Category: Innovation
The phrase “I am my brother’s keeper” is used to explain a moral goal or imperative. The word ‘brother’ does not mean your biological brother, but those people in your community, or country, or really every other human being in the world. The word ‘keeper’ is used to mean that you have a moral responsibility to help every other human being in the world. This responsibility means that you are to put their needs before your interests and your moral goal is that people exist to serve others. In other words, the phrase ‘I am my brother’s keeper’ enshrines SLAVERY as a moral goal. Slavery is the condition in which you have no right to exist for yourself, your only right to exist is to serve others. Note that all 
slaves need a master and as a result it is no surprise that President Obama has used this phrase to explain his policies as he is an avowed socialist and wants to be our master.
Wherever this moral goal has been tried it has resulted in human suffering, misery, disease, famine, death, and torture. North Korea is the country that most encapsulates this moral goal today and it is a living hell. The Soviet Union and Communist China also tried to implement this moral imperative and it resulted in the largest genocides in the 20th century, resulting in the death of over 100 million people. Attempting to following this moral code also resulted in the Dark Ages under the direction of the Catholic Church. It is also why the Christian right is often ineffective at countering socialists arguments, since they accept the same moral goal. These bad outcomes do not occur because the wrong people are in charge, they occur because slavery is immoral and this is the logical result of following an immoral goal.
The opposite moral imperative to ‘I am my brother’s keeper’ can be found in our Declaration of Independence – namely the RIGHT to Pursue One’s Own Happiness.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
This right to pursue your own happiness is the exact opposite of slavery. It states that no one has the right to enslave you (or anyone) morally or legally. Wherever this moral ideal has been tried it has always resulted in human happiness, abundance, technological innovation, increasing life spans, increase health care, and yes fewer environmental problems. There is no contradiction between what is moral and economic abundance and human happiness. This has not occurred because the right people have been in charge, it is the result of pursuing that which moral, namely FREEDOM.
Why should a blog directed to patents and inventions care about such a subject? Because this idea of ‘I am my brother’s keeper’ has been raised in the cases Association of Molecular Pathology v. USPTO (which was original called ACLU v. Myriad) and in Mayo v. Prometheus and it is used by opponents of patents. They all argue that the inventor has no right to his invention and the only reason we allow them to invent is to serve their fellow man. In the ACLU case this argument was re-crafted as property rights should not stand in the way of science.
Slavery is immoral and a moral goal of slavery, even if it is suppose to be voluntary, is immoral. Those who push the moral goal of slavery are advocating human misery, death, famine, and genocide.
MERRY CHRISTMAS
Background
It has been two year since I published my book The Decline and Fall of the American Entrepreneur: How Little Know Laws and Regulations are Killing Innovation. The book explains that the only way to increase real per capita income is by increasing our level of technology. This can be accomplished by capital equipment purchases, which upgrade plant 
and equipment with newer technologies or by creation of inventions. Since the United States is a leader in technology, we do not have the choice of just upgrading to new technologies produced in another country. So we must create new technologies if we want our economy to grow. There are two ways to encourage the creation of new technologies; government funding or private investment in inventions. Government spending on research and development is not nearly as effective as private spending – see Solyndra. A study by the Small Business Administration shows that most emerging technologies are invented by small entrepreneurial start-ups. Unfortunately, since 2000 the U.S. has undermined the three foundations on which technology start-ups are based. Those three foundations are intellectual capital, financial capital, and human capital. We weakened the intellectual capital foundation by weakening our patent system, we weakened the financial capital foundation with the passage of Sarbanes Oxley, and the human capital foundation was weakened by the accounting rules that required the expensing of stock options.
Since my book was published the intellectual capital foundation has been undermined this year by the passage of the America Invents Act and the financial capital foundation has been undermined by the passage of the financial reform bill (Dodd Frank). There has been no change on the human capital front. There is mixed news on the intellectual capital front.
