IP Freely

Joseph Weisenthal of Liberteaser and I have been going back and forth on that age-old question of the legitimacy of intellectual property rights.

There's not much I disagree with in his most recent response because he hasn't really given me any arguments for IP protection (nor have I given him any against). It's an empirical economic question whether the benefits of granting legal protection to intellectual property outweigh the costs to consumers and other producers. And it's a question that cannot be answered in a blog post or comment thread. We can only hint at what we think are likely possibilities.

There are many things that could be protected as intellectual property but are currently not (and some argue should be). Language is one example. Knock-knock jokes are another. Every time someone invents a new word or a new knock-knock joke, we could grant that person ownership of that idea, and everyone else would have to credit and/or pay royalties to use that new word or joke. Yet we do not do this, arguably for reasons of efficiency.

I don't think there are any convincing natural rights arguments for intellectual property; once we are willing to concede the inherent arbitrariness of IP, we've already given up the game. To some degree, physical property is arbitrary as well, but we can come up with stronger arguments for its protection than I think exist for IP. For one thing, as I already mentioned, scarcity requires certain limits in resource allocation; you and I cannot both eat the same apple. So we will have to have some way of assigning property rights to apples, even under a communist system. Not so with intellectual property.

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Matt, Process Patents? The

Matt, Process Patents?
The production of the drug is hardly a significant cost OR value in the drug itself. It's entirely in the research and development of the compound. Something that ought to be protected, since it doesn't take some geniue in india to figure that out.

Matt, right now, the amount

Matt, right now, the amount spent on pharmaceutical research is determined by the market; investors risk their capital with the expectation that they will earn returns on their investments. They don't just fund research willy nilly; only the research they deem worthwhile given their budget constraints.

What's the constraint on government funding? The government has no capital of its own to risk; indeed, there is no concept of "risk" that we can apply to government investment because they are not risking their own money. And as anyone even remotely familiar with the way governments work [sic] should know, spending is directed, not towards those areas that would appear most profitable ex ante, but those areas that bring the greatest political rewards: campaign contributors, local state industries, good ol' boy networks, government bureacrats retiring to cushy industry jobs, industry executives appointed to government jobs, etc. We wonder why there is so much money in politics, why one hand washes the other, why the state funds the interests of the powerful over the interests of the powerless - and yet you want the govenrment to involve itself even moreso in this process?!? Why?

I think we should just

I think we should just increase Government funding to cover 100% of R&D costs

100% of which R&D costs? Who decides what and how much to fund? How do they decide it? And what do you do when an administration you don't like gets in office and decides to divert funding from stem cell research to creationism research?

IP is remarkably

IP is remarkably protectionist. I support process patents, in which you can (obviously) patent the process of making a drug (for instance.) But if a genius in India figures out how to make it better and cheaper then you're subject to competition. That'll increase efficiency.

The disincentive to develop new products wouldn't be overly problematic in my opinion- I think we should just increase Government funding to cover 100% of R&D costs (it's currently estimated as high as 70% anyway.) Nevertheless, people don't invent things onlybecause of profit incentives- scientists and artists tend to be creative people who simply like the process of discovery and creation.

-Matt

Every time someone invents a

Every time someone invents a new word [...] we could grant that person ownership of that idea, and everyone else would have to credit [...] to use that new word or joke

Richard Lewis claims to have invented "The ____ from hell" :smile:

100% of which R&D costs? Who

100% of which R&D costs? Who decides what and how much to fund? How do they decide it? And what do you do when an administration you don’t like gets in office and decides to divert funding from stem cell research to creationism research?
Micha, I daresay I'm shocked to see that you disagree with this!

100% of pharmeceutical rand d costs. There could also be artistic grants, and as result we get our drugs for "free" and our CDs for "free" and the international sales supplement our tax money. Look, the detail questions are really pointless to have us work out right now, given how unlikely this is as a scenario. Govenments have funded things like this before, they have made decisions like this before and the world didn't end. Most funding couldn't (because science doesn't work like that) be targeted toward things- stem cells are really a special case- so the administration problem wouldn't be so bad.

-Matt

"That number doesn’t take

"That number doesn’t take into account the univeristy grants which fund the basic science (absolutely crucial) so the real number would be quite a bit higher."

Note that the funding of university grants is not all from public sources. And there may be plenty of ways to create incentives for increasing the amount of private grants for "basic research" without nationalizing pharma research entirely.

The FDA of course, should be abolished tomorrow.

nmg

I know what you mean, bad

I know what you mean, bad choice of words on my part :smile:

Interesting, I would have

Interesting, I would have thought the number of drug companies accepting public funding would have been a lot higher than the 55%, not lower (and I know you said it was lowballed).

That number doesn't take into account the univeristy grants which fund the basic science (absolutely crucial) so the real number would be quite a bit higher. Who said that funding is lower than 55%? When I said lowballed, I meant that the real number was higher- you know what i meant right?

-Matt

Matt Interesting, I would

Matt

Interesting, I would have thought the number of drug companies accepting public funding would have been a lot higher than the 55%, not lower (and I know you said it was lowballed). I have read that prizes tend to produce better results than indefinite funding.

Personally, I think the FDA poses more of a problem to drug research than the risk and return of the market.

I’m not tech savvy enough to post a picture, and I couldn’t care less about the “substance of the argument.” I’m here for one purpose only–to show the world what a douche bag you are.

