Tuesday, March 07, 2006

Broken Windows, Broken Patents

Many of you, no doubt, are familiar with Bastiat's Parable of the Broken Window, in which is illustrated the fallacy of economic benefit caused by a small boy who throws a stone through the shopkeeper's window, causing money to be spent by the keeper to pay a glazier to replace the window, which the glazier then uses to buy bread and shoes, etc. The parable illustrates the fallacy of ignoring hidden costs by pointing out that the money the keeper had to spend on the window, if not broken, could have been applied directly to the breadmaker or shoemaker (or the coatmaker, or even the glazier), resulting in the keeper having both the window and other materials. Instead, the money now only buys him a window, those other possible transactions are no longer possible, and the boy has indeed caused economic harm to society as a whole.

What does this have to do with bad patents? The little boy in this case is he who seeks bad patents, whether a patent holding company, an independent inventor, or a large portfolio-stuffing corporation. Patent lawyers are represented by the glazier. A society which does not punish windowbreakers, or at least does not hold them accountable to pay for damages they cause, is a society that does itself great economic harm. Do we, by endorsing a broken patent system and allowing the USPTO to be hijacked by patent-holding interests, encourage window breaking?

When patents that clearly harm innovation, science, industry, and the freedom of creation are allowed to punish those who seek to bring inventions to the market, do we see the broken window for what it is?

What if the glazier were in league with the little boy, paying him a small amount for every window he breaks? Clearly, this would be seen as stealing, and punished as such. But what if the glazier, instead, pushed for laws that enshrined window-breaking as a beneficial activity, laws that actually encouraged window breaking? What if window breakers could get money directly from the shopkeeper when they broke his window, instead of from the glazier? Would we see through such a scheme?

Such is the current relationship between patent lawyers, patent holders, and our legal system. Overly-broad, obvious, and non-useful inventions are granted patent protection regularly. Patent trolls, who have no desire to ever create products from their patents, regularly shake-down others who do. We have no exceptions for independent invention, for scientific research, for private tinkering. We patent 'anything under the sun', even if it causes great harm to the useful arts and sciences. We allow software and business methods to be patented, even though both embody purely abstract ideas, and even though most of the rest of the world does not protect these pure ideas with patents. We've set up the USPTO to be incentivized to grant as many patents as possible. Our legal profession has every reason to prop up a broken system. And current patent-holders are self-interested to see that the broken system propogates, encouraging our legislators to 'reform' the system in ways that benefit only them.

The evidence is massive. When it comes to patents, we love window breakers.

Do we see it?


Anonymous Ofer Nave said...

I do.

1:35 PM  
Anonymous dude said...

The US patent system is so obviously fubared that I don't understand how it can even continue to exist without collapsing in onto itself like some gigantic black hole.

Aren't companies already fleeing the US for more welcoming pastures, where innovation doesn't incur such a heavy price?

2:53 PM  
Anonymous daviddlewis said...

Marvelously clear summary of the current situation. We need good analogies like this, since lots of people just get sleepy when they hear phrases like "intellectual property".

5:26 AM  
Anonymous Anonymous said...

I followed you right up until you said: "and the boy has indeed caused economic harm to society as a whole."

You realize nothing leading up to that allows you to make that conclusion, right? In this context, your conclusion is not "logical" in that you can't infer it from the previous paragraph.

Where is the economic "harm"? Its a redistribution for sure (now windowmaker can by bread, instead of the 1st guy) but has any "value" been _removed_ from the economy? Maybe so. Or maybe this redistribution is something you'd classify as "harm". But thats a separate conclusion altogether, neccessitating a separate lead-up paragraph.

11:20 PM  
Blogger Alan said...

The economic harm is implicit but clear: Time, effort and resources (energy and sand, at least) were used in the creation of each window, and perhaps some pollution is created in the process (smoke from glass production, plus broken glass in landfill, ashes/soot from whatever was burned to generate energy, etc.).

So the harm is that that those resources could have been used to improve rather than maintain the quality of life of the society, and the pollution could have been avoided or incurred in a more socially beneficial action.

11:42 PM  
Anonymous Anonymous said...

Ok, the Glazier story is not presented well in the first post. Basicaly it boils down to this: "Wars and natural disasters are good because they force many people to rebuild and spend money on things they wouldn't normally spend money on. That props up the whole economy." The falsehood is that spending money to fix things deliberately broken is simply money wasted, that could have been spent on making new and better things.

11:57 PM  
Anonymous Ransu said...

Fleeing where? At least in Europe the dominance of the U.S. patent system already puts pressure on companies here who'd like to include the huge U.S. market for their products. They are having to pay for expencive licenses or face the wrath of the U.S. lead WTO and other bodies which the U.S. uses to enforce and protect its own intellectual property laws which it has bullied into international trade agreements.

