Copyright Protection

I am unwritten
Can't read my mind
I'm undefined
--Natasha Beddingfield

Interesting discussion of copyright laws, including some relevant Supreme Court decisions, in the context of the Constitution. The main argument is that the federal government has expanded the scope of copyright laws far beyond what was originally intended, and that copyright terms should be shortened.

While this is likely true, the author's central argument is grounded in the assumptions that so called intellectual property (IP) of any type, including copyrights, is legitimate property, and that the framers were correct in specifying the power to grant legal IP-related monopolies as within the proper scope of central government.

These assumptions are contestable.

It can be argued that IP is not property at all. It is not scarce. Unlike tangible property, where taking it away from the owner denies use of property to the owner, intangible ideas can be infinitely reproduced without denying use to the purported owner or originator. Moreover, clean title cannot be shown for an idea. It is impossible to demonstrate that the ideas of one person have not been significantly influenced by the thoughts and ideas of other people.

The framers justified IP protection as a way to encourage new ideas and innovation through the establishment of a statutorily created property right. Without a way to reap the fruits of their intellectual labor, it was supposed, then individuals would be less prone to create.

However, there is little evidence that this is the case. It seems equally if not more likely that grant of monopolistic privilege creates barriers to entry that impair competition. As famously noted by Schumpeter, it is unhampered competition, not protection from competition, that drives innovation and creativity over time.

Laws that grant monopoly power over ideas and their expression limit progress, and can be seen as a form of censorship--in conflict with the First Amendment.

Copyright protection is one of a few areas that the framers got wrong.

Investing Isn't Saving

Substition
Mass confusion
Clouds inside your head
--The Cars

Pundits constantly confuse saving and investing. Saving is setting economic resources aside for future consumption. Risk, defined as potential for loss of those resources set aside, is low.

Investing is allocating economic resources toward projects speculated to yield a return. Risk necessarily accompanies prospective return. Generally, the higher the possible return, the higher risk of losing some or all of the invested resources.

To be sure, saving and investing are related. There can be no investment if there is no pool of saved economic resources from which to draw. Investment capital necessarily comes from savings.

However, once economic resources have been invested, they are no longer saved. Instead, they are employed by the people involved in investment project. For example, while they are building productivity enhancing tools and techniques, workers consume savings in the form of food and drink. If these resources were not saved elsewhere, workers could not survive while working on projects aimed at improving productivity.

In projects yielding a positive return on investment, more output is ultimately created than input is consumed. In that happy case, then investors get back their original resource investment plus more.

In the unhappy event that the project consumes more input than it generates in output, then investors get back less than their original resource amount. In fact, they could lose all of their original investment.

When entrepreneurs invest in a new venture, few would suggest that these individuals are "saving for retirement."

When people allocate funds to equity and other risky investment positions, why, then, do we often view this as "saving for retirement" rather than "speculating for retirement?"

Preferential Treatment and Cronyism

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

Recently, General Electric (GE) informed the city of Cincinnati that it was considering a new office facility in the area--one that would be filled with 2,000 well paid employees. City officials have since been wheeling and dealing to arrange a prime downtown real estate location for the GE facility.

Such activity points out the preferential treatment afforded to big business by government. Tax incentives, subsidies, bailouts, trade negotiators, and regulatory representation are some of the services that government offers to big business.

These privileges benefit the franchises of large operators at the expense of small entrepreneurs. Competition, and therefore standard of living, falters.

Preferential treatment of big business by government is central to cronyism. Cronyism is central to the facsist flavor of socialism.

Viable Health Care System Alternatives

"You don't need to be helped any longer. You've always had the power to go back to Kansas."
--Glinda (The Wizard of Oz)

At the end of this piece, Richard Epstein observes that the Obama administration regularly derides critics for not coming up with viable alternatives to the Affordable Care Act. Of course, when the president says 'viable,' he means compliant with his view of the world.

The alternative that has always been available is the natural, peaceful one. Withdraw aggression from the system. Allow people to produce and trade freely among themselves. For example, why not remove regulation that bars interstate insurance trade? Competition will increase, which will drive gains in efficiency and improvements in care. Health care prices will go down and quality will go up.

Further, remove costly regulatory and licensing requirements that raise barriers to entrepreneurial entry. Typically, major innovation comes from new entrants into an industry rather than from incumbents. Any impediment to entry reduces the likelihood of major medical breakthrough.

Such alternatives carry the added economic and moral benefit of being aggression-free. No guns are pointed at people to force them into things that they do not want to do.

Indeed, 'viable' alternatives are right there in front of you, Mr President. As an old sage used to tell me, "If you have eyes, see. If you have ears, listen."

I would add, "If you have a brain, engage it and think."

Hedge Fund Irrelevance

It's better to burn out
Than to fade away
--Neil Young

A decade ago, contributors at Minyanville regularly observed the self-destructive nature of hedge funds. My friend Todd Harrison was fond of saying that it was like 9,000 fund managers in a circle shooting each other.

