down internally on suggestions for advancements, and getting a monthly email about which small company Nuance has acquired (or sued).

rumborak

[Orthogonal]

No, seriously, there are no "specifics" that might paint another picture altogether. The company is called Nuance Communications, and everybody knows it's their business model. Crush and swipe away the competition so that the existing products can stay the same and maintain their profit margin under Nuance's virtual monopoly.
Even their own employees refer to it as either Mordor or The Black Hole, since they have gotten used to being shut down internally on suggestions for advancements, and getting a monthly email about which small company Nuance has acquired (or sued).

I think I see the issue now, it's a byproduct of the patent system, which is a State protectionist program for corporations. There are numerous "business model's" used to exploit it and it is definitely a form of monopolistic tactics. The abuses take many forms: 1) Develop patents or buy out other companies IP to be the sole provider of a good/service. 2) Companies that don't do anything of value and acquire patent portfolio's to license out to others and live off the royalties. 3) Buying out a competitor to shelve the IP and prevent it from entering the market or to keep in their back pocket for a rainy day. 4) Use the legal system to sue other companies into oblivion for patent infringement, or to collect a settlement for "losses". The patent system doesn't get a lot of press, but it is the Nemesis of competition and progress in the market. There are few who argue for patent reform, but it gets little media attention.

I know this comment will open a huge can of worms, and it probably deserves a new thread, but in a free market, Patents and Copyrights would be abolished. They only impede progress and would put an end to these ridiculous and abusive business model's.

[rumborak]

You're not getting much argument from my side for that one. The patent system needs to be shrunk massively. I mean, I *do* see the argument of pharmaceuticals who say that they spend 10 years developing a drug, and once it's out it can be reverse-engineered within a few days. So, there needs to be a way of protecting the investment of the inventor.
IMHO, a patent should protect the inventor long enough that he can reasonably recoup a certain multiple of his development investment. And, the intention of actually selling a product needs to be shown. There's companies out there that do nothing but buy patents and then sue companies for infringing them.

rumborak

[Scheavo]

I like how the only property libertarians don't care about are the intellectual one's. You have to protect property, property rights are above all other rights... except for the ones you don't like!

As a son of artists, I can tell you that copyrights are very important. You talk about innovation, but the incentive to create innovations goes away if you don't own that creation. As rumby points out, why spend money for years to invest in something, only to have your competitor steal it for free, and put it out on the marketplace? It would be a giant waste of money for you personally, and we'd see the damaging effects in the market place.

Our system obviously needs some reforms, but to say that we should get rid of all intellectual property is just insane.

[skydivingninja]

Copyrights are fine, IMO.  Copyrights that live on for a hundred years after the creator dies just seem silly. 

[Orthogonal]

I like how the only property libertarians don't care about are the intellectual one's. You have to protect property, property rights are above all other rights... except for the ones you don't like!

As a son of artists, I can tell you that copyrights are very important. You talk about innovation, but the incentive to create innovations goes away if you don't own that creation. As rumby points out, why spend money for years to invest in something, only to have your competitor steal it for free, and put it out on the marketplace? It would be a giant waste of money for you personally, and we'd see the damaging effects in the market place.

Our system obviously needs some reforms, but to say that we should get rid of all intellectual property is just insane.

Not all Libertarian's oppose IP protections. Also, it's not about picking and choosing ones I do or do not like, it's about the principle of it. It's ludicrous to say that somebody "owns" an idea. It is not tangible. It is not property. Intellectual Property is a misnomer, it does not exist. All IP does is create artificial scarcity where non exists. When someone has a patent or copyright on an idea, they are effectively placing restrictions on everyone else in the world from using their own real property.

One final note, IP is typically segregated into four sub-classes. Patent, Copyright, Trademarks and Trade Secret. Patents and Copyrights cannot exist in a true free market. Trademarks have a place and will certainly work in a free market, but their usage will be a bit different. Trade Secret's will work the same as they do now, by contract or NDA.

You're not getting much argument from my side for that one. The patent system needs to be shrunk massively. I mean, I *do* see the argument of pharmaceuticals who say that they spend 10 years developing a drug, and once it's out it can be reverse-engineered within a few days. So, there needs to be a way of protecting the investment of the inventor.
IMHO, a patent should protect the inventor long enough that he can reasonably recoup a certain multiple of his development investment. And, the intention of actually selling a product needs to be shown. There's companies out there that do nothing but buy patents and then sue companies for infringing them.

