Kip is making fun of an op-ed by Robert Crandall in the New York Times, and rightly so. Consider the first paragraphs of Crandall's missive:

Thirty years ago this fall, Congress passed the Airline Deregulation Act of 1978. Since then, America’s airline system has greatly deteriorated.

I suppose that's one way of looking at it. Another way to look at it is that air travel has become much less expensive than it used to be. Airlines have learned to produce a low-cost product. Naturally, there are some compromises which result in poor service, but that seems to be a trade-off people are willing to make.

The second paragraph elaborates on the claims of the first paragraph.

Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time.

Translation: Air travel has become a price-competitive business. It used to be the Ritz, now it's Motel 6.

Airport congestion has become a staple of late-night comedy shows. An ever higher percentage of bags are lost or sent to the wrong airports.

Translation: The airports---which have not been deregulated---aren't run very well.

Last-minute seats are harder and harder to find.

Translation: Airlines are making more efficient use of their passenger-carrying capacity, leaving fewer empty seats, thus reducing prices.

Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.

No, not by any standard, just by the standards of guys like Crandall. Passengers may not be thrilled by airline service, but they certainly find it acceptable by the standard that matters most: People are flying a lot. In 1975, commercial air travel amounted to 136 billion passenger-miles. Thirty years later, in 2005, commercial air travel had more than quadrupled to 584 billion passenger-miles (far outracing population growth).

Airline service may not be the high-quality product it used to be, but it's certainly the low-cost product everybody seems to want.

Kip goes on to point out a strange internal conflict in Crandall's piece. At one point, Crandall writes this:

Although the system could conceivably be operated by a single efficient carrier, consumers clearly benefit from the existence of multiple airlines. The absence of competition never fosters better customer service.

But the very next sentence says something else:

Market-based approaches alone have not and will not produce the aviation system our country needs.

Kip's response is apparently genuine befuddlement:

So "competition" is good, but "the market" is bad? Don't worry -- I don't understand it either.

Oddly, I do understand it, so let me see if I can help out poor Kip.

Competition among suppliers is a state of the market in which sellers face constant pressure to make their product more attractive to customers out of fear of losing sales to other suppliers. They can try to attract customers by making their products better, or they can try to make their products cheaper. Airlines seem to have chosen the latter course. In either case, the essence of the definition is that suppliers are trying to win customers.

Crandall, however is using a different definition of competition, one that puts the emphasis not on the actual competition, but on the presence of competitors. He believes---or hopes to convince us to believe---that a good competitive market requires vigorous competitors.

This view---also popular among regulatory agencies---turns competition on its head. Instead of focusing on the benefits to consumers, Crandall and the regulator agencies want to focus on the financial health of suppliers. The result is a hodge-podge of recommendations that help the airlines stay in business, usually at the expense of their customers.

Consider this recommendation by Crandall:

The financial standards for new airlines also need to be made more stringent. In the years since deregulation, nearly 200 airlines have come and gone. These inadequately financed carriers — whose principal goal has often seemed to be merely to exist long enough to reap the rewards of an initial public offering — have consistently cut prices to attract passengers. This downward pressure on prices has hurt airlines that seek long-term success.

Here, Crandall is blatantly abandoning clear competition---cutting prices to attract passengers---to keep airlines in business. By his definition of competition---the presence of healthy competitors---that makes complete sense. Of course, that's not what competition really is. That's not what capitalism is.

At the end of his op-ed, Crandall makes this disingenuous declaration:

We need to be realistic: whether there are mergers or not, airline fares are going to increase. Every business must charge enough to cover its operating and capital costs. Regulatory and oversight changes intended to make our carriers more successful may well force prices up faster than would otherwise be the case. But we will be better off with higher fares and more competitors than with higher fares and fewer competitors.

Notice how he concedes that regulations will increase prices, but then goes on to effectively equate both possibilities by referring only to "higher fares."  Let me try to recast that last sentence in a more honest way:

But we will be better off with much higher fares and more competitors than with slightly higher fares and fewer competitors.