As someone on the sidelines, I gotta say you're not doing yourself any favors.

by the way- to pad out my

by the way- to pad out my comment about people at a sports bar, people should take a look at this:

http://www.liberteaser.com/2005/06/everyone_meet_m.html

We've evidently gone back to high school (even though these guys are apparently really old.)

-Matt

hmmm... Well for me a "life"

hmmm... Well for me a "life" is plenty of things, but one of the component parts is using the internet to facilitate argumentation about things which I find interesting, namely politics and economics. I like the internet because it's easier to find collections of intelligent people here than it is in the "real world" (especially intelligent people who disagree with me, of which there're plenty here on Catallarchy.) What doesn't interest me is running into people who are no different, or perhaps even less articulate, than the people I'd be exposed to by shouting my political beliefs in a sports bar. Since I'm not quite sure of your ability to follow along, Greg, I should point out that the preceding sentence is directed toward you.

So in a way, your "get a life" hits the mark- it says "stop talking to people like Greg." Consider it done.

-Matt

I'm not tech savvy enough to

I'm not tech savvy enough to post a picture, and I couldn't care less about the "substance of the argument." I'm here for one purpose only--to show the world what a douche bag you are.

But really, you're doing a fine job of that all by yourself, aren't you?

Wait for it, "Greg's just too astounded by my awesome argumentation abili...aaaaaaaaaarrrrrrrrrrrrhhhhhhh"

Who cares? Get a life, asshole.

Dave- the statistics I've

Dave- the statistics I've read on it show the opposite to be true, and I can cite some when I get back home. The 55% is just lowballed, really. From what I've read the drugs funded by taxpayers tend to sell better and are typically more expensive (oddly enough.)

The reason for this is that risk-averse Pharma companies throw money at "me too" drugs which are just slight changes from drugs already on the market (i.e. funding Lorcet research when Vicodin already exists) whereas the taxpayer money is funneled toward the riskier breakthrough drugs and orphan drugs. Then they charge a bundle for them because they can.

-Matt

ps- I think you're quite right about the "middleman" aspect of the music industry. P2P sharing cuts down transaction costs and makes things more efficient without cutting incentives.

Well they can leave

Well they can leave musicians out of it. I know plenty, and not one is in it for the potential royalties. Those who do make anything usually get it from live performance fees (usually jazz musos) or a public salary (classical). People do rock or folk because they love it.

The musicians who claim they need royalties from IP are those who’ve already made it, the very, very few who achieve such success. Clearly their argument isn’t based on incentive, they’ve already put in the hard yards.

Interesting. Filesharing could very well be playing the role of removing the intermediary agent or changing its role.

2. “According to the NIH,

2. “According to the NIH, taxpayer-funded scientists conducted 55 percent of the research projects that led to the discovery and development of the top five selling drugs in 1995.” publiccitzen

I'd be curious what the total percentage of taxpayer-funded pharmacutical research is. If say 75% of drug research is funded by taxpayers, that doesn't say much for public funding if the number at the top is lower. The opposite could also be true as well.

Did Joseph send you over

Did Joseph send you over here to do his dirty work Greg?

The liberteaser contribution to this thread continues to sink lower and lower, with Joe's last comment at least having a bit of serious content to it and now Greg's which, well... I suppose the next one should just be some kind of mean-spirited picture.

-Matt

You really don't need an "h"

You really don't need an "h" for "bra." It works either way.

This guy Matt is a fucking douche bag.

Douche bag, however, does require an "h."

But you knew that didn't you, bra?

mp's absolutely right. For

mp's absolutely right.

For major artists that same still largely holds true- most still make more from selling merchandise and touring. Given the fact that p2p services are likely to significantly increase their fanbase (by cheapening the cost of exposure) it seems to follow then that they the loss in CD revenue could be made up for (and then some) by a resulting gain in Merchandise and Ticket sales. The only ones to be worried about are the record companies, which means that we don't need to worry about people's incentives for making music at all.

-Matt

What does the premise have

What does the premise have to do with the conclusion?

Other things being equal, it seems logical to expect the organization that doesn't accept corporation and government money to be more objective than the one that does.

However, Wikipedia does

However, Wikipedia does define Public Citizen as being left-wing.

What about the record

What about the record companies who fund the production of their albums? People like to think of them as some sort of parasitic middlemen, but they’re not. They provide the capital and take on the risk that most musicians can’t afford. If profits fall, then recording studios will decide not to fund albums by musicians whom they think are less likely to be successful.

I know plenty of people who book time in a studio or record using their own equipment. Recording the music isn't all that costly (in spite of what Courtney Love says), but pressing it and widely distributing it in CD format is. If most of the money made is through merchandise and touring (which some of my low level musician friends say is true) and the distribution of music is what increases these two things, then for the lower level musician, method of distribution shouldn't matter except for what brings the most exposure. If consumers would prefer not paying for music and getting it in electronic format only, then this puts record companies in a tough spot while helping musicians out.

While middlemen aren't necessarily a negative, their obsolescence via better information distribution is a positive.

Also, now that I think about it, while overall CD sales may be down, the local small venue concert place has been selling shows out like crazy. Even shows of bands that didn't draw a huge crowd a few years before. I wonder if there is any correlation to filesharing here.

