Posted by on November 10, 2015

It is presidential campaign season and we are getting a lot of incoming promises, particularly from the Democratic side, about how the government is going to make our lives better.  This makes it an opportune moment to report on some recent examples of how the government fulfills promises.

The first one comes from a Wall Street Journal article entitled “GoPro Faces Suit For Camera Design.”  The article describes a patent infringement lawsuit that has recently been launched by C&A Marketing, which owns the Polaroid brand, against GoPro, the manufacturer of video cameras used to capture everything from extreme sports in New Zealand to extreme insurance fraud in Russia and China.  Polaroid, as you remember, is the trade name of the once-popular instant cameras that produced low quality still photos of subjects that were best not shared with the pimply adolescents at your local Fotomat.

Polaroid has been in a death spiral ever since the advent of the digital camera, which not only allows higher quality photographs and videos of both a salacious and non-salacious nature, but also allows the sharing of images formerly deemed unsuitable for the prying eyes of film developers with the entire Snapchat universe.  Such are the wonders of technological progress.

GoPro is being sued by C&A for its new Hero4 Session camera, which is housed in a small cube with rounded corners.  Here are some images  –  quite cute.  This, according to C&A, is a violation of the 14-year patent that C&A received in May 2015 for “(t)he ornamental design for a cubic action camera, as shown and described.”  The patent underlies the Polaroid Cube camera, as depicted here – also quite cute.  As best as I can tell, C&A is accusing GoPro of infringing its government-granted monopoly on cuteness.  At least in a camera.

I have been plunging into the literature on intellectual property ever since I read this article about intellectual property (IP) in The Economist, which I have described before.  There is a lively legal and philosophical debate about the merits of IP, including whether it should rightly exist at all, of which this article by libertarian Stephen Kinsella is a good example.  But I would rather focus on the practical consequences of the doctrine of IP.  For this, some of the best work has been done by Michele Boldrin and David Levine, including in this research summary for the Federal Reserve Bank of St. Louis.

I won’t go into detail, which I will save for a separate piece that I hope to write on just this subject, but suffice to say that, according to Boldrin and Levine, the absurdity of this lawsuit is a necessary consequence of the political economy of patents.  It is a classic case of the “regulatory capture” that we have discussed so often in this blog, where the (perhaps) well-intentioned actions of the legislators are perverted by the concentrated interests of the few eventually taking precedence over the dispersed benefits of the many.  And, contrary to the persistent fantasies of liberals, this is the result of an economic law every bit as immutable as the law of gravity.

Boldrin and Levine, who are mainstream economists and not right-wing ideologues, summarize this phenomenon very well in these words:

“Consider who the clients of the patent office are: inventors, patent trolls and patent lawyers.  Each and every of these clients shares the same goal: they would like more patents issued….It should be clear, then, that given this set of players and their incentives, the patent game can have only one equilibrium over time, which is the one we have observed.  Starting from a regime of intellectual property protection that, about two centuries back, was restricted in its areas of applicability and limited in both depth and duration over time – that is to say: it was somewhat “reasonable” to the extent it balanced social gains and social costs – we have witnessed a monotone process of progressive enlargement and strengthening of patent laws.”

Selling the World Trade Center Bit by Bit

There is another recent article from the WSJ entitled “Wanted: Immigrant Funds for Tower.”  This article describes how Silverstein Properties, a big New York City developer that famously tried to double the insurance payout for the 9/11 attack because there were two airplanes involved, is using funds raised under the EB-5 visa program to rebuild one of the towers at the World Trade Center.

The EB-5 visa program is a Federal program under which green cards are granted to foreigners who invest at least $500,000 in job-creating businesses in areas of high unemployment.  Because a green card is viewed as valuable by certain naïve foreigners who have never experienced the Internal Revenue Service, they are willing to accept a below-market return for these investments.  Which makes for cheap funding for Silverstein’s proposed development.  The article points out that Silverstein has had to go to the inconvenience of raising funds in $500,000 chunks under the EB-5 program because New York City has apparently used up all of its capacity to allow Silverstein to use low-cost, tax-exempt debt for this purpose.  Some other pig got to that trough first.