Personally, I'd prefer the slight fare increase. I'd prefer to receive the benefits of competition rather than spending my money to preserve Crandall's bogus definition of competition. Judging by the statistics on air travel, most passengers agree with me.

Finally, there's this sentence in the last paragraph:

The enormous economic importance of our once peerless aviation system is indisputable.

True enough. However, the benefit of an aviation system does not come merely from its existence, but from how we use it. Agriculture is important because it allows us to eat, the auto industry is important because it allows us to have cars, and the aviation industry is important because it allows us to fly.

Frederick W. Kagan has an article in National Review Online that attempts to refute some of the antiwar arguments about Iraq. I haven't read the whole thing---It's a huge piece that covers a lot of ground, and some of it may even be correct---but there's a pretty glaring example of the broken-windows fallacy in the first section:

The "$3 trillion war." Simplistic economic analysis declares that the war has cost the taxpayers $3 trillion since its inception, implying that this is a $3 trillion dead loss to the economy---a price too high to pay.

Modern economics has long understood that the notion of a one-for-one guns-versus-butter trade-off is simply wrong. A high proportion of money spent on defense goes back into the U.S. economy in the form of salaries paid to the more than 5 million Americans employed directly or indirectly by the Defense Department, and payments to the defense industry and the long and complex supply chains from which they draw their raw materials.

This might sound sensible---or even sophisticated and worldly---but it's nonsense, and it's been nonsense at least since Frédéric Bastiat pointed it out in 1850.

Of course the money spent on defense goes back into the U.S. economy---most of it is spent on salaries and merchandise bought here---but we never get back the labor purchased with those salaries, and we never get back materials expended in the war.

The cost of the war (or anything) is the lost opportunity to use the expended resources for something else.  If you pay a man to drive a truck for the army in Iraq, then both he and the truck are unavailable to private industry here at home. War is costly because it uses up people and things that could be used for something else.

It's a separate argument whether the war is worth the cost, but it's foolish to try to deny the cost in this way.

I've been trying to make sense of what the Federal Reserve has been doing with Bear Stearns. My usual source for smart thinking about financial issues, Kip Esquire, is so far silent, so I'm trying to figure this out myself. It's not going well.

The argument against government bailouts of private businesses is that it's a bad idea for the government (even in the form of the Federal Reserve) to rescue a corporation that's in trouble. It sets a bad precedent, creating what economists refer to as a moral hazard.

A lot of big financial institutions are thought to be "too big to fail," meaning that their failure would have such severe repercussions that the federal government would have to step in to save them. This insulates the institution's investors from the inherent risk of investing, encouraging them to invest more money in riskier ventures than would normally be wise. This leads to more failures and more government help.

My usual prescription for this problem is some tough love: The government and the Fed should let Bear Stearns bleed to death as a lesson for others. If this sets off the expected chain reaction of bank failures, it will be bad for the economy, but it might be worth it to discourage future risky behavior by investment banks.

As I learn more about the Bear Stearns bailout, however, I'm beginning to doubt my gut reaction because Bear Stearns isn't really being bailed out in the usual sense. Instead, it's being sold to J.P. Morgan Chase at a huge discount. It had a market value on Friday of $3.5 billion, but J.P. Morgan is only paying about $240 million. In other words, the owners of Bear Stearns lost 93% of their investment. (That's just the loss over the weekend. If you look back a couple of weeks, the loss rises to 99%.) That ought to be enough to discourage future investment in absurdly risky assets.

On the other hand, it looks like the Fed will be securing their loan to J.P. Morgan by essentially taking over some of Bear Stearns' portfolio. Since that porfolio consists of mortgage-backed securities, does this mean that the Fed will be holding the mortgages on people's homes? Does this mean that the Fed will be in a position to foreclose on people's homes? Do you think those people will be screaming to their congressmen about this?

I guess what it comes down to is that I'm suspicious of the Fed's involvement, but I don't quite know how to think about it. 