Whatever he may me trying to

Whatever he may me trying to imply, he said quite clearly that high average profits are inconsistent with risk. This is obviously false.

No, he is correct. Don't confuse high average returns (assuming the sample accurately reflects ups and downs) with high individual period returns. If the average returns are higher than the market returns, then something is fishy and you are not taking (much of) a risk.
Also, there's risk in everything--even the "risk free" rate--I don't think anyone is denying that. But at least when I talk about no risk, I really mean relatively low risk.

What do you mean “the pharmaceutical company?” There are many pharmaceutical companies, and some of them do go bankrupt. That’s risk.

I was talking in a generic sense. But while a specific pharm co. may be risky, does that mean that the whole pharm industry is risky? What is true for the parts isn't necessarily true for the whole.

The market level is itself volatile. And many pharmaceutical companies can’t diversify.

I am talking about as a general market principle, not within a framework of government distorted numbers. What I basically mean is that you can't beat the market unless you are given some advantage (some freakish intuition of how markets work, government granted monopoly, lucky underpants, etc.). If riskier stocks did have higher average returns because of their risk, then they would be beating the market and thus not as risky and their stock would be bid up to reflect that.
The article necessarily negate the possibility of getting a market return, it's just that investors expect a higher than market return. But because investors expect a higher market return does not mean that they will get it since very few people consistently beat the market.

Jeff Tweedy from Wilco on

Jeff Tweedy from Wilco on filesharing:

"If they succeed [at limiting file sharing], it will damage the culture and industry they say they're trying to save.

What if there was a movement to shut down libraries because book publishers and authors were up in arms over the idea that people are reading books for free? It would send a message that books are only for the elite who can afford them.

Stop trying to treat music like it's a tennis shoe, something to be branded. If the music industry wants to save money, they should take a look at some of their six-figure executive expense accounts. All those lawsuits can't be cheap, either.

A piece of art is not a loaf of bread. When someone steals a loaf of bread from the store, that's it. The loaf of bread is gone. When someone downloads a piece of music, it's just data until the listener puts that music back together with their own ears, their mind, their subjective experience. How they perceive your work changes your work.

Treating your audience like thieves is absurd. Anyone who chooses to listen to our music becomes a collaborator.

People who look at music as commerce don't understand that. They are talking about pieces of plastic they want to sell, packages of intellectual property.

I'm not interested in selling pieces of plastic."

I know alot of youmay not agree with him, but I think his point is well taken- Record Companies are partially wrong (they're not completely wrong, because they will lost money or at least have to change their model) when they treat music like pure property. Clearly the people who downloaded Kid A and then went out and bought the album weren't behaving the same way people would if they'd just stolen a car.

-Matt

One more thing (I'm hoping

One more thing (I'm hoping here that this thread isn't completely dead and that someone reads this): The reasonable treatment of IP from guys like Dave and Micha (and I'm sure others) reaffirms my faith in the commitment to reason that some libertarians have. As I've argued (link below), Libertarians can easily be shills for Neocons and often are, because they are usually willing to be very vocal about the sort of statism that Neocons don't like either (the welfare state, minimum wage laws) and often less so about the more controversial elements of their philosophy (serious opposition to state subsidies and Intellectual Property.)

Kevin Carson, who takes the principles to some very controversial conclusions, is largely ignored (at least his blog is, as far as I can tell) as he doesn't get many comments, much trackback or too many links (Catallarchy, for whatever reason, doesn't link to him as far as I can tell.) I think it's obvious what the larger reasons for things like this are- it's the same reason Hitchens is becoming such a mainstream figure now (debating Ann Coulter on Hardball seemingly every night): he's downplaying the controversial aspects of his political philosophy (and he's advocating Bush.) Nevertheless, seriously and frequently opposing intellectual property rights is a very brave and controverial stand for a libertarian to take (and obviously consistent, since IP is just protectionism.) So, nice job guys.

Matt

the link to the "Lib Shill" argument:
http://catallarchy.net/blog/archives/2005/06/14/sabine-sighting/#comments

Broseph- The production of

Broseph-
The production of the drug is hardly a significant cost OR value in the drug itself. It’s entirely in the research and development of the compound. Something that ought to be protected, since it doesn’t take some geniue in india to figure that out.

if you think it should be protected, make the argument. You'll want to tackle the part of my post where I talk about disincentives though, not the one about process patents. If you think that R&D would decline with less of a profit incentive, then make the case. Remember, you're advocating protectionism and as such you have a large burden of proof. Of course, if they're already producing the drug cheaply (as you imply) there's no reason they shouldn't be able to compete in the free market without the government mitigating their risk (as always seem to be the story.)

Micha-
Matt, right now, the amount spent on pharmaceutical research is determined by the market; investors risk their capital with the expectation that they will earn returns on their investments. They don’t just fund research willy nilly; only the research they deem worthwhile given their budget constraints.

A high percentage of it is publicly funded though, and that even ignores the point about the basic science being heavily funded through grants for universities and so forth. The public also takes a large amount of the "risk" but effectively gets charged twice for the product. It's also apt to mention that much of the R&D isn't scientists working in labs- it's market analysis and it's theft from indigenous peoples.

What’s the constraint on government funding?
the gov't isn't an "other". To a degree it's "us." And the constraints on government funding are what we decide to some extent. more on this below...