I understand the utilitarian argument for "protecting" the investor in order to recoup the costs of R&D, but it has some flaws. 1) There is no evidence that IP laws have improved the rate of innovation, I've seen studies that have drawn conclusions that it has actually stagnated as a result. 2) It involves illegitimate comparisons of interpersonal utility with regards to subtracting the "costs" of IP with the "benefits" of protecting it. 3) It ignores the huge cost of keeping the IP system in place. Sure, IP may allow them to make money initially by not having competition, but there are huge legal fee's by suing or defending yourself in court to protect your IP that may cost more than the R&D.

[Scheavo]

I like how the only property libertarians don't care about are the intellectual one's. You have to protect property, property rights are above all other rights... except for the ones you don't like!

As a son of artists, I can tell you that copyrights are very important. You talk about innovation, but the incentive to create innovations goes away if you don't own that creation. As rumby points out, why spend money for years to invest in something, only to have your competitor steal it for free, and put it out on the marketplace? It would be a giant waste of money for you personally, and we'd see the damaging effects in the market place.

Our system obviously needs some reforms, but to say that we should get rid of all intellectual property is just insane.

Not all Libertarian's oppose IP protections. Also, it's not about picking and choosing ones I do or do not like, it's about the principle of it. It's ludicrous to say that somebody "owns" an idea. It is not tangible. It is not property. Intellectual Property is a misnomer, it does not exist. All IP does is create artificial scarcity where non exists. When someone has a patent or copyright on an idea, they are effectively placing restrictions on everyone else in the world from using their own real property.

One final note, IP is typically segregated into four sub-classes. Patent, Copyright, Trademarks and Trade Secret. Patents and Copyrights cannot exist in a true free market. Trademarks have a place and will certainly work in a free market, but their usage will be a bit different. Trade Secret's will work the same as they do now, by contract or NDA.

How is arbitrarily dividing up land and air any more tangible than saying that a thought or a creation was due to someone's work.

Go talk with artists, go talk with inventors, go talk with the people who make the innovations that drive our society. Ask them what they think about the idea of yours to do away with their IP protection. You raise objections to the idea of taxing entrepreneurials, becuase this de-incentivizes them from making the gamble - yet you think that telling people who create art, or invest to come up with idea's, are not entitled to the benefits of that work, or the rewards for that investment, will do nothing. This is a blatant discrepancy in your theory. People losing 20% of their profits is somehow worse than someone losing up to 100% of their income.

How are trademarks any more tangible than a copyright? It's wrong to tell people that they can't copy someone else's idea when it comes down to property they can manipulate, but it's okay to tell people what words they can construe with their own mouth? Or that I can't use my money to create an object which writes out those words? You're trademarking an idea, a very specific way of putting that idea, something which you just said was intangible and thus illogical to protect.

[Orthogonal]

How is arbitrarily dividing up land and air any more tangible than saying that a thought or a creation was due to someone's work.

Go talk with artists, go talk with inventors, go talk with the people who make the innovations that drive our society. Ask them what they think about the idea of yours to do away with their IP protection. You raise objections to the idea of taxing entrepreneurials, becuase this de-incentivizes them from making the gamble - yet you think that telling people who create art, or invest to come up with idea's, are not entitled to the benefits of that work, or the rewards for that investment, will do nothing. This is a blatant discrepancy in your theory. People losing 20% of their profits is somehow worse than someone losing up to 100% of their income.

How are trademarks any more tangible than a copyright? It's wrong to tell people that they can't copy someone else's idea when it comes down to property they can manipulate, but it's okay to tell people what words they can construe with their own mouth? Or that I can't use my money to create an object which writes out those words? You're trademarking an idea, a very specific way of putting that idea, something which you just said was intangible and thus illogical to protect.

Land is a physical object, it is finite and scarce, property comes from homesteading. Air is a common good, no one owns it.

Of course the artists aren't going to like the idea of abolishing IP, no one wants to hear they are going to lose their free ride. No they don't lose their income, I'm not sure what kind of artist you are referring to, but think of a musician. They go on tour and they make money. Sure, someone can "copy" them, it's called a cover band. But how many people want to go hear a Metallica cover band when they can hear the real thing. God forbid they have to work to make a living.

Trademarks are different, they are not physical objects, that is correct. They are a concept. They differ from patents and copyrights however in that this concept can be used without force. You name a product or company, that is a trademark. Done.