These problems are being exacerbated by the budgetary issues associated with aging baby boomers. The Obama and Bush administrations compounded these problems by expanding Medicare to prescription drugs and the passage of Obama Care. In 2010, Medicare/Medicaid and the Children’s Health Insurance Program (CHIP) represent 21 percent of the federal budget. Social Security represents about 20 percent of the federal budget and interest payments represent about 8 percent of the federal budget. It is estimated that about 10,000 baby boomers will go on Medicare per day for the next twenty years. However, about 5000 seniors are dying per day. Each Medicare recipient costs about $10,500, so Medicare costs will expand by $185 billion dollars (today’s dollars) or another 5% of the federal budget. Roughly, the same calculation applies to social security. So Medicare and Social Security will consume approximately 50% of the U.S. federal budget by 2020. In addition, the interest payments are likely to consume around 30% of the U.S. federal budget. This means that 80% of the federal budget will be spoken for. This does not include any additional costs for Obama Care. It is unlikely that the federal budget as a percentage of the economy can grow, since the U.S. had to borrow one third of the federal budget in 2010.
Here are my predictions for the next decade based on this background. I provide an optimistic, most likely, and pessimistic scenarios. Note these scenarios are based on what I believe is most likely to occur, not what I believe is the best that could be done or the worst that could be done to the U.S. economy.
Predictions Common to all Scenarios
Properties rights of all kinds will continue to be weakened. It appears that you can get a PhD. in economics (or even win the Nobel Prize) without understanding even the most basic ideas of property rights and how they affect a free economy. Even so called free market economists forget that Reagan not only cut tax rates, he strengthened property rights. Particularly he strengthened patent rights – for more information click here. He also strengthened property rights by weakening regulations and weakening the power of unions. A number of so-called free market economists do not understand that property rights are based on productive activity. As a result, they have joined in an all attack on property rights for inventions – patents. For more information see Scarcity Does it Prove Intellectual Property is Unjustified.
One change from last year is that all the Republican candidates have come out for repealing or curtailing Sarbanes Oxley and the Financial Reform Bill. There may be hope that entrepreneurial companies will no longer be starved for financial capital if the Republican’s win the presidency. It appears unlikely we will strengthen property rights for inventions or property rights generally or signficantly strengthen our capital markets so they work for start-up companies, the most optimist scenario is limited to subpar growth.
The growth of the Internet will result in a continued decline in commercial real estate values under all scenarios. Commodity prices are likely to increase, inflation adjusted, under all circumstance. Growth in China and inflation will drive this increase in commodity prices.
Optimistic Scenario (This is Unchanged from 2010)
This scenario assumes that the U.S. faces up to its budgetary problems, repeals Obama Care, and rationalizes it tax structure. This scenario assumes that Obama is not elected for a second term. Government spending will grow slightly as a percentage of GDP. Supply Side economists would probably consider this enough to create vigorous economic growth. However, it does nothing to really encourage investment in new technologies. As a result, real inflation adjusted GDP growth over the decade will probably be around 2%. Median household family income after taxes will be stagnant. This will be two decades during which median household income has not grown in the U.S. I believe that will be the first time in the history of the U.S. this has occurred.
The housing market is likely to be stagnant since family incomes will be stagnant. Inflation is likely to run 4-6% (Note that it appears that government is determined to lie about the inflation numbers, so it will be hard to determine the real inflation rate), but this will not be enough to cause appreciation in housing prices. In fact, inflation adjusted housing prices will likely decline.
The best economic opportunities will be in government related jobs or businesses. Commodity based business will also prosper. Technology entrepreneurs will be few and far between. Unemployment numbers will hover between 7-9% throughout the whole decade – this will be the new normal. The U.S. will no longer be the largest economy in the world and based on per capita income among large countries the U.S. may fall below the top ten in the world. The U.S. will also be one among many equals in technological and scientific leadership. All social ills will increase slowly including crime, number of welfare dependents, and black market transactions.