The government has no capital of its own to risk; indeed, there is no concept of “risk” that we can apply to government investment because they are not risking their own money.
it's our own money, and we're decision makers to a degree. again, wait for it...

And as anyone even remotely familiar with the way governments work [sic] should know,
why have a "sic" in your own writing? Never seen that before...

spending is directed, not towards those areas that would appear most profitable ex ante, but those areas that bring the greatest political rewards: campaign contributors, local state industries, good ol’ boy networks, government bureacrats retiring to cushy industry jobs, industry executives appointed to government jobs, etc. We wonder why there is so much money in politics, why one hand washes the other, why the state funds the interests of the powerful over the interests of the powerless - and yet you want the govenrment to involve itself even moreso in this process?!? Why?

this does happen to a large extent, but the level of political involvement neccesary to push big pharma out of business would completely eradicate the effects you describe above. That is: if what I'm writing would ever happen, we'd have a democracy that functioned well enough that it would work.

In fact you'd see a few other major positive gains- a focus on cures rather than treatments for instance, with latter being more profitable (and hence funding being directed more toward that) but the former being the preferred option for the majority of people (hell, maybe unanimous.)

-Matt

The musicians who claim they

The musicians who claim they need royalties from IP are those who’ve already made it, the very, very few who achieve such success. Clearly their argument isn’t based on incentive, they’ve already put in the hard yards.

What about the record companies who fund the production of their albums? People like to think of them as some sort of parasitic middlemen, but they're not. They provide the capital and take on the risk that most musicians can't afford. If profits fall, then recording studios will decide not to fund albums by musicians whom they think are less likely to be successful.

I think you’re missing his

I think you’re missing his point. From what I gather he is trying to imply that because of government granted privelages, their profits are inflated to a more secure level.

Whatever he may me trying to imply, he said quite clearly that high average profits are inconsistent with risk. This is obviously false.

Thus for the pharmesutical company, but not necessarily the individual investor, the aggregate return on investing in drugs is positive.

What do you mean "the pharmaceutical company?" There are many pharmaceutical companies, and some of them do go bankrupt. That's risk. Developing drugs is very expensive, and only very large pharmaceutical companies can afford to diversify by keeping many drugs in the pipeline at all times.

Not true. Volitility and diversification with other risky stocks brings returns to market level.

The market level is itself volatile. And many pharmaceutical companies can't diversify.

” A common misconception

” A common misconception is that higher risk equals greater return. ”
-investopedia

Now you're just taking things out of context. If you read the whole article, you’ll see that it says exactly what I said:

I think you're missing his point. From what I gather he is trying to imply that because of government granted privelages, their profits are inflated to a more secure level. Thus for the pharmesutical company, but not necessarily the individual investor, the aggregate return on investing in drugs is positive.

An investor still faces substantial greater risk and volatility to get an overall return that is higher than a predictable government security.

Not true. Volitility and diversification with other risky stocks brings returns to market level.

Greg - Please show more

Greg -

Please show more civility in your comments. Otherwise, don't comment at all.

right, [Dean Baker]'s just

right, [Dean Baker]'s just some quack who happens to be the co-chair of the CEPR.

As long as you just throw out a blatant argument from authority instead of quoting actual arguments, then I don't care what chair that particular authority sits on.

I don’t think you understand that I was quoting an economist, smart guy.

Okay, then I don't think either of you know what risk is.

” A common misconception is that higher risk equals greater return. ”
-investopedia

Now you're just taking things out of context. If you read the whole article, you'll see that it says exactly what I said:

An investor still faces substantial greater risk and volatility to get an overall return that is higher than a predictable government security.

Higher risk does not guarantee a greater return; in fact, the definition of risk is the lack of a guarantee. But higher average returns are necessary to convince investors to accept higher risk.

I’m not a class warrior fueld by a hatred of the upper class.

Your bizarre caricatures of the upper class in that Live-8 thread seem to suggest otherwise.

Nevertheless, it's something like 5% of the population that own 90% of the stock in the US, so we're really not talking about an egalitarian utopia.

You are missing the point. If pharmaceutical companies are making money hand-over-fist with no risk, then why invest money in anything but pharmaceutical companies? As profits rise, pharmaceutical stocks get bid up to the point where they're no more attractive than any other investment. But if profits are consistently high, return on investment falls to the sum of the risk-free rate of return and the risk premium. The end result is that there's a lot more capital invested in pharmaceuticals, not that a lot of people are getting huge returns with no risk.

Who cares if you can theoretically “prove” that drug companies have already moved in and solved the problem by selling cheap drugs. It hasn’t happened in “reality.”

I never said they had. I said they might be more likely to if they could have stronger assurance that those drugs would not leave Africa and cannibalize other markets.

b. because the industry isn’t perfectly competitive (for tons of reasons, including the fact that they’re not exposed to competition) there are plenty of profit opportunities elsewhere where the rate of return is higher. That is to say: they don’t because of opportunity cost.

They could license the drugs for production in Africa for a small fee, or even as a gesture of goodwill.

Public Citizen does not accept funds from corporations, professional associations or government agencies. I’d say they’re pretty trust-worthy.

What does the premise have to do with the conclusion?

"I don’t there are any

"I don’t there are any convincing natural rights arguments for..."

...well, anything, now that you come to think of it.

