Backlit Smoke Plume by Brent DanleyOne of the most frustrating things in the world is watching very smart people going only half the way to solving a problem because they’re trying to play junior pollster, rather than actually lead on issues. The Center for American Progress’ (CAP’s) "Progressive Policy" series is a great example.

The report sometimes has the feeling of being a laundry list of recommendations, but we’ll look at just two areas.

Cap and Trade

Cap and Trade is a smart policy, done right. Put a cap on carbon emissions, start reducing that cap every year, auction off permits to pollute, and let those who come in under their permits sell their right to pollute to those who don’t make it. It’s smart because it makes reducing pollution something that can produce a profit and it doesn’t tell companies how to do it, so they are free to experiment.

Smart policy. But it’s a really bad policy if it isn’t combined with something to deal with the international fallout. Because imagine a world in which China isn’t part of a cap and trade system and the US is. What’s the best way to reduce your pollution in the US? Relocate the production facility to China. In China it isn’t counted, and in the US it is. And every time China adds production, it actually produces more carbon than doing the same thing in the US. End result–more pollution, not less. Brilliant.

But wait, you say–we’ll account for that by saying that US corporations have to count pollution in overseas facilities!

Nope. Because if you do that, they’ll outsource to non-US companies. But what if you make them count the outsourced companies’ carbon footprint? Well then they’ll have an expense that non-US companies won’t have, and imports from non-US companies will cost less. US companies will be driven out of business by having a higher cost structure.

To make it work you have to do something that folks like CAP don’t want to do. You have to fiddle with trade policy. You have to say "we have a cap and trade policy and all imports to the US will be subject to a tariff based on how much carbon emissions in your country have gone up since the date we put in cap and trade. If you don’t like that, create your own, measurably similiar plan, and we’ll let you off the hook".

If you want to reduce carbon output, you’ve got to make it cost to pollute. And you can’t just make it cost in the US, you have to cap it everywhere. The US reducing its carbon footprint isn’t just meaningless, it is counterproductive if it means that other countries increase theirs more than the US decreased its.

Nor does CAP’s apparent solution–giving polluting industries a subsidy for ten years, make sense. If you’re subsidizing them on one hand, and taking money away on the other hand you’re reducing or eliminating the incentive from pricing in carbon as an expense.

This isn’t rocket science. CAP’s analysts must know this. But my guess is that they either don’t believe one should ever have tariffs, or they aren’t allowed to suggest what some might consider "anti-free trade" policies. Whatever the reason, it means they’re suggesting a bad policy.

Trying to "fix" innovation without referencing IP laws

This is perhaps the most surreal part of CAP’s "innovation" agenda, because they start off with this wonderful paragraph (pdf):

Government has a critical role to play in the creation of new knowledge because ideas are, at least to some extent, “nonexcludable.” Once the idea has been created, it is difficult to prevent others from using it. This is due to the very economic nature of ideas and knowledge. First of all, ideas are “non-rival,” meaning that once an idea has been developed, others can use the idea at no additional cost. As Thomas Jefferson put it, “He who receives an idea from me receives instruction himself without lessening mine—as he who lights his taper at mine, receives light without darkening me.”3 Economists such as Stanford University professor Paul Romer believe that new knowledge can lead to “increasing returns” and that doubling the stock of knowledge in an economy would more than double total output.

But then, having done that, they don’t advocate changing Intellectual Property (IP) laws. Say what!? Ideas are only non-rival if the government isn’t breaking your kneecaps if you dare to use an idea someone else has copyrighted or patented.

The Financial Times’ Jamie Boyle says it perfectly (hat tip Technology Trends) :

Mr Jefferson’s point was that for the process of invention to work, we need to confine narrowly the time and scope of the state-provided monopoly, otherwise further inventions would become impossible. Each process or part of a new invention would risk infringing a myriad of prior patents on its subcomponents. Innovation would strangle in a thicket of conflicting monopolies with their roots vanishing back in time.