Most Likely Scenario
This scenario assumes that the U.S. will not face up to its budgetary problems and Obama Care will not be repealed completely. Under this scenario, the U.S. will go from financial crisis to financial crisis. Each financial crisis will be meet with a short term band-aid solutions. Federal government spending will grow to at least 30% of GDP and total government spending will be 50-60% of GDP. Inflation will grow to 10-14% by the end of the decade. Despite this, housing prices will not keep up with inflation. Median household family income after taxes will decline by 2-7%. Official GDP numbers will show slightly negative growth, but this will over state the actual growth rate.
The best economic opportunities will be in government related jobs or businesses. Commodity based business will also prosper. The financial differences between those who are in the government’s favor and those who are not will be huge. Technology entrepreneurs will be almost nonexistent. The brain drain from the U.S. will be apparent and a cause for anxiety. Unemployment numbers will hover between 9-15% throughout the whole decade. The U.S. will no longer be the largest economy in the world and based on per capita income among large countries the U.S. will fall well below the top ten in the world. The U.S. will also be a declining power in technology and science. All social ills will increase moderately including crime, number of welfare dependents, and black market transactions. The chance of a major war in the world will be moderate.
Pessimistic Scenario
The U.S. will not face up to its budgetary issues even to get through a crisis. The U.S. will either literally default on its debt or inflation will be over 20% or both. Multiple states will go bankrupt and be bailed out by the federal government. Tax burdens will skyrocket as will the black market. Housing prices will decrease significantly except in extremely exclusively neighborhoods. Social order will collapse. The pretense that the U.S. is a nation of laws or that the Constitution has any meaning will be completely destroyed. There is a possibility (15%) that there will be a military coup. Alternatively or in combination there is a possibility that the U.S. will break up into a number of separate countries. Many parts of the U.S. will decide that it no longer makes sense to support Washington, Wall Street and parts of California that have become use to crony capitalism and government handouts. The brain drain from the U.S. will be well known and huge. This may be the driver for politicians and voters to demand real reform. China and India will dominate the world economy. Unfortunately, neither will likely fill the U.S.’s shoes and become a technological and scientific leader. Singapore will likely be the richest country in the world on a per capita basis by a large margin. They will be the major center of technological and scientific research. The chance of a major war in the world will be probably.
Caveats
The best reason to be more optimistic is that the U.S. has never had two bad decades in a row. In the late 1930s and late 1970s there was no reason to suppose that the U.S. would right itself economically. We pulled out the 1930s because Roosevelt realized that he had to adopt pro-business policies if the U.S. was to have any chance of winning World War II and so did the voters. In the 70s, there was little hope that the U.S., let alone England, would pull out of the inflationary spiral, increasing unionization, increased regulation, increasing government spending and entitlements. However, there was the glimmer of Ronald Reagan and a surge of free market economists such as Milton Friedman, who still understood property rights. Unfortunately, I do not see a Ronald Reagan on the horizon and many of today’s free market economists are overly focused on the detrimental effects of Federal Reserve and high marginal tax rates. Very few seem to understand the importance of strengthening property rights, particularly for inventions or the need to free up our capital markets from regulation. I hope I am wrong and there is a politician who understands property rights, particularly for inventions, and the need to free up our capital markets, while having the strength to stand up to government unions and special interests.
I cannot decide if we are seeing the collapse of Western Civilization under the weight of the welfare state (socialism) or if we are seeing the last hurrah of the welfare state.
This is a multi-part post on the science of economic growth. Standard economic theory has failed miserably to define the source of economic growth, which means it is impossible for it to provide rational policies to restore economic growth. This series of posts defines a scientific theory of the source of economic growth.