Well they can leave

Well they can leave musicians out of it. I know plenty, and not one is in it for the potential royalties. Those who do make anything usually get it from live performance fees (usually jazz musos) or a public salary (classical). People do rock or folk because they love it.

The musicians who claim they need royalties from IP are those who've already made it, the very, very few who achieve such success. Clearly their argument isn't based on incentive, they've already put in the hard yards.

Love your selection of smileys, sorry, gonna have to play...

:stupid::dizzy::behead::deal:

As long as you just throw

As long as you just throw out a blatant argument from authority instead of quoting actual arguments, then I don’t care what chair that particular authority sits on.

I didn't say that he "thinks I'm right and he's smart" (argument from authority) I said "he's looked at it seriously in his capicty as an aeconomist and come to conclusions which suppoer my argument." Tha's just simple argumentation, buster. I argued the position first, then I ctied his findings. When you disregarded him as a quack, I defended his reputation. We're along way from "because he says so." By your standards, no should ever be able to back up what they say using a credible source.

” A common misconception is that higher risk equals greater return. ”
-investopedia

Now you’re just taking things out of context. If you read the whole article, you’ll see that it says exactly what I said:

the quote directly contradicts what you said.

An investor still faces substantial greater risk and volatility to get an overall return that is higher than a predictable government security.
yeah I read that- government bonds are a special case- your dealing with something closer to insurance in that case.

Higher risk does not guarantee a greater return; in fact, the definition of risk is the lack of a guarantee. But higher average returns are necessary to convince investors to accept higher risk.

please cite me a source so I can question his credibility. I also might mention that regarding drg investments (in which Scientists don't even know what they can do) you're largely dealing with uncertainty rather than "risk" (in which the odds are known) so regardless if whether you prove this point, it's inapplicable.

Your bizarre caricatures of the upper class in that Live-8 thread seem to suggest otherwise.

I'm not sure what you're talking about. I have a pretty good understanding of the rich, but I can't find the live 8 thread at moment (the search engine's being strange.) Suffice is to say that what you think of as a "bizarre charicature" isn't particularly pertinent here.

If pharmaceutical companies are making money hand-over-fist with no risk, then why invest money in anything but pharmaceutical companies? As profits rise, pharmaceutical stocks get bid up to the point where they’re no more attractive than any other investment.

so you'd like to know how the facts fit in with your theory, eh? Perhpas you should explain the high level of profitability to me (since it flies in the face of your stock investment theory)... I should also point it that there's a disconnect (so sever it may suggest a serious medical condition) between what you wrote and the stock equality argument you were responding to. I just wrote that stock ownership isn't egalitarian by any means.

I never said they had. I said they might be more likely to if they could have stronger assurance that those drugs would not leave Africa and cannibalize other markets.

meaning what? That we eliminate african poverty? You're suggesting that we enact some form of the war on drugs in africa over a cure for AIDS?

They could license the drugs for production in Africa for a small fee, or even as a gesture of goodwill.

they sure could, brandon, they sure could.

Scott-
However, Wikipedia does define Public Citizen as being left-wing.

the truth is left-wing, too.

I think you’re missing his point. From what I gather he is trying to imply that because of government granted privelages, their profits are inflated to a more secure level. Thus for the pharmesutical company, but not necessarily the individual investor, the aggregate return on investing in drugs is positive.

thanks you Dave- your exactly right here- it's one of the well-known effects of protectionism.

Whatever he may me trying to imply, he said quite clearly that high average profits are inconsistent with risk. This is obviously false.

I think that this is true once you're looking across an entire industry (as we are) and measuring "high" in relation to every other business sector in the nation. The Pharm industry is three times as risky? And you're using this argument to claim that the extra-normal profits have nothing to do with protectionism, but rather with rick entirely? Just wanna make sure it's clear what we're arguing.

What do you mean “the pharmaceutical company?” There are many pharmaceutical companies, and some of them do go bankrupt.

maybe there are "many" (though I'd be happy to see some indication of what the market share looks like for pfizer and merck.) This "fact" (assuming it's true) doesn't contradict anything Dave or I (maybe Scott too, and anybody else who thinks that free trade is preferable to "public risk, private profit" protectionism) are saying. Companies that aren't able to lobby the US Gov't hard enough and well enough are likely to go bankrupt in an industry so heavily dependent on government support. Size would correlate well here, perhaps even more so than with your theory.

What about the record companies who fund the production of their albums? People like to think of them as some sort of parasitic middlemen, but they’re not. They provide the capital and take on the risk that most musicians can’t afford. If profits fall, then recording studios will decide not to fund albums by musicians whom they think are less likely to be successful.

Perhaps- and then a whole slew of small independent labels would fill in the niche. They'd have lower overhead costs, be more efficient (because they'd be smaller in competetive) and they'd function because, for one thing, people would feel good about buying the CDs. Anyone who's played a rock show likely knows how much easier it is to sell a CD at a rock showthan it is at a store (even with a listening station.)

Ulitmately the art is created by the artist, who's incentive won't diminish (in fact, will likely increase, as I argued above.)

If most of the money made is through merchandise and touring (which some of my low level musician friends say is true)

according to a recent Rolling Stone article it's true industry-wide, if when you say "money made" you're referring to what goes into the profits of the people who actually produce (the artists.)