12:41 AM  
Anonymous Anonymous said...

One word about Patents and Copyrights. There is no need to exclude a innovation to demonstrate that patents are evil.

For instance half the population of earth cannot access to proper medical treatment (Yep, they usually DIE) because of the hefty payments required by corporations that are just enforcing pharmaceutical patents (for wich they claim innovation and reserach* sometimes).

This is called "property protection" by some lawyers. I guess those lawyers don't mind covering this mass murder as long as they get a share in their pocket. This is ill-evil.

* Innovation in this field usually means aquiring work done from universities for a little sum and them marketing it with the corp logo. I'd like to say more about the marketing but it woudl go way off topic.

1:37 AM  
Anonymous Anonymous said...

I take exception to the post regarding patents over pharmaceuticals.
The amount of education put into a qualified chemical engineer is incredible. The amount of resources put into a new drug is substantial. Forcing drug companies to lower their prices will force such companies to collapse and their will be no medicine for anyone.
While I agree that the overuse of patents for overly broad and abstract concepts is foolish, and that there is much wrong with the current patent system and the way drug companies run their business, you can't outright criticize drug researchers in such a manner.

2:27 AM  
Anonymous Paul said...

I am disgusted by the fact that everyone is nuts about medication.

In fact, SO nuts, that instead of using medication sparingly, to help in desperate situations, most American doctors begin with the line "we'll start you on XXXXX drug and see if it works".

In cue with everything else, we Americans are a nation of surface/symptom dwellers. We never attack the cause of a disease or problem, we attack the symptoms.

I will give you a parable as to why drugs are used too much (besides the obvious and now more common super bugs, namely drug resistant diseases).

Two dogs (mine) are raised in different manners. One is a house dog, raised with shots, drugs, lots of artificial foods. The other was raised by his mother and was raised on everything she scavenged (she was half wild) including food from trash cans she knocked over, animals she killed in the woods, etc. She would regurgitate these things for her pups. The amazing thing is, is that though he's an Omega (and the first dog having grown up as the "first" in the house is the physically mighty Alpha), the second dog is a lanky but disease resistant power house. The first dog constantly requires extra shots, etc. He recently got ring worm. Despite the fact that they are both big dogs, with same food, same everything, the second dog inherited his mom's immune system, and she strengthened his by feeding him all sorts of trash. Funny, much like everything else, that little dog DOES NOT GET SICK!!! EVER! He gets colds... they last about a day. He hangs out with the first dog, all the time, they play all the time. He never caught ringworm. (He's not on meds for it, but the first dog is already on 2 medications and took 2 months to get it under control).

I am much like this. I catch the flu each year. I lose NO productivity over it, several times (I do go in for checkups) I thought I had a cold, but doc said I had the flu (he knows I won't touch pills unless my life is in danger. I sleep well, I take almost no medication except aspirin now and again.

Clue in the pharma giants. THEY WANT you to pop a pill the moment you develop a cold. Its not about health, its about selling pills. And they make a killing at it. I think people should wait and see what they have before blowing away the national Cipro (anthrax) or Tamiflu (influenza) supply. Perhaps if people became responsible for keeping themselves healthy, they'd learn that popping strong antibiotics during disease scares, only keeps the medicine giants healthy, (and has the nice benefits of killing stomach cultures, which explains why the second dog has killed and eaten almost every squirrel and mole in our neighborhood, and at the moment, he was eyeing the hawks that nest there (they're a bit tougher to trick out of the trees since he's about 60 lbs and pretty hungry looking :)

So anyways, my dogs analogy, and my own story should be some example that worshipping patented drugs as everyday things to make mad cash off every scare out there, does NOT help us, it merely keeps our immune systems from growing stronger.

Think of it like a soldier base in a country. Taking drugs the moment you get sick is like waiting for the USA to bail them out of a war. Letting the immune system handle a cold or flu is like fighting your own national battles and asking the USA for help (taking a drug) only if you are seriously losing the battle. Obviously this has the benefit of the USA not building bases in your country because you have experienced warriors of your own.


2:55 AM  
Anonymous Kenny said...

quote: "I take exception to the post regarding patents over pharmaceuticals."

You shouldn't take exception. Read Why Drug Companies don't need Patents and On the Necessity of Drug Patents for a bit of enlightenment.

5:41 AM  
Anonymous Anonymous said...

Here is the logic behind a zero-sum transaction hurting, not helping, the economy as a whole -- temporarily benefiting a few but only at the expense of others (such as the broken window instance, or an instance of theft or taxation, or any other involuntary transaction).

