Kyle Fitzgibbons

the point of this book is that the distribution of income can be hugely altered by restructuring the market to produce different outcomes. This doesn’t dismiss the value of tax and transfer policies, but if the market is rigged to redistribute ever more income upward, it will be difficult to design tax and transfer policies to reverse this effect. And if the rigging efforts are never challenged, then they will impose an ever greater burden on those trying to reduce inequality through tax and transfer policy.

Table 8-1 shows the range of the gains from restructuring the market. The total comes to almost $ 2 trillion in additional income in 2016 in the low-end case, $ 3.7 trillion in the high-end case. Expressed as units of SNAP spending (Figure 8-1), the low-end amount is equal to 27.1 units and the high-end amount just under 50. In short, there is a lot of money at stake here. (Kindle Locations 3134-3141)

The standard framing of economic debates divides the world into two schools. On the one hand, conservatives want to leave things to the market and have a minimal role for government. Liberals see a large role for government in alleviating poverty, reducing inequality, and correcting other perceived ill-effects of market outcomes. This book argues that this framing is fundamentally wrong. The point is that we don’t have “market outcomes” that we can decide whether to interfere with or not.

Government policy shapes market outcomes. It determines aggregate levels of output and employment, which in turn affect the bargaining power of different groups of workers. Government policy structures financial markets, and the policy giving the industry special protections allows for some individuals to get enormously rich. Government policy determines the extent to which individuals can claim ownership of technology and how much they can profit from it. Government policy sets up corporate governance structures that let top management enrich itself at the expense of shareholders. And government policy determines whether highly paid professionals enjoy special protection from foreign and domestic competition.

​Pretending that the distribution of income and wealth that results from a long set of policy decisions is somehow the natural workings of the market is not a serious position. (Kindle Locations 3169-3179)

This strengthening of copyright law and altering its structure to adjust to digital technology and the Internet is interesting not only because of the costs involved for the larger economy but also because it highlights alternative ways in which society adapts to technological change. Technological change has destroyed many sectors of the economy. The spread of digital cameras essentially destroyed the traditional film industry, causing the collapse of two major U.S. corporations, Kodak and Polaroid, and leading to the loss of tens of thousands of jobs. While the collapse of these companies and the job losses were unfortunate, no one would have considered it a reasonable strategy to block the spread of digital cameras.

​On the other hand, when the development of digital technologies and the Internet threatened the business model of the entertainment industry, the response was to pass laws to contain these technologies to preserve the sector’s mode of doing business. This is a great example of how it is not technology itself that is determining the distribution of income, but rather how various interest groups are able to write the laws governing the use of technology. (Kindle Locations 1793-1801)

Table 5-6 shows projected 2016 spending and potential savings in areas where the costs of current monopolies are likely to be largest. Savings for recorded music and video material as well as recreational books are pegged here at 50 percent, under the assumption that the tax-credit system will make available a vast amount of free writing, music, and video material. Savings on educational books are pegged at 70 percent, under the assumption that the bulk of textbooks will be produced through the publicly funded system. The savings for prescription drugs are based on the calculation in Table 5-3 (see below). Savings in newspapers and periodicals, motion pictures, and cable TV are pegged at 20 percent. (With cable, many people may opt to rely on the Internet and cancel cable subscriptions.) The figure for medical equipment is loosely derived from the earlier calculation in Table 5-3; it is larger here because this figure reflects spending to purchase the equipment rather than the fees charged to patients. The total potential savings are $ 435 billion, or 2.4 percent of GDP.

The calculations shown in Table 5-6 are speculative, of course, because there is no way to determine in advance the effectiveness of an alternative funding mechanism to replace patents and copyrights. There are good reasons for believing that an alternative would be at least as effective, especially in the case of patents. The prospect of having fully open research, where the incentive is for dissemination rather than secrecy, would almost certainly lead to more rapid progress than the current patent system.

More importantly, bringing prices in line with production costs would offer enormous gains, especially in the case of drugs and medical equipment. It is difficult to understand the logic of paying for innovation at the point where a patient needs a drug or access to medical equipment. Monopoly pricing imposes an enormous burden on people at precisely the time when they are least able to bear it. A payment system should be structured to let patients and their families focus on getting well, not paying for their health care. No one would propose determining payments for firefighters when they show up at a burning house, but this is effectively what we are doing with patent monopolies in the medical sector. The absurdity is heightened by the fact that the ultimate payment is almost always a political decision, not a matter of consumer choice, so proponents of the patent system can’t use the classic justification for market outcomes.

​Weakening or eliminating patent and copyright support for innovation and creative work would radically reduce waste. In a market system, the best way to make profits should be to produce better products, not to run to court. But the patent system increasingly supports this second path to profits. (Kindle Locations 1883-1905)

Interestingly enough, red states, which tend to advocate for a lesser influence by the federal government, are much more dependent on the federal government than blue states. Red states combined to form an average ranking of 18.3 (with 1 being most dependent and 50 being least dependent), while blue states combined to rank 33.2 overall.​