Now, you may be wondering how constructing an office tower in one of the world’s financial centers qualifies for a program that was designed to aid struggling local economies, particularly rural ones.  You may also be wondering how an office building can be considered to be much of a “job-creating” business, except for maybe a few security guards and janitors.  You may even be wondering how an office building housing primarily financial workers who have commuted from elsewhere, including some of the tonier suburbs of Connecticut and New Jersey, can be considered to be helping the local unemployed.  But you underestimate the creativity of our political leaders.

There is a test in the program that the investment has to be in an area where the local unemployment rate is at least 150% of the national average.  But, helpfully, the federal rules don’t define how the locality is to be determined.  From their experience with gerrymandering voting districts, politicians are experts at defining localities to get the answer they want.  This is how the WSJ describes the district used in this case: “The district extended south, off the southern tip of Manhattan, up the East River and back onshore at a set of public housing projects in the Lower East Side….”

For the job-creation test, they simply count up all the employees who will work in the building, since apparently the only thing holding back these people from gainful employment was the lack of a place to sit.  And don’t ask where they come from.

Other projects financed this way are condos on “Billionaires Row” just south of Central Park and the redevelopment of Hudson Yards in Midtown, both not normally considered economically blighted areas.  Apparently, this has now become sufficiently outrageous that politicians are bestirring themselves to change the program.  Fittingly, this will provide employment for plenty of lawyers who will be hired to figure out how the new rules can be gamed.

Uncle Sam’s Nuclear Waste-land

I was an intern in the office of one of the US Senators from Michigan during the summer of 1979.  The Senator was Donald Riegle.  His political career is mostly remembered for being very unmemorable.

The summer of 1979 was immediately after the Three Mile Island nuclear accident, which called into question the civilian nuclear power program.  One of my projects was to prepare a briefing note on nuclear power.  At the time I was struck by one thing: Despite all the noise about the private sector failures with nuclear energy, culminating in Jane Fonda’s technically absurd movie The China Syndrome, the biggest source of nuclear pollution, by many orders of magnitude, was the weapons program run by our old friend.  Uncle Sam.

I was reminded of this when recently reading an article entitled “Budget Hobbles U.S. Nuclear Cleanup” in the WSJ.  The article describes the government’s attempts to clean up the nuclear and chemical wastes resulting from the arms program, “the largest environmental remediation ever undertaken by mankind….”   It describes the usual tragicomic panoply when it comes to a government program, including:

  • incompetence, such as spending $1 billion on design work for a new $6.5 billion uranium-processing plant, such designs featuring ceilings 13 feet too low for the equipment the plant was supposed to house;
  • fraud, including a “high risk” citation for the program from the Government Accountability Office;
  • cost overruns, including the ballooning $100 billion cost for the clean-up of a plutonium processing plant in Hanford, Washington, that was closed in the 1980s;
  • misguided objectives, including excluding high-risk facilities from the program because the funds necessary to tackle them are not available, while continuing to spend on much lower priorities; and
  • pure politics, such as Obama’s recent vetoing of a defence appropriations bill that contained some urgently needed mandates and funding, but which were part of an unacceptable overall package.

Hillary Clinton or Bernie Sanders, or the Republicans in their own way, would have you believe that all of this will go away if they are elected.  But we know better.  The problem isn’t who leads the government.  The problem is the beast itself.

Recommended Listening: Contra Krugman

It is somewhat bittersweet for me to make this recommendation because I basically planned to do the same thing, and I still may, with the moronic YouTube videos of Robert Reich (for which, take a look at this infantile presentation of the case for a $15 minimum wage and then compare this to my writings on the same subject), but I have to suggest that people listen to the Contra Krugman podcasts put out by Tom Woods.  These podcasts start with Krugman’s weekly NYT column, which they subject to a withering review and criticism.  What I especially like is how one of the moderators, who has been a long-time stalker of Krugman under the general heading of “know thine enemy,” points out the inconsistency and often flagrant hypocrisy of the positions Krugman has taken over the years.  The material is excellent and the presentation is spirited and witty.

Roger Barris

I Wish That I Had Said (or Drew) That…

Every election is a sort of advance auction sale of stolen goods,” by H.L. Mencken

I promise to take money from the people who don’t vote for me and give it to the people who do,” by Dogbert, expressing the fundamental political bargain in this cartoon

[1] If you run a Google search on this title, you will get a number of hits.  However, in the spirit of this blog posting, which argues that no one should be allowed to patent, trademark or copyright anything that is obvious – or maybe anything at all – I will use it freely.

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Posted in: Economics, Policy, Politics

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