Rizzo and Whitman (R&W) begins with a primer on the “new paternalism” - the influential policy reform movement powered by the engine of behavioral economics.
For most of history, paternalists have drawn their support from religious or moral notions of goodness. They have claimed special knowledge, from God or some other source, about how people ought to live. The overtly religious character of temperance movements in the nineteenth and early twentieth centuries exemplifies this kind of “old” paternalism. Given their moral convictions, the old paternalists did not usually appeal to the preferences and desires of those whose behavior they wished to regulate. The very desire for alcohol – or drugs, or deviant sex – was condemned directly.
Behavioral economists, like most economists, still accept subjectivism. However, they have rejected the notion of accurate preference revelation. Experimental evidence suggests that individuals may systematically deviate from the behavior that would best satisfy their own preferences. The list of alleged deviations from strict rationality includes – but is not limited to – status quo bias, optimism bias, susceptibility to framing effects, poor processing of information, and lack of willpower or self-control. To the extent that these phenomena cause people to make errors, paternalist policies can in principle help them to do better – not by some exogenous standard, but by their own standards. This is the defining feature of new paternalism that distinguishes it from the old: the new paternalists claim to help people better achieve their own preferences, not someone else’s.
Cass Sunstein and Richard Thaler are the popular and intellectual leaders of the new paternalists. As R&W succinctly explain:
Cass Sunstein and Richard Thaler, coming from an economic perspective, support policies that will make people better off “in terms of their own welfare.” That welfare is best advanced by the choices people would make “if they had complete information, unlimited cognitive abilities, and no lack of willpower” (Sunstein and Thaler 2003, 1162). In other words, Sunstein and Thaler define the correctness of choices in terms of what people would choose for themselves – if only they were not afflicted with cognitive biases.
New paternalists then present novel rationales for a wide range of government interventions. For example, they advocate “sin taxes” to help not society, but the “sinners” themselves. Fat taxes help fat people weigh what they “really want to weigh.”
R&W close the chapter by explaining their multi-stage argumentative strategy.
Our case will consist of a series of challenges – in effect, hurdles that behavioral paternalist proposals must clear in order to be justified as a matter of policy. We will begin with the most abstract and conceptual, then proceed to more pragmatic and applied challenges.
The most abstract: Behavioral economists take simple models of rational choice too literally.
We refer to the traditional economic definition of rationality, adopted by mainstream and behavioral economists alike, as “puppet rationality.” It is a brand of rationality well suited for building models of how the world works. Models are not unlike stage plays, and puppets are the players. The puppets are always well behaved. They play the roles they were designed to play. They follow the rules. They have no motive force of their own. Real human beings, however, are not puppets. Their preferences and behavior may deviate from what is expected of agents in a model. But such deviation does not provide sufficient warrant for deeming them irrational.
But even if standard notions of rationality are solid, the much-hailed experimental evidence is sorely lacking in external validity:
Much of the evidence for “failures of rationality” derives from experimental settings that are effectively context-free. Such experiments may identify “raw” or unmodified propensities in human behavior in the laboratory. But they do not tell us how strong those propensities are “in the wild,” where people make real decisions…
We also argue that people are often (though not always) aware of their cognitive biases, and sometimes they act to counteract or control them. People “self-debias” in myriad and idiosyncratic ways…
Pragmatically, R&W argue that the new paternalism suffers from a massive yet neglected knowledge problem. Most fundamentally: “If actions do not reveal preferences, then what does?”
Last, the book explores public choice and slippery-slope problems with paternalism in great detail.
This is only Chapter 1. In Chapter 2, R&W appeal to “inclusive rationality” to critique behavioral economics at its root.
Are human beings rational? …But it is not easily answered, because the word “rational” has many meanings. Rationality can simply mean purposefulness, that is, trying to use the best means available to satisfy your goals or preferences given your beliefs about the world. It can mean taking an abstract approach to solving problems, applying universal systems of thought and inference, and following scientific methods. It can mean avoiding errors of logic and reasoning. It can mean revising one’s beliefs in accordance with Bayes’ Rule. It can mean having preferences that conform to certain axioms – transitivity, completeness, and so forth – which together guarantee the preferences are internally consistent and have a certain structure. In neoclassical economic theory, it has historically meant all of the above.
In this book, we will defend what we call inclusive rationality. Inclusive rationality means purposeful behavior based on subjective preferences and beliefs, in the presence of both environmental and cognitive constraints. This notion of rationality preserves the core notion of purposefulness, and in that sense it should seem familiar. But unlike other notions of rationality – many of which were invented for modeling purposes but have since taken on a life of their own – inclusive rationality… allows a wide range of possibilities in terms of how real people select their goals, form and revise their beliefs, structure their decisions, and conceptualize the world.
[R]eal people may do all of the following and still qualify as inclusively rational:
- Experience internal conflict that has not yet been (and may never be) resolved;
- Have preferences that change over time;
- Have preferences that are indeterminate or incomplete – i.e., that do not specify attitudes over all possible decisions at all possible times and states of the world;! Have preferences that are in the process of being created or discovered;
- Have preferences that depend on context, including both the options available and the way in which decisions are framed;
- Hold beliefs that serve purposes other than truth-tracking, such as providing motivation or intrinsic satisfaction;
- Make inferences based not on the strict rules of classical logic, but on contextual and linguistic cues they have learned from human interaction;
- Indulge “biased” modes of decision-making when the costs are low and rein them in when the costs are high;
- Economize on scarce mental resources by refusing to impose perfect consistency on their preferences and beliefs;
- Structure their environments, possibly in ways that constrain their own choices;
- Adopt personal rules and resolutions that create internal incentive systems;
- Enlist the help of friends, family, and other groups to assist in attaining goals;
- Rely on institutions, social customs, and market structures to assist in attaining goals;
- Employ heuristics that minimize cognitive effort and/or informational input.