In fact, the engine of innovation, like science, is built on the shoulders of those who came before. If those shoulders require legal notion and licensing rights, not too many will be inclined to climb up. Worse, you might not have enough knowledge publicly available to know where to get the best view. As Boyle notes, while the original framers of the constitution though a 14 year copyright was sufficient incentive for rewarding the entrepreneur, the current 70 years plus the lifetime of the originator, effectively locks up nearly all the innovation that sprang forth in the 20th century (at least everything from 1923 through today). In fact nearly 90% of intellectual property is locked away within 20 years of its creation, with the ability to find and negotiate with the copyright owner often lost in ‘orphaned works’.

This is ridiculous. Innovation and creativity require the fuel of ideas not the morass of licensing contracts. We have to face up to this or we’ll become, like the Roman Empire, a sclerotic nation with a rich past and no future.

Now that’s copyright law–locked in since 1924 with almost no ability to build off the work for others, all because Disney didn’t want Mickey Mouse(c) to go into the commons. But patent law is getting just as bad, in large part because you can patent just about anything:

The most important change in patent regulations since 1980 has been the expansion of subject matter eligible for patent protection. In 1980, the Supreme Court ruled in Diamond v. Chakrabarty that genetically engineered bacteria could be patented. This ruling established that virtually all forms of life could be patented, including genetic discoveries and research tools. In 1981, the Supreme Court recognized in Diamond v. Diehr that software could be patented, radically expanding the ability of programmers to assert rights over their computer code. In 1998, a federal circuit court approved the eligibility for patents of business methods and financial service products in State Street Bank & Trust Company v. Signature Financial Group. This case, involving protection of a method of managing mutual funds, opened the door to a proliferation of business
methods patents, including Amazon.com’s one-click Internet ordering process and Priceline.com’s reverse auction for buying Internet products.

I trust I don’t have to explain how out of control, how absurd, any system of IP law is that allows "one-click internet ordering" to be patented? Or the dangers and stupidity of allowing natural organisms to be patented (and it’s not engineered ones one has to worry about it, it’s the fools patenting the unengineered human genome and every plant genome they can find; genomes they did not invent, but just happened to catalogue first. It’s the equivalent of my discovering a new animal and saying "because I classified it first, everyone who wants to use it for anything has to pay me".)

The duration of patents is not as long as that of copyright–20 years is standard. But there has been a sharp decline in the overall quality of patents and the overall reach of them has extended. American law assumes a patent is valid and it’s very hard to overturn one–you can only use published prior art; courts seem unwilling to overturn for "obviousness" very much, and the costs of challenging a patent are prohibitively high:

The decrease in the quality of patents, as well as the increase in quantity and breadth, has raised uncertainty about the boundaries of the rights owned by patentees. It has also fed an explosion in litigation costs, which may deter small companies from entering the market for fear of infringing on patents with vaguely defined boundaries.

Patent litigation is complex, uncertain, and more expensive than most other civil lawsuits. It is estimated that for patent suits with less than $1 million under contention, median discovery costs and legal fees are $790,000; for suits between $1 million and $25 million these costs are $3 million; and for suits with more than $25 million at stake they rise to $6.5 million.9 These figures do not include damages, which may be treble in cases where willful infringement is found. In 2000, there were 2,000 patent lawsuits filed involving around 3,000 patents—double the number of lawsuits in 1990. About 2 percent of these lawsuits ultimately went to trial, a rate above that for civil cases in general. It is evident from these figures that litigation costs may be a deterrent for small companies as regards entry into competition that may infringe existing patents. It is also clear that companies generally prefer to settle out of court rather than risk an adverse judgment. Moreover, the United States is unique in providing a right to a jury trial in IPR lawsuits, and juries are more likely than judges to favor patent holders.

In addition to the costs of individual patents, researchers have to contend with “patent thickets.” That is, complex technologies, such as biomedical research tools, embody a number of technological inputs, many of which are patented. A different company, in turn, could own each patent. Negotiating these thickets raises the cost of securing rights. Weaker patent standards encourage patent proliferation and an enlargement of the thickets for research in areas such as biotechnology, agricultural chemicals, and pharmaceuticals.