[Scheavo]

Of course the artists aren't going to like the idea of abolishing IP, no one wants to hear they are going to lose their free ride. No they don't lose their income, I'm not sure what kind of artist you are referring to, but think of a musician. They go on tour and they make money. Sure, someone can "copy" them, it's called a cover band. But how many people want to go hear a Metallica cover band when they can hear the real thing. God forbid they have to work to make a living.

Lol, free ride. I'm talking about the kind of artists my parents are. My mom makes a living off of her designs, designs which you think should be able to be copied and reproduced by anyone. Say I'm a painter, and I paint something everyone thinks is amazing, then some guy just comes up and takes a photo of it, starts printing them off, and making money off my work. Those people work very very hard for what they do, and they often don't make that great of money.

Trademarks are different, they are not physical objects, that is correct. They are a concept. They differ from patents and copyrights however in that this concept can be used without force. You name a product or company, that is a trademark. Done.

So you simply have to brand something a concept, then it's worth protecting? WHy cant I name my company Microsoft? I happen to like the name, it's my company, my property, why can't I name it whatever I want? Concepts are idea's, you're just drawing a random distinction, really.

*edit*

But seriously, you haven't addressed what motivation a company would have to invest in some new technology. If I'm Ford, why should I invest in fuel cells or hydrogen technology, when after I spend all that money, someone else just get's to reap the rewards? There is no incentive for me personally, I don't see the rewards of the investment, then I'm not going to invest. I'll keep my money invested in something that will give me rewards back, not a black pit.

[Orthogonal]

Lol, free ride. I'm talking about the kind of artists my parents are. My mom makes a living off of her designs, designs which you think should be able to be copied and reproduced by anyone. Say I'm a painter, and I paint something everyone thinks is amazing, then some guy just comes up and takes a photo of it, starts printing them off, and making money off my work. Those people work very very hard for what they do, and they often don't make that great of money.

Taking your example, in the world of art, a person who paints a picture is equivalent to an R&D researcher. The payoff comes from the sale of a product. If you make a painting, you are free to sell prints of it yourself. If someone were to "copy" it, they still have to have a means of producing and selling replica's which costs money. It's no different than a restaurant that makes pizza. A competitor across the street may also make a pizza and sell it. Perhaps they use the same ingredients, perhaps they try to improve upon it and make it better. It's called competition. According to your logic, the first restaurant should be able to have an injunction place upon all other restaurants who sale pizza to not "copy" them. In the world of art, they have a few intangibles on their side. People prefer to support the original artist over copycat's, so they will always be able to command a premium over the competitors for original work.

So you simply have to brand something a concept, then it's worth protecting? WHy cant I name my company Microsoft? I happen to like the name, it's my company, my property, why can't I name it whatever I want? Concepts are idea's, you're just drawing a random distinction, really.

*edit*

But seriously, you haven't addressed what motivation a company would have to invest in some new technology. If I'm Ford, why should I invest in fuel cells or hydrogen technology, when after I spend all that money, someone else just get's to reap the rewards? There is no incentive for me personally, I don't see the rewards of the investment, then I'm not going to invest. I'll keep my money invested in something that will give me rewards back, not a black pit.

I didn't say anything about a trademark being anything "worth protecting", only that their use does not require the use of force. You can try to make a company called Microsoft, Coca-Cola or McDonald's, but if you try to pass yourself off as someone else, that is false advertising and customer's could charge you with a class-action lawsuit for fraud. You can "copy" the product, but you would have to clearly distinguish yourself in your trademark.

I already did address the motivation for companies, and it's demonstrable that the IP system has done nothing to improve the rate of innovation. Even in the absence of IP, companies will still invest in new technologies because the demand is there for new products. They have the advantage of being first to market and having more time to improve the production process over competitors. Reverse engineering is harder than you think. In many cases it is cheaper and faster to develop the product in house instead of relying on someone else to do it. It's also incredibly risky to rely on reverse engineering because many steps in a production process cannot be traced from breaking a product down, especially for advanced technologies, not to mention it may require significant retooling or capex to support the new production process which a competitor may not be able to easily support.

EDIT: Formatting fix

[Scheavo]

Lol, free ride. I'm talking about the kind of artists my parents are. My mom makes a living off of her designs, designs which you think should be able to be copied and reproduced by anyone. Say I'm a painter, and I paint something everyone thinks is amazing, then some guy just comes up and takes a photo of it, starts printing them off, and making money off my work. Those people work very very hard for what they do, and they often don't make that great of money.

