The Megaupload Chilling Effects Hit

Posted by Julian Sanchez at http://www.cato-at-liberty.org/the-megaupload-chilling-effects-hit/


As I noted on Friday, the seizure of popular cyberlocker Megaupload demonstrates that, even without controversial new legislation, our government already has extraordinarily broad powers to take down U.S.-registered websites (including any site in the .com and .org domains) before anyone has been tried for illegal conduct, let alone convicted. While the evidence presented in the indictment charging Megaupload’s executives with criminal racketeering and copyright infringement certainly seems damning, I also worried about the broader chilling effect such seizures could have on cloud storage services generally.
It didn’t take long for those effects to become apparent. The cyberlocker Filesonic has now disabled file sharing functionality: Users can still upload files for personal storage, but can’t create public links to enable others to access those files. (Though I’m not sure what prevents someone from simply creating a dummy account, uploading files, and then publicly posting the login information.) Another cyberlocker, Uploaded.to, is just blocking all traffic from U.S. Internet addresses, though it’s not at all clear how much legal protection that’s likely to afford them. You can hardly blame them for being skittish: The Megaupload indictment suggests that the U.S. government considers a wide array of cyberlocker business practices to be ipso facto evidence of criminal intentions, even though there are arguably legitimate reasons for many of them. Yet the government doesn’t think it has to wait for a trial, or give the folks who run a site an opportunity to explain their practices, before seizing an entire domain—which would be an effective death sentence for many startups.
If you think all cyberlockers are nothing more than piracy tools, and there’s no legitimate reason to make use of cloud storage for anything but personal backups, this might sound like an entirely healthy development. It’s a little more worrying to those of us who see many valid reasons that law abiding individuals—even those who lack contracts with major record labels and movie studios, or the funds and tech savvy to run their own servers—might want to share large files with friends and colleagues, or distribute them to the general public.
To be sure, such services aren’t going to vanish entirely. Established corporations like Google have sophisticated filter algorithms that can help identify copyrighted content—though those are trivially defeated by file compression and encryption—and large, well paid legal teams to handle copyright compliance and fend off lawsuits, like the one Google’s own YouTube continues to fight with content behemoth Viacom. The question is whether these are the only companies we want offering such services. Is the market for cloud-based platforms that enable sharing (which is one of the big selling points of cloud computing) a market we’re prepared to see effectively closed off to startups  that can’t preemptively police every user-uploaded file to Hollywood’s satisfaction? Because that is the predictable effect of a regulatory environment where investors know a nascent site can be summarily yanked offline by a district judge who thinks a Tumblr is some sort of gymnastics aficionado.
If you’re only thinking about current, known uses of the Internet, this might not seem like that big a deal: Why do we need lots of different platforms for sharing large files? But then, just a few years ago it was hard to envision why we might want a platform for sharing streams of 140-character messages (“Just a bunch of people gabbing about what they had for lunch, ho-ho-ho!”) or a platform where anyone, not just Professional Content Creators, could upload short videos (“Amateur videos? Sounds like an excuse to steal movies!”) or half the other technologies that are so profoundly shaping 21st century life.
The last innovation is always safe. That’s why it’s easy to claim concrete examples of the harm regulation might do are hyperbolic fearmongering: Nobody’s going to shut down YouTube or Twitter now, because we’ve already seen the incredible value creation they enable, even if they also make it a bit easier to infringe copyrights. And anyway, the success stories eventually get big enough to afford their own fancy lawyers. It’s the next platform that we risk strangling in the cradle, because every new medium starts out recapitulating old media content before it becomes truly generative. Early radio is full of people reading newspapers and books out loud. Early TV and film looks like what you get when someone points a camera at a stage play.
File lockers still look like nothing but piracy tools to a lot of people, because most of us aren’t yet generating and sharing gigabytes worth of content on a daily basis. But it doesn’t take a whole lot of imagination to imagine a world where that’s not at all the case, a world where cheap, ubiquitous, powerful computing and rising bandwidth and falling storage costs make collaborative creation of high definition sound, video, and—who knows—maybe entire 3D environments a nigh universal recreational activity. (Like TV has been for the last couple generations, only with fewer dead brain cells.)
That world can be run by Google and Sony and a few other behemoths capable of negotiating byzantine licensing deals (and filtering protocols), with incumbents ill-disposed to see the value in anything that isn’t easily shoehorned into their existing business models. Or we can have a more dynamic, open world where someone with a cool idea for a platform can give it a try without spending more money on lawyers than servers first. The interesting, important question isn’t—as regulatory advocates want to make it—whether Megaupload should go out of business. Odds are it will and should, after a proper trial. It isn’t even whether sites like Rapidshare or Hotfile ought to follow suit. The interesting, important question is whether we’re going to have a legal climate that’s capable of giving rise to the second kind of cultural ecosystem, or one that’s only hospitable to the first kind.

State Government Business Subsidies in the News

Posted by Tad DeHaven at http://www.cato-at-liberty.org/state-government-business-subsidies-in-the-news/


Federal energy subsidies to business are a hot national topic thanks to the Solyndra scandal. Flying below the radar—and deserving more national media attention—are grants and other targeted incentives given to businesses by state governments. There is little doubt in my mind that there are state-subsidized “Solyndras” waiting to be discovered.
The Wall Street Journal took a step in this direction by noting in an editorial that a struggling lithium-ion battery maker subsidized by the Obama administration also received handouts from the State of Indiana. The editorial chides the administration for having “made a habit of investing your cash in their clunkers.” A series of investigations from WTHR-TV in Indianapolis has demonstrated that the administration of Indiana Gov. Mitch Daniels shares that same bad habit (see here).
The Journal editorial’s concluding lines correctly sum up the problem with government subsidies to businesses:

Better to leave commercial financing decisions to private investors and bankers who are likely to take more care with their own money. Politicians write the press releases first and worry about the taxpayer losses later.

As I’ve previously discussed, it was my experience as a state budget official in the Daniels administration that led me to coin the phrase “press release economics” to describe these subsidies. Indeed, WTHR’s investigations of the Indiana Economic Development Corporation showed that the Daniels administration was adept at taking credit for “creating jobs” that never materialized.
It might seem like I’m picking on Daniels, but he’s hardly alone. The Wall Street Journal recently ran an article on similar shenanigans in Texas Gov. Rick Perry’s administration:

In Texas, Mr. Perry in a 2011 report to the legislature credited the Texas A&M Institute for Genomic Medicine with already producing more than 12,000 additional jobs. That’s ahead of the 5,000 promised by 2015.
According to the institute’s director, however, 10 people currently work in its new building. A Houston-area biotech firm that agreed to produce about 1,600 of the project’s jobs has instead cut its Texas staff by almost 400 people, and currently employs 220 people in the state.
What accounts for the discrepancy? To reach their estimate of 12,000-plus jobs created by the project, officials included every position added in Texas since 2005 in fields related sometimes only tangentially to biotechnology, according to state officials and documents provided by Texas A&M. They include jobs in things like dental equipment, fertilizer manufacturing and medical imaging.

Republican governors aren’t the only ones who enjoy playing pretend venture capitalist with taxpayer money. The Mackinac Center for Public Policy’s Capitol Confidential reported this week on state subsidies given to Michigan solar companies by the administration of now-former governor Jennifer Granholm:

Michigan Capitol Confidential took a look back at the nine solar power companies that were approved for state tax credits. Many have fizzled with reports that the companies are laying off employees at a time they were supposed to have been adding jobs.
For example, in 2009 a company from Georgia called Suniva announced it planned to open a $250 million manufacturing plant in Saginaw County. It was to add 500 jobs. Media reports said the company is holding off plans for a Michigan plant after deciding not to pursue a Department of Energy loan.
Energy Conversion Devices and United Solar Ovonics are affiliated companies that have been approved for state tax credits for four different projects that were supposed to add about 5,700 jobs. Both companies announced layoffs this year.
Evergreen Solar opened a solar plant in Midland in 2009. The company announced in August it was filing for bankruptcy.