R&W are well-aware of the methodological objection:
Because our notion of inclusive rationality is very broad, we might be accused of offering a theory that cannot be falsified. We should therefore clarify that we do believe positive claims should, in principle, be falsifiable. But some claims are more easily tested than others, and there is no guarantee that the most easily tested claims are also normatively relevant.
In Chapter 3, R&W flesh out this critique in great detail. To take one example: In real life, people often seem to change their preferences. Yet behavioral economists either refuse to consider this possibility, or treat changing preferences as ipso facto “irrational.”
The second interpretation is that the agent’s preferences have simply changed over time. In other words, if someone chose A over B on Monday but B over A on Tuesday, that could be the result of consistent (complete and transitive) preferences on Monday, and a different set of consistent (complete and transitive) preferences on Tuesday.
In general, economists resist preference change as an explanatory strategy because it feels ad hoc. Virtually any change in behavior can be rationalized as resulting from changing preferences, but economists usually wish to show the reasons why behavior may change even if tastes do not – for example, because of changing relative prices. To resort to saying preferences have changed seems like cheating. These are valid concerns from a positive perspective. But from a normative perspective, they hold little weight. There is no reason a person’s preferences should remain fixed. Rational people may change their minds – and we have not encountered anyone arguing otherwise.
1. Escaping Paternalism focuses almost entirely on the “new paternalism.” Yet the more I read the book, the more I concluded that “new paternalism” is largely an attempt to repackage “old paternalism” for an elite, secular audience. Even today, no more than 5% of people who want to forcibly reduce alcohol consumption think they’re helping heavy drinkers “achieve their true preferences.” Instead, they seek to give drinkers “what they need, instead of what they want.” The main audience for the new paternalism is: meddlers who also have an ideological ax to grind against the want/need distinction.
2. On present bias, behavioral economists don’t go far enough. It’s not enough to have exponential discounting rather than hyperbolic discounting. Instead, I say the rational discount rate for utility is no time discounting at all. Contrary to what you may have heard, this would not lead you to starve to death. And you should still discount for uncertainty, finite life, and so on. But, pace Hume, ’tis contrary to reason to prefer a present pleasure to a future pleasure solely because the present is now and the future is later.
3. R&W repeatedly mention behavioral economists’ support for mandatory “cooling-off periods.” I wonder how many behavioral economists have ever examined how often people even take advantage of this opportunity to cancel a contract. The last time I refinanced, we had to sign paperwork apprising us of our right to renege. When I asked the banker how often people exercised this right, he furrowed his brow and laughed, “Never.” I believed him.
4. R&W repeatedly discuss behavioral economists’ support for “employee-friendly” labor contract defaults. Given all the evidence that unemployment breeds misery, a wise paternalist would strive to “nudge” labor’s total compensation down, not up!
5. R&W insist that “inclusive rationality” is falsifiable, but I don’t think they name a single concrete counter-example. This is arguably intentional, for they often say things like:
We do not, however, claim that everyone is always fully rational. We are happy to concede that they are not. But it is one thing to say people make mistakes; it is another to clearly and definitively identify which actions are, in fact, mistakes.
Strikingly the word “opioid” does not appear in the text. (“Heroin” does, but sans empirics). I sincerely wish they had provided an “inclusive rationality” take on the putative opioid crisis.
6. One of my favorite passages:
We don’t expect that every reader will find all of our challenges to paternalism equally compelling. Some may find our conceptual objections persuasive, others may see the knowledge problem as definitive, etc. But our hope is that, taking the gauntlet of challenges as a whole, readers will recognize just how tenuous the entire new-paternalist enterprise is. Behavioral paternalism’s proponents often present it as just common sense – a set of smart, simple, straightforward corrections that will make us all better off. All we’re trying to do is correct some mistakes; who could be opposed to that? But the reality is far more difficult, complicated, and even dangerous.
As you’ll see, I find the conceptual objections only moderately persuasive, but the rest of their critique is strong indeed.
7. R&W go through a lengthy list of defensible “mistakes” people make in experiments. Let’s consider them one-by-one:
When real people take tests designed to test neoclassical rationality norms, they do not leave their inclusive and contextually shaped rationality at the testing room door. Instead, they may behave as they do in the real world. For example:
- They may assume, in accordance with ordinary conversational norms, that experimenters provide only information that is relevant to solving the problem – i.e., no irrelevant or “tricky” information. They do not immediately assume the experimenters are trying to fool them.
- They may resist the distinction between the validity of a syllogistic inference (e.g., “People with red hair are Martians, John has red hair, therefore John is a Martian”) and the truth of a conclusion itself (John is not a Martian). Normally, in everyday life, it is the truth that is more important.
This isn’t entirely wrong, but the ability to recognize such logical errors really is a crucial real-life skill. Anytime you propose an explanation for anything, logical reasoning opens your theory up to testing. Even for an explanation as simple as, “If I go to McDonald’s before 7 AM, the line will be less than 5 minutes long.”
- They may not assume that prior probabilities about something – such as the likelihood that someone has a disease – must be equal to the “base rates” from the population provided to them. Instead, their priors may be affected by their evaluation of the significance of the base rates to a particular problem in front of them – say, whether a specific person who chose to visit the doctor and chose to take a test has the disease. Treating priors in this way is fully consistent with the subjectivist Bayesian view that prior probabilities are subjective – a fact frequently ignored in the rush to deem subjects “irrational.”