Over at Simple Justice, Gritsforbreakfast left this comment:

My college major was economics, and I was downright angry when, after learning all the theory, it became clear that nearly every "assumption" economists said make free markets "work" was actually, demonstrably false. E.g., people have perfect information, make rational choices that maximize their self-interest, etc.. For such an important topic, there's a lot of voodoo and crap in that discipline.

I'm only an amateur economist at best, but as someone who relies on economic arguments a lot, I felt compelled to explain myself. (I left a comment there, but I'm elaborating a bit here.)

Grits is right that the assumptions of economics are not literally true, but that's why they're assumptions. The real world is complicated and messy, so science and engineering disciplines use simplifying assumptions to make the problems easier to solve.

Sometimes this leads to grave errors which are often discovered only when disaster strikes. The builders of ancient churches had for centuries neglected the effects of mild winds to no ill effect. However, once they started to build really tall churches, the daily winds would push the brickwork back and forth, causing the mortar between the bricks to slowly grind away until the walls fell.  For this reason, the history of church architecture proceeds from short churches to tall churches that collapsed to churches with buttressed walls...and eventually to churches made of sterner stuff.

The trick is to recognize when the simplifying assumptions are no longer applicable.  If the assumptions are carefully chosen---and the conditions of their use are understood and respected---the results are often good enough. A structural engineer designing a building can simplify his calculations by assuming the Earth is flat, and he will have no cause for regret.

When it comes to the market economy, I think the theory of free markets is good enough in most cases. It's true that the market only produces perfect resource allocations under perfect conditions, but there is reason to believe that many small deviations from perfect conditions lead to only small deviations from perfect results. In addition, competition tends to correct long-term deviations.

Finally, When it come to free-market economics, I have to admit I'm emotionally attached to the assumption that people are rational utility maximizers.  That bit of jargon is an economist's way of saying that people know what makes them happy, and they will act intelligently to obtain that happiness, within the limits of their abilities and circumstances.

On an individual basis, this is obviously not true: We all screw up all the time and make ourselves miserable.  But there's some pretty good evidence that on average we do a pretty decent job.

More importantly, despite any mistakes you may make, when it comes to making decisions about your life, you have more information than anyone else, and you are more motivated to make the right decision than anyone else.

So while people make bad decisions about their lives from time to time, they are less likely to screw up than any one else making decisions for them, including legislators, government bureaucrats, and cops.

Contemporary economics therefore encourages a principle of public policy that is breathtakingly respectful towards ordinary people:  To the greatest extent possible, people should be allowed to control their own lives.

I like that a lot.

Chicago just got hit with some more snow, and I realized I need new wiper blades on my car. The ones I have now are not winter blades, so ice builds up in the wiper frame and prevents it from applying even pressure, allowing ice and sleet to remain on the window.

My Camry bit the dust with serious engine problems about a month ago (my mechanic says it's a "spun bearing," but that sounds like something he made up), so I'm driving an old T-bird that a friend is loaning me. According to the books, it takes 22-inch wiper blades on both sides.

I haven't been able to find the blades. I stopped at three different auto parts stores, and all of them were out of 22-inch winter wiper blades. They had other blades, but not the ones I needed.

How can that happen?

I mean, obviously, winter blades are in demand because it's winter, and I'm guessing that 22-inches is one of the most common blade sizes, so people have been buying a lot of them, and the stores have run out.

But shouldn't the buyers at the auto parts store have realized that 22-inch winter wiper blades would be in big demand in Chicago in January? Shouldn't wiper blade manufacturers know the ups and downs of their business and ship a few extras to stores?

I see similar economic mysteries all the time. Why is it that the ice cream section of the 7-Eleven always has plenty of Butter Pecan but consistently runs out of Dulce de Leche soon after each new delivery? Shouldn't some computer somewhere notice what's going on and start ordering more Dulce del Leche and less Butter Pecan?

The theory of efficient markets doesn't require that businesses never make mistakes, but the free market does tend to doom businesses that consistently fail to take advantages of chances to make money. So what's going on here? Is this some weird kind of market failure? Or does it somehow make good business sense to run out of Dulce de Leche ice cream and 22-inch wiper blades?

