Krugman and Stross: Intellectual Property

Krugman brings up the topic of intellectual property: "Even though the Internet is all old hat, we still haven't seen the economics of it play out. One of the big problems is we don't know how do people get compensated for producing information when it can be...." He doesn't get to finish the sentence, but I assume he meant it to go something along the lines of: "...copied easily and cheaply everywhere in the world instantaneously."

Stross has fascinatingly contradictory ideas about this:

As for the intellectual property, I try not to get too worked up about it.... [W]hat we're looking at with copyright today is a smoking hole in the collective landscape....

(Sure, why get worked up about a mere smoking hole in the collective landscape?)

We can't simply wave a magic wand and change the copyright laws to something sensible.... Now the best thing I've been able to come up with is an idea for doing this is a tax on bandwidth.... The tax goes into a pool which is then distributed to content creators on the basis of some kind of sampling or rating mechanism that's sampling the traffic that's going across the network. How to enforce this, let alone deal with it internationally is mind-numbingly don't-go-there... but at least it has the one supreme advantage that if you have such a regime in place, you can legislate that if you've paid your tax, you are then immune from prosecution for copyright violation. [emphasis mine]

This is just trading one intractable problem for another one, though. If you could enforce an international tax on bandwidth, trust the sampling agencies, carry out the disbursement of funds correctly and inexpensively, and so on, then it all sounds great. But frankly, just changing copyright laws sounds simpler, or at least no harder.

Krugman suggests an analogy to financial ratings agencies:

When the ratings agencies originally came into existence they would produce a book of ratings and people would buy the book and that was how they made their revenue. And that has long since been impossible, [because] people tend to disseminate the ratings too easily, so nobody buys the books so they had to find a different revenue stream. And some decades back the source of the revenue stream [changed so] that issuers of assets would pay the ratings agencies to rate their assets.

[N]ow the question is, what do you do? And everybody looks at this and says, "This is a terrible way to do this." But then the question is how are you going to fund the rating agencies? And there is a certain number of people who say, "They should be public." They should be the BBC. But in America of course, well that wouldn't work, it'd be government. So we can't use that.

Typical Krugman: every time a problem seems hard, he thinks we should just fob it off on the government. Here's an alternative: get rid of the ratings agencies. Do we really need them? We already have very effective ratings of financial assets: they're called prices. Ratings agencies might just be fossils left over from a time when information was expensive, trading was thin, and capital flowed sluggishly. All that has changed.