Friday, December 2, 2011

As noted on Marginal Revolution, in Launching the Innovation Renaissance, erstwhile quasi-Austro-libertarian fellow traveler Alex Tabarrok has a new book out in the intriguing TED Books imprint, entitled Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes). The description of the book says:

How can we increase innovation? I look at patents, prizes, education, immigration, regulation, trade and other levers of innovation policy.

Tabarrok is presented as some radical or maverick, bravely challenging the modern horror of statism and patent. But he is not really against patents. In the book he says:

Patents, innovation prizes, patent buyouts and advance market all have their place. The key is to match problems to institutions.

So patents “have their place.” The patent system should be reformed, but it has its place! Of course patent reform is both unrealistic, and not a solution, any more than tax reform is needed. The only real tax reform is to lower the rates, not to shuffle things around and move from one type of tax to another. Likewise, the most meaningful IP reform, short of abolition, is to reduce the length of the term: patents, from 17, down to a shorter amount like 5 years; copyright, from over 100 years, to, say, 10 or 20. (See my post How to Improve Patent, Copyright, and Trademark Law.)

As for the “prizes,” in his new ebook he highlights private prizes like the X-Prize but downplays the fact that he thinks taxpayers should fund these prizes. But this is the idea. As I have noted previously, Tabarrok is in favor of a taxpayer-funded “medical innovation prize fund”–starting at “$80 billion per year, and increas[ing] with the growth in GDP“. Similar proposals include those by faux free marketeers Joseph Stiglitz and Forbes.com. (Update: I’ve read more of the book now; he doesn’t downplay the taxpayer-funded aspect of the prize system he (and socialist Bernie Sanders) advocates. He is explicit about it in the book.)

Of course, medical innovations are only a small slice of the space of technologies allegedly promoted by patent law (there are electronics, lasers, chemicals, data processing, pharmaceuticals, and so on; there are over 400 classes in the PTO’s classification system, and each class is divided into numerous subclasses). So if you extend this tax funded innovation prize idea, and replace all patents for all technology areas with tax funded prizes, you’d have to advocate $2 trillion to $20 trillion a year in taxes to stimulate the “right” amount of innovation. Or maybe more. Hurrah for “free market” “solutions” to our “problems.” What the hell, let’s be “bold” and make it $100 trillion of tax funded innovation prizes per year to create a utopia on earth by 2013! Or maybe a quadrillion dollars!

Sorry, did I say “replace”? As patents have their “place,” these prizes would not even replace the patent system, but supplement it. Injury upon injury! In this, I am reminded if calls for “replacing” the current income tax with a VAT or national sales tax. Of course, in practice this amounts to a call for adding a new sales tax on top of the current income tax, since the state will never give up the latter. Likewise, Tabarrok’s call for a taxpayer funded prize system would not result in this replacing the patent system, but being added on top of it, making things even worse. [Keep reading…]

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