 Intellectual property is one of the major sources of inequality in the economy. And it's also very clearly a result of how we've chosen to structure the market. Why is it that we have intellectual property? And I'm going to focus on patent and copyright monopolies. Very few people, including people in policy positions, including economists, realize the enormous amounts of money at stake with these types of intellectual property. If we want to, we can structure the market differently. So the point I want to make here is that we have some people who are very, very wealthy. Bill Gates is my model here. He's got over a hundred billion dollars in wealth. That's because we give Microsoft copyright and patent monopolies on Windows software. The logic of intellectual property, of course, is that it gives incentives for innovation, gives incentives for creative work. If they were the only way to do that, you can go, well, we're kind of stuck with this. But they aren't the only way to do this. There are alternatives. We should be talking about them because there is so much money at stake. Direct public funding, which I'm going to argue is a much better way to support the development of pharmaceuticals, the development of medical equipment, and secondly, tax credits to support a wide variety of creative work. People talk about copyrights. They're in the Constitution. They talk about them as though they're in the Bill of Rights. Of course, they're not in the Bill of Rights. They're in Article 1, Section 8, to promote the progress and science in useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. So this is very, very far from any sort of God-given right. This is something that Congress could do to make copyrights patents longer and shorter, stronger or weaker. It's to serve a public purpose. Okay, so what is that purpose? It gives a hold on monopoly for a period of time. In effect, what the government is saying is if someone infringes on a patent or copyright, they'll arrest them. Now, just to be clear, they don't literally go and arrest them the way this would typically work. If I have a patent, if I have a copyright and someone's violating, I'd go to court and I'd say, okay, you have to stop violating it. And if the court agrees with me that in fact they're violating it, then they would issue an injunction to the person, company, tell them to stop doing it. Now, if they continue to do it, well, they would be arrested for violating the injunction. The government's enforcing the monopoly where it wouldn't otherwise exist. Okay, why do they do that? Well, if it were sold in a free market I as the inventor, I as the discoverer, I as the writer, I wouldn't be able to recover my costs. So take the case of prescription drugs. Prescription drugs are almost invariably cheap to produce. They're expensive to develop. Drug companies spend a lot of money on research. They exaggerate that, but they do spend a lot of money on research. So if they were to research a new drug and then someone else who are able to go out and make copies of it, produce the same drug and sold in a free market, well, the original company wouldn't be able to recover their research costs. That's true. So it's a clear logic to patents and copyrights in the sense that they give this monopoly for a period of time. They allow inventors. They allow writers, people who do creative work in general, to cover their costs, the cost of discovery, the cost of innovation, the cost of creative work. These are quite explicitly alternatives to direct government payments. And my favorite example of this is the Food and Drug Administration some years back decided it would be a good idea to have pharmaceutical companies do pediatric trials. You've shown that your drug was effective on adults but sometimes there are different issues that arise with children. Maybe they aren't effective for children. Maybe they're harmful in some ways for children. If you don't have a pediatric trial, you can't know that for sure. So the Food and Drug Administration decided it would be a good idea. Why don't we get more drug companies to do pediatric trials? Well, they could have paid them. They could have said, okay, we want you to do a pediatric trial for 100, 200, 300, 400 kids, whatever it is, and we'll pay for it, which wouldn't be a reasonable thing to do. But it was hard to get that money from Congress because Congress was saying, oh no, we don't want to give more money to the Food and Drug Administration. So what did they do? They gave an extension of the patent monopoly of six months for companies that did pediatric trials. Now what's striking here is when we talk about government spending, we talk about government debt, patents and copyrights never get mentioned into that. You'll hear someone say, oh my God, the government debt is $20 trillion. And they'll never point out, well what about all the patent and copyright monopolies we gave? We're going to be spending trillions of dollars more in coming decades because the government gave out these monopolies. It just shows the sloppiness of how people in policy positions, including economists, when they talk about something that's very, very important in the economy today. So to give you an idea of the amount of money at stake, in the case of prescription drugs, it would be around $400 billion a year. Many cancer drugs sell for over $100,000 a year, sometimes $200,000 or $300,000 a year. Typically those drugs would cost a few hundred, maybe a couple thousand dollars if they were sold as generics in a free market. So we spend an enormous amount of money on prescription drugs because of patent and copyright monopolies. There