I speak, of course, of our Congress. They've actually gone and outlawed the light bulb. Thomas Edison's lightbulb.

I don't want to alarm you. They haven't gone and outlawed all illumination, they're only after your conventional incandescent light bulbs. They still want us to buy energy efficient compact flourescent bulbs. You know, to save energy.

I have no clue how bills like this get passed. This is none of the federal government's business. My first guess would be that a bunch of congressmen are sitting around when one of them says, "Hey, our term is half over and we haven't done anything nearly as stupid as outlawing high-volume flush toilets. How can we make our mark?"

Don't get me wrong, the bulbs themselves are a great idea. Compact flourescent bulbs cost more than regular bulbs, but they last longer (about a full year of continuous burning) and are about four times as efficient as regular bulbs.  Replacing a 100-watt incandescent bulb with an equivalent 25-watt CF bulb might cost $10 more, but it will save you about $70 in electricity over the life of the bulb.

I like these bulbs so much that every non-dimmable bulb in my house is CF. Of course, that's one problem with these bulbs: You can't dim flourescent lights.

Another problem with CF bulbs is that flourescent illumination is ugly. It's gotten a lot better in recent years, with manufacturers doing more to control the emission spectrum to avoid odd colors. In fact, if you're doing something that requires careful color judgement, you'd do well to use one of the true-white flourescent lamps for illumination. But true color isn't always the best color. People look more attractive in the warm light of incandescence, and that counts for a lot.

All that is beside the point, however. The real problem with this kind of legislation is not whether CF bulbs are good enough, but that legislators think they're smart enough to know the right answers for everyone. You see this attitude with a lot of SUV haters, the self-righteous belief that there couldn't possibly be a legitimate reason for someone to have desires different from your own.

Speaking of SUVs, the incandescent ban is only the craziest part of this stupid bill, which purports to set all kinds of energy policies. For one thing, the bill raises the Corporate Average Fuel Economy targets from 25mpg to 35mpg by 2020.

I remember when I was a child, I thought it was crazy to set corporate fuel efficiency goals. How can the car company control which of its vehicles the public wants to buy? What if the public doesn't want any 35mpg cars?

Now that I'm older and more sophisticated, I realize it's even worse than that. With corporate targets the same for everyone, the car companies can't specialize. Instead of some companies building large multi-purpose vehicles and some building economy cars, every company needs to have several brands. The result is some pretty bad carmaking and pressure for mergers to meet the goals.

The article says that "By 2020, the measure could reduce U.S. oil use by 1.1 million barrels a day[.]" Well, it's certainly true that it could do that, but it might not. If you make cars 40% more fuel efficient, maybe people burn 40% less gasoline. Or maybe they increase the amount of driving they do each year by 40% since they can afford longer trips.  My guess is they'll do a little of each.

The bill also includes a payment of tribute to King Corn, in the form of somehow vastly increasing our use of ethanol. It's not clear to me if they're going to force farmers to grow it, oil companies to add it to their fuel blends, or consumers to use it, but since the government is insisting on more ethanol regardless of what the free market wants, it's clear they're going to force someone to do something.

They always do.

Radley Balko discusses the hypocrisy of the living wage movement.

Kip has a few thoughts about why so many people don't know basic economics:

The problem of economic illiteracy — which at this point is indeed a dangerous, sometimes lethal, epidemic in America — derives not from failed economics instruction, but from failed philosophy instruction.

For example, we can (and do) show essentially every college freshman — even most high school students probably — just why the minimum wage is counterproductive. The students nod in agreement, answer correctly on final exams, graduate — and promptly demand increases in the minimum wage. Because, economics be damned, it gives them warm fuzzy feelings to do so.

The problem is not that students, or politicians or people generally, "don't get" economics. The problem is that they "don't get" the nature of the universe and of human existence.

I think Kip's description of the problem is about right. What people don't get about "the nature of the universe and of human existence" is that the laws of economics matter. They matter because economics is a science.