Homo Economicus, Entropy, and Invention
Homo sapiens also consume food and create shelter to overcome the effects of entropy. Unlike other living organisms, homo sapiens organize their environment to minimize the effects of biological entropy. For instance, humans have invented agriculture to increase their supply of food (energy). Humans also harnessed the physical strength of animals, created internal combustion machines, electric lights, electricity, washing machines, tractors, computers, the internet, email, lasers, fiber optics, etc. All of these are inventions. Humans alter their environment by creating inventions. This is different from every other animal. For instance, our bison standing on coal will never be able to harness the potential energy in that coal unless the species evolves to eat the coal.
The distinguishing characteristic of homo sapiens is their ability to reason. Man is a rational animal according to Aristotle’s classical definition.[1] Man uses his reason to alter his environment (invent) and increase the energy available to him. Note that I am not limiting myself to the arcane definition of invention provided by the law. Anything that man creates to solve an objective problem is an invention. If a device/service is not found in nature separate from man then it is an invention. For example, the ability to create fire or harness it is an invention of man. No other animal has the ability to create or harness fire. Man did not have some sort of inherent knowledge of how to create or harness fire.
If humans did not invent, then studying economics would be the same thing as studying the evolution of humans. While trade is also unique to humans, trade is not the fundamental basis of economics. Trade is an invention of man. If everyone produces the same thing, then there is no reason to trade. For instance, if we all produce wheat, then there is no reason or ability to trade.[2] It is only because someone has invented a new product that trade becomes a rational choice. For instance, one group of people may have invented a process for skinning animals and using them as clothing. They may have traded this with people who had access to flint and invented a system for making simple axes. Invention has to proceed production, which has to proceed trade logically. Of course, without trade the value of invention and production is severely diminished.
Diminishing Returns: Sustainability Isn’t Sustainable
Biological entropy implies diminishing returns. For all species of life there is a limited supply of the resources (free energy) and conditions necessary to sustain a particular form of life at any point in time. The concentration or ease of extracting these resources varies as a result of the non-homogenous nature of the universe. A species of life thrives where it has a high concentration of resources (low biological entropy for the species) and as its population expands it has to expand to areas of low concentration of resources (high biological entropy), which results in diminishing returns. The species are then constrained by the Malthusian Trap.
The way this is expressed in economics is that the use of any one resource results in diminishing returns for that resource. The question of limited human resources has been the subject of Economics since Malthus and David Ricardo. I will explore the idea of diminishing returns and its relationship to invention, by examining the idea of sustainability. Sustainability is an attempt to overcome or at least manage diminishing returns. There are numerous and conflicting definitions of what sustainability means. However, most sources point to the World Commission on Environment and Development (WCED), also known as the Brundtland Report. According to the 1987 Brundtland Report, sustainability is: “Meeting the needs of the present generation without compromising the ability of future generations to meet their needs.“[3] This definition is not testable and is incredibly vague. What are the “needs” of the present generation? Do we need the Internet, satellites, SUVs, etc.? How do we know if this will compromise future generations ability to meet their needs?
Since this is not a productive path of inquiry, let’s take the word “sustainable” literally. A sustainable technology would be one that can be used indefinitely by humans without side effects and without any diminution in its effectiveness. This definition violates the laws of physics. According to the second law of thermodynamics, entropy always increases in a closed system. As a result, any use of technology at least produces waste heat – a side effect. Sustainability taken literally is an attempt to create a perpetual motion machine. Even the Sun’s energy will not last forever and it is not infinite. This is true whether we are talking about absolute entropy or biological entropy. Is the sustainability movement unrealistically optimistic?
