 Welcome to Free Thoughts. I'm Trevor Burris, and I'm Matthew Feeney. Joining us today is Brink Lindsey, formerly of the Cato Institute, now vice president and director of the Open Society Project at the Nascannon Center, and Stephen M. Tellis, associate professor of political science at the Johns Hopkins University and senior fellow at the Nascannon Center. Together, they are the authors of The Captured Economy, how the powerful and rich themselves slow down growth and increase inequality. Welcome to Free Thoughts, gentlemen. Trevor, Matthew, great to be back. Thanks for having us on. So what's wrong with the U.S. economy? Over the course of the 21st century, the U.S. economy has been experiencing a double whammy of slow growth and high inequality. As to growth, the growth rate so far in the 21st century has averaged about 1% a year in terms of real GDP or gross domestic product per capita. That's half the rate that was the average rate of economic growth during the 20th century. Meanwhile, with rising inequality, the growth rate overstates the degree of material improvement for most Americans because most of the gains from growth or a disproportionate share of the gains from growth are going to a relatively narrow slice at the top. So when you put those two things together, you get to the point where on election night 2016, only 30% of Americans said that they expected their kids to be better off than they are. Do you know how that compares to other eras? Much lower. Much lower. So when you're in those kind of situation, you get political repercussions that I think we are living through right now. Yeah. And I think the main argument we have in the book is that this is not just a purely economic phenomenon. It's not a natural consequence, say, of increasing globalization or changes in the human capital necessities of firms, that this is an explicitly political phenomenon. It's a result of actual change in regulatory and other governing policies. And therefore, we have to think about this as a political economic problem and not just a natural product of market forces. Not entirely a product. So we think that these developments of slow growth and high inequality are incredibly complex phenomenon with many different causes. We're not claiming that we've got some monocausal explanation of everything that's going wrong. But what we are claiming is that an important aspect of what's going wrong has been under-reported, under-appreciated, and that is the degree to which government policies are actively making matters worse on both fronts. A lot of people would say that the economy is rigged. I mean, it's kind of a common position occupied Wall Street and Trump voters. In what way would they both be correct or something is rigged? Well, I think the big argument we have in the book is that when people talk about rigged, they often talk about it in a very casual way. It's both over and under inclusive. People also ideologically cherry pick which part they claim is rigged. So obviously, Occupy Wall Street focused a lot on finance, which is an important part of the story. Often conservatives don't pay as much attention to that as they ought to. But people on the left ignore, at least until recently, changes and constraints in the housing market. They ignore increases in occupational licensing. For the most part, they've been uninterested in intellectual property. What we argue is that this is a sort of comprehensive problem, and it goes even beyond the cases we study in the book. We could actually get into that in more detail. In some sense, we're just scratching the surface away. We're looking at the ones that seem to have the biggest impact both on innovation and therefore growth and inequality simultaneously. So maybe it's my inherent pessimism that's probably me to ask the question. But given that there seem to be problems with how the left and the right are assessing the problems, is there any viable political solution to the problems that you outline at the moment? Well, when you extrapolate from current trends, you almost always get into trouble predicting the future. There's usually some kind of negative feedback, and when things get really lousy, and it seems like that's just the course that we're on, and things are going to go down, down, down. Lo and behold, some negative feedback mechanisms kick in, and things go off in a different tack. I know I lived through the 1970s, where everybody was completely convinced everything was going downhill. And then, voila, we had lots of important economic and political reforms, and we had a period of economic revival and rejuvenation. So things are frequently... Well, the smart money is always that big important changes are completely impossible until the very moment in which they happen. So what we have to do is we recognize that there is great frustration throughout the political spectrum with both established parties, with established institutions, that creates a hunger for some... It creates a vulnerability to demagoguery and to a breakdown of institutions. It also creates a possibility for openness to real reforms that can make a positive difference. So we interpret the populist mood now charitably, that there is a real signal there, that people are treading water or are falling underneath while they see people at the very top doing lots of self-dealing. And even if they misdirect their anger, the anger reflects something real, and if we can direct that towards policy changes that will actually address the underlying problems, then we can make something good out of this mess. Right. And one of the things we argue in the book, especially in the last couple of chapters, is that you can be too pessimistic. The especially public choice economics, which is very popular around here, leads you almost inevitably into pessimism. And we draw on some of that, but try and go beyond it, I think in some important ways. The public choice argument for pessimism is that almost all