Fast forward to today. The war of attrition has driven many shops from the market. Hedge fund superstars have been displaced by high frequency trading black boxes.

With the onset of algorithmic alchemy, hedge fund unique impact on the tape is dwindling. For example, data suggest that the performance of equity hedge funds and the S&P 500 (SPX) is increasingly correlated.

Ironically, the original purpose behind hedge funds was to reduce correlation to general markets. The greater degrees of freedom taken by hedge funds (e.g., taking short as well as long positions, investing in alternative asset classes deemed not to move in sync with popular investments, etc.) provided a vehicle for hedging portfolio risk.

It appears, however, that hedge funds are increasingly choosing to follow trends rather than to fade them.

As they do so, hedgies render themselves less relevant.

position in SPX

Institutions of Economic Squalor

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Jacob Hornberger taps the root cause of economic stagnation and decline: lack of savings. Savings represent the fraction of production that is put aside for future consumption. Savings provide for capital accumulation. Capital accumulation fosters investment that increases productivity.

Without savings, productivity cannot improve and standard of living cannot rise.

Lack of savings explains why third world countries remain that way. It also explains long term economic decline in the US.

JH highlights two institutions that are robbing the US of savings. Income taxes take approximately one third of all economic income from producers for redistribution to non-producers. A good portion of these resources would have been saved.

Savings are also dimished via currency debasement (a.k.a. inflation). Because currency represents a claim on production, printing more of it gives government and its special interests claims on other people's production. When economic resources produced by others are claimed by those holding newly minted cash, the amount of economic resources set aside and saved declines.

Instead of facilitating capital accumulation and prosperity, institutions of income taxes and inflation  reduce savings and foster capital consumption and squalor.

Moral Hazard and Food

"How do the machines know what Tasty Wheat tasted like? Maybe they got it wrong. Maybe what I think Tasty Wheat tasted like actually tasted like oatmeal, or tuna fish."
--Mouse (The Matrix)

Suppose it is decided that it is within the scope of the federal government to regulate the quality and safety of food. An agency is formed. The agency certifies producers and agency stamps appear on food products.

Are consumers likely to engage in more or less upfront study of alternatives before making food purchases when the government claims to have their backs when it comes to safety and quality?

Moral hazard colors people's decisions about what they eat.

Guilt and Envy

My friends and I, we've cracked the code
We count our dollars on the train to the party
And everyone who knows us knows
That we're fine with this
We didn't come for money
--Lorde

Progressive politics depends on tapping feelings of guilt and envy. If you are wealthier than someone else, then you are 'privileged' rather than productive or resourceful. You should feel guilty for your privileges and be willing to surrender production to strong armed government agents for redistribution to others who are less privileged.

If someone has more than you, then that is unfair. It is ok to covet what others have in the name of 'social justice' and 'equality.' You are encouraged to back efforts of strong armed government agents to take production from others for your benefit. Conditions of collective envy create a pathology of resentment.

Guilt and envy are institutions of progressivism.

Smart Money Flow Index

Don't make sense not to live for fun
Your brain gets smart but your head gets dumb
--Smash Mouth

My friend Todd Harrison examines the Smart Money Flow Index (SMFI). The SMFI is calculated by taking the 10 am Dow Jones Industrial Average (DJIA) value - previous day close DJIA + next day closing DJIA.

Because the first 30 minutes of market action are viewed as associated with emotional, unsophisticated 'dumb money' and end-of-day action is often seen as driven by 'smart money,' significant divergences between the DJIA and the SMFI suggest that dumb money has taken control of the tape temporarily and is due for a comeuppance.

Current SMFI readings suggest comeuppance pending...

position in SPX

Nevada and Federal Land

"Gentlemen, whenever you have a group of individuals who are beyond any investigation, who can manipulate the press, judges, members of our Congress, you are always going to have in our government those who are above the law."
--Nico Toscani (Above the Law)

Previously we observed the large amounts of land claimed by the federal government in Western states. This bids the obvious question: How did the feds manage to accumulate so much land in these states?

In the case of Nevada, the answer is associated with the election of 1864. Republicans, anxious to acquire the necessary votes to re-elect Lincoln and to bolster majorities in Congress, pushed through a Statehood Act in March, 1864 in order to bring the GOP-friendly state into the fold.

The statute violated standing law that required territories to have at least 60,000 people in order to become a state. At the time, Nevada's population was about 40,000. Of course, by 1864 the federal government had positioned itself well above the law.

In return for statehood that was against the law, Nevada surrendered rights, title, claim to unappropriated land within state borders.

In 1980, President Reagan argued for return of this land to the state. Legal precedents also suggest the unconstitutionality of this statute.

Hopefully, current events will open the eyes of the public to this situation.