A key issue for the sustainability movement is the use of so called non-renewable resources, such as the use of fossil fuels and the using up of other natural resources (diminishing returns). The way this is often phrased today is Peak Oil, Peak Water, Peak _____ (Pick Your Favorite Resource). Peak Oil (natural resource) occurs when the amount of oil that can be extracted reaches its maximum or the point at which we reach the maximum net energy output from oil. The alternative definition takes into account that even if we can extract more oil, this is irrelevant if it takes more energy to extract the oil than we receive from the oil. The supposed solution for our Peak Oil problem is to develop renewable energy resources. The Clean Energy website provides the following definition “Renewable energy is natural energy which does not have a limited supply. Renewable energy can be used over and over again, and will never run out.”[4] What is a natural energy? Either all energy is natural, comes from nature, or only animal muscle power is natural. The natural qualification is complete nonsense – unless they really want us to go back to animal muscle only. The “never run out” qualification violates entropy. All energy resources will run out. All energy sources, fossil fuels, solar, hydroelectric, tidal, biomass, hydrothermal, fission, fusion, etc are solar or at least stellar. For instance, hydroelectric energy is the result of the Sun heating the oceans or other large bodies of water. As the water evaporates and then condenses in the form of rain or snow on land masses it is collected in dams. The dams convert the gravitation force of the water into electric energy. Fossil fuels are created by plants converting sunlight into biomass (including animals). The biomass is trapped underground by sea sediment and the pressure and heat converts the biomass into oil, coal, natural gas, etc.[5] Fission is the process whereby heavy elements, generally Uranium, are split into lighter elements and energy is released. These heavy elements were created in a star that has long since expired. Thus, all energy is Solar or at least stellar. The Sun will not last forever and does not provide unlimited energy. The concept of renewable energy that “will never run out” and “can be used over and over again” is false. So was Malthus correct? Are humans doomed by entropy to eventually return to the Malthusian Trap or worse? Is the defining characteristic of economics that diminishing returns (entropy) will always force humans back to the point that we are on the edge of starvation? If so, will evolution pass humans by and humans will become extinct?
This concept of peak resources is not new. You can find numerous examples of “Peak Oil” historically. For instance, the fertilizer crisis of the 19th century. In 1830 it was discovered that bat guano was an excellent fertilizer. Population exploded, as guano was used in Europe because of the additional food (energy) produced as a result of this excellent fertilizer and mechanization. The best sources of guano began to run out fairly quickly. People predicted the equivalent of “Peak Guano.” The question was not whether we would have “Peak Guano,” but Peak Fertilizer. In other words, we did not have a guano problem we had an invention problem. The Haber-Bosch process was invented in 1909, which allowed fixing nitrogen in air and solved the “Peak Guano” problem.[6]
Reason magazine in the article Peak Everything? discussed how logical, scientific projections showed we would run out of lithium, neodymium, and phosphorus.[7] Peak lithium was going to limit the batteries necessary for electric cars. In fact, we would run out of lithium faster than we would run out of oil. The solution is a new invention that replaces lithium with zinc air batteries. Note the solution was not a better way to extract lithium, but to make the supply of lithium irrelevant. New invention creates a paradigm shift. Peak neodymium is going to limit our ability to build the electric motors of hybrid cars as well as other products. Interestingly, neodymium magnets were invented to overcome the problem of peak cobalt. In the area of permanent magnets, it appears that a new induction motor will eliminate the need for permanent magnets. Peak phosphorus is a repeat of Peak Guano. Peak phosphorous threatens our ability to provide enough fertilizer for our agricultural needs. One solution is to expoit human waste. Phosphorous is a byproduct of human urine. The phosphorous can be recycled using a no mix toilet.
Paul Romer has observed, “Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding: possibilities do not merely add up; they multiply.”[8]
The computer industry has also been beset by predictions of impending doom, when it could no longer achieve Moore’s law of doubling the number of transistors every eighteen months. Ray Kurzweil has shown that if you restate Moore’s law as computational power, every time a technology reaches its limit to improve computational power a new technology takes over. Using this he shows that computational power has been growing exponentially since 1900. The first computational devices were electromechanical. When these devices reached their limit, they were replaced with relay devices; these were replaced with vacuum tubes, then transistors, and finally integrated circuits.[9] However, if you trace the speed of machines beginning with the invention of the steam engine, it peaks at around supersonic flight. It is hard to determine if this is an economic/technological limitation or political limitation.