Taking your example, in the world of art, a person who paints a picture is equivalent to an R&D researcher. The payoff comes from the sale of a product. If you make a painting, you are free to sell prints of it yourself. If someone were to "copy" it, they still have to have a means of producing and selling replica's which costs money. It's no different than a restaurant that makes pizza. A competitor across the street may also make a pizza and sell it. Perhaps they use the same ingredients, perhaps they try to improve upon it and make it better. It's called competition. According to your logic, the first restaurant should be able to have an injunction place upon all other restaurants who sale pizza to not "copy" them. In the world of art, they have a few intangibles on their side. People prefer to support the original artist over copycat's, so they will always be able to command a premium over the competitors for original work.

So all painters paint the same thing? That's what your example amounts to, that everyone who paints a landscape is going to be painting the same thing. Not everyone is a Picasso, and even trying to copy cubism, most people are not going to be able to replicate the genius of Picasso. Also, there are thousands of ways to make a Pizza, literally every place I go to makes pizza a little bit differently. It's not nearly the same to say that someone is making pizza, so they are copying you. Copying would be taking the exact same recipe, making it in the exact same way, and profiting off it, without doing the work, the testing, etc, to try and mimic the pizza.

People prefer the original artist? I'd like to call for proof of that, and then also state that's only if they know who the original artist is. The fact that they prefer the original artist is also a tangible way to conceive of intellectual property.

So you simply have to brand something a concept, then it's worth protecting? WHy cant I name my company Microsoft? I happen to like the name, it's my company, my property, why can't I name it whatever I want? Concepts are idea's, you're just drawing a random distinction, really.

*edit*

But seriously, you haven't addressed what motivation a company would have to invest in some new technology. If I'm Ford, why should I invest in fuel cells or hydrogen technology, when after I spend all that money, someone else just get's to reap the rewards? There is no incentive for me personally, I don't see the rewards of the investment, then I'm not going to invest. I'll keep my money invested in something that will give me rewards back, not a black pit.

I didn't say anything about a trademark being anything "worth protecting", only that their use does not require the use of force. You can try to make a company called Microsoft, Coca-Cola or McDonald's, but if you try to pass yourself off as someone else, that is false advertising and customer's could charge you with a class-action lawsuit for fraud. You can "copy" the product, but you would have to clearly distinguish yourself in your trademark.

So stealing someone else's idea and passing it off as yours isn't fraud? If I have to pay attention to someone else's lawsuit for fraud against me, that is using force to back up the fraud. If there isn't anything forcing me to listen to the lawsuit, then there's absolutely no way to keep people from naming and using whatever trademark they so please.

I already did address the motivation for companies, and it's demonstrable that the IP system has done nothing to improve the rate of innovation. Even in the absence of IP, companies will still invest in new technologies because the demand is there for new products. They have the advantage of being first to market and having more time to improve the production process over competitors. Reverse engineering is harder than you think. In many cases it is cheaper and faster to develop the product in house instead of relying on someone else to do it. It's also incredibly risky to rely on reverse engineering because many steps in a production process cannot be traced from breaking a product down, especially for advanced technologies, not to mention it may require significant retooling or capex to support the new production process which a competitor may not be able to easily support.

You at best showed how our current IP system is problematic, you did not show how IP in general harms the rate of innovation, etc. Just because there is a demand for a new product does not meant that that product will be made; the federal government had to give rural farmers telephone and power lines becuase it wasn't in the profit interest of utilities to build the power lines to the customers. An entrepreneurial has to be able to foresee a good profit margin, otherwise the risk is not worth the investment, and the risk won't be taken. A business has to operate first and foremost, and if they can't do that, they can't make the product people demand.

Also, what you describe is true of some cases, in some fields, but does not apply to everything. The fact that companies are so often suing other companies for infringing upon their copyrights should show you just how often and easy it is to adapt someone else's design and idea's.

*edit*

I just remembered one problem I've heard about the copyrighting process in America: it's too slow! If IP is bad for innovation, than we shouldn't be seeing the backlogging and massive amounts of patents that we do see. The fact that the market screws up the source of innovation to the degree that it does just goes to show you the inclination of the market.

[Orthogonal]

So all painters paint the same thing? That's what your example amounts to, that everyone who paints a landscape is going to be painting the same thing. Not everyone is a Picasso, and even trying to copy cubism, most people are not going to be able to replicate the genius of Picasso. Also, there are thousands of ways to make a Pizza, literally every place I go to makes pizza a little bit differently. It's not nearly the same to say that someone is making pizza, so they are copying you. Copying would be taking the exact same recipe, making it in the exact same way, and profiting off it, without doing the work, the testing, etc, to try and mimic the pizza.