Granted, economics falls far short of the dazzling precision of a really hard science. Physicists have launched investigations into 5-year space flights that take a minute longer than expected. If space flight was run by economists, they'd be happy just to have the spacecraft move in the general direction of its destination.

Nevertheless, just because economics is not an exact science doesn't mean it's not a good science. Proposed economic laws lead to mathematically rigorous predictions which can be tested against the real world. The currently accepted laws of economics may not make exact predictions, but the predictions they make are better than any known alternative. Within the limits of human knowledge, the laws of economics are the laws of the world.

Yet as Kip points out, not everyone believes that, which is why they say things like "A wholesale sellout to the law of supply and demand is not the answer" as an argument against paying organ donors. Somehow they don't realize that the laws of supply and demand are very general rules that apply to everything in the world, and not even a massive shortage of organs will change their minds.

The question then becomes, why don't people realize this?

I think part of the answer is that people tend to encounter the ideas of economics at a time in their lives when free-market economics isn't directly important. "From each according to his ability, to each according to his needs" may be Marxism, but it's also a good approximation of how families manage their internal economics. Children receive food, clothing, housing, and medical care because they need it, not because they've earned it.

When these children go to college, they probably get support from their families, and the government is a source of need-based financial aid rather than a tax drain on their income. Even if they have jobs, they probably don't do a lot of the sort of business decision making that requires economic thinking. So if these people take an economics class, it doesn't seem applicable to their lives, and they never really learn to use the ideas of economics as problem-solving tools.

Later, when discussing issues of public policy, they may encounter arguments based on economic reasoning, but that's all economics is to them, an argument, and they hear lots of arguments. Some people say that increasing the minimum wage helps poor people, others say it doesn't. They don't see the economic argument as decisive.

(To be fair, I think Kip could have chosen a better example. Although classic price theory predicts that increasing the minimum wage leads to increased unemployment, the effect has been difficult to detect in the real world. I doubt that many who support a minimum wage do so because they are aware of the controversy in economics, but a clearer example of people ignoring the laws of economics might be found in controversies over price controls or free trade.)

Instapundit had a link to an infuriating AP story:

WASHINGTON: The Bush administration said Tuesday it will fight to keep meatpackers from testing all their animals for mad cow disease.

Oh. Well, I'm not sure that's such a big deal. There's no need for the government to force meatpackers to test every animal if the current random spot testing protocol is good enough. That's a scientific question about statistics and the nature of the disease. There may not be any advantage to additional government inspection.

Then I read the rest of the article.

The Agriculture Department tests fewer than 1 percent of slaughtered cows for the disease, which can be fatal to humans who eat tainted beef. A beef producer in the western state of Kansas, Creekstone Farms Premium Beef, wants to test all of its cows.

So the meatpacker wants to do additional voluntary testing and the government is trying to stop them? This makes no sense: Creekstone owns the cows. Of course they can test them! Why would anybody want to stop them? Why prevent additional voluntary testing?

Larger meat companies feared that move because, if Creekstone should test its meat and advertised it as safe, they might have to perform the expensive tests on their larger herds as well.

I take it back. Suddenly it all makes a lot of sense. The other meatpackers are thieves, and the government is helping them.

The extra testing is going to increase Creekstone's cost of delivering beef to the market. But if customers like the idea of 100% testing, Creekstone will have increased the value of its product. Creekstone then has the option of raising the price to increase their revenue.

Alternatively, Creekstone could keep their prices low and try to increase their market share. This would squeeze the other meatpackers. They'd either have to lower their prices below Creekstone's or start 100% testing on their beef as well. Either way, there's a good chance it would eat into their profits. They hate when that happens.

That's a problem that those of us outside the agriculture industry have been wrestling with for some time now. We call it the free market. That's probably a strange and frightening concept to meatpackers, because the U.S. agricultural sector has been run as a communist-style command economy for as long as I can remember.

In a free market, the other meatpackers would either be earning a steady profit while Creekstone loses money on their idiotic testing idea or else they'd be racing to meet the consumer demand for more testing.