- They may not agree with model-builders on the informational equivalence of different descriptions of a situation. Instead, they may infer implicit information or advice from how a problem is presented. For example, they may perceive an important difference between a stated probability of success equal to 0.7 and a stated probability of failure equal to 0.3. Perhaps the former conveys greater optimism, despite the formal mathematical equivalence of the two statements. Conversational norms and expectations do not always align with logic and probability theory. The former can be adaptive in the real world while the latter is adaptive on experimental tests. Which is more important?
Seems pretty crazy to me. Sure, if you’re marketing a product, you’re better off saying “70% success” rather than “30% failure.” Yes, the former phrasing suggests “greater optimism.” The only reason such rhetoric works, however, is that some potential customers are confused.
- They may attach satisfaction or utility to things other than what the analysts expect. For instance, they may value an object more because it is theirs already. Or they may care about feelings of gain and loss experienced during the experiment, not just how much money they have when they leave the laboratory. Or they may gain satisfaction purely from having a particular belief, irrespective of its truth (“My wife is beautiful and my children are gifted”).
Somewhat reasonable, though it’s usually tempting to call such behaviors “childish.” Picture a kid who wants his teddy bear, not an identical teddy bear that’s a hundred miles closer.
8. While we’re on the subject, R&W never discuss children. Are they, too, “inclusively rational”? If so, should parents stop treating them paternalistically? Or what?
9. Suppose someone has inconsistent preferences. How are we supposed to identify their “real” preference? While this might seem like nitpicking, R&W show that behavioral economists have been cavalier at best.
Some defenses have been offered for favoring some preferences over others in cases of conflict, but we find these defenses weak:
Verbal Statements and Survey Responses: When asked, people may say they would rather behave differently or have different preferences. For instance, smokers may say they would rather not smoke, and overweight people may say they would like to eat less. It is indeed possible that these statements reveal “true” preferences. However, the incentives for speech differ from the incentives for other kinds of action. Behavioral research has cast doubt on many economic principles previously taken as given, but the principle that talk is cheap remains intact. Speakers who say one thing while doing another may simply be expressing what they regard as socially approved attitudes – a phenomenon known as social desirability bias (King and Bruner 2000; Grimm 2010). Or their statements may simply reflect “experienced opportunity cost,” i.e., the dissatisfaction that always results from options the agent has forgone.
Note: If we take Social Desirability Bias seriously - as I think we should - we can readily identify the “real” preference. Namely: Contrary to the new paternalists, the real preference is what people really do!
Regret: A person may feel, and express, feelings of regret about the choices they have made: “I wish I had not done that.” Although regrets are real, they do not necessarily reflect all costs and benefits associated with an action. specially for intertemporal choices, such as getting inebriated last night and having a hangover today, the regret is typically experienced while the cost is being experienced in the present and the benefit is already in the past. That does not mean the costs outweighed the benefits at the moment of choice – only that the remaining costs outweigh the remaining benefits. In addition, it’s worth noting that regret can also be felt about the kinds of choices that behavioral paternalists favor. When approaching death, people often express regret at not having lived a more spontaneous and present-oriented life (Ware 2012).
They’ve got them there!
If regret may be experienced regardless of the action taken, then it offers little guidance to the paternalist about which preferences are “true.” As with verbal statements, regret can simply reflect the experience of opportunity cost…
Self-Constraint and Commitment Devices: People will often use various devices and strategies to try to keep their vices under control: planning automatic deductions for savings, avoiding locations where they will be tempted to smoke or drink, etc. These activities do provide further evidence of conflicting preferences, and we will discuss them more in future chapters. They do not, however, show which preferences are superior. Commitment devices reveal one set of preferences at work – but other choices show other preferences at work. Furthermore, the outside observer has no means of knowing whether the right amount of self-constraint has been performed.
Planned versus Unplanned Choices: Behavioral paternalists often favor the preferences of a “planning self” over the spontaneous or “acting self.” The idea is that the planning self is more likely to take all costs and benefits into account and render a considered decision. But the planning self does not necessarily represent a disinterested party; rather, the planning self may represent only the longer-term and more self-denying parts of one’s personality (Cowen 1991). This becomes most apparent in the case of extreme behaviors such as anorexia, where the planning self dominates an acting self that might wish to indulge more often.
10. When I began Escaping Paternalism, I skipped over chapters 1-5, fearing they’d be long-winded, half-baked Austrian philosophy. I was so impressed with chapters 6-10, however, they I started reading the book from the beginning as soon as I finished chapter 10. I swiftly concluded that unlike so many other Austrian-inspired works, Escaping Paternalism was not only conceptually thoughtful, but eager to engage with an array of empirical literatures. If you’re impatient with economists waxing philosophical, I urge you to make an exception here.
Silence is Stupid, Argument is Foolish
When I was young, I never backed down in an intellectual argument. Part of the reason, admittedly, was that I was starved for abstract debate. Before the internet, anyone who wanted to talk ideas had to corner an actual human willing to do the same. Another big reason, though, was that I didn’t want to look stupid. A smart person always has a brilliant riposte, right? And if you shut up, it must be because you’re stumped.
At this stage in my life, much has changed. Public debates aside, I now only engage in intellectual arguments with thinkers who play by the rules. What rules? For starters: remain calm, take nothing personally, use probabilities, face hypotheticals head-on, and spurn Social Desirability Bias like the plague. If I hear someone talking about ideas who ignores these rules, I take evasive action. If cornered, I change the subject.
