Mankiw on SOPA

First off, I am working on fixing what I describe as the Steve Jobs problem - that you generally agree with a lot of what someone says (or does), but you're only motivated to write about the small amount you disagree with.

So, with that in mind N. Gregory Mankiw is a cool dude. I first became a fan of his when he was George W. Bush's Chairman of the Council of Economic Advisers. He distinguished himself by sticking to economic theory even when it was politically unpopular, in particular defending outsourcing as likely to be of economic benefit to America. Which it is, for much the same reason that trade is beneficial - if it's cheaper to build a car in Korea, build it in Korea. If it's cheaper to answer a phone call in India, answer it in India. And with the savings we get, export more in the areas that the US does particularly well. I remember cheering for this even before I knew anything else about him.

Also, in recent days he's done a great job of attacking the 'Warren Buffet pays less tax than his secretary' idea, noting (correctly) that he implicitly pays tax through the tax on corporate income. His blog is always a good read for interesting mainstream economic analysis

So I like a lot of what he writes. And he's impeccably polite in dealing with intellectual opponents, which is exceedingly rare.

But I did find myself a little ... underwhelmed... at his discussion last week of repugnant Stop Online Piracy Act, currently (thankfully) off the legislative agenda, at least in the short term. SOPA, and it's house equivalent, PIPA, sought to make content providers more liable for their user-submitted content, and liable to have their entire site (not just the offending material) taken down if copyright holders alleged any violation. It could also compel search engine sites not to include allegedly infringing sites, with the definition of infringing being shockingly vague. In short, these were terrible Bills, designed to try to pad recording company and movie profits, the viability of the internet be damned. If you want a great summary  of the problems of the bill, Sal Khan of the Khan Academy has a very good rundown.

But Mankiw was more ambivalent.

The anti-SOPA crowd argues that this is a matter of basic liberty. But it's not. In a free society, you don't have the freedom to steal your neighbor's property. And that should include intellectual property. Moreover, it is the function of the state to enforce those rights. We don't leave it up to civil litigation to protect property rights (although that is part of the solution). We give the state substantial powers to stop theft. Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.

I find the statements in bold to be particularly sloppy. And to explain why, let's revert to some terms I cribbed from Mankiw's own 'Principles of Macroeconomics', currently sitting on my bookshelf.

Why is it wrong to steal your neighbour's property? Generally speaking it is because most goods are rival. If I take my neighbour's Ferrari, he is deprived of the use of said Ferrari. Taking the good is thus a pure transfer - I take it, and he doesn't get it.

Now that's manifestly not true of nearly everything that SOPA is targeting. If I copy an MP3 or a movie, I make a replica of the original file. I have not deprived the original owner (that is, the person who had the mp3 on his computer) of anything. To a first order of magnitude, welfare has increased. Before, we only had one copy of the mp3 to be listened to, and now we have two.

What has been lost is the potential funds that might have been transferred to the copyright owner. But this is a nebulous concept - suppose I set the price of my CD at $10 million, and 100 people pirate a leaked demo from the studio. Have I been deprived of $1 billion? Of course not. None of these sales would have taken place absent the piracy. In addition, the world has gained utility ex post, because now 100 more people get the enjoyment of listening to the music.

And Mankiw doesn't just obliquely run into this error in logic - he rams into it head on :

If offshore websites find a way to distribute this intellectual property without paying for it, it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock. It is neither efficient nor equitable.

No! No it isn't! If I take merchandise from a dock, then the merchandise (which is rival) can't be consumed by anyone else. An mp3 can be consumed over and over. Ex-post, nothing is lost.

There is of course one good argument for these kinds of efforts - that without legally enforced grants of monopoly rents to owners, there won't be enough of these goods produced. This is saying that we need these protections ex ante, because otherwise society won't have a movie industry or a music industry. This is similar in logic to why we need patents - their non-rival nature makes them a public good, and the monopoly rents help them be produced more because the market will not provide enough otherwise.

But is that really true? Yes and no. Piracy represents an existential threat to the movie industry, if  it happens often enough. Nobody is going to spend $300-odd million making Avatar if they're not making a return on it. It's unclear that piracy will get that common, since there really is a benefit to seeing a movie on a huge screen versus on your computer. So there is some tradeoff here.

This seems way less persuasive for the music industry though. People have been making music for millennia, and will continue to do so. Even if piracy becomes complete, the industry will (and already is) evolving into being based off ticket sales for live shows, with free online clips being like promos for the show. This worked as a model for minstrel singers for centuries, and would work now.

And the argument that 'you have a moral obligation to not take anyone's intellectual contribution without paying for it' is ridiculous. Suppose I write a catchy pop song. Should Greg Mankiw have to send me a royalty cheque before he is allowed to play a cover version on the guitar in his own home? Should I need to send Black and Scholes a cheque before I can compute the Black Scholes formula? Of course not. So clearly there is a limit to how much this rule applies.

And this is all such a completely obvious argument that I'm really surprised that Mankiw doesn't make it. Instead he resorts to really weak reasons for defending it. Mankiw personally (as he acknowledges) stands to lose a lot from piracy, as he writes a best-selling economics textbook.

Frankly, if I stood to lose as much as he did, I'd be trying to make much better arguments for SOPA-like laws than the ones he is offering up.