The Agriculture Department regulates the test and argued that widespread testing could lead to a false positive that would harm the meat industry.

Huh? Look, lots of things can harm the meat industry. Disney could release a new animated movie with singing cattle and suddenly millions of children could stop eating hamburger. Heck, not too long ago Oprah Winfrey said something bad about eating meat and sales took a dive.

These are all problems for the meat industry, but they should only be problems for the meat industry. The Department of Agriculture should stay out of it. Preventing voluntary testing is insane.

No, I take that back. Calling the Department of Agriculture insane is an insult to insane people, because at least when insane people behave badly they have the excuse that they're insane. The Department of Agriculture has people who know better, yet they do stuff like this anyway. That's just wrong.

This is nothing more than protection of the beef industry at the expense of consumers.

In an op-ed entitled "A Great Idea Lives Forever. Shouldn’t Its Copyright?" in last Sunday's New York Times author Mark Helprin tries to make the case for eternal copyright.

Once the state has dipped its enormous beak into the stream of your wealth and possessions they are allowed to flow from one generation to the next. Though they may be divided and diminished by inflation, imperfect investment, a proliferation of descendants and the government taking its share, they are not simply expropriated.

That is, unless you own a copyright. Were I tomorrow to write the great American novel (again?), 70 years after my death the rights to it, though taxed at inheritance, would be stripped from my children and grandchildren.

Before we go any further, let me point out that the government of Cook County takes a little bit of my home every year. Rather than actually assigning a percentage of my home to the County, I just send them a check for the cash value of what they're taking. They may not be taking all of it at once, but they're taking it nonetheless. (And if I fall behind on payments, they certainly will take it all at once.)

Keep in mind, this is not a sales tax or an income tax. It's not based on any kind of activity involving the property. They just take a piece of it every year simply because it exists. Nobody is charging authors money every year just for having a copyright.

...why, when such a stiff penalty is not applied to the owners of Rockefeller Center or Wal-Mart, it is brought to bear against legions of harmless drudges...

...the Constitution states unambiguously that Congress shall have the power “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” ...

It is, then, for the public good. But it might also be for the public good were Congress to allow the enslavement of foreign captives and their descendants (this was tried); the seizure of Bill Gates’s bankbook; or the ruthless suppression of Alec Baldwin. You can always make a case for the public interest if you are willing to exclude from common equity those whose rights you seek to abridge. But we don’t operate that way, mostly.

Helprin is badly confused. You can't enslave people without taking away their freedom, and you can't seize Bill Gates's money without taking money away from him. Likewise, taking Rockefeller Center or Wal-Mart stores deprives their owners of the use of them.

Making a copy of one of Helprin's novels, however, doesn't take anything away from Helprin. It doesn't take anything away from his publisher, either. That probably sounds wrong to people like Helprin for whom copyright is a part of everyday life, but it's not, as a simple example should demonstrate.

Let's say Helprin writes a novel, and his publisher prints an initial production run of 20,000 copies. The publisher then sells 10,000 copies for $10 each, and pays Helprin a 10% royalty. At this point, Helprin has his original manuscript and $1000 cash, his publisher has 10,000 leftover books and $9000 cash, and his fans have 10,000 books.

If I received one of those books, I could spend a week typing it into my computer and then use an online printing service to run off another 10,000 copies which I could sell to the public. After the sale, Helprin would still have his original manuscript and $1000 cash, his publisher would still have 10,000 leftover books and $9000 cash, and his fans would still have the 10,000 books they bought. In other words, they'd have exactly what they had before I copied his book. They lost nothing.

Helprin would no doubt object that he is owed royalties on the copies I sold, but the reason for that is not as obvious as he thinks it is. I paid for the book, I purchased a computer, I bought an internet connection. Then I did all the work of typing in the manuscript, just like he did, and I paid to have it printed and sold, just like his publisher did. Neither he nor his publisher spent any time or money getting my 10,000 books printed, so why would either of them deserve to get any money?