Why? Because I now realize that arguing with unreasonable people is foolish. Young people might learn something at the meta-level - such as “Wow, so many people are so unreasonable.” But I’m long past such doleful lessons. Note: “Being unreasonable” is not a close synonym for “Agrees with me.” Most people who agree with me are still aggressively unreasonable. Instead, being reasonable is about sound intellectual methods - remaining calm, taking nothing personally, using probabilities, facing hypotheticals head-on, spurning Social Desirability Bias, and so on.
In classic Dungeons & Dragons, characters have two mental traits: Intelligence and Wisdom. The meaning matches everyday English: high-Intelligence characters are good at solving complex puzzles; high-Wisdom characters have a generous helping of common-sense.
Using the game to illuminate life: Running out of things in say in an argument is indeed a sign of low Intelligence, just as I held when I was a teenager. A genius never runs out of rebuttals. At the same time, however, joining a fruitless dispute is a sign of low Wisdom. You have better things to do with your life than tell hyperventilating people all the reasons they’re wrong. A really wise person won’t merely break off such exchanges, but stop them before they start - and get back to work on his Bubble.
Here, in short, is wisdom: Be not a hostage to your own intellectual pride.
P.S. How do you know if a person plays by the rules until you actually engage them? Most obviously, watch how they argue with other people! If that’s inadequate, give promising strangers a brief trial period, but be ready to disengage if things go south.
On the Impossibility of Intellectual Property
Abstract: The concept of intellectual property (IP) has been variously criticized as incompatible with natural rights and detrimental to the dissemination of innovations. In this paper I argue that it can be criticized on an even more fundamental level—namely as a praxeological impossibility. More specifically, it is suggested that since ideas are not economic goods, but preconditions of action, and since physical goods transformed by ideas become as heterogeneous (and thus as intellectually unique) as the individuals who enact such transformations, no economic goods can be meaningfully designated as appropriable in virtue of embodying the objectively definable value of one’s intellectual labor. In view of the above, I subsequently suggest that IP protection laws constitute an exceptionally arbitrary and thus exceptionally disruptive form of interventionism directed against the very essence of the entrepreneurial market process.
JEL Classification: K00, L26, O34, P48
Jakub Bożydar Wiśniewski ([email protected]) is an assistant professor at the Institute of Economics at the University of Wroclaw and an affiliated scholar with the Ludwig von Mises Institute Poland.
The concept of intellectual property (IP) has been criticized from a number of distinct perspectives. Proponents of libertarian ethics have criticized it as incompatible with the axiom of self-ownership and the resultant structure of natural rights. More specifically, they have pointed out that the category of property applies exclusively to scarce goods, while ideas—that is, the fruits of intellectual labor—are superabundant in virtue of their infinite replicability. Thus, forcibly restricting their replication amounts to a major act of aggression against the bodily integrity and physical property of the replicating agent (Kinsella 2008).
On the other hand, mainstream economists have demonstrated that patents and copyrights, far from promoting innovation, actually hinder economic development and Schumpeterian creative destruction. This is due to the fact that patent and copyright holders are effectively intellectual monopolists, capable of nipping in the bud the commercial development of any given idea (Boldrine and Levine 2008).
While acknowledging the validity and significance of the above criticisms, this paper offers a different take on the titular concept. Instead of suggesting that intellectual property is morally indefensible or economically harmful, it suggests that it is praxeologically impossible. In other words, this paper suggests that intellectual property laws constitute not so much an attempt at monopolizing a praxeologically distinct category of resources, but rather an arbitrary curtailment of entrepreneurial initiatives aimed at resource heterogenization. This, in turn, implies that the so-called protection of intellectual property creates not so much “intellectual monopolists,” but rather uninvited institutional co-owners (Hülsmann 2006) of their potential business competitors’ arbitrarily selected physical property.
The following section states the argument in more detail. Section 3 considers some potential counterarguments to the proposition, and section 4 concludes with a presentation of some of its further ramifications.
2. THE ARGUMENT
The fundamental insight of the marginalist-subjectivist tradition in economics is the observation that what makes a good is not its physical characteristics, but its ability to enter into causal relationships with subjective preference scales of purposive agents. Thus, even physically identical goods may differ significantly in terms of their economic value in virtue of their differing causal histories and ideational connections.
However, this crucial emphasis on the subjective nature of economic value does not change the fact that genuine economic goods, in order to qualify as such, have to exhibit objective physical scarcity. Otherwise they are not goods, but the “general conditions” of action (Rothbard 2004, 4). In other words, the marginalist-subjectivist tradition—particularly as exemplified by the Menger-Mises branch—avoids the twin pitfalls of hypersubjectivism and panphysicalism: it postulates that physically scarce objects become economic goods by being “mixed” with the ideational processes of intentional beings.
Hence, ideation turns out to be a psychological rather than a praxeological activity—in and of itself it does not fall within the purview of economic analysis, nor, by extension, within the purview of property valuation. It is only when it is translated into action that it becomes a fundamental datum of economic theory and history. And yet, as soon as it enters the realm of demonstrated preferences, it inevitably heterogenizes the resulting goods, thereby ensuring their intellectual and valuational distinctness.