are also patents in computer software as well. Suppose that all computer software could be freely reproduced. We could send it over the web and we could all get whatever software we wanted and it would cost us nothing. All sorts of scanning equipment, complex medical equipment, almost invariably once it's been developed it would be relatively cheap. Movies and screening services, again that would be about $40 billion a year. We could get everything we wanted basically free. I understand people have to be paid. I'll come back to that. But the point is that once you have the movie, once you have the song, once it's been recorded, the cost of transferring it is basically zero. Food stamp budget has a basic comparison. That was about $100 billion, that was $2,021. That was a very high year because of the pandemic recession. It's typically around $80 billion. I don't know exactly where it will be when all this pans out. It's amazing to me that here is something that is so important for our economy, so important for the distribution of income and it is literally almost never discussed. We almost never see this appear in public debates. Does it matter? Well, it does matter. Bill Gates, this is data from Forbes. They put him at $134 billion. Well, where would Bill Gates be if he didn't have a patent or copyright on Windows software? My joke is he'd probably still be working for a living. Now Bill Gates is a few years older than me so maybe beginning in Social Security. But safe bet, he would not be one of the very richest people in the world. Larry Ellison, he's now retired. He was the head of Oracle for years. He's listed as being $117 billion. Again, same story. Oracle is a software company. If they didn't have patent and copyright monopolies on their software, again, I'm sure he's a bright guy, hardworking and everything. I doubt he'd have $117 billion. So these are some of the very richest people in the country, very richest people in the world and I'm not knocking them. I'm sure they're all very bright, very hardworking. But the fact that they could get not just $1 billion, not just $10 billion, but over $100 billion in some cases, that was due to the fact that we have patent and copyright monopolies. I did a quick analysis. I just looked at the list of the Forbes 400 and said, okay, what percent of the fortune using Forbes numbers comes from people who are pure intellectual property? So this would be Bill Gates, it'd be Larry Ellison, it'd be Steve Baumer, and many other people were on that list. That was 27% of the wealth. Then if we include people who are partially intellectual property. So this is Mark Zuckerberg with Facebook or I guess Medinao, Jeff Bezos with Amazon. So if we add in this sort of mixed group, we get to 43.5% of the fortune of the people on the Forbes 400. So that's a very good chunk of the wealth. There's a common view among economists, but even more in policy circles, people aren't economists, that what really explains that you have some people who are getting six-figure, seven-figure salaries, and other people who are scraping along at minimum wage jobs or low-paying manufacturing jobs, the real story here is that we've had skills bias technological change. The fact that someone can work with computers, that people skilled in biotech, skilled in other areas, that they get lots of money, that's because of the technology. The people who don't have those skills, people work with their hands. People do various types of manual labor. They've been losers in this story because their skills are easily replaceable. People are being replaced by robots, so money instead of going to the ordinary workers goes to the people who own the robots. Well, how do you own the robots? That's a story of intellectual property. It's not that I own the physical robots, it's that I own the patents and copyrights on the robots. So that's not technology. And what's very funny, I've often raised these sorts of issues in debating with people and go, oh, well, if you took away the patents and copyrights, no one would do anything. I'd go, okay, fine, let's start from that. Then you've just conceded to me that it's not technology. You've conceded to me that it is a policy decision. It's how we've chosen to structure the market. You can't both say that we need patents and copyrights to give people incentive and tell me that it's just technological change. Those are direct contradictions, and that should be very clear. Okay, if you're not doing with patents, you're not doing it with copyrights, what are the alternatives? I like to focus on prescription drugs because that is where the biggest money is. And also, obviously, this is a question of public health. Most of us think that the government has a responsibility to support public health. And in fact, we do already. We spend about 50 billion a year doing research through the National Institutes of Health and other government agencies. Okay, well, that's a good chunk of money. So the idea that somehow the government can usefully spend money on biotechnical research, it simply is contradicted by reality in front of our eyes. Everyone agrees, first and foremost, the pharmaceutical industry, this is money very well spent. So if we said that we should double or triple this amount to replace the money that's supported by patents, which is around 110 billion, people will say, oh, well, that would all be wasted. It'd be just like throwing it in the toilet. Okay, well, it's kind of an interesting view of knowledge that we think that somehow the government can very usefully spend money on basic research. And I should point out it's often not just basic research. AZT, the