Also, now that I think about it, while overall CD sales may be down, the local small venue concert place has been selling shows out like crazy. Even shows of bands that didn’t draw a huge crowd a few years before. I wonder if there is any correlation to filesharing here.

it wouldn't surprise me. It also wouldn't surprise meif CD sales for a smaller band at this venue are actually up as well (because for one thing, CD money in the consumers Budget is freed up, and it's very difficult to find small artists in p2p netwroks.) I had an experience like that recently- a band called "we are scientists" has a good song called "the creeper" and I've been unable to locate it on Soulseek at all after trying for last 6 months. Normally I would buy the CD, but in this case the CDs out of print. Nevertheless, it's illustrative of something.

Another positive feature of file sharing is that it likely increases the sales and exposure of "difficult" albums like Radiohead's "Kid A" and Wilco's "Yankee Hotel Foxtrot" both of which say their highest chart debut at the time (for the band itself) after the album had been leaked for months before the release date. The record companies themselves have speculated the filesharing was like "radio" which allowed listeners to have time with these albums and love them before they were released, therby increasing the actual sales.

I'll post a good, relevant quote from Wilco's frontman after the jump...

-Matt

What does that mean? Is this

What does that mean? Is this basic research, or product-specific?
this is actually a more blurry line than you might think. Proper science is very difficult to "direct."

Why is the number of projects, as opposed to dollars spent, a meaningful unit in this context? Anyway, this isn’t relevant to your claim. Anyone who wants to develop a drug is free to use public research as a starting point. It’s not as though it’s being given as an exclusive gift to one particular company.

the reason it's meaningful is that science builds upon other expiriments. It's also helpful because drug companies are notorious for sexing up their claims of expenditures. For example, when asked how much
of its own money it spent to develop Ceredase, a drug invented
on NIH grants, Genzyme Corporation included the costs of
building a factory for commercial production.

For another useful illustration (in several ways, as it also corroborates some of Public Citizens data, going even beyond PC's claims) see the info below:
$ 7.9 $4.4 $ 9.8

The first number is how much Pharma companies claimed to spend in 1991, as measured in billions, on R&D.

The second number is how much they actually claimed on form 6765 to get tax rebates (meaning they would have an incentive to claim as much they legitimately could.)

The third number is total R&D spending from the US Department of Health and Human Services (also in billions, course.) More than double what was spent by corporations. This is according to economist James Love and the IRS.

matt: Economist Dean Baker has taken a serious look at at this and estimated massive savings were the public to fund 100% of the costs, estimated both in dollars and millions of lives in the nest few years.

brandon: Economists with agenda say lots of things.

right, he's just some quack who happens to be the co-chair of the CEPR. Let's just dismiss whatever we want though, if it doesn't fit in with our nice picture of the world, shall we?

matt: It defies logic that R&D investments are highly risky if the industry is consistently so profitable and returns on investments are so high.

brandon: I don’t think you understand what risk is.

I don't think you understand that I was quoting an economist, smart guy. “If you went to Vegas with $1,000 and routinely came back with $1,400, could your family accuse you of gambling?” -Alan Sager, co-director of the Health Reform Program at Boston University., referring to the "risks" taken on by pharmaceutical companies.

There should be high potential returns, but not an industry-wide high rate of return on investements- the heavy losses should mitigate such a statistic. Unless, of course, these companies were protected from competition by the US government.

" A common misconception is that higher risk equals greater return. "
-investopedia

That the drug industry is highly profitable does not mean that every drug company is. What this means is that most drugs lose a lot of money because they never get approved, and a few are wildly successful. That’s what risk is. A small company that bets everything on one drug is taking a huge risk. As a result, the drug industry is dominated by very large companies that can afford to absorb large losses and invest in many different products simultaneously so as to minimize total risk.

A better model might be: "the drug industry is dominated by large companies who can use various measures to influence the policies of the US government and externalize their risk onto taxpayers and maximizing their profit accordingly."

You also seem to be under the impression that the primary effect of high profits in the pharmaceutical industry is to make some privileged class of people rich. Not so.

not this particularly matters- I'm not a class warrior fueld by a hatred of the upper class. I'm actually pretty close to upper class myself (I'm the Director of Sales for the largest privately-owned bank in So Cal.) Nevertheless, it's something like 5% of the population that own 90% of the stock in the US, so we're really not talking about an egalitarian utopia.

Where?
world wide

Which diseases?
Malaria, tuberculosis, acute lower-respiratory infections

And how many of them could be cured only by patented medicines?
this statistic doesn't say. 3 Million die from AIDS though, most in 3rd world countries. They could be treated and their lives prolonged but for unavailable patented medicines.

It seems to me that stronger IP protection would actually help prevent this sort of thing. Drug companies aren’t stupid. They know they can’t sell drugs to poor Africans at American prices.

yeah, but it's not even worth their time to sell for the prices that Africans could afford to pay. My guess is the transportation costs alone would outweight the potential profit. Which is why you'd need to put the drugs in the hands of an African company willing to be charitable, or one that could produce the drug more cheaply.

