Futility of Some Intellectual Property

Moneyball:

Here's a nice point from Julian Sanchez and Cory Doctorow: Most of the thinking on Capitol Hill about "piracy" utterly fails to wrestle with the reality that in the future copying is destined to become radically easier than it is today.

Consider that 30 years ago, Seagate introduced the world to the SG-506 with 5 megabytes of storage for $1,500. Today they sell a 4 terabyte drive for less than $450. Where you used to get 0.003333 megabytes per dollar, you know get 9,320 megabytes per dollar in nominal terms. Thirty years from, random individuals will easily and cheaply be able to store all the songs you could possibly imagine. Shutting down large-scale data centers isn't going to accomplish anything, you'd need very intrusive monitoring of everyone's activities all the time to prevent copying from running amok. It'd be intrusiveness on the order of what it would take today to stop people from lending books to friends. Either content production will survive a world of nearly ubiquitous file-copying, or else some other kind of system like Dean Baker's arts vouchers will have to be devised.

Free Market Path to Reduce Global Warming

MoneyBox:

What if I told you that we could obtain half the reduction in carbon emissions needed to stave off climate disaster not with new government interventions in the economy but simply by removing existing interventions?

Fatih Birol, chief economist of the International Energy Agency is telling you exactly that. In data released this month as part of the IEA’s latest World Energy Outlook report, he shows that in 2010 the world spent $409 billion on subsidizing the production and consumption of fossil fuels, dwarfing the word’s $66 billion or so of subsidies for renewable energy. Phasing fossil fuel subsidies out would be sufficient to accomplish about half the reduction in greenhouse gas emissions needed to meet the goal of preventing average world temperatures from rising more than 2 degrees Celsius.

You don’t hear as much about this as you should largely because the biggest offenders are far from our shores. Still, the scale and scope of the issue is worth dwelling on if only because these subsidies are so wrongheaded.

Far and away the biggest problem seems to be that misguided sense that countries that are large producers of certain kinds of fuels ought to subsidize domestic consumption of the fuel in question. Thus Saudi Arabia spends more than $30 billion a year on gas consumption subsidies while Russia spends $17 billion on natural gas subsidies. Iran, which produces both, subsidizes both, spending $66 billion in total plus an additional $14.4 billion on electricity consumption subsidies. Large-population developing countries such as China, India, and Indonesia are also important players in the subsidy game. In no case do these subsidies make sense.

For starters, the mere fact that your country contains a lot of oil offers no special reason to subsidize gasoline consumption. For one thing, gasoline isn’t oil. Like other usable fuels, it needs to be refined from crude. Iran is actually a net importer of refined petroleum products, and the United States has recently become a net exporter of them, even as the situation for crude oil is the reverse. More broadly, the opportunity cost of using a domestically produced barrel of oil is identical to the financial cost of buying a barrel on international markets. In other words, if the Japanese government wants to offer subsidized oil to its citizens, it needs to go buy the oil first from Saudi Arabia. By the same token, if the Saudi government wants to offer subsidized oil to its citizens, it needs to sell less to Japan. The budgetary impact is identical in either case and the merits of the policy have nothing to do with how much oil a country has.

And what are the merits? Not much. Consumption subsidies are typically justified as beneficial to the poor. But while it’s certainly true that in rich countries utility bills and transportation fuel costs disproportionately burden the poor, it’s not clear that this is true in the developing world. Here in the United States, only rich people go to fancy restaurants, but everyone needs to run home appliances, which is why higher energy costs hit the poor hardest. In India, however, more than a third of the population doesn’t have electricity, and most people don’t have cars. China’s not as poor as India, but the same logic applies: The people who truly need help are the people who can’t afford to take advantage of the subsidies. The IEA calculates that less than 10 percent of global fossil fuel subsidies benefit the poorest 20 percent. These subsidies would be much better spent on a mix of cash grants to the poor, lower taxes to spur growth, and investments in infrastructure and education.

But even a direct fuel subsidy for the poor is a pretty bad way to help people. America doesn’t go in for lavish spending on fuel consumption subsidies, but we do have something called the Low-Income Home Energy Assistance Program, which offers targeted subsidies to help poor families in cold-weather states to keep their families warm in the winter. This is hardly the worst idea in the world, but you’d do more for the families and the environment if you just gave them cash. Some of that cash might go to pay the heating bill, but some might go to the purchase of sweaters or better insulation, ecologically friendlier solutions that will probably help households more over the long run.

That these kinds of subsidies are misguided counts as conventional wisdom in the economics world, but it’s not clear that even economists have recognized the sheer scale of the impact. If roughly half of what needs to be done can be achieved simply by eliminating economic distortions—economic distortions that would be unwise even if there were no concern about pollution—then the whole framework of a trade-off between prosperity and sustainability is largely misguided. The outlook for greener, freer markets gets even brighter when you consider that consumption subsidies aren’t the only dirty interventions out there. The U.S. government offers generous tax subsidies for the production of oil and natural gas (each year, President Obama proposes to scrap them, and each year Congress declines), and the European Union does the same for coal. Local governments nearly everywhere require the construction of more parking spaces and lower-density buildings than a free market would provide, encouraging excessive driving and energy-intensive large detached homes.

At the end of the day, pure laissez faire can never meet the world’s environmental challenges. If you want to reduce greenhouse gas emissions, you need to cap them and then you need to reduce the cap. But a surprisingly large step toward that target can occur by simply allowing the market to do its work by removing the subsidies that encourage lavish and inefficient consumption of fossil fuels.

Why are wages high in some cities?

See Brookings' compilation of Census data about median wages in 2009:

 

Why are companies willing to pay more for workers in these towns?  Are they just being nice?  Could they make more money by moving to where wages are lower?

Agglomeration Economies of Iphone

NYT

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. ...Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen... People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

¶ After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

¶ ...all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

¶ In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, for instance, Mr. Jobs bragged that it was “a machine that is made in America.” In 1990, while Mr. Jobs was running NeXT, which was eventually bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.” As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit the company’s iMac plant in Elk Grove, Calif.

¶ But by 2004, Apple had largely turned to foreign manufacturing. Guiding that decision was Apple’s operations expert, Timothy D. Cook, who replaced Mr. Jobs as chief executive... Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to grasp every advantage.

¶ In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

¶ For Mr. Cook, the focus on Asia “came down to two things,” said one former ...Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.

¶ The impact of such advantages became obvious as soon as Mr. Jobs demanded glass screens in 2007.

¶ For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, ...and an army of midlevel engineers. It would cost a fortune simply to prepare.

¶ Then a bid for the work arrived from a Chinese factory.

¶ When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said... The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

¶ The Chinese plant got the job.

¶ “The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

¶ In Foxconn City

¶ An eight-hour drive from that glass factory is a complex, known informally as Foxconn City, where the iPhone is assembled. To Apple executives, Foxconn City was further evidence that China ...outpaced their American counterparts.

¶ That’s because nothing like Foxconn City exists in the United States.

¶ The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. ...

¶ “They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

¶ In mid-2007, after a month of experimentation, Apple’s engineers finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City in the dead of night... That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. ...

Manufacturing glass for the iPhone revived a Corning factory in Kentucky, and today, much of the glass in iPhones is still made there. After the iPhone ...Corning received a flood of orders from other companies hoping to imitate Apple’s designs... and it has hired or continued employing about 1,000 Americans to support the emerging market.

¶ But as that market has expanded, the bulk of Corning’s strengthened glass manufacturing has occurred at plants in Japan and Taiwan.

¶ “Our customers are in Taiwan, Korea, Japan and China,” said James B. Flaws, Corning’s vice chairman... “We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”