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Libertarian Favors $80 Billion Annual Tax-Funded "Medical Innovation Prize Fund"

August 12, 2008

On Marginal Revolution, Alex Tabarrok reviews Boldrin & Levine’s Against Intellectual Monopoly. According to Tabarrok, the book “is a relentless, pounding, take no prisoners attack on patent and copyright law.  It joins Lessig’s Free Culture and Heller’s The Gridlock Economy as an instant classic and a must-read on these issues. ”

I don’t know much about Tabarrok but as he has published in the libertarian journal Reason Papers, in The Free Market, and has writen some libertarian-ish sounding books published by the libertarian Independent Institute (and positively reviewed in the QJAE). So I assumed he was a libertarian. But here, though he seems to recognize some (practical) problems with patent and copyright, he doesn’t want to abolish the state IP system altogether.

You see, “there is a Laffer curve for innovation – more appropriability increases innovation at first but innovation declines when appropriability extends too far.” So though he agrees “with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation,” we should not abolish IP either. We need to try to “optimize” it, I suppose. Alas, “there is no invisible hand theorem which moves us automatically to the top of the curve”. So, though it’s apparently politically impossible ever to “optimize” IP protection, to ensure that we are not “on the wrong side of the Laffer curve for innovation”, and economically impossible to know we had reached this point anyway–nonetheless, wealth-maximizers like Tabarrok soldier on, advocating keeping a state-run IP system. So what should we do? “We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes.” In the linked post, Tabarrok writes that he “might actually sign on to” The Medical Innovation Prize Fund Act of 2007, introduced by socialist Senator Bernie Sanders … a bill which would not even abolish patents, but which would augment the patent system with a taxpayer-funded “medical innovation prize fund”–starting at “$80 billion per year, and increas[ing] with the growth in GDP“… ! Damn, $80 billion down the drain–puts my own little estimate that the patent system imposes around $28 billion in costs to shame!

Advocating state-funded “prizes” is about as unlibertarian as proposal as you’ll see. And you don’t need to do “marginal analysis” to figure that one out.


Update: Tabarrok here advocates using taxpayer funds to pay patentees to give up the patent rights that the federal government grants them. Why not just … refrain from giving them the patent right in the first place? Because that would cause an “underproduction” of “innovation”, by reducing “appropriability.” Whatever. So he has to find a way to keep “appopriability high,” and thus cannot give up a patent monopoly, or a tax-funded “subsitute” for it.

Anyway, note that the annual $80 billion taxpayer-subsidized fund–well, probably at least $82 billion by now, if we account for GDP growth since 2007, as Sanders and Tabarrok want to — is for medical innovation only. This covers only a small slice of all patent innovation–in fact the “prize fund” also covers “non-patented products”–because, due to the patent system, “innovations without property rights are underfunded”. So consider what this means. If we subsidize medical innovation to the tune of $82B a year, there is no reason not to subsidize other patentable–and even non-patentable–inventive areas. Hell, why stop there? Inventions are not the only types of innovation that should be rewarded. What about the copyright fields, like novels, painting, website design? And other areas of innovation, like boat hull designs and databases? And semiconductor maskworks, and trade secrets? And what about more fundamental research in the basic sciences? Let’s see, I think the $82B for medical innovation is at most, say, 10% of all technical innovation. So we need another $820B for other technical fields. And surely the value of the artistic, boat hull design, semiconductor maskwork, and database works are at least on the same order of magnitude as the technicall innovations. So let’s say it’s another $ trillion, for $2 trillion. A year. To start. Now, what about basic science–physics, math, astronomy? Who can put a value on that? Well, I guess we have to–say, another cool $300B. And what about trademarks? My heavens, they are worth at least as much as patent and copyright, so let’s add another trillion. So now we are up to $3.3 trillion. This is in addition to our current $2.5 trillion federal budget. So now the federal budget is, say, $6 trillion, out of about $14 trillion GDP. I’m sure our good marginal economists will assure us that this expenditure will increase appropriability–which will increase innovation, which will have a measurable value–and that this extra value will far exceed the $10 trillion or so that would need to be generated to just break even (assuming 35% of the extra wealth is taxed to replenish the $3.5T annual prize fund). Wow, what a great way to reach a $24 trillion GDP–just increase taxes by $3.5 trillion!! Genius! This never occurred to me. No wonder I’m not an economist.

Update 2:
And get this: according to the text of socialist Sanders’s draft bill, the $80 billion+ taxpayer-funded “Fund for Medical Innovation Prizes” will be administed by a “Board of Trustees for the Fund for Medical
5 Innovation Prizes,” composed of 13 members serving 4-year terms. The 13 members of the Board are:

(1) the Administrator of the Centers for Medicare & Medicaid Services;
(2) the Commissioner of Food and Drugs;
(3) the Director of the National Institutes of Health;
(4) the Director of the Centers for Disease Control and Prevention; and
(5) nine individuals to be appointed by the President, with the advice and consent of the Senate, of which:
(A) three representatives of the business sector;
(B) three representatives of the private medical research and development sector, including at least one representative of the non-profit private medical research and development sector; and
(C) three representatives of consumer and patient interests, including at least one representative of patients suffering from orphan diseases.

Each Board member will be paid at the equivalent of an annual salary of about $140k for daily service. They’ll of course have expenses paid, and a staff, and budget to hire experts and consultants.

And every year, the Fund gets public funding equal to “0.6 percent of the gross 6 domestic product of the United States for the preceding fiscal year.”

Jesus, this is pure evil.

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