I’ll end on a (hopefully) positive note. Taxpayers in New York fed up with the state handing out their money to businesses have been fighting a long-running battle to end the practice. The New York State Court of Appeals is currently hearing a lawsuit brought by 50 taxpayers that challenges state grants given to business.
From the Associated Press:

The taxpayer group cited a provision in New York’s constitution that says: “the money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking; nor shall the credit of the state be given or loaned to or in aid of any individual, or public or private corporation or association, or private undertaking.” It has an exception for funds or property used for education and mental health.
Defendants countered that the funding for public purposes through state-designated economic development agencies is supported by law and precedents and doesn’t violate the constitution. “Doesn’t that just invite evasion?” Judge Robert Smith said. “All you’ve got to do is put an intermediary between the state and the recipient?”

Hopefully, Judge Smith’s question foretells a favorable outcome. A win for New York taxpayers could raise the issue’s profile and embolden fed-up taxpayers in other states.

What’s Next for SOPA and PIPA?

Posted by Julian Sanchez at http://www.cato-at-liberty.org/whats-next-for-sopa-and-pipa/


With popular sites all over the Internet “going dark” to protest well-intentioned but ill-considered antipiracy legislation, the Stop Online Piracy Act and PROTECT-IP Act are shedding supporters faster than Anthony Weiner on a Twitter spree. But as I explain in a Cato podcast today, neither is dead yet: Rep. Lamar Smith has pledged to continue marking up SOPA next month, and PIPA is still set for a cloture vote next week.
In a huge about-face, given their prior intransigence on this point, both have said they’re prepared to remove, at least temporarily, an onerous and controversial provision to require DNS blocking of accused “rogue sites,” which is an encouraging sign. But if DNS blocking was the worst piracy-fighting proposal on the table, it’s hardly the only one.
The Justice Department and private copyright owners can still seek to have entire foreign sites branded as infringers, triggering an array of remedies that would still deter technological investment and innovation, and still impose serious burdens on American companies and ordinary Internet users. Contrary to the claims of SOPA and PIPA supporters, copyright holders have often been perfectly able to sue the foreign “rogue sites” they cite as evidence new legislation is needed… the problem is that sometimes, they lose. Instead of all that messy litigation, SOPA and PIPA would establish one-sided hearing mechanism that mocks true due process. Any site a single friendly judge deems “rogue” would still be starved of advertising and subscription revenue. American search engines and other “information location tools” would still have to filter their content to redact any links to the shunned site. As Wikileaks has learned, repressive regimes have long known, and the Supreme Court acknowledged in Citizens United, economic regulation can silence speech (and run afoul of the First Amendment) as effectively as overt censorship.
That means we’re bound to see many more stories like the one entrepreneur Dmitri Shapiro tells: His innovative company Veoh won repeated copyright lawsuits filed by movie studios, but was still killed off by the cost of litigation. SOPA and PIPA will ensure that future lawsuit targets lack the means to fight back—which almost certainly means they’ll never get off the ground in the first place.
Such fears are hardly “hypothetical,” as Rep. Smith likes to argue, given industry’s ugly history of abusing copyright law to squelch competition and criticism. Remember, at the end of the day, that the market position of major studios and record labels is very much bound up with their control of traditional distribution channels.  Artists don’t need to be signed to a major label in order to record a great album—but they’re key to marketing the album and getting it into stores.
Any large platform that gives creators an easy way to reach audiences directly, or gives consumers easier mobile access to their legal content, will inevitably do two things: It will enable some amount of copyright infringement, because that’s what digital communications technologies tend to do, and it will cut out incumbent middlemen by circumventing their distribution channels. Industry complains loudly (and often rather dishonestly) about the first effect; the more serious long term threat to their business models is the second.
We’ve already seen a decade of futile efforts to stop unauthorized circulation of copyrighted materials online by “cracking down” ever harder. More new regulations aren’t likely to do the job—but the collateral damage they inflict will keep rising. As a recent and very thorough study by the Social Science Research Council argues, and Netflix has already shown within the United States, the most effective remedy for piracy is to make content easily available online at an attractive price.  Since it’s become a “political fact” that we Must Do Something Right Now to reduce online infringement, why not try that?

The Internet Is Not .gov’s to Regulate

Posted by Jim Harper at http://www.cato-at-liberty.org/the-internet-is-not-govs-to-regulate/


Imagine that Congress passed a law setting up a procedure that could require ordinary citizens like you to remove telephone numbers from your phone book or from the “contacts” list in your phone. What about a policy that cut off the phone lines to an entire building because some of its tenants used the phone to plot thefts or fraud? Would it be okay with you if the user of the numbers coming out of your phone records or the tenants of the cut-off building had been adjudged “rogue” users of the phone?
Cutting off phone lines is the closest familiar parallel to what Congress is considering in two bills nicknamed “SOPA” and “PIPA”—the “Stop Online Piracy Act” and the “PROTECT IP Act.”
Julian Sanchez has vigorously argued several points about these bills. Here, I’ll try to describe what they try to do to the Internet.
Simplifying, every computer and server has an IP (or “Internet Protocol”) address, which is a set of numbers that uniquely identify its location on the Internet. The IP address for the server hosting Cato’s Spanish language site, elcato.org, for example, is 67.192.234.234.
Now, these numbers are hard to remember, so there is a system that translates IP addresses into something more familiar. That’s the domain name system, or “DNS.” The domain name system takes the memorable name that you type into the address bar of your computer, such as elcato.org, and it looks up the IP address so you can be forwarded along to the IP address of your choice.
One of the major ideas behind SOPA and PIPA is to cut Internet sites that violate copyright out of the domain name system. No longer could typing “elcato.org” get you to the Web site you wanted to visit. Much of the debate has been about the legal process for determining whether to strike out a domain name.
But preventing a domain name lookup doesn’t take the site off the Internet. It just makes it slightly harder to access. You can prove it to yourself right now by copying “67.192.234.234″ (without the quotes) and plugging it into your address bar. (The Internet is complicated. Some of you might be directed to other Cato sites.) Then come back here and read on, por favor!
The government would require law-abiding citizens to “black out” phone numbers—or Internet service providers to do the same with domain names—for this little effect on wrongdoing? It doesn’t make sense. The practical burdens on the law-abiding Internet service provider would be large. “Blacking out” an entire building—just like a Web site—would cut off the lawful communications right along with the unlawful ones. It’s through-the-looking-glass information control, with enormous potential to obstruct entirely lawful communications and impinge on First Amendment rights.
Which is why many Web sites today are “blacking out” in protest. In various ways, sites like Craigslist.org, Wikipedia, and many others are signaling to their visitors that Congress is threatening the core functioning of the Internet with bills like SOPA and PIPA. And threatening all of our freedom to communicate.
The Internet is not the government’s to regulate. It is an agreement on a set of protocols—a language that computers use to talk to one another. That language is the envelope in which our communications—our First-Amendment-protected speech—travels in hundreds of different forms.
The Internet community is growing in power. (Let’s not be triumphal—government authorities will use every wile to maintain control.) Hopefully the people who get engaged to fight SOPA and PIPA will recognize the many ways that the government regulates and limits information flows through technical means. The federal government exercises tight control over electromagnetic spectrum, for example, and it claims authority to impose public-utility-style regulation of Internet service provision in the name of “net neutrality.”
Under the better view—the view of freedom behind opposition to SOPA and PIPA—these things are not the government’s to regulate.

Today the US Senate is considering legislation that would destroy the free and open Internet

Blog Post by Wil Wheaton at http://wilwheaton.typepad.com/wwdnbackup/2012/01/today-the-us-senate-is-considering-legislation-that-would-destroy-the-free-and-open-internet.html

“Why is it that when Republicans and Democrats need to solve the budget and the deficit, there’s deadlock, but when Hollywood lobbyists pay them $94 million dollars to write legislation, people from both sides of the aisle line up to co-sponsor it?”
        --Reddit Founder Alexis Ohanian on CNBC.
I put this on my Tumblr thing earlier today, but I'm reposting it here, because it's important to me. If you don't know what SOPA and ProtectIP are, read this technical examination of SOPA and ProtectIP from the Reddit blog and come back when you're done.
SOPA Lives -- and MPAA calls protests an "abuse of power."