All of this has a huge effect on America’s inventiveness. If you can’t use ideas, or if you have to pay to use them, or if you can’t even find anyone to negotiate with so you can use the idea, a thousand businesses that might have been born, never are. They are stillborn, stifled by increased costs or the outright inability to build on the work others have done before. Thanks to IP law, Jefferson’s torch is sputtering, his taper unable to light another’s.

What makes this doubly absurd is that CAP tries to deal with problems created by the US’s patent regime with workarounds. For example: [pdf]

Case in point: The United States should join with other developed countries and support so-called “Advance Market Commitments” for vaccines for diseases of the poor such as tuberculosis and malaria. Under AMC, donor governments “make markets” by committing to buy a certain number of doses of a vaccine that is safe and effective.

Why is this necessary? Because US patent law has been forced on third world nations through various trade agreements, so they can’t just make the vaccines themselves (vaccines cost almost nothing to make once invented) and just distribute them to their population. The result is, literally, the deaths of millions and the pain and suffering of millions more.

The logical way to deal with this isn’t charity, which experience suggests will never equal the need in any case, it is to change IP laws to allow countries to take care of their own citizens. And when dealing with innovation in general, ignoring IP issues is the equivalent of wondering why there are so many broken vases in your china shop, without noticing you have an elephant in the store.

Concluding Notes

I don’t want to leave the impression there’s nothing good in CAP’s Progressive Policy reports. Indeed there’s a great deal of excellent policy, from taxing capital gains the same as labor to getting rid of non-compete agreements, which is huge for increasing innovation and would probably be third on my list after fixing IP law and changing funding.

But at the same time the document feels to me like one that was written by people playing "junior politician" who rather than attempting to create the best policy and sell it, were attempting to write the best policy that they believe is already salable to the powers that be in Washington and that also (but less importantly) has popular support. So, as a result, no tieing of trade policy to Cap and Trade; no real revision of IP laws; and no willingness to really tackle Pharma.

Now they aren’t unique in doing this. All three leading Democratic candidates, for example, have less than ideal health care plans because they’re scared of actually cutting out insurance companies. Two of them have individual mandates, a truly inferior idea which while it might be made to work if you do the details exactly right, is actually a tax on individuals that will force them to buy insurance company products. This is progressive? Of course it isn’t.

Or we could look at all 3 leading Democratic candidates unwilling to guarantee they’d be out of Iraq by 2013, which they clearly aren’t doing because the public wants it (the public wants out) but because the Washington consensus is that to say anything else would be "irresponsible" despite the fact that the candidate with most actual foreign policy experience, Richardson, says it can be done.

But Democratic candidates are politicians. It’s to be expected they’ll make political calculations.

Is CAP primarily a policy shop, or a political operation? No one would say they should suggest policies completely beyond the pale, but are Americans really happy with IP law? Are they really against tariffs? No. But who is against these things is "the Village" and CAP is part of the village. So even though their analysts have to know that IP is the elephant in the room; even though they must be aware that carbon capping the US without doing something about offshoring and outsourcing is actually counterproductive, they don’t deal with it.

That’s bad policy. It may even be bad politics, since protectionism is becoming more and more popular and the people are getting angrier and angrier about IP laws. Guessing what policy will sell is notoriously dangerous, especially when you’re inside the Washington bubble.

But it’s definitely bad policy.

If CAP wants to write bad policy (their Cap and Trade proposal) or incomplete policy (their "innovation agenda") for political reasons, I’d prefer they not write anything. Their Cap and Trade policy could actually lead to an increase in carbon dumping, for goodness sakes. And every time they say the words "progressive" over and over again and then actually suggest policy that is centrist, not progressive, they weaken the meaning of the word and move the Overton Window against progressives.

Just stop playing junior politician and don’t propose policies which could actually do more harm than good.