first effective AIDS drug, was actually developed on NIH grants. It was developed as a cancer drug. It turned out not to be effective as a cancer drug. Later, it was discovered to be an effective AIDS drug. Okay, so how would I do it? Well, I would say, okay, let's see where we do fund, you know, development, carrying through to the final product. And my model here is defense contractors, not necessarily like what they do, but the reality is our defense contractors do develop good weapons system. So for the purpose that they're designed, they actually do effectively spend the money. Now, one thing that people could point out to is there is a lot of waste in the defense department. That's no doubt true. But the big advantage that we have with funding for biomedical research that we don't have with military, and that's that there's no reason for secrecy. So we don't want to put our latest weapons systems online as soon as we develop the technology for obvious reasons. We don't want Okaida to get them. So there's actually a good argument. It's overplayed, maybe, but there's a good argument for secrecy in military research. There is no good argument for secrecy in biomedical research. We have Lockheed Boeing, their prime contractors. They typically contract out to many smaller companies. We probably want to see the same thing with biomedical research. And that's in fact what happens now. So if you look at the big drug companies, Johnson and Pfizer, they're not doing most of the real innovative research. Most of that's done by small biotech companies. You could have prime contractors that would get, say, two billion a year to do cancer research for the next decade, and they would contract out with promising upstarts. Now, the condition of this is that all the research will be posted on the web as soon as practical. Researchers all around the country, and for that matter, all around the world, can see it immediately. They could benefit from breakthroughs. They could see what's a dead end that would prevent unnecessary waste and duplication in the development of new drugs, new medical equipment. The other point is all patents are in the public domain. Anyone can produce it. So that means everything is available as cheap generics from the day it comes on the market. So the advantage of what I refer to as free market drugs, this is the free market here we're talking about, first off, drugs are cheap. So we don't have drugs that sell for hundreds of thousands of dollars for a year's prescription. They sell for hundreds of dollars, maybe a thousand dollars. We often get these seemingly difficult dilemmas that you have someone who's 82 years old basically in good health. They have a type of cancer and the drug that will treat the cancer costs $200,000 a year. Should Medicare pick up the tab or should we make a private insurance pick up the tab? Well, how long is someone who's 82 going to live in it? You get these arguments. Suppose it costs $200 a year. No one even thinks twice. Patients could use the best drugs, not the ones that they could afford. Okay, second point, there's no incentive for anyone to deceive doctors, publics about the safety and effectiveness of drugs. I mean, everyone knows about the opioid crisis. They know that Purdue Pharma and the other major opioid producers, they were charged with deliberately deceiving doctors about the addictiveness of their drugs. Why were they doing it? Because they were selling these drugs at huge markup. Okay, if they were all cheap generics, if they were selling drugs like companies sell papers and pencils and other items, they make a profit on them, but they don't have any huge markup. They probably wouldn't spend a lot of time trying to deceive doctors about the addictiveness of their drugs. We give perverse incentives to drug companies when we allow them to charge prices that could be a hundred or even a thousand times the cost of production. Third point, money sent on sales, marketing, litigation, they would plunge. There's no point in spending a lot of money to describe your drug doing ads on TV if you're just selling them as generics that you get a normal markup. So you'd get rid of a huge amount of money that's spent in promoting the drugs. You'd also get rid of a whole industry of middlemen. So you have insurers, you have pharmacy benefit managers because you're talking about drugs that cost thousands, tens of thousands of dollars. They're trying to limit what people will spend on that. They're out of business. There's no reason for them. At the last point, drugs and vaccines really produced anywhere. And this is, of course, a huge issue in the pandemic that we're very slow and we're still slow in getting vaccines out to much of the developing world and that's because there are patent monopolies on them. So if the technology had been fully open from day one so that as Moderna, as Pfizer, as the other companies were developing their vaccines, all their technology was freely available, they could have been setting up production operations in India, in Sub-Saharan Africa, South Africa, of course, has a major drug industry, Brazil. They could have all been producing these and stockpiling them so as soon as they were tested and determined to be safe and effective they could have started distributing them on a massive scale and we could have curtailed the pandemic much, much more quickly. We might have even been able to stop the second major wave, the Delta wave that hit India in the spring of 2021 and then hit the United States in the summer. Think of all the lives that would have been saved, all the sickness that could have been prevented. OK, so