The Motion Picture Association of America (MPAA) has looked at tomorrow’s “Internet blackout” in opposition to the Stop Online Piracy Act (SOPA)—and it sees only a “gimmick,” a “stunt,” “hyperbole,” “a dangerous and troubling development,” an “irresponsible response,” and an “abuse of power.”
“Wikipedia, reddit, and others are going dark to protest the legislation, while sites like Scribd and Google will also protest. In response, MPAA chief Chris Dodd wheeled out the big guns and started firing the rhetoric machine-gun style.
“Only days after the White House and chief sponsors of the legislation responded to the major concern expressed by opponents and then called for all parties to work cooperatively together, some technology business interests are resorting to stunts that punish their users or turn them into their corporate pawns, rather than coming to the table to find solutions to a problem that all now seem to agree is very real and damaging.”

Can I interrupt for a moment? Thanks. When you complain that opponents didn’t “come to the table to find solutions”, do you mean that we didn’t give NINETY-FOUR MILLION DOLLARS to congress like the MPAA? Or do you mean that we didn’t come to the one hearing that Lamar Smith held, where opponents of SOPA were refused an opportunity to comment? Help me out, here, Chris Dodd, because I’m really trying hard to understand you.

“It is an irresponsible response and a disservice to people who rely on them for information and use their services. It is also an abuse of power given the freedoms these companies enjoy in the marketplace today. It’s a dangerous and troubling development when the platforms that serve as gateways to information intentionally skew the facts to incite their users in order to further their corporate interests.”

Oh ha ha. Ho. Ho. The MPAA talking about “skewing the facts to incite” anyone is just too much.

“A so-called “blackout” is yet another gimmick, albeit a dangerous one, designed to punish elected and administration officials who are working diligently to protect American jobs from foreign criminals.”

Except for the part where this is completely false, it’s a valid point.

“It is our hope that the White House and the Congress will call on those who intend to stage this “blackout” to stop the hyperbole and PR stunts and engage in meaningful efforts to combat piracy.”

Riiiiiiight. Protesting to raise awareness of terrible legislation that will destroy the free and open Internet is an abuse of power, but buying NINETY-FOUR MILLION DOLLARS worth of congressional votes is just fine.
I’m so disappointed in Chris Dodd. He was a pretty good senator, wrote some bills (like Dodd/Frank) that are genuinely helping people, and is going to be on the wrong side of every argument as the head of the MPAA. What a wasted legacy.
===
I am 100% opposed to SOPA and PIPA, even though I'm one of the artists they were allegedly written to protect. I've probably lost a few hundred dollars in my life to what the MPAA and RIAA define as piracy, and that sucks, but that doesn't come close to how much money I've lost from a certain studio's creative accounting.
The RIAA and MPAA are, again, on the wrong side of history. Attempting to tear apart one of the single greatest communications achievements in human history in a misguided attempt to cling to an outdated business model instead of adapting to the changing world is a fucking crime.
A free and open Internet is as important to me as the bill of rights. I don't want the government of one country -- especially the corporate-controlled United States government -- to exert unilateral control over the Internet for any reason, especially not because media corporations want to buy legislation that won't do anything to actually stop online piracy, but will expand the American police state, and destroy the Internet as we know it.
Please contact your Senators and US Representatives, and tell them to vote NO on SOPA and ProtectIP. The future of the Internet -- and the present we take for granted -- depend on it.

How Copyright Industries Con Congress

Posted by Julian Sanchez at http://www.cato-at-liberty.org/how-copyright-industries-con-congress/


I’ve yet to encounter a technically clueful person who believes the Stop Online Piracy Act will actually do anything to meaningfully reduce—let alone “stop”—online piracy, and so I haven’t bothered writing much about the absurd numbers the bill’s supporters routinely bandy about in hopes of persuading lawmakers that SOPA will be an economic boon and create zillions of jobs. If the proposed solution just won’t work, after all, why bother quibbling about the magnitude of the problem? But then I saw the very astute David Carr’s otherwise excellent column on SOPA’s pitfalls, which took those inflated numbers more or less as gospel. If only because I’m offended to see bad data invoked so routinely and brazenly, on general principle, it’s important to try to set the record straight. The movie and music recording industry have gotten away with using statistics that don’t stand up to the most minimal scrutiny, over and over, for years, to hoodwink both Congress and the general public. Wherever you come down on any particular piece of legislation, this is not how policy should get made in a democracy, and it’s high time they were shamed into cutting it out.
The bogus numbers Carr cites—which I’ll get to in a moment—actually represent a substantial retreat from even more ludicrous statistics the copyright industries long peddled. In my previous life as the Washington editor for the technology news site Ars Technica, I became curious about two implausible sounding claims I kept seeing made over and over—and repeated by prominent U.S. Senators!—in support of more aggressive antipiracy efforts.  Intellectual property infringement was supposedly costing the U.S. economy $200–250 billion per year, and had killed 750,000 American jobs. That certainly sounded dire, but those numbers looked suspiciously high, and I was having trouble figuring out exactly where they had originated. I did finally run them down, and wrote up the results of my investigation in a long piece for Ars. Read the whole thing for the full, farcical story, but here’s the upshot: The $200–250 billion number had originated in a 1991 sidebar in Forbes, but it was not a measurement of the cost of “piracy” to the U.S. economy. It was an unsourced estimate of the total size of the global market in counterfeit goods. Beyond the obvious fact that these numbers are decades old, counterfeiting of physical goods imported in bulk and sold by domestic retail distributors is, rather obviously, a totally different phenomenon with different policy implications from the problem of illicit individual consumer downloads of movies, music, and software. The 750,000 jobs number had originated in a 1986 speech (yes, 1986) by the secretary of commerce estimating that counterfeiting could cost the United States “anywhere from 130,000 to 750,000″ jobs. Nobody in the Commerce Department was able to identify where those figures had come from.
These are the numbers that were driving U.S. copyright policy as recently as 2008—and I’m still seeing them repeated in “fact sheets” circulated by SOPA boosters.  Finally, in 2010, the Government Accountability Office released a report noting that these figures “cannot be substantiated or traced back to an underlying data source or methodology.” Now, if a single journalist could discover as much with a few days work, minimal due diligence should have enabled highly paid lobbyists to arrive at the same conclusion. The only way to explain the longevity of these figures, if we charitably rule out deliberate deception, is to infer that the people repeating them simply did not care whether what they were saying was true. If I were a legislator, I would find this more than a little insulting
As Carr’s piece suggests, SOPA’s corporate backers have fallen back on new numbers, but they’re still entirely bogus:

The Motion Picture Association of America cites figures saying that piracy costs the United States $58 billion annually. Mark Elliot, an executive from the U.S. Chamber of Commerce, said in a letter to The New York Times that such piracy threatened 19 million American jobs

Only $58 billion! We’re making progress! So where does that figure come from? The source here is a paper released by the Institute for Policy Innovation, and authored by one Stephen Siwek, an MBA and principal of a consulting firm called Economists Incorporated that produces economic analysis for hire on behalf of (among others) businesses seeking to influence policy makers. That does not, in itself, invalidate the research, but we should at least begin with the recognition that we are not dealing here with impartial academic studies produced by a university or government research agency.

What does invalidate the “research” is the inappropriate use of “multiplier” effects to double—and triple—count loss estimates that were dubious to begin with. As the GAO report notes in its typically understated fashion:

Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment.

In other words, Siwek is taking a method that’s useful for analyzing where in the economy we will likely see the effects of demand shifts, and pretending that it somehow reflects aggregate economic losses. As my colleague Tim Lee has pointed out, this is Bastiat’s Broken Window Fallacy on steroids:

[I]n IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefited by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

So, to stay focused on movies, Siwek takes an estimate of $6.1 billion in piracy losses to the U.S. movie industry, and through the magic of multipliers gets us to a more impressive sounding $20.5 billion. That original $6.1 billion figure, by the way, was produced by a study commissioned from LEK Consulting by the Motion Picture Association of America. Since even the GAO was unable to get at the underlying research or evaluate its methodology, it’s impossible to know how reliable that figure is, but given that MPAA has already had to admit significant errors in the numbers LEK generated, I’d take it with a grain of salt.
Believe it or not, though, it’s actually even worse than that. SOPA, recall, does not actually shut down foreign sites. It only requires (ineffective) blocking of foreign “rogue sites” for U.S. Internet users. It doesn’t do anything to prevent users in (say) China from downloading illicit content on a Chinese site. If we’re interested in the magnitude of the piracy harm that SOPA is aimed at addressing, then, the only relevant number is the loss attributable specifically to Internet piracy by U.S. users.
Again, we don’t have the full LEK study, but one of Siwek’s early papers does conveniently reproduce some of LEK’s PowerPoint slides, which attempt to break the data down a bit. Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million—which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel.
So in a fantasy world where U.S. movie pirates don’t just circumvent blockage with a browser plugin, and SOPA actually stops all online movie piracy by American users, we get a $446 million economic benefit to the United States in the form of movie revenues, and presumably comparable benefits in music and software revenues? Well, no. Remember our old friend the Broken Window Fallacy. It’s true that some illicit U.S. downloads displace sales of legal products. But what happens to the money the pirates would have otherwise spent on those legal copies? They don’t eat it! As that same GAO report helpfully points out:

(1) in the case that the counterfeit good has similar quality to the original, consumers have extra disposable income from purchasing a less expensive good, and (2) the extra disposable income goes back to the U.S. economy, as consumers can spend it on other goods and services.