this rent seeking is driven by the difference between the concentrated interests of those who are seeking to get various different kinds of government benefits and the diffuse nature of all the people who are paying for them. And if that's all you think is going on, if you think basically a political system is a neutral environment in which concentrated versus diffuse interests play out, you have a hard time coming up with anything other than a pessimistic story. But we don't think that's all that's going on. We have political institutions and political institutions in some important ways mediate or exacerbate that underlying basic public choice problem. And one of the maybe counterintuitive arguments we make in the book is that you may need to increase government capacity, the number of people who are actually producing information in particular about these various different regulatory schemes. Government needs to invest more in that in some ways to prevent it from being exploited by concentrated interests and concentrated interests get their way, not just because they have more muscle, but they have more resources to invest in information. And so while organizations like Cato and other kinds of things are very important for bringing information to policy makers that's different than what concentrated interests have, the information that government produces internally is just as important. And that information has become systematically dismantled over the last 30 years. Now, before we get to the actual case studies you kind of do or the topics, the four topics, I find it interesting that if someone were looking at your book and let's say an Occupy Wall Street person and they walk past and they say, oh, this looks exactly like what I believe. And they might notice though that it doesn't say how the rich enrich themselves or like it just says the powerful. So what's the difference between rich and the powerful? So rent seeking by definition is bad economic policy. It's pursuing profits through the political process, through favorable rules rather than through adding value for customers. So in terms of its implications for economic efficiency and growth, it's rent seeking definitionally is negative. Its distributional consequences though are ambiguous. Democracy is, just by the nature of things, rent seeking favors the powerful. Power is just the capacity to get your way in the political process. But the powerful aren't necessarily the rich, they frequently are, but they aren't always. We saw in the early decades of modern activist government in the New Deal era, lots of rent creating policies that were trying to do downward or sideways redistribution, down to redistribution in terms of labor legislation, minimum wage laws, rent control, universal service requirements, all kinds of things. Sideways redistribution, even when government policies subsidized big business, those big businesses typically had large semi-skilled unionized workforces. So the rents that went to the businesses were shared with the workers. What we have noted is that in recent decades, a lot of that downward and sideways redistributing rent seeking got cleared out by the economic deregulation of the 1970s. But what has been growing up in recent decades has been regressive rent seeking, rent seeking that slows down growth, stymies dynamism, but does so in a way that redistributes income and wealth up the ladder. Why? The difference between the old ways and the new ways, we're not 100% sure. We don't put forward a theory that we're confident in. But clearly, the disappearance or decline of unions, the decline of their political power has meant a decline in forceful political actors trying to rig regulations in a downward redistributing way. Meanwhile, the changing employment profile of America's leading industries is, I think, a major part of the story. Now, the industries at the vanguard of technological progress, and therefore the ones that are most likely to be the focus of government policy because they're important, tend to employ disproportionately highly skilled workers. And so if you subsidize them, the rents don't get shared very widely. So put those things together and you get a very different, a clear distributional impact of rent seeking today in a way that's different from the earlier era. Yeah. I mean, there's two policy regimes that may be useful for making this kind of concrete. One, you can think in terms of finance. Go back and think about the way that we regulated banking for the most part up until the early 1990s. What we basically had is a whole bunch of savings and loans that had geographically cartilized markets, often very small savings and loans, like in the little tiny town of my mom. Grubbitt had its own savings and loan, Lake City, South Carolina savings and loan. And so that regime, which had lots of inefficiencies and problems with it, but it had a particular distributive effect, which was to create thousands and thousands of small bankers who could afford country club fees in small towns. That was the main effect. It created a lot of upper middle class kind of people. When that collapsed in the late 80s and early 90s with the savings and loan blow up, the thing that replaced it was mortgage securitization. And mortgage securitization had a very different distributive profile. It was mortgage originators and mortgage bond traders. And that tends to be a smaller, but a much higher income group. So those are just two examples of the distributive effects of two different regulatory regimes. The other one you might want to think about is the difference between unionization and occupational licensing. There's been great work done by Morris Kleiner that we rely on a lot in the book. And just as unionization has been going down, occupational licensing has been going up. Now, I don't think those two things are causally connected, but they're two different labor market regulation regimes. Unionization generally had the