May 2008

So I finally had a chance to read Beth Simone Noveck’s article on wiki-government about which Jim has previously posted. The idea is to take tools of mass collaboration that have given us Wikipedia and Linux and apply them to the development of policy. Like the encyclopedias and operating systems of the past, policy development is now often the exclusive domain of government experts. Noveck coins the term “civic software” to refer to collaboration tools aimed at policy.

While I’m a fan of the power of crowds (see my recent paper on “crowdsourcing government transparency”) I’d like to take issue with one minor point of her plan. She critiques our current system of experts saying, “Sometimes these pre-selected scientists and outside experts are simply lobbyists passing by another name.” (I’d change “sometimes” to often.) The implication is that a mass collaborative process might help limit the influence of special interests in policy-making. How? The wiki-wonks, Noveck suggests, won’t be limited to appointed pros:

People have no option to self-select on the basis of enthusiasm, rather than being chosen on the basis of profession. Even when not unduly subject to political influence, the decision as to who participates is based on institutional status. Those who may have meaningful contributions to make–graduate students, independent scientists, avid hobbyists, retired executives, and other consultants in the “free agent nation”–fall outside the boundaries of professional institutions and status and will of necessity be excluded, regardless of their intellectual assets.

But isn’t that what lobbies are? The most enthusiastic on a given issue? The same way ornithologists or passionate bird watchers are the ones writing the Wikipedia entries about robbins, it seems to me that special interests will be the most active in shaping any wiki-policy. As Hillary Clinton likes to say, lobbyists “represent real Americans.” I don’t think wiki-government can meaningfully diminish special interest influence.

That said, Noveck’s Peer-to-Patent pilot program with the USPTO is an excellent idea. I especially like how the community chooses what gets sent to the Patent Office:

The community not only submits information, but it also annotates and comments on the publications, explaining how the prior art is relevant to the claims of the patent application. The community rates the submitted prior art and decides whether or not it deserves to be shared with the USPTO. Only the 10 best submitted prior-art references, as judged on the basis of their relevance to the claims of the patent applications by the online review community, will be forwarded to the patent examiner.

I’d love to see something like this for regulations. There’s no reason why we must wait for a government pilot program to do this. Maybe we can set up a wiki where the community can collaborate on a comment on a proposed agency rulemaking and the finished product is submitted to the docket. There’s no such thing as a neutral point of view when it comes to policy, so the wiki would have to have some first principles the community agrees to, or maybe a mechanism for developing several opposing comments. Thoughts?

This week I’m guest-blogging for Megan McArdle at the Atlantic. Here I take John McCain to task for his nonsensical position on warrantless wiretapping, and here I talk about the economics of free. Check it out at Megan’s blog, which you should really be reading whether I’m there or not.

I was hoping to comment on a UK Libertarian Party blog post called “Car Crash Cato,” but the comment function has never worked for me: The CAPTCHA doesn’t display and/or I’m supposed to sign up for and log in to something. Thanks – I’ve got enough logins.

The next first solution is to send a note to the author, but Patrick Vessey at the UK Libertarian party doesn’t seem to have made any contact information available.

SO, here’s my response to a UK Libertarian Party blog post criticizing the Cato Institute for giving the Milton Friedman Prize for Advancing Liberty to Yon Goicoechea and for my recent Cato@Liberty blog post “L-1 and China – Oh, Nevermind – Naomi Klein.” (You’ll want to read the post first . . . .)

Thank you, Andrew [another commenter], for handling the Venezuela issue very nicely.

As for my posting on the Cato@Liberty blog – it’s my post, reflecting my thinking, not any Cato Institute policy – let me urge you to read the piece I wrote about L-1, which I linked to in that post. Concluding there, I wrote, “A corporate lobbying operation can do as much harm to liberty as any government agency or official.”

This is not a story about which “Cato obviously does not want to hear” – I’ve been writing about it at Cato. I was disappointed when Klein took an issue that I feel passionate about – and muddied it with her confused and divisive ideological dreck.

I agree that the corporate form of organization is a subsidy – a government-imposed transfer of risk from owners to the general public – but that does not give L-1 any coercive power that’s relevant here. Only L-1’s combination with government power – in the U.S., China, or anyplace else – gives it access to legal coercion. The necessary condition for what Klein, you, and I find objectionable is the exercise of government power.

In fact, I’ve yet to understand what “corporate power” is, because once you de-link a corporation from access to government power, the corporation is just a legal construct, an entity that anyone (who’s not lazy) can walk away from and suffer no repercussion (risk-transfer aside).

I don’t know anything about the UK Libertarian Party, but I do find it strange that a person associated with it would be unclear enough on the nature of power to side with Hugo Chavez and Naomi Klein over the Cato Institute and me.

Over at Ars, I discuss the implications of this week’s Autodesk decision:

In a 21-page decision, Judge Jones sided with Vernor. Citing the 1977 case of United States v. Wise, which involved the sale of used films obtained under dubious circumstances, Jones found that the Ninth Circuit’s precedents suggested that the circumstances surrounding the sale of AutoCAD software constituted a sale, not merely a license. Therefore, the First Sale Doctrine applied, and Vernor was not bound by any of the terms in Autodesk’s license agreement.

But the judge acknowledged that three more recent Ninth Circuit decisions involving software seemed to cut in the opposite direction without explicitly overturning Wise. Jones found that Wise was controlling precedent, and ruled in Vernor’s favor. If the case gets appealed to the Ninth Circuit, the conflict among these precedents is likely to occupy the court’s attention. The trio of more recent cases hints that the Ninth Circuit is sympathetic to characterizing software sales as licenses for legal purposes. However, none of those cases involved circumstances exactly like Vernor’s, and the court never dealt squarely with the question of what factors determine whether software is sold or licensed.