As one expert consulted by GAO put it, “effects of piracy within the United States are mainly redistributions within the economy for other purposes and that they should not be considered as a loss to the overall economy.” In many cases—I’ve seen research suggesting it’s about 80 percent for music—a U.S. consumer would not have otherwise purchased an illicitly downloaded song or movie if piracy were not an option. Here, the result is actually pure consumer surplus: The downloader enjoys the benefit, and the producer loses nothing. In the other 20 percent of cases, the result is a loss to the content industry, but not a let loss to the economy, since the money just ends up being spent elsewhere. If you’re concerned about the overall jobs picture, as opposed to the fortunes of a specific industry, there is no good reason to think eliminating piracy by U.S. users would yield any jobs on net, though it might help boost employment in copyright-intensive sectors. (Oh, and that business about 19 million jobs? Also bogus.)
Does that mean online piracy is harmless? Of course not. But the harm is a dynamic loss in allocative efficiency, which is much harder to quantify. That is, in the cases where a consumer would have been willing to buy an illicitly downloaded movie, album, or software program, we want the market to be accurately signalling demand for the products people value, rather than whatever less-valued use that money gets spent on instead. This is, in fact, very important! It’s a good reason to look for appropriately tailored ways to reduce piracy, so that the market devotes resources to production of new creativity and innovation valued by consumers, rather than to other, less efficient purposes. Indeed, it’s a good reason to look for ways of doing this that, unlike SOPA, might actually work.
It is not, however, a good reason to spend $47 million in taxpayer dollars—plus untold millions more in ISP compliance costs—turning the Justice Department into a pro bono litigation service for Hollywood in hopes of generating a jobs and a revenue bonanza for the U.S. economy. Any “research” suggesting we can expect that kind of result from Internet censorship is a fiction more fanciful than singing chipmunks.

Ron Paul Challenges the GOP’s Irresponsible Foreign Policy

Posted by Doug Bandow at http://www.cato-at-liberty.org/ron-paul-challenges-the-gops-irresponsible-foreign-policy/


The Iowa caucuses will gather tonight in the first electoral event for the Republican presidential nomination. It is anyone’s guess which way this contest will go.
But the most noteworthy development up to this point may be Ron Paul’s emergence as a legitimate candidate receiving serious media attention. Much of the coverage has been critical, and rightly so on some issues. Yet, despite attempts to dismiss him as a viable national candidate, Ron Paul matters.
Cato’s president Ed Crane explained why in Saturday’s Wall Street Journal and emphasized, among other things, Ron Paul’s appeal to limited-government Republicans and independent voters on foreign policy and military spending. The Republican establishment should rethink its positions and recognize that Ron Paul has been speaking truth to power on these issues.
In the 2000 presidential campaign, candidate George W. Bush argued against nation-building. Unfortunately, President George W. Bush chose arrogance over humility as his foreign policy. Since then virtually every Republican presidential candidates has embraced his philosophy of endless war: in effect, the GOP mantra is “we’re all neoconservatives now.”
Only Paul (and Gary Johnson, excluded from most of the debates) challenge America’s role as World Policeman. Paul observed that conservatives enjoyed spending money, only “on different things. They like embassies, and they like occupation. They like the empire. They like to be in 135 countries and 700 bases.”
All of Paul’s establishment GOP opponents support defending rich nations around the world. Rick Santorum warned: as commander-in-chief Ron Paul “can shut down our bases in Germany. He can shut down the bases in Japan. He can pull our fleets back.”
Why would this be bad? The European nations have a larger GDP and population than America. The U.S. faces fiscal crisis: after 66 years, it is time for the Europeans to defend themselves. Japan, long possessing the world’s second largest economy, also could take care of itself.
The other Republican contenders, except Ambassador Jon Huntsman, have mostly defended Washington’s endless nation-building exercise in Afghanistan. Santorum demanded that we achieve “victory,” whatever that means. Romney said that he would listen to the counsel of the military commanders–as if that would relieve him of making an independent decision as president.
Most Americans agreed with the original objective of wrecking al Qaeda and ousting the Taliban but now want out. And rightly so. No “conservative” should sacrifice Americans’ lives and wealth in an attempt to create a strong, effective, and honest central government in Afghanistan, something which never before has existed.
But the most ardent criticism of Paul’s foreign policy is directed toward his position on Iran acquiring nuclear weapons. Paul is against a pre-emptive strike on Iran, an action that Romney and Rick Perry are willing to consider. There are good reasons to try to keep nuclear weapons out of Iran’s hands, but the costs of military action likely would be horrendous. Moreover, every additional threat to attack Iran only more clearly demonstrates to Tehran the necessity of developing nuclear weapons.
Paul’s willingness to rethink U.S. foreign policy means he is the only candidate to propose a realistic military budget, one that supports the “common defense” of America, not the rest of the world. The other GOP candidates decry nonexistent spending cuts. Military outlays under President Obama are higher than under President Bush. Only in Washington is slowing the rate of increased called a “cut.”
Most of the GOP contenders—again other than Paul and in this case Huntsman—endorse torture. For all of their talk about American exceptionalism, the Republicans see the U.S. as a beleaguered, virtually helpless giant, which must sacrifice its very being to survive. This depressing picture is unworthy of America. This may be why service members (at least who have contributed to candidates) have overwhelmingly backed Paul, one of only two veterans in the race.
The response to Ron Paul’s foreign policy views raises the question: Can the Republican Party any longer be taken seriously on national security issues? Over the last decade the GOP has needlessly sacrificed Americans’ lives, wasted Americans’ wealth, overextended America’s military, violated Americans’ liberties, and trashed America’s reputation. As a result, we are less prosperous, free, and secure. If the Republican Party refuses to learn from Rep. Paul, it does not deserve the public’s trust.

A Guide to the Presidential Candidates’ Proposals to Cut Spending

Posted by Tad DeHaven at http://www.cato-at-liberty.org/a-guide-to-the-presidential-candidates-proposals-to-cut-spending/


Over at Downsizing the Federal Government, Chris Edwards and I have regularly complained that most policymakers have been insufficiently specific when it comes to identifying spending cuts. With the Republican primaries about to get underway, it’s a good time to see what the current crop of presidential aspirants has to offer.
There are multiple ways to skin this cat, but I decided to put together a comparison table based solely on the content found on each candidate’s campaign website. I did not consider past statements or votes, the televised debates, or outside sources (unless linked to by a campaign’s website). The idea is that statements on each candidate’s website should offer the clearest indication of their intentions should they become president.
Ron Paul is the only candidate who actually produced a proposed federal budget. Therefore, I started with his template and added additional agencies/programs cited on the websites of the other candidates. Again, the idea is to show specifically what the candidates are proposing to cut. Thus, proposed spending reforms such as a Balanced Budget Amendment or a spending cap are not included.
There is a degree of subjectivity in putting this together, but I tried to be fair and consistent. It is for informational purposes only (i.e., it should not be construed as an endorsement of any candidate(s)). Finally, it is possible that proposals were missed, but that could be a reflection of a website’s accessibility to pertinent information.

The following are brief overviews for each candidate (in alphabetical order):
Michele Bachmann

• Bachmann says she “supports abolishing the federal Environmental Protection Agency and Department of Education.” However, she does not say if all of those agencies’ functions would be abolished.
• Bachmann says she “voted for the Ryan Plan to make sure that Medicare is secure for future generations” but that “the Ryan Plan is just the very first step on health reform, and I voted for it with an asterisk with further reforms in mind.”
• Bachmann’s statements on foreign policy portend increased military spending.