effect of wage compression, whereas occupational licensing doesn't seem to have any wage compression effected in some other areas. Arguably it ends up protecting the incomes of high earners. So again, if you think about what we're talking in the book, we're talking about a sort of regime shift in regulation from at least the sideways or downward regulation, regulatory regime, to one that is at least is neutral or upward redistributing. And just one addendum on occupational licensing. It tends to increase the incomes of all incumbent service providers, but the income boosting effect is highest at the high end. So the overall net effect of the explosion of occupational licensing has been to exacerbate income dispersion and particularly high incomes at the very top. So doctors and lawyers, both beneficiaries of occupational licensing between them make up 25% of the top 1%. And I imagine that another part of the distribution is the savings loan bank executive who could go to the country club in South Carolina, they're all in New York now. All those rents went to the well-heeled 1%, even the 14% of the 1% is financial and 18% of the 0.1% is financial, and they're probably all in New York. Yeah. And literally one of the reasons for the old regulatory regime is that we had a geographic structure of representation in Congress. And people from places like South Carolina had a lot of power on banking committee and things like that. And the whole Glass-Steagall regime, again, which we make clear, had lots and lots of problems. But it was designed to geographically cartilize and disperse the market in a way that the market securitization regime does not. So I guess the obvious question when you discuss occupational licensing is, what's the solution to this? So you mentioned doctors and lawyers, should there be no licenses for doctors and lawyers? How many occupations should be exempt from this kind of regime? So the alternative to licensure is certification, which can be done. So the point of licensing, the justification for licensing is consumer protection. You want to protect consumers from information asymmetries where they can't tell who are the quality providers and who are the quacks, the fly-by-night operators and so forth. But in fact, there's precious little evidence that this consumer protection actually is occurring. What really is occurring is simply supply constriction and income inflation for incumbent service providers in a way that doesn't really translate into better service for customers. So that information asymmetry problem can be addressed through voluntary certification, through private actors like underwriters laboratories or the good housekeeping seal of approval or consumer reports or through government certification. We have the government seal of approval. We are a government-certified doctor or lawyer. But you don't have to then prescribe legally economic transactions between unlicensed professionals and willing customers. That seems pretty radical. Well, the important point here, though, is that it's not so much the public versus private distinction that matters here. It's whether or not there's a barrier to entry or not. And that also affects the competitive nature of the regulatory regime. So if we have a state of North Carolina has a certification regime for dentists, if it gets too extreme, then people are simply going to opt out and the regulatory agent is going to know that. The people who are making the regulations know they have some competitive pressure to set their regulations at something like a reasonable level because otherwise people are going to opt out or they're going to opt into a private certification regime. And so the important point I think in the book is simply that it's a good idea to not accept extreme cases, create a formal barrier to entry. Whether that should be public or private, in some of these cases you could have competition between a public and a private certification regime. A public certification regime is almost by definition not going to be a monopoly in a way that a licensure regime is. I think it's worthwhile since it's actually so counterintuitive to go ahead and grasp the nettle and talk a little bit about medical licensing because that's the one case where everybody says, but of course you have to have. And there was a recent Supreme Court case on occupational licensing and there was a little colloquy between justices Scalia and... I think Breyer. I think Breyer where they were both saying, but of course we would want, we need licensing for brain surgeons. We want brain surgeons to be able to pick and choose who the appropriate people are to do brain surgery. So that all sounds very commonsensical except it doesn't have anything to do with actual legal reality. There is no licensing for brain surgeons or for any other specialties. There is only licensing for general practitioners. So the state licenses are given to anyone who completes a U.S. residency in anything and who completes a state medical licensing exam and passes. So if you complete a U.S. residency in podiatry and pass a state licensing exam then in that state you are legally entitled to do brain surgery or heart transplants or whatever you can convince people to do. So of course that doesn't happen. Yeah, podiatrist, brain surgeon. Yeah. So why doesn't that happen? Because no practice group would hire a podiatrist to do brain surgery. No hospital would grant admitting or surgical privilege to that person. Why won't they? First because they want to serve their customers well and second because they are worried about liability for medical malpractice. So normal commercial and liability incentives actually do constrain who gets to do brain surgery in a way that licensing doesn't at all. And three quarters of American doctors, 70% to three quarters of American doctors are specialists, not GPs, which means that their practice of medicine is unlicensed. They may be board certified but those