Gordon Tullock RIP

Posted: 11/5/2014

Just learnt that this remarkable economist passed away. He was one of the better among the many mediocre, but prominent economists.

Here is a quote from an obituary (emphasis added):

“One year after The Politics of Bureaucracy, Tullock turned his economist’s eye to science. More specifically, given how the scientific profession is set up, with its dependence upon universities, tenure, and government grants, how does that color scientists’ professional behavior? That’s what The Organization of Inquiry is about. In that book, Tullock predicts the emergence of what we now call Google—in 1966. Tullock also had insights on why many scientists are reflexively pro-government—that’s where their funding comes from. He also explains why many scientists choose the research programs they do, and why they reach the conclusions they do—their grants depend on both their topics and their conclusions. Politically unpopular research areas tend to receive little funding, especially if their findings cut against political priorities.”

The Destruction Of Free Markets In The U.S Goes On - Tesla

Trigger

One of the big news in today’s (3/12/2014) Wall Street Journal was “Tesla vs. New Jersey: The Car Dealers Strike Back”.

Apparently, three states, i.e. Arizona (surprise), Texas (incredible), and now New Jersey, so far have prohibited direct sales of vehicles by Tesla Motors.

How Is This Possible In The United States Of  America?

An observer from China may conclude that the U.S. is sometimes worse than communist China in suppressing free markets and competition.

How is it possible that well organized, vested interests like car dealers in various or most states can carve out franchise privileges for themselves to exclusively sell cars at the expense of consumers?

Previous, Related Blog Posts

Here and here.

Challenging Innovation Is Expensive, Imitation Is Cheap, And Exclusion Is Difficult

Title Sums Up Conventional Wisdom

This line taken from the blurb of a recent Mercatus Center (George Mason University) working paper titled “Public Choice and Bloomington School Perspectives On Intellectual Property” published 11/21/2013. this is a 39 pages study, which I do not have the time to read it all.

In the opening of their introduction, the authors present that: “Traditional economic arguments suggest that there is a market failure in the production of new ideas. … As a result, imitators will copy new ideas before innovators have a chance to recoup their sunk costs of development. Foreseeing losses, innovators will be deterred from investment, and innovation will be undersupplied.” (emphasis added)

A Bogus Traditional Justification For Intellectual Property

To be blunt, I think, the argument stinks and is a red herring to distract from well organized, vested rent seekers. In support, the authors write “Almost immediately after the first session of Congress, writers began to petition Congress for protection for their works. … The 1831 [copyright] act doubled protections from 14 to 28 years [from the first copyright act of 1790, thus within 40 years].” (emphasis added).

Here are my challenges to this argument:

1. Without intellectual property protection the costs of new innovation would be significantly lower
2. An ingenious innovator can easily take advantage of imitators and surpass them or move on to other pursuits in which the innovator will easily excel any wannabe imitator
3. Innovation is a race against time. The more innovations, whether by original inventors or by imitators, benefit humanity
4. Exclusion is not difficult, but it is useless and unnecessary

Counterfactuals

How much has innovation in architecture or fashion or visual arts historically been protected? Do we have to assume that e.g. architects or fashion designers are more altruistic than inventors? I might be totally mistaken, but I believe the protections are far lower than those accorded to inventions, music, or literary works.

Previous, Related Blog Posts

The subject of excessive IP protection has occupied my mind for some time. Please see here, here, and here.

Why Can We Not Buy Cars Over The Internet?

Something Is Really Wrong

In the 21^st century, we consumers are still primarily buying cars through those obnoxious car dealerships. A commodity such as a car should be easily sold over the Internet. Why is, e.g., Amazon not selling cars directly?

How It Should Be

1.       Prices are easily comparable across all brands and makes nationwide and worldwide

2.       You order the car of your dreams over the Internet with all the options you like and it is delivered the next day to your doorsteps (little exaggeration ;-)). You don’t care the least where this car is made.

3.       Car dealerships, if you still need them, are there only for kicking the tires and for test driving.

4.       Car prices would be greatly reduced if the large numbers of useless middle men called car dealers are cut out

Let Me Guess Why

I am not an expert to know every detail about how car selling is organized in the US, but I have some hunches:

1.       The lobby of car dealers is very powerful in every state

2.       The Motor Vehicle Departments or state governments gain handsomely in revenues the way the consumer car market is currently organized. Car dealers and state governments are in cahoots to the disadvantage of consumers.

3.       The powerful automotive labor unions prevent more competition and reorganization.

4.       The US government prevents effectively the importation of cars from other countries. Why can I not buy a car made in, e.g. India or Brazil if I desire to do so?

Thus, it is no surprise that the consumer car market is so fragmented, overpriced etc. Like wine, cars cannot be sold cross state border over the Internet.