This is because human action is necessarily future oriented and thus entrepreneurial in the broad sense of the term—it consists not in frictionless adjustment of supply and demand, but in the deployment of scarce means toward specific ends to be accomplished in the uncertain future (Salerno 2008). Hence, ideas, viewed as preconditions of agency, are never, strictly speaking, replicated—instead, they are adapted to one’s specific circumstances, plans, and capabilities. This, in turn, implies that as soon as a particular agent transforms particular physical objects in accordance with a given idea—even if this idea is “borrowed” from someone else—they become unique goods, infused with his unique productive touch. It should be noted here that this argument is independent of the contention that property rights apply exclusively to the physical integrity of a resource, not to its value, since the latter derives entirely from the mental states of all those individuals who are interested in putting it to some use (Hoppe and Block 2002). Although few may be willing to reject this contention in full and endorse the notion that maintaining the value of one’s resources can extend to owning others’ mental states, some may be willing to concede the inadmissibility of certain actions that diminish the value of another’s assets. Underselling the originator of a “novel product” by offering exact replicas of his merchandise could be thought of as a canonical example here. However, the argument advanced in the present paper uproots this issue entirely, since it points out that physically identical products cannot be regarded as identical in terms of the sources of their value, thus making their putative ownership and their potential positive externalities a moot point.
This observation is exceptionally striking in the context of entrepreneurship narrowly conceived—that is, in the context of exercising the ownership function over capital structures of production created and recreated under conditions of uncertainty (Foss and Klein 2012). After all, the essential determinant of the success of any given business plan is not the physical capabilities of the resources owned by a given businessman, nor even the objectively definable ideas embodied in them, but the subjective evaluation of the potential residing in these and other elements of the overall entrepreneurial vision and the corresponding capital stock (Kirzner 1997). Objectively definable inventions are technical, not economic, phenomena—it is only when they help bring about subjectively conceived innovations that they contribute to economic growth and development (McCloskey 2010). This is by no means simply a repetition of the anti-IP argument that an idea is a general prerequisite of production and not subject to ownership. It is also the realization that, as far as their productive potential is concerned, ideas implemented in concrete processes of production are entirely dissimilar to ideas conceived in abstract terms. Thus, to regard all physical objects whose creation involved some use of the fruits of one’s mental labor as falling within the ambit of one’s “intellectual property” is to commit a fundamental categorical mistake—i.e., to confuse the results of subjective plans with their objective mental preconditions.
If, on the other hand, one were to claim that it is precisely the specific conceptual content of those mental preconditions that can be subjected to intellectual property protection, then an equally flagrant categorical mistake would be made. After all, such a claim would amount to trying to obtain exclusive use not of the results of any given action, but of a necessary prerequisite of a potentially infinite range of actions. In other words, it would amount to trying to put a price tag on something that is naturally priceless—on something that is not just contingently nonscarce (as so-called free goods are), but is necessarily so (as all general conditions of action have to be).
To use a specific example, this would involve attempting to obtain exclusive use not of any particular product of, say, spelling or singing, but of the very concepts of spelling or singing. Taken to its ultimate conclusion, such an approach would paralyze all human action, destroying humankind almost on the spot by making everyone unsure of whether engaging in perfectly mundane activities violates someone else’s intellectual property rights. And if one tried to avoid this conclusion by suggesting that it is only sufficiently complex concepts that merit this kind of exclusive appropriation, one natural response would be to point out that such a suggestion smacks of sheer legalistic arbitrariness, since it has to rely on a purely discretionary standard of “sufficient complexity.” Admittedly, making it a matter of pure legal convention which ideas are subject to IP protection would not be a logically incoherent move, but it would be a move bereft of any appeal to economic justification. More specifically, it would offer no support for the claim that the purpose of licensing the use of complex concepts is to allow their authors to reap their full market value, since it would not involve laying down any precise methods of measuring the extent to which the market value of any given good derives from its embodying any such concept (Cordato 1992, 80).
Furthermore, it has to be borne in mind that all entrepreneurial activity involves resource heterogenization (Lewin and Baetjer 2011), even if it does not consist in the Schumpeterian kind of entrepreneurship, which is typically associated with the introduction of innovations and other quintessentially conceptual tasks. Hence, for instance, buying a trademarked product and simply relocating it from a relatively saturated market to a relatively unsaturated one in order to sell it at a profit suffices to create a substantially new product, associated with uniquely specific preference scales, valuational conditions, and organizational structures. In fact, in today’s age of electronic transactions an act of physical relocation is not even necessary: it suffices to engage in online arbitrage to heterogenize physically and conceptually identical goods in a productive manner. After all, if all human action is broadly entrepreneurial—that is, it requires creative confrontation with the uncertain future—then exploiting arbitrage opportunities is solidly innovative in its own right (Kirzner 2009).
In other words, even, say, using a general scientific formula in production without in any way altering it should count as an instance of adaptation rather than replication, since its successful commercialization requires integrating it with a specific, time- and space-bound capital structure of production. To repeat, ideational replication is a purely mental operation, and it is only entrepreneurial implementation of replicated ideas that can be economically meaningful in this context, since only the latter can be economically profitable or unprofitable, and thereby also more or less successful in addressing the problem of natural (i.e., nonartificial) scarcity.
Moreover, it must be stressed that the argument presented here is not reducible to the more familiar contention that ideas cannot be subject to property rights, since rights are, by definition, enforceable claims, with the “force” component tying in to the physical aspect of human control over scarce resources. Although this contention is perfectly reasonable, it does not immediately answer the objection that the originator of a certain idea may regard himself as a partial owner of all the scarce resources that in some degree embody its distinctive conceptual features. Of course, at this point one might make a solid case that the creative process, although certainly capable of increasing the value of specific goods, nevertheless does not automatically imply ownership of them, be it complete or partial. This, however, would shift the discussion to the normative level, having to do with defining the ethical or legal criteria of genuine appropriation. This argument is purely praxeological: it points out that there is no necessary valuational link between the conceptual features of ideas contemplated in abstract terms and the conceptual features of specific goods that incorporate those ideas.