The number of specific spending cuts on Bachmann’s website is paltry and it’s evident that she supports increased military spending given her hawkish statements on foreign policy.   
Newt Gingrich

• Gingrich supports federal subsidies for agriculture and energy, but says that most of the Department of Education’s “responsibilities and positions will be eliminated.”
• On the issue of foreign policy, Gingrich says “Think Big.” Gingrich’s statements on foreign policy portend increased military spending.
• Gingrich offers a 49-page white paper on entitlement and welfare reform. Proposed reforms to Social Security include personal savings accounts. Medicare reforms include providing premium support for the purchase of private health insurance. Medicaid would “ideally” be block-granted to the states. In addition, the paper lists 184 federal means-tested programs that would be block granted.

Gingrich’s website provides a lot of information, but his spending proposals are a mixed-bag. He is heavy on ideas and reforms, but it appears that the federal government’s hand would also remain heavy. In addition, the budgetary effects of Gingrich’s proposals are murky. For instance, he proposes to replace the Environmental Protection Agency with a “pro-growth” Environmental Solutions Agency. 

Jon Huntsman

• In an op-ed linked from his website, Huntsman appears to endorse ending “unaffordable subsidies for agriculture and energy.” The website also says that Huntsman will “adopt a comprehensive energy strategy that frees us from foreign oil, that eliminates all energy subsidies, and that levels the playing field for competing fuels and technologies.”
• Huntsman says that he “will reform entitlement programs – based on the Ryan Plan – while holding true to our nation’s commitments to those in or near retirement.” It is not clear what reforms to Social Security he would embrace.
• Huntsman’s statements on military spending and foreign policy are more reserved than the hawkish tenor exhibited by the rest of the field – Ron Paul and Gary Johnson excluded.

Huntsman doesn’t offer much when it comes to specific spending cuts. The absence of specifics and details leaves a lot of question marks. Huntsman does not propose any spending increases and his relatively reserved views on foreign policy indicate that military spending cuts could be possible.
Gary Johnson

• Johnson calls for repealing the Medicare prescription drug benefit and block-granting the entire program – along with Medicaid – to the states. On Social Security, he only proposes to “fix Social Security by changing the escalator from being based on wage growth to inflation.”
• Johnson says the government should “stop spending on the fiscal stimulus, transportation, energy, housing, and all other special interests.” He also proposes to “reduce or eliminate federal involvement in education” and end “unnecessary farm subsidies.” And Johnson’s proposal to rein in the failed “war on drugs” would generate savings at the Department of Homeland Security.
• Johnson proposes to bring the troops home from Afghanistan and an end to nation-building. He clearly envisions a less interventionist foreign policy, which should translate into reduced military spending.  

Johnson embraces a sizable reduction in the scope of the federal government’s activities, but more details and elaboration would be helpful – especially on entitlement programs. Johnson’s intentions on foreign policy are best encapsulated by his statement that “it’s time to recognize that you can’t have limited government at home, but big government abroad.” Overall, Johnson’s spending proposals reflect a vision for a federal government more limited in size and scope.
Ron Paul

• Paul’s “Plan to Restore America” would eliminate the departments of Commerce, Education, Energy, Housing & Urban Development, and Interior. Numerous agencies and programs would be eliminated or cut.
• Paul supports allowing younger people to opt-out of Social Security and Medicare. Medicaid and other mandatory programs like food stamps would be block-granted to the states. Funding would be cut and froze. Further elaboration on his ideas for Social Security and Medicare would be helpful.
• Paul proposes to end all foreign aid. Military spending cuts would be achieved by bringing troops home from overseas and pursuing a non-interventionist foreign policy.

When it comes to proposing specific spending cuts and identifying the dollars amounts, Paul’s website is unrivaled. He is the only candidate to put together an actual budget proposal. Paul’s spending proposals would amount to the largest reduction in the size and scope of the federal government of any candidate.    
Rick Perry

• Perry proposes to eliminate the departments of Commerce, Education, and Energy. However, he is not proposing that all of the functions contained within those departments be eliminated. For example, Perry proposes “block-granting all funding for elementary and secondary education,” which means federal taxpayers would still be on the hook.
• Perry’s proposals on entitlements are consistent with the GOP field. Proposed Social Security reforms include the creation of personal retirement accounts for younger workers. He would block-grant Medicaid to the states and Medicare would be “reformed” to be “sustainable for the long-term.”
• In comparison to economic issues, Perry has relatively little to say on foreign policy. Although Perry does not strike the hawkish tone of other GOP candidates, there’s nothing on his website to suggest that he’ll rein in military spending.

Like Gingrich, Perry’s website contains a healthy amount of content. Perry deserves credit for offering specific spending cuts and elaborating on why he believes those cuts would be prudent. However, unlike Paul, Perry proposes to eliminate departments without also eliminating the functions contained within them. And unlike Johnson and Paul, Perry does not embrace a reduced U.S. military presence abroad, which implies that he would not rein in military spending.
Mitt Romney

• Romney’s “Plan for Jobs and Economic Growth” is 87 pages long. Nine pages are devoted to fiscal policy. Those nine pages don’t offer much in the way of specific spending cuts. Romney does suggest some good cuts, but they are not large in budgetary terms.
• When it comes to entitlements, Romney has virtually nothing to say on Social Security. He does propose block-granting Medicaid to the states. On Medicare, Romney says “the plan put forward by Congressman Paul Ryan makes important strides in the right direction by keeping the system solvent and introducing market-based dynamics.” Romney then says that his “own plan will differ, but it will share those objectives.”
• The foreword to Romney’s 44-page paper on foreign policy was written by the prominent neoconservative, Eliot Cohen. It’s safe to say that military spending would not be threatened on Romney’s watch.

Despite the fact that Romney’s website offers a lot of content, he doesn’t offer many specifics when it comes to spending. The spending cuts that Romney does specify are not easily found on his website. They are also relatively small cuts that would have little effect on the size and scope of the federal government. It’s also evident that Romney supports increased military spending.
Rick Santorum

• Santorum’s website doesn’t offer many details or elaboration, but he does list a number of proposals to cut spending. For example, he proposes to “eliminate all agriculture and energy subsidies within four years letting the markets work.”
• Santorum’s proposals for entitlement programs are vague: “reform Social Security and Medicare for sustainable retirements.” However, he does allude to having supported private retirement accounts in the past. He also proposes to “block grant Medicaid, Housing, Job Training, and other social services to the States.”
• Santorum’s statements on foreign policy – arguably the most hawkish of the candidates – clearly indicate that he favors increases in military spending.

Santorum’s statements on foreign policy put him at odds with Johnson’s view that “you can’t have limited government at home, but big government abroad.” However, he does suggest broad spending cuts – although more details and elaboration would be helpful.

Why Ron Paul Matters

by Edward H. Crane at www.cato.org

The controversy surrounding decades-old newsletters to which GOP presidential aspirant Ron Paul lent his name is regrettable. First, it is regrettable because the sometimes bigoted, intolerant content of those newsletters is inconsistent with the views of the congressman as understood by those of us who know him. Yet, while Mr. Paul disavows supporting those ideas, he refuses to repudiate his close association with their likely source, Lew Rockwell, head of the Alabama-based Mises Institute.