certification boards or private boards and that certification is voluntary. Meanwhile doctors practice for decades and medical practice changes dramatically over the course of their careers and yet licensing is done at one time. It's done at the advent of their career. So there's this check then but as the practice of medicine completely changes there's no recheck. There is theoretically the possibility of delicensing for bad actors but it is notoriously lax and almost always has to do with handing out the wrong drugs to people or sexual misconduct with patients. In many states incompetence isn't even a grounds for removing a license. So in reality licensing doesn't do what it says and private mechanisms and the background of private law actually do the work. Right. And when we think about licensing of doctors people usually talk about it as if the thing that consumers are being protected against is a quack doctor. There's a quack doctor out there and we need to protect them from being treated with them and in fact in most cases what licensing is doing is preventing you from being treated by a registered nurse or some other medical professional and this has a huge actual effect on the way we organize medical care. One way I think what a little licensing regime does is it means it's a very limited kinds of way that you can organize medical practice. So it's in many states it's very hard to create minute clinics or other kinds of things that deal with lots of treatments for which almost nobody really needs a doctor. Often those places say even if all you're doing is immunizations or putting a splint on somebody's finger that there still has to be a doctor around and that doctor around massively increases the cost and mainly though prevents innovation and that's the argument in the book is that innovation effect is very very important in lots of these cases because growth often comes not just from huge new inventions but huge new ways of organizing different kind of industries and occupational licensing tends to through scope of practice kind of rules tends to take those ways of organizing and cement them in place. So just as a just as a sort of hypothetical imagine if computer programming or subject occupational licensing and the regime it started back in the 50s or 60s you can imagine the licensing exams today would include punch card maintenance and yeah. So when we're talking about a slowdown in innovation I suppose my question is how is this being measured because you could make the argument look in the last couple of decades American companies we've got Google, we've got Facebook, we've got these innovative cool new companies, students from all over the world come here to learn science and to get higher level degrees. So what are the signs that we're actually slowing down in innovation? So the metrics are all problematic because it's difficult to measure these things statistically but first off we have the growth rate the overall economy is growing half the speed it was during the 20th century and that is fed so growth rate is fed both by growth and inputs and by growth and productivity and we have not only had a slowdown in growth and inputs like slowdown in population growth but also a slowdown in productivity growth. So productivity growth since the 1970s has been very low relative to the decades previous there was one decade in the 90s where productivity growth zoomed back up again but it has subsided once again and is at very low levels today there are all kinds of questions about whether we're measuring that correctly but even if we're measuring it incorrectly there's no good reason to think that we're that the measurement errors are getting worse over time so even if productivity growth absolute values are unreliable the trends seem like they should be paid attention to and the trends are downward meanwhile there's lots of other evidence of declining economic dynamism the rate at which new businesses are being created is down the rate at which new businesses are growing is down not just down in the last few years but down steadily over the past several decades so there does seem to be a lots of circumstantial evidence that smoke not fire but there's lots of smoke that suggests that the sort of the U.S. economy is losing its its chumpeterian mojo that creative destruction the churn of new businesses coming in and old businesses going out is slowing down right and one way to think about where where growth comes from is it's over how much of the extent of the overall economy can innovation occur right so when you're saying oh there's all this innovation these new firms right but they're occurring in one slice of the economy and that means that whatever growth or innovation we've got a got has to occur in that slice of the economy so I was talking to somebody yesterday about one area in which you could see enormous innovation which is accessory units for houses right so lots of people have you know three in America three quarter acre lot to be easy to put an accessory building put a student put your grandmother put anybody back there and you could imagine enormous innovation in basically making those into you know machine built things where you could put them up in two days you'd pour your your foundation one day you'd go and you'd staple all the pieces together and you'd have an accessory unit right a tiny house a tiny house and there are people doing tiny houses but the industrialization of it which is what the thing that would really produce enormous both opportunity for people to move into existing places right and a whole new industry is basically blocked by the fact that so many jurisdictions have extraordinary rules against accessory development right and so that in that means that that's an area of the economy in which you could have lots of innovation you could have could have lots of growth but you don't and you see that in lots of other areas we talked about about medicine right you can imagine all