In other words, the process of ideation might be thought of in terms of identifying potential profit opportunities, but from a realistically conceived entrepreneurial standpoint such opportunities are only imagined rather than discovered (Klein 2008). And since the fruits of one’s imagination can be translated into actual business ventures in an endless variety of ways, it is incoherent to claim that the value of imagined profit opportunities can be automatically imputed to their actually exploited counterparts, entitling the originators of the former to the proceeds from the latter.
In sum, the subjectivist theory of value coupled with a praxeological understanding of the market process leads to the conclusion that, economically speaking, intellectual property is a contradiction in terms. In short, ideas are not economic goods, but preconditions of action, while physical goods transformed by ideas become as heterogeneous (and thus as intellectually unique) as the individuals who enact such transformations. This, in turn, implies that as important as it is to point out the efficiency-reducing and normatively troubling consequences of so-called intellectual property protection, it is possible to raise doubts about the concept on an even more fundamental, purely logical level.
3. POTENTIAL COUNTERARGUMENTS
Let us now analyze some potential counterarguments to the suggestion advanced in the present paper.
First, it might be claimed that, regardless of one’s views on the normative aspects of the titular concept, it is an overstatement to deny its descriptive coherence. After all, one might say, it is perfectly reasonable to define the fruits of one’s intellectual labor as goal-specific technical recipes,1 readily identifiable in terms of the specific material effects that their implementation produces. This, in turn, should make it conceptually unobjectionable to designate the goods that embody such effects as bearing the marks of one’s intellectual property, even if we do not believe that such “property” is associated with enforceable natural rights or economically beneficial consequences.
The main problem with this suggestion is that, once again, it conceives of goods in technical rather than economic terms and treats ideas as if they were praxeological rather than psychological factors. Since, however, economics deals with subjective evaluations embodied in demonstrated preferences, not with scientific discoveries and their technical content, it must reject the notion that there always exists a unique, objective description of the way in which any given good can usefully incorporate a technical recipe. On the contrary, subjectivist economics, coupled with a mature theory of capital and entrepreneurship, clearly recognizes the fact that productive factors are essentially characterized in terms of their subjectively perceived attributes, functions, and uses (Foss, Foss, Klein, and Klein 2007). Hence, there is a potentially infinite number of ways in which any given technically defined object can be imbued with the fruits of entrepreneurial creativity, alertness, and foresight, thereby becoming not just conceptually novel, but also endowed with unique economic value.
Another objection that might be leveled against the titular contention is that it cannot claim universal economic validity, since it refers to a strictly normative concept (i.e., property), while economics is a positive science. Thus, one might argue, it is a category mistake to ascribe inherent incoherence to a phenomenon whose definition is ultimately a matter of legal convention or moral imagination.
The primary error of this counterargument lies in confusing the value freedom of economics with its supposed value irrelevance. Although clearly value-free as far as the contents of its theorems are concerned, economics is crucially dependent on the evaluative and normative concepts contained in its descriptions of the catallactic order (Casey 2012). For instance, the theorem of the impossibility of rational economic calculation under socialism clearly refers to the importance of certain normative institutions (private property in the means of production, free exchange of private property titles, etc.), but it does so exclusively in order to elucidate the nature of the corresponding logically necessary causal relations, without proclaiming their ethical desirability. By the same token, the theorem in question also demonstrates that certain normative visions—such as that of an economically thriving socialist commonwealth—are not so much ethically wrong as they are inherently unviable. To put it differently, ethical evaluations of intrinsically incoherent concepts are inevitably futile, since they run afoul of the principle of “ought implies can,” which often reveals such concepts to be misleading placeholders for something altogether different.
Thus, the fact that the titular contention refers to a normative concept in no way detracts from its strictly positive character. After all, it does not matter in this context whether or not one endorses the notion of intellectual property on ethical grounds—what matters is that such an endorsement cannot be couched in economically meaningful language. Consequently, the argument of this text does not violate the distinction between the positive and the normative—instead, it aims at demonstrating that it is the proponents of intellectual property who necessarily violate the distinction between the psychological and the praxeological.
At this point, one might argue that the above train of thought rests on the dubious premise that if an idea is by nature a general condition of action, this cannot be changed by legal enactment. In fact, however, no such premise is presupposed. Although it is clearly possible to legislate artificial scarcity into existence, it is impossible to ground such legislation in praxeologically meaningful facts. In other words, although it is possible to prosecute individuals or organizations for the supposed unlawful use of another’s ideas, it does not change the purely praxeological observation that anchoring any given abstract idea in the specific circumstances of one’s individual venture turns it into a fundamentally distinct idea, with no necessary valuational link between the two akin to that postulated by the Mengerian law of imputation. Hence, appealing to the conceivability of artificial scarcity in no way impugns the value freedom of this paper’s contention.
Finally, it might be suggested that the supposed economic coherence of the notion of intellectual property can be established by pointing to the specificity of the interventionist effects caused by IP protection laws. If, for instance, one subscribes to the claim that such laws hinder economic development and the corresponding creation and dissemination of innovations, then one implicitly recognizes the existence of a special category of goods whose preemptive appropriation by patent and copyright holders leads to economically suboptimal results. Thus, one might argue, intellectual property emerges as an economically meaningful concept in virtue of the economically meaningful effects of its legal enforcement.