alternative the copyrights. Suppose we had some amount $200 per adult so this would be like the charitable tax deduction except it would be a tax credit so that means that even if you don't pay income tax, you're a low income person, you earn $20,000 a year, your tax liability is probably zero, you would still have this $200. Then you could give that to any individual organization in one chunk or divide it into 10 chunks however you like as long as they qualify for the system. OK, how do you qualify for the system? Well, you do it the same way that a tax exempt organization of 501C3, a charitable organization does now. You have to register with the Internal Revenue Service and essentially what that means is you have to say what sort of work you do or support. So this could be I'm a musician, I'm an artist, it could be an organization that supports mystery writers and it's very similar to what we have now for charities. So if I'm registering for this be eligible for this tax credit I say I'm a blues musician. The question is not is it good blues music but is there evidence that I've been making blues music? OK, so that's the criteria. The trade-off here is that if you register you're not eligible for copyright protection for a substantial period of time. So I put down five years, could be three years, could be seven years. The logic here is we give you one subsidy not two. So again copyright protection has to be thought of as a subsidy. It is. It's a way in which the government supports creative work. So if you want copyright protection you don't also get to be eligible for this tax credit system. And the logic of having a period of time is we don't have an effective farm system. We don't have someone going out and getting tax credits becoming very famous and then saying OK now I'm going to sign up with a big music company or a big movie company and get tremendously wealthy. You can do that but you're going to have to wait five years. And what's really nice about this at least to my view is that it's largely self-enforceable. Think how copyright is enforced. Suppose I'm a real shrewd person. I make a big name for myself making music. You know after I've been in the tax credit system for five years I'm going to turn around the next year and go oh now I'm going to start doing copyrighted work. Well people start making copies of my copyrighted work. What do I do? I go to court and say they've infringed on my copyrights. The courts laugh at me and they go yeah Schmuck you were just in the tax credit system. You're not eligible copyrights for another four years. So it makes it a very very simple story. It's very hard to cheat that system because it's going to be very clear you were cheating. So what's the advantage of going this route? Well leads to a very large pool of money to support creative work. Newspapers have found it very difficult to get enough money to sustain their operations in a world where one we have the web and then Google and Facebook dominate advertising that used to go in the newspapers and the number of working journalists in this country has just collapsed. Second point which I think is very very important is the government would have no role in selecting recipients because people rightly get worried we don't want to have a czar of culture or czar of news that's going to dictate to us what's culture, what's good culture, what should be funded, what news should be supported. So you, me, everyone we could decide where is our $200 going to go if we want to go to blues music great if we want to go to local journalism great it's up to us. Okay it's also far more democratic than the charitable deductions. So again I went through the basic arithmetic of this a moment ago as it stands now we have this charitable deduction that close to 90% of people don't even itemize on their tax returns. So for most people the charitable deduction is worth zero. In this case the charitable deduction would be replaced with the credit $200 for every person in the country. It also eliminates the waste associated with copyright enforcement. So you have a lot of times where you have people that are ostensibly doing copyright violations you could decide whether they are or they aren't but their enforcement actions taken against them which far outweigh any possible damages that the holder of the copyright might have accrued. The reason for this, again this is very much how we choose to write statutory damages with copyrights. So what that means is let's say I make a thousand copies of a song as I understand it's Spotify gives creators seven hundredths of a cent for each play of their song. So I make a thousand copies in violation of copyright. That's $7. Okay no one would file a suit over $7 but the statute allows for someone to sue me over violating their copyright and they collect statutory damages that could be thousands of dollars and on top of that make me pay their lawyer's fees. Okay that to my view is pretty crazy because the actual damage to this person was almost zero. That's all a huge waste from an economic standpoint. There's a lot of people who've gotten very rich because of these monopolies. You can't tell me you're all for the free market and then say oh look how Bill Gates is a great success. Well Bill Gates might be a great success but he got there by patent and copyright monopolies. There are alternatives. Okay so I threw out a couple here. Obviously creative people can think of many others. There are problems with what I put up but the idea that we're stuck with the patent system that we have we're not. We could structure the market differently and to my view I think get much better outcomes.