Second, the New York Times editorialized recently that these unsavory writings "will leave a lasting stain on ... the libertarian movement." That is wishful thinking on the part of the Times, but it adds to the background noise surrounding Mr. Paul's candidacy, obscuring the real libertarian policy initiatives that have made his candidacy the most remarkable development of the 2012 campaign.
Ron Paul's libertarian campaign has traction because so many Americans respond to his messages:
• Tax and spending. If ever there were sound and fury signifying nothing, it has to be the recent "debate" over the budget. Covered by the media as though it was negotiations on the Treaty of Versailles, the wrestling match between Republicans and Democrats centered on the nearly trivial question of whether the $12 trillion increase in the national debt over the next decade should be reduced by 3% or 2%.
Mr. Paul would cut the federal budget by $1 trillion immediately. He can't do it, of course, but voters sense he really wants to. As Milton Friedman once explained, the true tax on the American people is the level of spending — the resources taken from the private sector and employed in the public sector. Whether financed from direct taxation, inflation or borrowing, spending is the burden.
• Foreign policy and military spending. As the only candidate other than Jon Huntsman who says it is past time to bring the troops home from Afghanistan, Mr. Paul has tapped into a stirring recognition by limited-government Republicans and independents that an overreaching military presence around the world is inconsistent with small, constitutional government at home.
The massive cost of these interventions, in treasure and blood, highlights what a mistake they are, as sensible people on the left and right recognized from the beginning. Of course we want a strong military capable of defending the United States, but our current expenditures equal what the rest of the world spends, which makes little sense. It is futile to try to be the world's policeman — to try to create an American Empire as so many neoconservatives promote. And we can't afford it.
• Civil liberties. Libertarians often differ with conservatives over issues related to civil liberties. Mr. Paul's huge support among young people is due in large part to his fierce commitment to protecting the individual liberties guaranteed us in the Constitution. He would work to repeal significant parts of the so-called Patriot Act. Its many civil liberties transgressions include the issuance by the executive branch of National Security Letters (a form of administrative subpoena) without a court order, and the forbiddance of American citizens from mentioning that they have received one of these letters at the risk of jail.
The Bush and Obama administrations have claimed the right to incarcerate an American citizen on American soil, without charge, without access to an attorney, for an indefinite period.
President Obama even claims the right to kill American citizens on foreign soil, without due process of law, for suspected terrorist activities. Meanwhile, the Stop Online Piracy Act moving through the House is a clear effort by the federal government to censor the Internet. Mr. Paul stands up against all this, which should and does engender support from limited government advocates in the GOP.
• Austrian economics. Mr. Paul is often criticized for references to what some consider obscure economists of the so-called Austrian School. People should read them before criticizing. Nobel laureate Friedrich von Hayek and his mentor Ludwig von Mises were two of the greatest economists and social scientists ever to live.
Modern Austrian School economists such as Lawrence H. White, now at George Mason University, and Fred Foldvary at Santa Clara University predicted the housing bubble and the recession that followed the massive, multitrillion-dollar malinvestment caused by government redirection of capital into housing. Mr. Paul, like Austrian School economists, understands that we would be better off with a gold standard, competing currencies or a monetary rule than with the arbitrary and discretionary powers of our out-of-control Federal Reserve.
Mr. Paul should be given credit for his efforts to promote these ideas and other libertarian policies, all of which would make America better off. He'd be the first to admit he's not the most erudite candidate to make the case, but surely part of his appeal is his very genuine persona.
Which is not to say that Mr. Paul is always in sync with mainstream libertarians. His seeming indifference to attempts to prevent Iran from obtaining nuclear weapons, his support for a constitutional amendment to deny birthright citizenship to children of illegal aliens, and his opposition to the Nafta and Cafta free trade agreements in the name of doctrinal purity are at odds with most libertarians.
As for the Ron Paul newsletters, the best response was by my colleague David Boaz when the subject was raised publicly in 2008. About them he wrote in the Cato Institute's blog:
"Those words are not libertarian words. Maybe they reflect 'paleoconservative' ideas, though they're not the language of Burke or even Kirk. But libertarianism is a philosophy of individualism, tolerance, and liberty. As Ayn Rand wrote, 'Racism is the lowest, most crudely primitive form of collectivism.' Making sweeping, bigoted claims about all blacks, all homosexuals, or any other group is indeed a crudely primitive collectivism. Libertarians should make it clear that the people who wrote those things are not our comrades, not part of our movement, not part of the tradition of John Locke, Adam Smith, John Stuart Mill, William Lloyd Garrison, Frederick Douglass, Ludwig von Mises, F. A. Hayek, Ayn Rand, Milton Friedman, and Robert Nozick. Shame on them."
Support for dynamic market capitalism (as opposed to crony capitalism), social tolerance, and a healthy skepticism of foreign military adventurism is a combination of views held by a plurality of Americans. It is why the 21st century is likely to be a libertarian century. It is why the focus should be on Ron Paul's philosophy and his policy proposals in 2012.

Loser-pays Has Yet to Be Properly Tried in America

Posted by Walter Olson at http://www.cato-at-liberty.org/loser-pays-has-yet-to-be-properly-tried-in-america/


If you missed it, The Economist has a useful contribution on the renewed interest among many Americans in adopting the loser-pays principle in civil litigation, which most countries around the world have long embraced in light of its fairness and practicality. I’ve been writing in favor of the idea since my first book, The Litigation Explosion (more links here) and Cato has spotlighted Marie Gryphon’s important recent work on the topic. Mississippi governor-elect Phil Bryant “has already expressed support” for the concept, according to this recent report in the Jackson Clarion-Ledger.
Despite strong interest in liability reform over the past two decades, no state has joined Alaska (which has had the principle since territorial days) in adopting an across-the-board loser-pays principle. Why is that? The opposition of some plaintiff’s lawyers and legal academics is hardly a full explanation. The fact is that loser-pays reform remains perpetually sidelined because much of organized big business quietly or not-so-quietly opposes it. In fact, some D.C.-based business lobbyists even roam the country attempting to squelch outbursts of enthusiasm for loser-pays among state legislators and others close to the grass roots.
Why are these businesses opposed? Some fear that any new set of rules will be interpreted to their disfavor, or prefer not to rock the boat for fear of unpredictable consequences; others delegate the issue to outside lawyers who may see the issue through the lens of their own professional biases; and yet other businesses recognize and (as perennial defendants) fear the tendency of loser-pays systems to vindicate many strong small plaintiff’s claims better than does our current system. With an open public debate and careful drafting of reform proposals, I think most of these fears would be assuaged: for example, most big American firms also operate in Canada, Europe, and other countries where loser-pays is accepted as a normal feature of the legal landscape. In the mean time, I wish someone would organize a group called “Business Leaders for Loser-Pays.”

SOPA: An Architecture for Censorship

Posted by Julian Sanchez at http://www.cato-at-liberty.org/sopa-an-architecture-for-censorship/


The Stop Online Piracy Act—a bill misleadingly named for its aspirations, not its probable effect—has provoked an outpouring of justified opposition, much of it centered on two primary concerns: The virtual certainty that it will result in the ancillary blocking of much legitimate free speech, and the damage it would do to the basic architecture of the open Internet. One point I haven’t seen pressed forcefully enough thus far, however, is that architectural and free speech concerns are not entirely independent. The practical effect of SOPA will be to create an architecture for censorship—both legal and technological—that will radically alter the costs of engaging in future censorship unrelated to piracy or counterfeiting.
SOPA is a 70 page statute establishing a detailed legal process by which the Justice Department can initiate blocking of supposed pirate domains by ISPs and search engines, and by which private parties can seek orders requiring payment processors and ad networks to sever ties. After flying largely below the radar of public attention for many months, we’re finally seeing sustained scrutiny and fierce debate over the bill. But the portion of the bill laying out the specific types of criminal conduct that trigger this Rube Goldberg censorship machine occupy just a couple of paragraphs. With the legal framework in place, expanding it to cover other conduct—obscenity, defamation, “unfair competition,” patent infringement, publication of classified information, advocacy in support of terror groups—would be a matter of adding a few words to those paragraphs. One sentence slipped in as a rider on some must-pass omnibus bill would do it: “Section 102(2)(B) is amended to add ‘or civil action under 17 USC §271′.”—voila, a nuclear weapon for patent trolls.
Then there’s the technological architecture. If SOPA passes, thousands of commercial ISPs, colleges, small businesses, nonprofits, and other entities that maintain domain servers are going to have to reconfigure their networks, potentially at substantial cost, in order to easily comply with the new law. There is an introductory clause in the latest version of the bill stipulating that no network operator will be required to implement a specific technology or redesign their networks in any particular manner in order to be considered in compliance. But let’s think realistically about what compliance will look like. Genuine “rogue sites” often operate via dozens of different domains, which means we’re apt to see regular updates to the government’s standing blacklist, potentially adding dozens or hundreds of domains in one go. Any sane network operator is just going to build a filter that reads off the current list of banned domains from a government feed and automatically stops resolving them. (This will, incidentally, be an enormously attractive attack surface for hackers: Spoof the SOPA feed—either at the source or to a particular provider—and you’ve got an instant bulk denial of service attack!)
Once the up-front costs of implementing that filter mechanism are paid, the marginal cost of additional censorship is effectively zero for the providers. It won’t much matter to the providers, at that point, whether the blacklist contains 10 domains or 10,000. The technology itself, needless to say, will be indifferent to the rationale for blacklisting. The filter will just automatically implement the list of domains it’s given; it won’t know or care whether they’re being blocked for hosting pirated movies, Hamas propaganda, or the Pentagon Papers.
These twin architectures will obliterate major institutional barriers to Internet censorship generally, not just censorship for antipiracy purposes.  Political actors—or special interest groups—who want to expand the scope of blocking will no longer have to justify putting in place a wholly new system of Internet blocking. Instead, the rhetorical question will become: Now that we’ve got this whole filter architecture in place for music and movie pirates, how can we possibly justify not using it for sites that host terrorist propaganda or classified documents, for sites that implement a patented business model without permission, for sites enabling speech some U.S. court has held libelous, and for whatever new moral panic is gracing the cover of Time in five years. Surely you’re not suggesting that illicit downloads of Norbit are a bigger problem than whatever outrage Joe Lieberman is fulminating against this week, are you?
Changing legal and technological architectures also changes the costs of future political decisions that make use of those architectures. Speech is more likely to stay free when censorship isn’t. The cheaper the muzzle, the dimmer the prospects for online expression.