The chief weakness of the above contention is the implicit assumption that praxeologically specific consequences must be associated with a praxeologically distinct category of goods in order to retain their analytical meaningfulness. It is the case, however, that they might as well be associated with a praxeologically distinct kind of activities. For example, in the context under consideration it might be suggested that IP protection laws hamper not so much the production and dissemination of “intellectual goods,” but the very process of heterogenization of goods—that is, the process whereby physically scarce objects become increasingly differentiated through their association with individual entrepreneurial visions. In other words, IP laws might be plausibly regarded not as a means of preemptive appropriation of “intellectual goods,” but as a tool for implementing the principles of “conservative socialism” (Hoppe 1989, chap. 5). Hence, it seems perfectly feasible to recognize the economically harmful effects of interventions aimed at the suppression of entrepreneurial utilization and reutilization of generally accessible ideas without being simultaneously committed to accepting the economic meaningfulness of the concept of intellectual property.
In sum, far from being an exaggeration, the claim that so-called intellectual property is incoherent as an economic notion appears to be a solidly justifiable proposition. Let me now conclude by briefly exploring some of its further analytical ramifications and practical implications.
If intellectual property is indeed a praxeologically meaningless concept, then, as proposed in the previous section, IP laws do not prevent entrepreneurs from utilizing freely a specific, precisely definable category of goods, but instead serve as a pretext for essentially arbitrary acts of opportunistic interventionism. This indicates that they are far more capable of paralyzing the operation of the market process than is suggested by the traditional arguments centered on the economically stifling influence of “intellectual monopolies.” More concretely, IP laws’ definitional arbitrariness appears particularly capable of saddling entrepreneurs with a highly troublesome layer of regime uncertainty (Higgs 1997), which does not generate additional (though predictable) costs for entrepreneurial activity so much as it makes such activity essentially unpredictable on the institutional level (Kinsella 1995, 150–51).
Furthermore, the laws in question are especially likely to cripple the operations of specifically “Schumpeterian” firms (Mueller 2003, chap. 4), that is, those that rely exceptionally heavily on creating value through resource heterogenization based on ingenious adaptation of existing technical recipes. Such firms, which are typically at the forefront of robust economic development, are especially exposed to the arbitrary interventionism of the established players, who are constantly on the lookout for excuses to accuse the newcomers of “intellectual free riding.” In addition, this kind of environment gives the management of Schumpeterian firms an extra incentive to join the establishment’s interventionist game as soon as possible, thereby perpetuating and further strengthening the vicious circle of rent seeking, cronyism, and enforced economic petrification.
Finally, the unhampered entrepreneurial transformation of various technical concepts is a phenomenon whose continuation is particularly important to a globally interconnected and organizationally complex society. If such a society suddenly becomes irresponsive to the economic challenges continually generated by its dynamically changing environment, which is bound to happen under conditions of repressed resource heterogenization, it will fall victim to institutional fragility (Taleb 2012) and become incapable of sustaining its complexity, ultimately collapsing under its own weight.
In conclusion, since intellectual property is a praxeologically incoherent term, IP laws turn out to constitute an exceptionally arbitrary and thus exceptionally disruptive form of interventionism directed against the very essence of the entrepreneurial market process (Kirzner 2017). Hence, intellectual property laws should be viewed as an even more fundamental obstacle to robust economic development than has been suggested by hitherto prevailing arguments.
- 1. For the purpose of this paper, the terms “recipe,” “idea,” and “concept” are treated as interchangeable.
How The Pandemic Could Force A Generation Of Mothers Out Of The Workforce
For the past few months, Alicia Wertz has barely seen her husband. Since schools closed in their northern Alabama town in March, they’ve been single-mindedly focused on a single goal: making sure that someone was watching their three kids. At first, Wertz tried working from home. But she wasn’t getting anything done, so they tried splitting the hours: Wertz’s husband watches the children in the morning, then a sitter comes to relieve him in the afternoon until Wertz takes over when she returns from work.
“When we’re not working, we’re by ourselves with the children. It almost feels like you’re a single parent. All you do is go to work and care for the kids,” Wertz said.
In her mind, Wertz is counting down the days until schools reopen. But there’s a nagging worry at the back of her head — what if they don’t open at all? “The thought of [my kids] not going back in the fall is devastating,” Wertz said when we spoke in early July. “It raises this question of — if one of us has to stay home with the children, whose job is more important? I think it was something that we did have conversations about before, but COVID-19 has made it much worse.”
Wertz isn’t the only working mother for whom the thought of the fall calendar sparks both relief and dread. And what comes next could have disproportionate — and long-lasting — effects on the careers of countless women across the country. Studies have shown that women already shoulder much of the burden of caring for and educating their children at home; now, they’re also more likely than men to have lost their jobs thanks to the pandemic. And the collapse of the child care and public education infrastructure that so many parents rely on will only magnify these problems, even pushing some women out of the labor force entirely.
“We’re in danger of erasing the limited gains we’ve made for women over the past few decades, and especially women of color,” said Melissa Boteach, Vice President for Income Security and Child Care/Early Learning at the National Women’s Law Center.
The crux of the issue: Child care just isn’t as available as it was before the pandemic. Data provided to FiveThirtyEight by the job-search website Indeed shows that child-care services have been much slower to hire again (a useful proxy for re-opening) than other areas of the economy:
Combine that with the news that many schools will remain closed in the fall, and it’s easy to see the crisis at hand. If polling is any indication, the vast majority of the fallout is being weathered by mothers, who were already doing the majority of household work even before the pandemic began.