There's no reason to make this a hypothetical- the drug companies are not dominating African markets, and the AIDS problem is still devastating- who cares if you can theoretically "prove" that drug companies have already moved in and solved the problem by selling cheap drugs. It hasn't happened in "reality." Here's a relevant quote:

Bill Haddad gives away his eyedroppers [filled with a generic AIDS treatment] to pediatric hospitals at no cost and donates them to physicians in small villages in sub-Saharan Africa where AIDS has so devastated the population that only the very old and the very young survive. Yet many countries, such as Kenya, Ghana, and South Africa, won't let him.
"Because of alleged patent laws or other political barriers, I can't do it in most of the sub-Saharan countries and in half the Latin American countries," he says. "We produce the drugs legally, and the international law says we can do it. The companies have public statements that say, 'We won't prevent you.' But then, some piece of paper arrives and stops you.

If they could send drugs to Africa a little bit above cost, and be assured that these drugs would not find their way back on to the American market, why wouldn’t they?

a. maybe they can't do it above cost

b. because the industry isn't perfectly competitive (for tons of reasons, including the fact that they're not exposed to competition) there are plenty of profit opportunities elsewhere where the rate of return is higher. That is to say: they don't because of opportunity cost.

Scott:

Anybody know how reliable Public Citizen is? I’ve read some of their pages before and they seem rather blatantly sexed-up.

Public Citizen does not accept funds from corporations, professional associations or government agencies. I'd say they're pretty trust-worthy.

Anybody know how reliable

Anybody know how reliable Public Citizen is? I've read some of their pages before and they seem rather blatantly sexed-up.

According to the NIH,

According to the NIH, taxpayer-funded scientists conducted 55 percent of the research projects that led to the discovery and development of the top five selling drugs in 1995.

What does that mean? Is this basic research, or product-specific? Why is the number of projects, as opposed to dollars spent, a meaningful unit in this context? Anyway, this isn't relevant to your claim. Anyone who wants to develop a drug is free to use public research as a starting point. It's not as though it's being given as an exclusive gift to one particular company.

Economist Dean Baker has taken a serious look at at this and estimated massive savings were the public to fund 100% of the costs, estimated both in dollars and millions of lives in the nest few years.

Economists with agenda say lots of things.

It defies logic that R&D investments are highly risky if the industry is consistently so profitable and returns on investments are so high.

I don't think you understand what risk is. It's a basic principle of finance that risk and average return are positively correlated. If money has diminishing marginal return, then an investment that's guaranteed to return 5% is a much better investment than one that has a 10% chance of returning 50%, even though they have the same average return. To induce people to make high-risk investments, you have to give them better average returns.

That the drug industry is highly profitable does not mean that every drug company is. What this means is that most drugs lose a lot of money because they never get approved, and a few are wildly successful. That's what risk is. A small company that bets everything on one drug is taking a huge risk. As a result, the drug industry is dominated by very large companies that can afford to absorb large losses and invest in many different products simultaneously so as to minimize total risk.

You also seem to be under the impression that the primary effect of high profits in the pharmaceutical industry is to make some privileged class of people rich. Not so. Anyone can start a drug company, and most are publicly traded, so anyone can buy their stock. If profits are high, then the stocks get bid up until they become no more attractive than any other investments, the ultimate effect is not to make stockholders rich (except those who bought when profits were low), but to encourage more investment in pharmaceuticals.

This is a bigger issue than just recouping costs: 6.1 million people died in 1998 of easily curable diseases. With the elimination of IP and the corresponding drop in prices you’d see a big change here.

Where? Which diseases? And how many of them could be cured only by patented medicines? It seems to me that stronger IP protection would actually help prevent this sort of thing. Drug companies aren't stupid. They know they can't sell drugs to poor Africans at American prices. If they could send drugs to Africa a little bit above cost, and be assured that these drugs would not find their way back on to the American market, why wouldn't they?

If you wanna argue against

If you wanna argue against government funding of research, however, I’m right there with you. At least we agree on somethin.

I'm not arguing against it, silly- Intellectual Property rights is a form of protectionism. If you're misinterpreting my words, that's your fault. You've hardly "rejoined the fray" given that all you did was try and say something about the Tufts study, when I presented a rather in depth case. I'd prefer it if you wouldn't respond if you're going to do if toss a few words off so you can feel better about yourself, pretending that you didn't get chased away by superior argumentation. "Oh, I'm so masochistic, but I suppose I'll lower myself down and insult the youth for a few moments." I for one feel blessed, Joseph. How old are you anyway? Because if you're old enough to call me a "kid" then I should go ahead and make fun of you for using the word "bra", old guy. You're supposed to spell it with an "h" anyway.

-Matt

Only because I'm an

Only because I'm an inveterate masochist do I find myself rejoining this nonsensical fray. Am I making insults? Sure I guess. Deal with it. Am I a hypocrite? Maybe, but I'm too old to care. I've long ago stopped valuing ideological purity over that which my ideology is meant to pursue.

Micha--
I'm amazed at the depths you'll plumb and the horrible alternatives you'll seek out to avoid intellectual property protection. Government prizes? Do you think it's a good idea for the governments to decide and direct which ailments warrant prizes for their cure? Do you really think that the government would have any idea what an appropriate prize level would be to induce a cure. Would you REALLY prefer to have government directed research and development as opposed to a market-oriented solution? Are you even a libertarian? I'm shocked that you'd concede this.

Matt--
I understand the Tufts university study. Yes, the cash outlay is not $500 Million because you have to factor in opportunity costs. But if you don't believe in opportunity costs, I'll take 1000 dollars from you today, and give it back to you in 20 years. Sound like a deal, brah?

If you wanna argue against government funding of research, however, I'm right there with you. At least we agree on somethin.