the business model innovation that could be going on people who are thinking about doing something cool and new right could be thinking oh we could go into medical practice and be doing all kinds of things in that area but often they're simply not going in at all because they think oh do I do I want to deal with a headache and uncertainty that's going to be associated with that so when you get when you look at the things you were talking about that's a good area of sort of the clustering or crowding in of innovative capacity into one segment and more or less leaving the rest of it alone so how much does intellectual property play a role in this hampering of innovation is this a culprit I think we've now sort of other than intellectual property we've mentioned the other three case studies but we we address four case studies in the book financial regulation intellectual property occupational licensing and zoning or land use regulation on intellectual property this is seems first blush surprising to include here in something that's bad for growth because the whole I the idea behind intellectual property is to encourage growth by by encouraging artistic expression encouraging innovation through increasing the returns to innovation you do that increase by granting temporary monopoly temporary monopolies to artists and to inventors through copyrights and patents that increases their returns and therefore incentivizes them supposedly to produce more and there is something to that to that argument but there are also costs as well as benefits associated with intellectual property we tend to think of the costs all being on the consumer side that this is kind of a trade-off between benefits for innovators versus extra price higher prices for consumers so consumers need to pay a little bit more now so that they can have better products down the line but there's another trade-off as well it's between what we could call upstream innovators and downstream innovators so upstream innovators when they get their patents are advantaged thereby but downstream innovators who need access to upstream ideas to put together and recombine some new innovative gadget then have their access to those upstream ideas blocked or hindered by patent protection and so with the explosion in patents in recent decades and these days every year the patent office issues about five times as many patents as it did 30 years ago then we've had this sort of growth of a legal minefield for innovators so that when they have a new product they have it's almost impossible to do the due diligence to find out whether they're infringing and so they have to wait for a shakedown call from somebody and even if it's not a good claim there's going to be legal costs so it really puts really puts many innovators in a bind these days so the classic image of the of the alone inventor battling the big bad corporation who stolen is his invention that just doesn't describe reality the vast majority of of patent claims are against do not allege copying they just allege independent co-invention but too late to have gotten the patent and so you lose meanwhile the majority of patents infringement cases now are brought by so-called patent trolls or they have other nicer euphemistic names but basically they're entities that exist to buy up portfolios of patents to weaponize them to turn them into to to litigate on them and to make money from them so so now you have the majority of patent infringement cases are brought by people who make nothing and they're brought against innovators for incidental or unintentional infringement and unsurprisingly there's lots of evidence that this is not good for innovation right and this has on the effect on innovation is also has a probably has a concentration effect that is where there's that degree of uncertainty that uncertainty could be completely debilitating for a small or new firm and that's why we've seen this sort of slow down in in IPOs and that whole part of the process of new firm formation innovation seems to be breaking down and there's some reason to think that that's connected to the the uncertainty and high costs that are associated with the IP regime the other thing that I think is really important and and it's remarkable how few people have recognized this or how little it is just how much our IP regime has changed right so this is in a case where you know the we have an old you know you know storied policy regime and it's just somehow had a new effect because something in the economy changed right we actually think that the original constitutional american standard which was actually to have temporary protection and with a very strong emphasis on temporary was the right way to go and what we've had is a distortion of that to where essentially now certainly in copyright and to some degree in in patents that temporary element that was so important for the framers original balance has been completely turned on its head so we have things like the sunny bono copyright act which right and was the mickey mouse copyright act really so for copyrights so the idea is to encourage artistic innovation it's the problem is that that the overwhelming majority of artistic creations don't make any money and yet they get made anyway which means the overwhelming incentive for artistic creation isn't pecuniary it's expressive so takeaway copyrights and people are still going to make music and and and make art what copyright does is enable those very few jackpot winners that connect with the larger public to be monetized by one business so if if it weren't the case and there was a jackpot winner then you'd have other actors coming in to produce new editions of that novel or whatever the first the initial publisher would have first mover advantages but but clearly would not be able to monopolize those gains for decades and decades and produce cash cows like like disney's vault so now that you have this regime that where you've got high fixed costs