If Jones’s ruling is upheld on appeal, it will have important consequences for the software industry, where the legal fiction that software is merely licensed is widely employed. In addition to discouraging the market for used software, software firms have also attempted to use the “licensed, not sold” theory to enforce restrictions on reverse engineering that would otherwise be fair use under copyright law. If software is sold, rather than licensed, then no license is required to install and use the software, and the terms of shrink-wrap licenses may not be legally binding.

As a result of New York’s new sales tax law, announced that it will bid adieu to its New York-based affiliates. 3,400 New York-based affiliate advertisers will no longer provide advertising for the company.

In a previous blog post,  I talked about how the New York legislature in April passed a law designed to increase sales tax revenue from Internet sales. The law is referred to as the “Amazon tax” because of the way it broadens the sales tax law to apply to Amazon’s Associates Program, thereby achieving the necessary legal nexus for New York to force Amazon and other Internet retailers to collect and remit taxes on all sales to NY residents.

I like Overstock’s reaction here. Instead of rolling over and complying, it’s thumbing its nose at New York’s law and the up to 9.5% sales tax collection burden as Amazon’s lawsuit proceeds in court.

From an interesting collection of economists, including L. Vernon Smith and Cass Sunstein, a paper calling for changes to facilitate the growth of prediction markets.

Another paper on happiness research and cost-benefit analysis. “Opportunity cost, Opportunity Cost!” shrieks Ludwig von Lachman from beyong the grave.

Here is a more questionable contribution from the more mainstream Herbert Hovenkamp. ., “Innovation and the Domain of Competition Policy” “U Iowa Legal Studies Research Paper No. 08-07 . The paper advocates the more expansive use of antitrust law in intellectual property disputes, on the grounds that IP law has been tainted by rent-seeking, and that antitrust law has not. Granted, that the antitrust statutes have not been much revised. So the lobbying action is at the DOJ, the FTC, and pretty much everywhere else rather than in the halls of Congress. And yet more action in the offices of the countless economic consultancies that have sprung up, spouting reams of game theoretic nonsense in the pursuit of fat expert witness fees. And the antitrust bar. Dr. Hovenkamp has been fortunate to remain oblivious to it all. See George Bittlingmayer at

Another curiousity is this paper by Dr. Richard Gilbert, proposing that “innovation” as such also be subject to antitrust scrutiny when the distribution of market power is interesting. Talk about subjecting ordinary business conduct to a chilling and error-prone regulatory regime. I read it through wondering if it was a clever reductio ad absurdum of the whole enterprise, but in the end when there was no punch line delivered I concluded sadly that the author was serious.  Gilbert, Richard, “Holding Innovation to an Antitrust Standard,” 3 Competition Policy 47 (2007).

With Microsoft-Yahoo! going by the wayside, replaced by rumor and talk of a major transaction between Google and Yahoo!, it’s a good time to review some of the best industry analysis I’ve ever come across.

Twice in two days now, I’ve come across news articles using the term “Big Brother” to refer to private sector information practices that affect privacy. Big Brother is not an appropriate shorthand here. In his book 1984, George Orwell gave the name “Big Brother” to the oppressive government that observed and controlled the lives of the book’s protagonists. The unique oppressive powers of this governmental entity were a central motif of the book.

Yesterday’s Washington Post had an article headlined “FTC Wants to Know What Big Brother Knows About You.” Is the Federal Trade Commision examining warrantless wiretapping, one hopes? Alas, no – they’re looking at “behavioral targeting” on the Web. This is when advertisers collect information about Web surfers with cookies, using it to direct more relevant ads their way.

Consumers who care to can “opt out” of nearly all “behavioral targeting” by setting their browsers not to receive third-party cookies. In both Internet Explorer and Firefox, the “Tools” pull down has a selection called “Options.” Clicking the “Privacy” tab allows users to set blanket bans on cookies or site-specific preferences.

Behavioral targeting is in no way an exercise of the legal monopoly on coercion, much less an oppressive exercise of that power.

Ars Technica, an otherwise excellent tech publication, mangled the same literary reference in this headline: “Big Brother is Watching: Companies Snoop E-mail to Combat Leaks.” Employers monitoring communications on their systems are neither exercising government power nor oppressing their employees.
Continue reading →

No policy angle. This is just cool. Via TechCrunch.

Is it anticompetitive for Google to let Yahoo use some of its technology to earn more money in the search ad business if Google had 61.6 percent of the search market in April while Yahoo had 20.4 percent and Microsoft, 9.1 percent?

It’s only anticompetitive if you believe search ad revenue is—and always will be—the bedrock of the Internet economy.  But that’s quite an assumption.  Not too long ago some believed Microsoft’s success in desktop software would allow it to monopolize the online world.

Then along came Google and search ads, which no one foresaw.

An outsourcing deal between Google and Yahoo could be profoundly procompetitive because Yahoo makes less than it could in search ads.  Using Google’s technology may enable Yahoo to pocket an extra $1 billion which could make Yahoo a stronger player in the search for the next big thing.

It’s important to consider that there may be a next big thing because neither Yahoo nor Microsoft may be capable of giving Google a run for its money in search ads despite their vast resources, in which case it would not be procompetitive to keep them afloat through government intervention.  It would just be inefficient. 

What if Google becomes a monopoly in search ads?  Most monopolies are temporary.  Schumpeter teaches that durable monopolies are aided and abetted by government.  The risk of that grows with government intervention led by antitrust attorneys.

Microsoft and Yahoo need to find their strengths; we shouldn’t subsidize their weaknesses. 

What would be procompetitive would be for Microsoft and Yahoo to invent something new.