What initiates the transaction in the broken window example? The destruction of property, and the resulting loss of wealth on the part of the victim, namely the value of one window. Score -1 for the victim (the value of the window). Now, on the other hand, we have a temporary increase in the demand for windows (namely one window) for the window-building industry. Together, they can't benefit any more than the value of one window for this, because the value of one window is exactly what the victim will pay to replace his broken one. +1 at best for the window-building industry -- a slice of that pie for each link in the chain.

Now, we see that our transaction "tree", when you boil it all down, shows -1 on the part of the victim and +1 at best on the part of the industry. Therefore, the net sum is zero at best, and no wealth is created for the economy as a whole.

An instance of theft is probably a better example, because we're not talking about a transaction "tree" but a simple transaction between two individuals. +1 for the theif, -1 for the victim. No wealth is created -- only transferred between two parties. Quite unlike a voluntary transaction, which is +1 and +1, resulting in a positive net sum, and creating wealth for the economy as a whole.

9:08 AM  
Anonymous Anonymous said...

Clue in the pharma giants. THEY WANT you to pop a pill the moment you develop a cold. Its not about health, its about selling pills. And they make a killing at it.

Next we will be hearing that we should cut back on holidays and chocolate because they not necessary!

Our prosperity is *based* on consuming beyond the necessities of shelter, food and clothing. We prosper because we buy things we don't need (such as pills), even if they harm us.

Almost all of us produce luxury goods i.e. goods our customers can survive without. Selling to each other is sacred. Who are you to say people should not consume pills or potato chips?

In the above story, the shopkeeper was going to spend his cash on buying holidays and chocolate, as "instructed" by advertising. All the kid did was divert some luxury spending to some necessity spending. Some goes for waging war.

I haven't given it much thought, but maybe we should declare 'deverting luxury to necessity spending' a 21st century crime.

9:42 AM  
Anonymous Anonymous said...

Anyone can point out a problem. Now can you create a system that works? Can you do the heavy lifting that it requires and provide a blueprint for the future. www.slashdot.com also tracks some of the patent problems. You've shown an eye towards philosophy here that most do not. But can you dedicate yourself to fixing it.

10:05 AM  
Anonymous Anonymous said...

The system that works, and the only system that is 100% fair, is called voluntary assocation. Unfortunately, we are not yet "socially evolved" to the point where people can't be fooled into thinking otherwise. After all, the average individual is convinced that peaceful, productive anarchy is impossible, and that coercive government (whether or not they admit the coercive part) is the only solution.

10:35 AM  
Anonymous Flawed Logic said...

The original poster's breakdown of the flawed parable is right on the mark. However, I must take exception to a recent comment made by an Anonymous poster when s/he said:

Our prosperity is *based* on consuming beyond the necessities of shelter, food and clothing. We prosper because we buy things we don't need (such as pills), even if they harm us.

If I have to spend money I'd much rather be forced to spend my money on something like cleaning the environment than split my expenditures between cleaning the environment AND fighting super-bugs that have evolved from the overuse of drugs.

To clarify where the jump to “cleaning the environment” comes from, I’m saying I’d rather choose to buy luxury items such as a stereo or DVD or solar/PV panels than to be “forced” to pay more for health insurance (or risk my financial health by not buying health insurance at all). So yes, I know that your argument would likely be that buying a luxury item usually results in some form of damage to the environment – just like I and others are arguing that unnecessary drug use (for fighting illness) causes us to pay more for health insurance.

The difference is HOW we divide up our forced spending. If we are forced to spend x dollars of income, that total x expenditure must be divided between a, b, and c items like taxes, utilities, and health insurance, etc. Of course, this is where basic algebra comes in, if you can reduce one of those like taxes (it’s good to have fantasies, right?) then you can pay less total dollars for forced expenditures or increase another useful forced expenditure, such as cleaning the environment or increasing distributed or centralized renewable energy output.

Getting back to the parable, the idea is that by not breaking the shopkeeper’s window (or not forcing the shopkeeper to waste money he would spend otherwise), he is able spend money as he sees fit. Which may include helping to increase demand for goods or service to the point where a new shop for different, or even similar competing products, is built requiring the glass produced by the window maker. It becomes more like a +1 + 1 scenario to steal from another poster here.

Now, imagine if our “leaders” (if we have to call them that) were to encourage spending on renewable energy such that the resulting effect would be ever decreasing costs for energy (I’m not talking over 2 years, I’m thinking in bigger terms like 10, 20, 100 years: I do care about my grandchildren and yours). Imagine that our leaders were to seriously consider other technological improvements such as paving our roads with “bendable” concrete that last longer and require less taxes to maintain. Imagine the savings, both personal and governmental, if we could simplify our tax structure to bring in tax dollars (which does generally add value to society overall) without the need for an entire industry (or sub-industry) devoted to complying with (or skirting) the tax laws (and, yes, I understand the initial disruptive change that would mean but, again, think long term here).