In 2015, the Pew Research Center asked parents about how they divide family responsibilities when both work full-time.1 Some tasks were split relatively evenly: Twenty percent of respondents said the mother disciplined children more, 17 percent said the father disciplined more, and 61 percent said that responsibility was shared equally. For every task, however, more respondents reported that the mother carried a greater amount of the load than those who said the father did — including areas involving managing children’s schedules, caring for children when they’re sick and handling household chores.
|Share of parents who say…|
|Category||Mother does more||Father does more||Work split equally|
|Managing children’s schedules/activities||54%||6%||39%|
|Taking care of sick children||47||6||47|
|Handling household chores, etc.||31||9||59|
|Playing/doing activities with children||22||13||64|
Along similar lines, Pew also found in a poll from 2019 that 80 percent of women living with a partner who had children did the primary grocery shopping and meal-preparation duties for their families. And according to the Bureau of Labor Statistics’ American Time Use Survey — which tracks the average amount of time people spend per day on different categories of activity — married mothers with full-time jobs spent 56 percent more time doing childcare and housework than corresponding fathers. By contrast, fathers spent more time on work-related tasks, travel and leisure activities.2
|Hours spent per day|
|Physical care for children||0.59||0.28||0.31|
|Child care - other||0.36||0.22||0.14|
|Reading with children||0.05||0.03||0.02|
|Playing/hobbies with children||0.27||0.29||-0.02|
Even under normal circumstances, it was difficult for mothers of young children to balance work against the heavy burden of child care. The BLS found that in 2019, the labor force participation rate for women with children under age 6 was 66.4 percent, well below the rate for women with children age 6 or older3 (76.8 percent). According to a 2014 survey by the U.S. Census Bureau, 61 percent of women who were out of a job and have young children listed “caretaking” as a reason why they were not employed. Forty-six percent of women who were out of a job and have older children said the same. To put that in perspective, only 10 percent of all respondents who were out of work gave caregiving as a reason.4
A similar strain is apparent in working mothers’ decisions to take unpaid leave, or even part-time jobs instead of full-time ones. According to that same census survey from 2014, 30 percent of women who were part-time workers with young children — and 19 percent of women with older children — said caretaking was a reason they worked part-time. (Among part-time workers, the overall share is just 7 percent.)5
Now, with schools closed and day cares struggling to remain open, even more women may conclude that the best — or perhaps the only — choice for their family and their own sanity is to reduce their hours, or even press “pause” on their career.
“Sometimes I’ll get to a point where I’m like, ‘I’m so tired, I’ll have to go part-time to make it all work,’” said Lee Dunham, a lawyer who lives in Delaware. Since the pandemic started, Dunham has been mostly responsible for her 10-month-old daughter during the day — which means her work day doesn’t start until 8 p.m. and usually wraps around 2 a.m.. “I’m just basically not getting enough sleep because I’m watching the baby 40 hours a week and doing my job 40 hours a week. It’s really rough.”
Dunham feels she’s lucky to have an understanding employer who told her earlier this year that they’d be cutting all of their employees some slack because of the pandemic. But at the time, she added, everyone was assuming day care would be up and running by mid-summer. “It might be that I have to dial back my hours, which of course means I will get paid less.”
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This kind of calculus already depresses women’s wages and makes it harder for their careers to progress. According to the National Women’s Law Center, mothers are typically only paid 71 cents for every dollar paid to fathers. In fact, a lot of recent research into the gender pay gap has found that much of it is simply due to the constraints on working mothers. For instance, a 2018 analysis of data from Denmark — which offers a counterpoint to the United States in terms of social safety net, yet still has a very large and persistent gender wage gap — found that women’s earnings drop significantly after having their first child, while men’s earnings aren’t affected at all. And crucially, several studies in the U.S. and other countries have found that the trajectory of wages for women who don’t have children resembles those of men, whether they have kids or not (although some research has actually suggested that becoming a father can contribute to men’s career success).
This disparity is particularly intense for women of color. Black mothers are paid only 54 cents for every dollar paid to a white father, according to NWLC; for Latina mothers, it’s 46 cents. Low-income women of color are also among the likeliest to have lost their jobs in the current recession. And they’re disproportionately likely to be the child-care workers who are being asked to come back to work, sometimes in unsafe working conditions, for low wages. “We’re in a vicious cycle where we need child care as one of the tools to get women to equal pay, and yet unequal pay is one of the primary reasons that women are pushed into staying home,” Boteach said.
Leaving the workforce, even if it’s just for a year or two, has ripple effects that can follow a woman for the rest of her life, even depressing her earnings in retirement. Finding a new job after a few years on hiatus can be very difficult for mothers, who may be stereotyped as less serious about their careers because they took time off to be with their children. One study from 2007 found that mothers were perceived to be less competent than fathers, and their recommended salaries were also lower.
During this pandemic, you can already see the disproportionate impact taking shape. The unemployment rate for women in April was 16.2 percent, higher than it has been in any month since at least 1948, before dropping to 11.7 percent in June — a percentage point higher than the rate for men (10.6 percent). Even more striking, labor force participation for women dipped to 54.7 percent in April before rising to 56.1 percent last month. Both of those numbers are reminiscent of the rates for women from the 1980s — back when the very notion of women in the workforce was still gaining momentum.6
Wertz has no plans to leave her job — at least for now. “I worked incredibly hard to get to where I am now,” she said. “I essentially paid my way through school with no family support. For years I worked entirely too hard for not enough money.” Already, she worries that she’s perceived differently in the workplace because she’s a mother. “Even if it was just a year, I know how that gap would look on my resume,” she said. “If I had to take that step back, I just don’t know if I’d recover from it.”
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