Here's another way to look at it: If I bought Rockefeller Center or a Wal-Mart store, I could do whatever I want with it. But if I buy a copy of his book, he wants the right to prevent me from making copies of it. He wants to control what I do with it after he's sold it to me. And he's implying other people of being greedy?

Nevertheless, copyright law says he should get money. Why is that? It turns out there are a couple different types of property.

My wife and I own our home, two cars, several computers, and a bunch of other stuff. Legally speaking, ownership of any property consists of a collection of rights to that property, two of which are important in this context. The first right my wife and I have is the right to use our property. We can occupy our homes, drive our cars, and surf the web on our computers.

The second right we have in our property is the right to exclude others from using it. We can keep other people from entering our home, driving our cars, and using our computers. This right follows naturally from the first, because the right to use our property is harmed if other people are also allowed to use it. What would be the point of owning a home if anyone else could enter it to prepare a meal in our kitchen or take a shower in our bathroom? We might as well live in the park.

Economists say that these types of property are rivalrous goods. The users of these goods are rivals: One user's enjoyment of the the property comes at the expense of all other potential users. Most of the goods you buy in stores are rivalrous. The can of Diet Coke I'm drinking as I write this is a rivalrous good: Every sip I take is a sip that no one else will ever enjoy. I have depleted the world of a can of Diet Coke, and someone else will suffer by being unable to drink it.

(There are probably 100 million cans of Diet Coke in the world right now, and several billion cans of close substitutes, so my consumption of this can imposes very little hardship on the rest of the world, which is why the market cost of a can of Diet Coke is only 25 cents.)

I'm also eating a piece of steak, and that too is a rivalrous good (albeit a more expensive one). That raises the question: What kinds of goods are non-rivalrous?

You're reading it. The contents of this blog are a non-rivalrous good.

I don't know why you're reading my blog. Perhaps you find it informative, perhaps you find it entertaining. Perhaps it reinforces your own values, or perhaps you are reading it to plan your rebuttal. Whatever the reason, whatever you're getting out of it, its utility for you is not diminished if someone else in the world is also reading it.

That's generally true of all intellectual property. Your enjoyment of a song on the radio is undiminished by the number of other people enjoying it, and it doesn't matter how many other people see the same show on television. Intellectual property is a non-rivalrous good.

It gets a little complicated if we're talking about intellectual property that's more tangible than a web page. If you're reading Helprin's book, your enjoyment of it is undiminished if someone else is reading another copy. But your enjoyment would surely be diminished if someone else was reading your copy instead of you. That is, the books themselves are rivalrous goods, but the ideas within are not.

This is not an ideal situation, however, because of an asymmetry in the market for ideas. The problem arises because only Helprin does the work of creating the idea, but his fans are able to enjoy the idea once they read his books.

Helprin, like many writers, probably enjoys the feeling that comes from finishing a book. That is his reward for doing the hard work of creating the book. In the absense of copyright, that is his only reward, since his fans don't have to buy their copies from him or from someone who pays him royalties.

Suppose instead of writing the book, Helprin does something he finds at least equally enjoyable. Perhaps he spends the same amount of time relaxing on the beach. More likely, he spends the time working at a paying job so he can earn the money he needs to bring himself enjoyment. Helprin doesn't get the joy of having written a book, but only because he chose to do something else to bring enjoyment instead.

The same cannot be said of his fans. They no longer get to enjoy reading his book, but unlike Helprin, they cannot enjoy whatever it is he's doing instead. They simply lose out.

What it all adds up to is that lots of people would benefit if Helprin wrote the book, but only Helprin benefits if he doesn't write the book. Clearly the world as a whole would be better off if he wrote the book. However, the world doesn't get to decide if the book gets written, only Helprin gets to do that. But because he only receives part of the benefits of writing the book, he may decide not to write it, and the world may not be as pleasant as it could be.

That sort of situation is called a market failure. The free market does not properly reward the creators of intellectual property, so in the absense of another reward mechanism, the creators tend to produce less intellectual property than would ideally be desired.