Good News for the New Year

by Richard W. Rahn at www.cato.org

Even though some are predicting the end of the world in 2012, there is a possibility it could turn out better than 2011 (a low bar). Many people who are not part of the political class continue to advance civilization and make things better for us — like the late Steve Jobs.

Dr. Ito Briones, who is a biochemist research scientist, a medical doctor and something of a Renaissance man, recently wrote to me that he thinks the greatest discovery in medical science was the creation of iPS (induced pluripotent stem cells, or stem cells from reprogrammed skin cells) by Drs. Shinya Yamanaka and Kazutoshi Takahashi. According to Dr. Briones, "Even though the clinical application of iPS cells remains untested, the theories about aging and stem cells and the fountain of youth principles are groundbreaking and extremely fascinating. IPS science continues to move very fast. ... The promise for cures to cancer and other diseases appears plausible now with iPS science. What this discovery has also done is to open scientists' minds to the concept that nothing is indeed impossible in biology."
Other potential good news is that not all members of the political class are unprincipled, self-serving, ignorant and shortsighted. We are seeing a growing band of smart, responsible and knowledgeable people being elected to Congress and other political bodies. One example is Rep. Paul Ryan, Wisconsin Republican, who is chairman of the House Budget Committee. Mr. Ryan, a fine economist, put together an economically sound and politically realistic budget that passed the House of Representatives but, not unexpectedly, died in the Democrat-controlled Senate. There is a real possibility that a sufficient number of the American people will be rational enough to elect new members to the House and Senate (and the presidency) to pass a Ryan-type budget before the United States goes off the fiscal cliff, like Greece.

In democratic countries, many politicians get themselves elected by making promises for spending programs that the citizens cannot or are unwilling to pay for. The result is persistent deficit spending that ultimately spirals out of control. The good news is that some democratic countries have learned how to avoid the spending/deficit trap, and those countries can serve as examples for the less prudent majority. (See accompanying chart.)
The best example is Switzerland. The Swiss have managed to be fiscally responsible for many decades, in part because they have a highly decentralized, direct democracy. Most governmental functions take place at the local level rather than the federal level in Switzerland, and as a result, the local governments must compete with each other on taxes, regulations, etc., which tends to hold down the growth in government and promotes liberty. Where government is close to the people, and where the democratic process is direct, the people can more directly hold elected officials responsible for misspending and mismanagement.
The United States was designed by its founders to have a small and relatively weak central government, in which most of the government functions and power were supposed to be at the state and local level. The 10th Amendment to the U.S. Constitution is very explicit: "The powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved to the States respectively or to the people." The potential good news is that as a result of the presidential debates, more people are becoming aware of the 10th Amendment and are beginning to understand that if Congress and the courts stopped ignoring this amendment, the U.S. likely would have a smaller, more effective and more fiscally sound government.
Sweden and Canada provide role models for how highly developed democracies that have created unsustainable welfare states can find peaceful and constructive ways out of the dilemma. In the mid-1990s, both countries were stagnating and headed toward a Greek-style credit default because of the drag of bloated government spending, taxing and regulation. In both countries, the parties of the left and right came together to reverse course by reducing tax rates, spending and destructive regulation and privatizing much of what had been nationalized. Real growth has been revived in both Canada and Sweden, and they both have very manageable debt-to-gross-domestic-product ratios. Because Sweden is a small, homogenous country, it is able to maintain a larger government as a percentage of GDP and still obtain normal rates of economic growth than can more heterogeneous countries like the U.S. and Switzerland.

HEALTHY ECONOMIES Countries that had both Economic Growth and a Budget Surplus in 2011
Country	Economic Growth Rate	(%) Budget Surplus as % of GDP
Chile	6.3	0.2
Singapore	5.1	0.6
South Korea	3.8	2.4
Sweden	4.1	0.0
Switzerland	1.8	0.8
Source: The Economist Magazine

The good news is that it is well-known what economic reforms are necessary to revive growth and fiscal sanity in the major European countries and America. But it also takes leaders who can explain what needs to be done and persuade the people to endure the pain of the necessary transitional hardship in the way British Prime Minister Margaret Thatcher and President Reagan did.
As a reality check on the potential good news, my friend Jim Stewart, a neurologist, asked: "While the medical community is indeed making great strides in extending our lives, who ... wants to live longer if the politicians keep making things worse?"

Changing Times

by Steve H. Hanke and Richard Conn Henry at www.cato.org

For more than five hundred years, the most popular and influential book, after the Bible, was The Golden Legend by Jacques de Voragine.* At the end of the 13th century Voragine grappled with the sacralization of time and its usage. Following the Council of Trent in the 16th century, the rules of time that, for the most part, have ruled Western civilization, were established.