Micha- you're right that

Micha-
you're right that Joseph's critique doesn't apply, but I responded anyway since I think "free markets" are still preferable (and probably more likely than my solution) to the sort of protectionism he's advocating.

-Matt

I'm a "snotty anarchist

I'm a "snotty anarchist kid"? Ironic that you'd call me snotty when you're the one doing the insulting. I'll bet you'll be even less interested in the argument once you read this post, because people like you are always suddenly "not interested" in arguments once it takes a turn for the worse for them. Wherever possible, I'll bullet the points to make them eaier to follow:

Nutshell:
Given the fact that
a. much of the R&D cost is already borne by the public
b. much of what's called R&D is actually market research and theft
It's not unreasonable to seriously restrict intellectual property patents.

You're aguing that the public has to cover the companies risk, by enforcing a protectionist law or else R7D will cease. That is, you're claiming that for pharmeceuticals at least, there is a failure of free markets to achieve the desired result, am I correct here? The government must step in and limit competition or else markets will not continue to deliver things we value. Just making sure we're on the same page.

Supposing that this is so, I'd again repeat my solution that we up public funding of R&d. Now some cold hard fact to back this stuff up:

1. [Pharm companies spend] approximately $500 Million dollars [per drug]
I ain't your bra. You're misunserstanding the DiMasi study (widely touted by Merck and others.) "The actual after-tax cash outlay – or what drug companies really spend on R&D – for each new drug (including failures) according to the DiMasi study is approximately $110 million. (That’s in year 2000 dollars, based on data provided by drug companies.)" (publiccitizen)

2. "According to the NIH, taxpayer-funded scientists conducted 55 percent of the research projects that led to the discovery and development of the top five selling drugs in 1995." publiccitzen

that is to say- taxpayers bear the cost twice, by also paying for the drugs on market without any reasonable price caps, allowing the Pharm industry to profit massivley (see below.)

Micha this point is for you too-
3. Economist Dean Baker has taken a serious look at at this and estimated massive savings were the public to fund 100% of the costs, estimated both in dollars and millions of lives in the nest few years.

So what's the result of this protectionism? "In every year since 1982, the drug industry has been the most profitable in the United States, according to Fortune magazine’s rankings. During this time, the drug industry’s returns on revenue (profit as a percent of sales) have averaged about three times the average for all other industries represented in the Fortune 500. It defies logic that R&D investments are highly risky if the industry is consistently so profitable and returns on investments are so high."

4. This is a bigger issue than just recouping costs: 6.1 million people died in 1998 of easily curable diseases. With the elimination of IP and the corresponding drop in prices you'd see a big change here.

Here's some more info for you... According to the study that you "cited" the costs of preclinical expenditures were 67 to 73%. Governments often cover this completely as was the case with the major AIDS drugs, which happen to be the drugs which are currently arousing the most IP controversy as millions in Africa continue to die needlessly.

I'm not proposing a "cost theory of value"- I'm proposing that the gov't either steps up funding to 100 percent so we can get out of this "socialized risk, privatized profit" game, or that we dump protectionism and expose these businesses to competition and see a drop in their profits and their prices.

-Matt

Joseph, Matt is arguing for

Joseph,

Matt is arguing for public funding of research, so your critique doesn't really apply to him. Personally, I'm more willing to support government grants in the form of prizes over limited patent protection, assuming I had to choose between the two.

Matt, it's been estimated

Matt, it's been estimated that it takes approximately $500 Million dollars to develop the average drug, although that number can swing wildly. If companies were simply allowed to copy a compound and produce it as soon as a drug became available, the cost would fall roughly to the cost of "current production", but that doesn't suffice when you have up to 15 years of previous R&D expense to recoup.

The "cost theory of value" just doesn't cut it, here bra, and yes, if drugs did fall to this level, there would be little reason to spend the enormous amounts of money, and spend the time to develop the compound.

At this level, I must say, the argument doesn't interest me. I feel like I'm just arguing against some snotty anarchist kid.

Libertarians for

Libertarians for Protectionism
It’s always so cute to see self-proclaimed libertarians engaging in the most egregious sorts of protectionist argument when it comes to intellectual property restrictions. Consider...

I know plenty of people who

I know plenty of people who book time in a studio or record using their own equipment. Recording the music isn’t all that costly (in spite of what Courtney Love says), but pressing it and widely distributing it in CD format is.

If this is true--and it may well be--then over the next several years, as broadband penetration increases, we should expect to see a shift from the studio system to independent production, and to see free (or very cheap), legal downloads of mainstream music.

But the reality today is that, for whatever reason, independent production has failed so far to demonstrate its superiority in the market. The vast majority of commercially successful musicians have done so through the record companies, so the argument that anyone should be able to distribute copyrighted music freely because record companies don't contribute anything to the production just doesn't hold water.

But the reality today is

But the reality today is that, for whatever reason, independent production has failed so far to demonstrate its superiority in the market. The vast majority of commercially successful musicians have done so through the record companies, so the argument that anyone should be able to distribute copyrighted music freely because record companies don’t contribute anything to the production just doesn’t hold water.

I'm sorry, but this is question begging. IP is protectionism, and is therefore a market distortion. Our argument is that record companies are artificially proppped up by government protection- the fact that they have "primacy" in the market is evidence of nothing but market distorting potenial of protectionism.