to find the next jackpot winner but then enormous returns that you can milk for decades that's very conducive to huge scale so you have unsurprisingly in the entertainment industry lots of conglomeration of to and concentration as these enormous media enterprises are basically designed to to maximize profits in this monopolistic regime although although steve endorsed the classic i think it was 14 years copyright originally seven plus seven seven but but so as of 1976 when the the it had migrated up to 28 plus 28 but then 1976 went from to life of the author plus 50 years and then with sunny bono life of the author plus 70 years that extension was then done retrospectively which is just makes a joke out of the idea that this is incentivizing prospective artistic creation because you can't incentivize artistic creations that have already been done but it was just a straight up wealth transfer to Walt Disney and others but meanwhile even if it's just kind of a sideshow or relevant to the supposed subject matter artistic creation on the other hand this legal discrimination against and hostility to copying poses real problems for the internet which is the greatest mechanism for copying and disseminating information ever invented and so at various points there are tensions between copyright law and internet development every time you forward in so now copyright extends not only has the terms been extended but it applies to unpublished works it you don't have to register your copyright like you did in the old days so it applies to everything that's written so every time you forward a friend's email you are doing in you know you're infringing copyright material and are subject to possibly $150,000 fine so with that kind of of sort of damocles hanging over everything the internet does then we're getting a lot less out of this magnificent mechanism for sharing information than we could there's great gobs of information in the vaults of BBC and movie studios and that's the so-called orphan works that their material that could be distributed but we don't even know who owns it so we can't ask permission and so it just sits there in molders so so like and you know we have the possibility with google books of just reading every book that's ever been written right there at your laptop after 10 years of tortuous litigation google was finally able to get permission to to do little snippets of all of the out of print but still copyrighted works which make up still the majority of everything in print or everything that exists so google books is a fraction of what it could be in a in a more liberal regime it seems though that it's difficult to make an argument where you're trying to draw a line like seven years 14 years 28 years it seems that you should either be no copyrights or it should be infinite there's a pretty good case if there's a moral case for developing property it's the same case as as walkie in appropriate you know i built a house it's mine and there's not like a 70 year you know for 70 years it'd be hard to justify that so shouldn't we be having infinite copyright and then deal with the distribution effects if it's a form of property yeah so i i think the the uh the name intellectual property is a marketing coup it's right up there with death tax in in terms of of appropriation of terms setting the frames of debate and in a favorable way uh it could just as easily be called intellectual monopoly they both are are you know plausible but they have very different connotations and intellectual property seems very positive that the uh that the interests copyright and patent interests aren't looking for special favors they're just looking to have their property protected against piracy and thieves so that all puts them on the moral high ground but i think the uh to to think of intellectual property as a natural extension of of tangible property rights is a kind of category error i think uh rights in uh intangible property uh or corporeal property real or uh movable um is necessitated by the existence of scarcity so property uh rights are a way of allocating scarce goods property rights tend to emerge when uh when just using using a commons starts producing conflicts and then people have to allocate who what belongs to whom uh but uh intellectual property doesn't do that at all it's not allocating scarcity it's creating scarcity out of nothing uh you have complete non-scarcity uh so my using an idea affects your ability to use that idea zero in fact it may make it more valuable to use that idea uh so i think the idea the the the analogy of intellectual property is a is a bad one uh so that you can make you can make a policy argument for copyright uh i don't think it's an argument that we if we don't have uh artistic expression excuse me if we don't have copyright we're just you know we're gonna lose all of our culture i think that's a silly argument but you can argue that it's just a good policy for artists and and writers to be able to make a living at doing what they do a copyright regime can make that possible in a way that uh that other legal regimes won't if you think that's a worthwhile policy goal then you can support a limited copy right law to that effect but i think i think the natural rights if if if the case for uh intellectual property has to rise and fall in natural rights case i think it falls well farmers but the pharmaceuticals is it's just like doctors were the occupational licensing and you mentioned it in the book but you don't really although you take the the doctor's on head on you don't really take the drug patents on head on well except i mean we do make the point that um if the argument for intellectual property here doesn't have a natural rights foundation and we are pretty strongly believe it doesn't then then the argument has to be utilitarian and then you have to start thinking about what are alternative regulatory regimes um right so intellectual property is one uh prizes are another that