Recently, an interesting change occurred. On 28 March 2010, Russian President Medvedev eliminated two of Russia's eleven time zones. Russia circles almost half the globe. Using our present nineteenth-century method of marking the time, the clocks in Kaliningrad, far west of Moscow, read ten hours differently (9 hours differently, after Medvedev's change) than do clocks across the Bering Sea from Alaska. But, time, as measured by atomic clocks, is exactly the same in those two Russian locations. The time is the same everywhere, but the sun can be at very different locations in the sky — something that mattered in the nineteenth century far more than it does today.
Why did Medvedev make these changes? Imagine Washington, D.C. on our West Coast, and the U.S. stretched over eleven time zones. If that were the case, when President Obama began work at 6 AM, it would already be 4 PM on our (hypothetically stretched) East Coast, and all government workers would be going home in 30 minutes. Hard to keep in touch. That gives us a feeling for what Russia has to cope with. But, Medvedev's solution, while mitigative, clearly does not totally solve the problem.
Yet, the problem is solvable for Russians, as well as for the rest of us, who are trapped both in temporal and calendrical messes. Our calendar is largely the product of disputes among churches — disputes important to those churches, but which should not be allowed to impact commerce and efficient business organization today. The dates of Easter and of Christmas in Russia will always, of course, be set by the Russian Orthodox Church, but the Russian business calendar should be specified by Moscow, not by the Church.
There have been previous attempts to modernize and fix the calendar: George Eastman, founder of the Eastman Kodak Company in 1892 and a consummate man of business, was a strong advocate of calendar reform in the interest of business and commerce. Eastman favored 13 identical months of 28 days. Writing in The Nation's Business (May 1926), Eastman complained that, with reference to the present Gregorian calendar, "There can be a difference of three days in the two half-years, and of two days in two quarters of the same year. Holidays occur on various days of the week, changing each year; shutdowns for holidays occurring in the middle of the week are expensive in certain plants. Complications arise in setting regular dates for meetings, in providing for holidays that fall on Sunday and in reckoning the passage of time, as for instance, in interest calculations." But, Eastman's calendar drifted relative to the seasons, which is unacceptable. He suggested fixing that problem by adding occasional extra days that would not bear weekday names.
Eastman's effort at calendar reform failed because his proposed calendar did not respect the Sabbath. We propose a new calendar that preserves the Sabbath, with no exceptions. That calendar is simple, religiously unobjectionable, business-friendly and identical year-to-year. There are, just as in Eastman's calendar, 364 days in each year. But, every five or six years (specifically, in the years 2015, 2020, 2026, 2032, 2037, 2043, 2048, 2054, 2060, 2065, 2071, 2076, 2082, 2088, 2093, 2099, 2105, ..., which have been chosen mathematically to minimize the new calendar's drift with respect to the seasons), one extra full week (seven days, so that the Sabbath is unaffected) is inserted, at the end of the year. These extra seven days bring the calendar back into full synchrony with the seasons. In place of Eastman's 13 months of 28 days, we prefer 4 identical quarters, each having two months of 30 days and a third month of 31 days (see the accompanying permanent calendar**).
That modern calendar would simplify financial calculations and eliminate the "rip-off factor." To determine how much interest accrues for a wide variety of instruments — bonds, mortgages, swaps, forward rate agreements, etc. — day counts are required. The current calendar contains complexities and anomalies that create day count problems. In consequence, a wide range of conventions have evolved in an attempt to simplify interest calculations. For U.S. government bonds, the interest earned between two dates is based on the ratio of the actual number of days elapsed to the actual number of days between the interest payments (actual/actual). For convenience, U.S. corporates, municipals and many agency bonds employ the 30/360 day count convention. These different conventions create their own complications, inefficiencies and arbitrage opportunities.
Specifically, discrepancies between the actual/ actual and 30/360 day count conventions occur with all months that do not have exactly 30 days. The best example comes from calculating accrued interest between February 28th and March 1st in a non-leap year. A corporate bond accrues three days of interest, while a government bond accrues interest for only one day. The proposed permanent calendar — with a predictable 91-day quarterly pattern of two months of 30 days and a third month of 31 days — eliminates the need for artificial day count conventions.
What will it take to produce regular dates and times throughout Russia and the rest of the world? Nothing but the will to do so. With regard to the regularization of times and dates, Russia has the most to gain, particularly when it comes to time.
Moving on from the calendar to time, we recommend the abolition of all time zones, as well as of daylight savings time, and the adoption of atomic time — in particular, Greenwich Mean Time, or Universal Time, as it is called today. Like the adoption of a modern calendar, the embrace of Universal Time would be beneficial.
For example, the adoption of Universal Time would give new flexibility to economic management in the vast East-West expanse of Russia: everyone would know exactly what time it is everywhere, at every moment. Opening and closing times of businesses could be specified for every class of business and activity. If thought desirable, banks and financial institutions throughout the country could be required to open and to close each day at the same hour by the world time. This would mean that bank employees in the far East of Russia would start work with the sun well up in the sky, while bank employees in the far west of Russia would be at their desks before the sun has risen. But, across the country, they could conduct business with one another, all the working day. (This would have a second benefit: at least in the far east and far west, the banks would be open either early, or late, convenient for those who are working "sunlight hours," such as farmers.)
With Universal Time, agricultural workers, critically dependent on the position of the sun, could rise with the sun, without producing any impact on other aspects of cultural and economic life. The readings on the clocks, and the date on the calendar, would be the same for all. But, times of work would be attuned with precision to Russia's local and national needs. China already has adopted a single time zone for the same purposes. And all aircraft pilots, worldwide, use Universal Time exclusively, for exactly the same reason that we are advocating its broad adoption — plus avoiding collisions.
Moscow could introduce both a simplified calendar, identical each year (harmonized with the seasons by rare full-week adjustments at year's end), and Universal Time, which would abolish the International Date Line, making the date and the time identical everywhere, including Alaska and the farthest eastern regions of Russia. There, and also in the center of the Pacific Ocean, the date would change at 00:00:00, just as the sun passed overhead. The natural date for the introduction of these changes is 1 January 2012, because it is a Sunday in both the current Pope Gregory calendar and the simple, new calendar. That does not give us time to change over computer programs to the new, simpler system, of course. But, that does not matter — the change worldwide will take some time, politically, with a natural completion date of 1 January 2017, when Sunday will, once again, fall on January 1st for both the old and the new calendars. This gives a more than ample five-year transition for adjustments to computers. There is nothing magic about these dates; anyone can transition today, if they wish.
But, absent national and international agreements, that could be confusing. We should not worry about confusion, however. Again, look to Russia: in addition to abolishing time zones, daylight savings time was abolished in 2011. There was some disorder, as with iPhones ringing at "wrong" hours, but this passed!
Our proposed temporal and calendrical changes would eliminate the sources of an untold number of errors and generate immense benefits. Conference calls would be unambiguously scheduled. At present, a conference call is, say, scheduled for 3 PM Central Daylight Time, and conferees across the U.S. have to figure out when to pick up the phone. All that would be history — no more time zones, no more daylight savings time. One time throughout the world, one date throughout the world. Refill dates for prescription drugs would be the same day of the month, every month, every year. Business meetings, sports schedules and school calendars would be identical every year. Today's cacophony of time zones, daylight savings times, and calendar fluctuations, yearafter- year would be over. The economy — that's all of us — would receive a permanent "harmonization dividend."

The Republicans' Holiday Gift to President Obama

by Alan Reynolds at www.cato.org

A proposal by House Republicans to roll back the maximum duration of unemployment benefits from 99 weeks to 59 passed the House by 234 to 193. If such a plan also passes the Senate, that would be politically ideal for President Obama.

Reducing the amount of time people can collect unemployment benefits would clearly cut the unemployment rate below 8 percent by election time, greatly improving the President’s chances for reelection. Yet the President could nevertheless pretend not to appreciate this generous gift and instead castigate Republicans for being as cheap as Scrooge and as mean as the Grinch. From Obama’s point of view, that’s an ideal combination.
The link between longer benefits and a higher unemployment rate has long been well known to economists thanks to international experience and economic research. Germany, for example, cut the maximum duration of unemployment benefits to 52 weeks a decade ago. The result? Germany had an unemployment rate of 6.9 percent in November despite economic growth no faster than in the U.S.

When it comes to economic research, a good place to start is with Alan Krueger, now the head of the President’s Council of Economic Advisers, and his sometime co-author Bruce Meyer of the University of Chicago.
At Princeton, Krueger conducted a 2008 study with Andreus Mueller which found that “job search increases sharply in the weeks prior to benefit exhaustion.” In 2002, Krueger and Meyer wrote an exhaustive 100-page chapter in the renowned Handbook of Public Economics entitled, “Labor Supply Effects of Social Insurance.”. They found that, “unemployment insurance and workers’ compensation insurance... increase the length of time employees spend out of work.&rdquo. The effect was quite large in the case of unemployment insurance — “substantially larger than the labor supply [responses] typically found for men in studies of the effects of wages or taxes on hours of work.
A more recent study by Meyer alone found “the probability of leaving unemployment rises dramatically just prior to when benefits lapse.&rdquo. Another study that Meyer did with Lawrence Katz of Harvard estimated that “a one-week increase in potential benefit duration increases the average duration of the unemployment spells... by 0.16 to 0.20 weeks.” apply that formula to the difference between 99 weeks of benefits since November 2009 and 59 weeks in the House bill and the Republican plan could shrink the average length of unemployment spells by 6-8 weeks.
When people spend less time collecting unemployment benefits, they stop being recounted again and again in the monthly unemployment survey. Regardless whether they accept a less-than-perfect job when the benefits run, or try self-employment or retire early, the unemployment rate falls.
How large was the effect of extended benefits in raising the unemployment rate. Most estimates have been around 1 to 1.5 percentage points, although Harvard’s Robert Barro estimated the effect might be twice that large.
In 2010, the White House and the Congressional Budget Office seized upon the lowest estimate they could find: A brief from Rob Valetta and Katherine Kuang at the San Francisco Fed which suggested that extended unemployment benefits had added only 0.4 percentage points to the unemployment rate by December 2009. Unfortunately, that study ended just one month after the 99-week benefits began to be gradually adopted (it was 73-79 weeks before that). By December 2010, the same economists found extended benefits had added 0.8 percentage points to the unemployment rate, and that estimate would likely be higher if updated again.
Suppose the President ends up being “forced” to sign a bill that limits unemployment benefits to 59 weeks next year. If that merely shaved 0.8 percentage points off the unemployment rate (a low estimate), President Obama could then be facing next year’s presidential campaign with an unemployment rate well below 8 percent... He can’t possibly thank the Republicans for this extraordinary gift at the moment, but maybe he could a year from now.