In short we need to pull our collective heads our of our a**es and start using our God-given (or Darwin-derived) creative and critical thinking skills to build a better world for ourselves and our offspring.

Have a nice day.

10:48 AM  
Blogger Russell said...

The broken window fallacy is not a zero-sum transaction. It is a negative-sum transaction. The end result is that the window owner didn't buy something else. Society is worse-off by the value of the broken window.

11:38 AM  
Anonymous Anonymous said...

Actually, it's not even a zero-sum story. This is a negative-sum story:

The owner of the window loses a window (-1), and has to pay for a second window (-1).

Thus the owner of the window is out -2, and the window maker is up +1.

12:01 PM  
Anonymous Anonymous said...

Technically it is a zero sum transaction, because when you boil it down, the broken window is simply a transaction between two parties, not one party and a string of 2nd, 3rd, and 4th cousins to the perpetrator who was actually directly involved in the transaction. The transaction is first and foremost a transaction between the victim and perpetrator, and what the perpetrator himself gained from the transaction is not money but entertainment or some other form of profit (much like a person who commits vandalism or bullying). Somehow the perpetrator must have decided that breaking the window would benefit him; otherwise he wouldn't have done it. It could have been to increase his own "bad boy" status among immature friends or simply for his own entertainment. It doesn't matter; the point is that the perpetrator gained from the transaction, and that's exactly why he did it. The victim, of course, still loses exactly one window. Therefore, we can generally say that whatever the perpetrator thinks he gained (+1) is equal to what the victim lost (-1), and thus we have a zero-sum transaction. Again, this is more similar to a bullying scenario than theft, but it still has to be considered as an atomic transaction if we are going to evaluate it on economic terms. Still, the bottom line is that no wealth can possibly be created from this transaction downstream, because there was no wealth created upstream in the first place. There is simply a transfer of wealth between parties (again, wealth doesn't have to take the form of raw dollars).

Come to think of it, ignoring the immediate (atomic) consequences of a transaction, and instead focusing on the indirect downstream effects, is one of the biggest fallacies of central planning.

12:15 PM  
Blogger Jackson Lenford said...

quoting anonymous: "Anyone can point out a problem. Now can you create a system that works? Can you do the heavy lifting that it requires and provide a blueprint for the future?"

We've devoted ourselves to just that cause here at Right to Create, and we have lots of ideas for solutions. But the truth is, nothing will change unless you take an active role. You don't need to agree with me, with Right to Create, or with Slashdot -- you just need to be an advocate of the reforms you think would be meaningful. We've got a long list of these, with pointers on you you can make a difference:

The Independent Invention Defense

Striking down Business Method Patents

Premature Patent Expiration for Lack of Usefulness

Fine Patent Holders for Valid Prior Art

Make Statutory Invention Registraions Free

You'll notice links on many of these posts to your senate and congressional representatives email accounts. You'll also notice that we highlight other activities you can participate in, such as petition signing and joingin organizations devoted to meaningful patent reform.

1:32 PM  
Anonymous Anonymous said...

It is not zero-sum transaction:
Shopkeeper has lost 1k$, when glazier's profit is much less than 1k, 200 for example. We have lost 800 in the system.

2:28 AM  
Anonymous Anonymous said...

Has anyone tried to patent the patent process yet ?

9:15 PM  
Anonymous annerose said...

These comments have been invaluable to me as is this whole site. I thank you for your comment.

12:42 AM  
Anonymous Sally D said...

Most people see the window breakers as harmless or pranksters so they never are held responsible either morally, ethically or finacially, the circle continues.

6:12 AM  
Blogger petetow said...

It is crazy that someone gets joy out this, driving around I notice that bus stop shelters are always a target, a local store has had its main put through twice, it is madness, the local store that sells b&q garden furniture had the huge store window smashed by kids on bikes riding past it must have cost a fortune to replace, charge the parents or put an order that when they grow older and start work they have to pay for vandalism.

6:39 AM  
Anonymous Anna Colds said...

The patent system is flawed in many ways, the similarity clause is a fine example, a friends works for a company that makes argos lcd tv and they are always filing patents that are rejected for similar designs, where do they draw the line on innovative and similar.

6:04 AM  
Anonymous Window Security Bars said...

"Austrian economists, and Bastiat himself, apply the parable of the broken window in a more subtle way. If we consider the parable again, we notice that the little boy is seen as a public benefactor. Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the cobbler, and so on. Bastiat demonstrates that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him.

A common interpretation of the gross domestic product is that increased GDP means the economy is healthier. Some would say that this interprets the proverbial "broken window" as a positive, and that some form of Genuine Progress Indicator would be a more realistic indicator of economic health."
Brilliant post mate!


4:55 PM  

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