is you can actually give people money on the front end but then make the marginal cost essentially zero there's lots of reasons you'd want to do that especially if you care about the diffusion of innovation right you want people to use it um you also want people to take it and to monkey with it and do new things with it um the our existing intellectual property regime both has a negative effect on diffusion and use and it has a negative effect on recombination and innovation um and so again the the entire argument is uh in there is simply which regime is going to get you the most um out of different you know i think the same thing is true in copyright and there's a good argument that uh we're uh to some degree facing a crisis um in at least news production on that side um because our copyright regime certainly doesn't seem to be helping to support that but we haven't developed any other way to pay artists or journalists or anybody else um but those for us i think are all both utilitarian questions or in and their questions about the distribution the benefits that are associated with different regimes and they're unavoidable right they're unavoidable questions about who do you want to actually benefit and how do you weigh that benefit versus whatever innovation you're going to get out of those different regulatory regimes to circle back to pharmaceuticals and address that harder case uh so the the the consequentialist utilitarian argument for patents uh is a market failure argument uh that because uh we're dealing with production of ideas and ideas you are not excludable uh then you're going to have under production of those ideas uh because you don't get to internalize the the benefits of what you've done uh that argument seems to work the best for pharmaceuticals uh and for chemicals uh that is the evidence that that encourages innovation in those fields is better than anywhere else um and uh that has to do i think with a couple of things uh first whenever uh innovation is really really costly and imitation is really really easy uh then uh the case for patents is stronger uh so that's maybe one reason why recipes aren't patented uh so it's uh it's maybe hard to come up with a recipe but imitating a great chef is you know easier said than done uh so uh so it but in those regimes like pharmaceuticals where uh once you've got the chemical formula and you figure out how to make it then just the producing it is is fairly trivial uh then the case is uh is stronger secondly if you're going to have intellectual property uh it really helps to know what the boundaries are you can't have any kind of viable uh regime and tradable rights to anything unless you know what the boundaries of your rights are uh in the case of chemicals and pharmaceuticals those boundaries are very clear they are delineated by chemical formulas uh in the case of software patents or business method patents which is where all the growth and patenting has been in recent decades the scope of the patent is always defined by vague abstract language whose exact contours can only be determined through litigation so uh therefore you have an intellectual property regime where nobody knows where the boundaries are and that is legal chaos which is where we are right now i was just thinking about uh the role that reputation might play in a world without the into the ip regime we have now because you can think of industries like uh i was thinking of stand-up comedy right where where actual the reputational cost of stealing a joke or something like that is really really high uh and i was you know trevor and i could um type out your book and say by matthew finney and trevor barris but there would be a pretty significant reputational cost to that it'd be very easy for you to prove that you know there were ideas original to you uh and i suppose that's just a way of me adding on that i i don't think the the horror show that some people outline is necessary yeah again we're not uh intellectual property abolitionists but i think it's worth thinking through a world without intellectual property uh to to see that really the sky wouldn't fall uh and and so that these horror stories told by pharmaceutical and record industry lobbyists that if you just make the slightest marginal uh tinkering in any of these laws that uh that the american culture and american innovation are just going to collapse uh are just the self-serving garbage that they really are right and i think the the important thing to recognize is the uh the argument that you've got a market failure does not necessarily necessitate an intellectual property response there's multiple different ways you can deal with that right and even if you decide to have an intellectual property response that underspecifies how how big the subsidy or bear essentially barred entry you want to have is and you you always want to put that at the lowest level feasible for what's going to get you the outcome you want so um it's very important to not go immediately from the idea that there's some kind of market failure all the way to the idea that our current legal regime is awesome it is inevitable and it's the only one you can get that that'll actually keep medical innovation from cratering and it's worth mentioning that even though the case and principle for pharmaceutical patents is pretty strong the case for the actual status quo of of patent law for pharmaceuticals today is is more contestable uh there is good evidence that patent that pharmaceutical producers do a lot of gaming of the system to make cosmetic changes in products just to extend patent lives so if if patent law is incentivizing that kind of of of behavior rather than actual producing uh the you know new drugs that are going to save people's lives uh that suggests that patent law is not all that it could be and is in need of some kind of tinkering now the other the other the fourth we've touched on we touched on finance we mentioned zoning a little bit with the