One good solution to this problem is to arrange a way for Helprin to share in the benefits that other people receive from his book. In a free market society, we do this by arranging a way for the people who benefit from the book to pay the author some money. Rather than specifying some sort of fixed fee—a buck a copy, say—we have created a legal mechanism by which Helprin is allowed to prevent other people from making copies of his book without his permission. This allows Helprin and any interested parties to negotiate a rate that they all agree on.

Of course, it costs Helprin nothing when someone else produces and sells a book, so his royalty income is pure profit. Even at a penny per book, he'd be making money. Of course, if he raises the price higher, he'd make even more money. At two pennies per book, he'd make twice as much per book, but the increase is price would reduce the number of books sold, so he wouldn't quite make twice as much profit.

As he keeps raising the price of the book, he'd keep making more per book but selling fewer books. At some point, raising the price another penny wipes out enough sales to balance out the increase in income from a higher price. Beyond that point, raising the price reduces income. This is the point of maximum income, and it's the price he'll set for his books.

(Well, actually, he'll just work out a deal with his publisher, and his publisher will guess at his price. The point is that his price will be significantly higher than zero, which is what it would be if he couldn't enforce his copyright.)

At that price—whatever price he sets above zero—a significant number of people will not be able to afford his book and therefore will not be able to enjoy it. This is a problem. The content of his book is a non-rivalrous good, meaning it hurts no one if more people read it, so it costs nothing to re-use the content in another book, yet the copyright system still prevents some people from getting copies.

That is a market failure of a different sort: We have a good that is innately free to produce, yet some people still can't get enough of it. The solution we have chosen was a compromise between these two types of market failure: We have copyrights to give people an incentive to create intellectual property, but those copyrights expire so that everyone can eventually benefit.

Helprin claims copyrights expire for the public good, and I suppose that's true. But the public good—encouraging artists to create art—is also the reason that copyrights exist at all. Ideally, we'd like to give artists the right incentive to create valuable art while also seeing to it that everyone who could benefit from a piece of art does so. The structure of copyright law is a compromise intended to balance the tradeoff between rewarding the artist and inpoverishing his patrons.

...Barnes & Noble is able to publish price-reduced non-copyrighted works not so much because it saves the 10 percent to 15 percent of revenue that would go to the gruel-eating authors, but because it saves the 50 percent that would go to the publishers. Booksellers that publish their own titles benefit not from escaping the author’s copyright, but the previous publisher’s exercise of a grant of rights... “Freeing” a literary work into the public domain is less a public benefit than a transfer of wealth from the families of American writers to the executives and stockholders of various businesses who will continue to profit from, for example, “The Garden Party,” while the descendants of Katherine Mansfield will not.

Helprin's claim is pure nonsense, bordering on outright lies. If you wan't to read "The Garden Party" and you don't want to spend money at a book store, you can go here. That's Project Gutenberg, an online repository of public domain works. Along with its partners and affiliates you can find about 100,000 titles with just a few searches.

Barnes & Noble makes money selling copies of "The Garden Party" because Barnes & Noble went to the trouble to print copies of it and ship those copies to stores that are near to people who want to read it. If the descendants of Katherine Mansfield took the trouble to print and distribute their own copies of "The Garden Party," they could make money too.

This last point sheds some important light on the whole situation. When the copyright on Helprin's book expires, he and everyone else can make equal use of his story. He is in no sense a second class citizen here. All that has happened is that he has lost his special privileges that no one else had.

Today is Gas Out Day, a day of protest against high gas prices being organized through a grass-roots effort in emails and blogs. Here is a one description I grabbed off of somebody's blog:

On May 15th 2007, all internet users are to not go to a gas station in protest of high gas prices. Gas is now over $3.00 a gallon in most places.

There are 73,000,000+ American members currently on the internet network, and the average car takes about 30 to 50 dollars to fill up.

If all users did not go to the pump on the 15th, it would take $2,292,000,000.00 (that's almost 3 BILLION) out of the oil companies' pockets for just one day, so please do not go to the gas station on May 15th and lets try to put a dent in the Middle Eastern oil i