People prefer the original artist? I'd like to call for proof of that, and then also state that's only if they know who the original artist is. The fact that they prefer the original artist is also a tangible way to conceive of intellectual property.

Painters do not all paint the same thing, pizza chains do not all make the same thing which is why you have no reason to worry. Why would someone spend the time and effort to copy it when they can just as easily make an original themselves?

So stealing someone else's idea and passing it off as yours isn't fraud? If I have to pay attention to someone else's lawsuit for fraud against me, that is using force to back up the fraud. If there isn't anything forcing me to listen to the lawsuit, then there's absolutely no way to keep people from naming and using whatever trademark they so please.

Copying is not stealing, it's copying. https://www.youtube.com/watch?v=IeTybKL1pM4

Patents and Copyrights place restrictions on everyone else in what they can or cannot do with their own property for the sake of one person/group. A Trademark places no restriction on anyone else, it is a tool for identification. A Trademark isn't even required to use.

Also, what you describe is true of some cases, in some fields, but does not apply to everything. The fact that companies are so often suing other companies for infringing upon their copyrights should show you just how often and easy it is to adapt someone else's design and idea's.

Most IP lawsuits are frivolous and have no merit. The IP system is easy to abuse for lawyer make-work-projects. Companies may also abuse it to put smaller competitors out of business. It hurts, far more than it helps.

I just remembered one problem I've heard about the copyrighting process in America: it's too slow! If IP is bad for innovation, than we shouldn't be seeing the backlogging and massive amounts of patents that we do see. The fact that the market screws up the source of innovation to the degree that it does just goes to show you the inclination of the market.

That didn't make any sense...

[Scheavo]

Orth, clearly you are outside the world of art, and don't even quite understand that world. Why would I want to copy someone else's painting? Because its better than mine. Most people can't come close to the originality of Picasso, they can't create an original that would compete. But they could take a photo of the picture, and start printing it off. Also, there's a reason print-makers often make limited number of prints, it adds to their value.

Patents and Copyrights place restrictions on everyone else in what they can or cannot do with their own property for the sake of one person/group. A Trademark places no restriction on anyone else, it is a tool for identification. A Trademark isn't even required to use.

Trademarks place restrictions on everyone else in what they can or cannot name their own property for the sake of one person/group. It quite clearly places restrictions on someone else, becuase it says you cannot identify yourself in this way, or even promote yourself in a certain way. If Burger King has a trademark on, "have it your way," I am legally prohibited from using that slogan to sell my product, even if it has nothing to do with Burger King. A copyright isn't even required to use.

Taken from wikipedia:

While trademark law seeks to protect indications of the commercial source of products or services, patent law generally seeks to protect new and useful inventions, and registered designs law generally seeks to protect the look or appearance of a manufactured article. Trademarks, patents and designs collectively form a subset of intellectual property known as industrial property because they are often created and used in an industrial or commercial context.

Trademarks are a form of IP. Please admit this now, or I'm done debating.

I'm willing to bet a lot of the IP laws in place are frivolous and harmful, but that does not mean that IP should be done away with. Look into it, and I'm sure you'll find that corporations and corruption put those laws in place, because what businesses want to do is drive out competition, fairly or unfairly. But it's hard to say that our IP laws are causing innovation to not occur - as I said, our system is backlogged and overburdened with how many patent claims there are. That's hardly a system where innovation is struggling to come about, now is it?

You still haven't explained why an entrepreneurial isn't discouraged by not owning the rights to his invention. You just talk about the current system and how malfeasant it is, but that's a red herring.

[Orthogonal]

Orth, clearly you are outside the world of art, and don't even quite understand that world. Why would I want to copy someone else's painting? Because its better than mine. Most people can't come close to the originality of Picasso, they can't create an original that would compete. But they could take a photo of the picture, and start printing it off. Also, there's a reason print-makers often make limited number of prints, it adds to their value.

Perhaps we should just drop this topic since the outcome is personal to you.

Trademarks are a form of IP. Please admit this now, or I'm done debating.

I addressed this already a few posts above:

One final note, IP is typically segregated into four sub-classes. Patent, Copyright, Trademarks and Trade Secret. Patents and Copyrights cannot exist in a true free market. Trademarks have a place and will certainly work in a free market, but their usage will be a bit different. Trade Secret's will work the same as they do now, by contract or NDA.