many houses and and that's the one I think we should get a little bit more into on housing and how bad it is people probably know that San Francisco is expensive and New York City is expensive and Washington DC is expensive but it's much worse than that in terms of how much it's stifling so awareness of the consequences of zoning has really taken off in the last few years before that this was zoning's been around for 100 years it's been endemic for a long time just the zoning of America occurred in step with the suburbanization of America but it has become clear in recent years that this very local kind of policymaking that occurs in these thousands of jurisdictions is aggregating up into big national consequences especially the the land use regulation that's occurring on the the coasts so what has happened in recent years is that so always the purpose of zoning was to was to influence where within a metropolitan area building occurred but its purpose was not to influence the overall volume of housing within a metropolitan area but in recent decades due to increasing restrictiveness and due to running out of sprawl room on the coasts when you run into the water you're seeing that the actual total quantity of housing is being influenced by by zoning and so the responsiveness of housing supply to housing demand is is diminishing and what is so when in recent years when there's been this kind of urban renaissance and and there's been new economic dynamism in cities and highly paid and highly skilled professionals have been moving back to cities there's a big demand for living in cities now at the very same time those coastal cities have been ratcheting up their land use regulation making housing hard new housing harder and harder to build so that that demand to live there is just translating into higher prices rather than into more units of housing so in Washington DC Ed Glazer an economist at Harvard calculates about 20 percent of the price of housing prices is a regulatory tax it's due it's the you're paying for the permission to build in LA and Oakland the regulatory tax is 30 percent San Francisco San Jose Manhattan it's 50 percent so people tend to think that this is just completely supply and demand you know San Francisco and New York great places to live they're not making any new land this is just natural but it's not half of it's not natural right anybody I remember I I was doing some research in the peninsula in San Francisco and had to go down to the Packard Foundation which is in Los Altos California I took the train down right very expensive fixed piece of infrastructure you get off of the train station in Los Altos and there's like a 7-11 and nothing right I mean this enormously valuable piece of property right which you could fill up with enormous concentrated housing that would be able to send people into San Francisco right is completely underutilized and so that's problematic both for the general reasons we've been talking about but it also means that you're under exploiting that public investment that you put all that all that resources into so that's one of the dynamics here I think the other thing that this shows in the example that Brink talked about shows is how many of the cases we're talking about what protects these pathological policy regimes is the degree to which people just assume that the status quo policy is just obvious right oh of course you should have zoning right if you didn't have zoning then everybody be living next to a smelter right that would be that would be awful or the case of medical licensing oh if you don't have that then you'll have you know quack doctors you know and that's all in a way that goes back to question you asked earlier about the political conditions that create this regime right they are produced by economic monopoly is produced by political monopoly right that is the people who support the existing regime are benefited most by the fact that it seems natural that seems obvious that arguments against it are seen is what Jack Balkan called off the wall right simply so crazy is not even to need to be argued against right and so the thing that destabilizes these things and often makes them less sturdy than standard public choice analysis would suggest is simply that that absence of counter argument right now the absence of anything that would denaturalize these policy regimes and make them seem not obvious right make them seem like they have to be subject to being argued for and that's where the the market for ideas matters right the market for ideas both produced by outside actors right who can make these these arguments part of the argument for make writing this book right is to take some of these things and in some areas are seen as out you know off the wall or out of the the mainstream and say no these are you perfectly logical natural non-crazy arguments that ordinary people can make in licensing boards and local town councils those ideas therefore have an effect on organization right people don't even organize often around things that they view as if they think that they're going to make them sound like a crank or sound like a nut and so one of things therefore that can very rapidly change anything you're seeing this in california right ideas about the effects of voting this is one thing where i think ideas really have mattered right young people often you know who are creating these yimby or these yes in my backyard organizations and part of organizing because people did the research right they created a meme an idea right that can spread in that particular way and that i think is part of the the secret to how some of these seemingly unstoppable or inevitable or hegemonic policy regimes can very quickly crumble if there's the resources put into undermining their their intellectual justification thanks for listening this episode of free thoughts was produced by test terrible and evan banks to learn more visit us on the web at www.libertarianism.org