Diminishing returns for a given natural resource in a technology static scenario occurs because high order areas of the natural resource are exploited first. It takes more energy to extract lower order areas (high biological entropy). For instance, man first exploited gold nuggets picked up from the ground. Eventually, man dug for the gold or panned, which required more energy because it was less ordered. Note that even this change required new (additional) technologies – a shovel and pick or a tin pan. Modern techniques of gold mining, e.g., cyanide leaching, have allowed formerly unprofitable mines to be reopened. This is because the new technology allows us to exploit even lower order areas of gold. Diminishing returns only apply in a technology static environment. These diminishing returns can be modeled as a decaying exponential.
Are Inventions Subject to Diminishing Returns?
Every invention is a combination of known elements – you cannot create something from nothing. This follows from the natural law conservation of matter and energy. As a result, every invention opens up the possibility of more inventions by building on earlier inventions. Creating these inventions takes energy, but the number of potential inventions we can conceive of increases with every invention we create. As a result, the number of potential inventions grows factorially. There are four ways in which inventions could be subject to diminishing returns: 1) the number of inventions are limited, 2) the inventions in a narrow area of technology are limited 3) the returns on devoting more resources, as a percentage of total resources, to inventing declines, and 4) the cost of creating the next invention in any technology could increase.
The number of potential inventions, however, is not subject to diminishing returns. In fact, the opposite is true.[10] The number of potential inventions grows factorially as new inventions are created.
Inventions in a narrow area of technology are subject to diminishing returns. Early inventions would appear to provide the greatest return and latter inventions appear to provide more limited returns. Ray Kurzweil has studied this and found that new technologies appear to follow an S-curve with the greatest return in the middle of the S and eventually declining in return.[11] Cross pollination between the primary area of technology and other areas of technology appears to prevent diminishing returns in a narrow area of technology, similar to how substitute resources prevents diminishing returns for natural resources.[12]
Would it logically follow, if a greater and greater percentage of a country’s or the world’s resources were devoted to discovering inventions you would hit a point of diminishing returns? The answer is no country has ever come close to testing this hypothesis. Countries throughout history have under invested in inventions and provided little or no incentive for inventors. Those countries that have devoted the most resources to inventing, have seen the greatest economic returns. The U.S. has historically devoted the most resources to invention. It has historically had the strongest laws protecting the rights to inventions, which has resulted in greater resources being devoted to invention. England had some of the strongest laws protecting inventors at the beginning of the Industrial Revolution and it was the hotbed of invention at that time. The Italian city states of the 15th and 16th centuries had some of the first laws protecting inventors and they had a much higher standard of living. Among their inventions were modern glass making techniques and a modern banking system. There is a minimum amount of resources that must be devoted in a country to agriculture and maintenance just to keep up with the decline due to human biological entropy. If inventive activity were so large as to crowd out those activities necessary to overcome biological entropy, you would have to assume that there are diminishing returns at that point.
The idea that the cost per invention could increase to the point of diminishing returns, seems to have credence if we look at a narrow technological area. For instance, the cost of improving the aerodynamics of airplanes is extraordinarily expensive. However, modern electronics allow us to improve the aerodynamics of planes by putting in control systems that allow a plane to be unstable aerodynamically. Commercial supersonic flight was not feasible economically in the 1970s because of aerodynamic drag. This problem can be solved today fairly inexpensively with electronic control systems. The cost of inventing in electronics grew tremendously with the advent of the integrated circuit. The advent of personal computers and software have driven down the cost of inventing in electronics and a wide variety of other areas. There is evidence that the cost of inventing is decreasing over time, if we do not limit inventing to a narrow area of technology.
Diminishing returns can be modeled as a decaying exponential. Inventions across all areas of technology are not subject to diminishing returns. Potential inventions grow factorially, which is much faster than diminishing returns shrink. Thus, it is entirely possible to grow our technology faster than the limitations of diminishing returns. However, it is not foreordained that humans will invent. Humans are volitional beings and they can choose not to invent. There is plenty of evidence that when humans choose not to invent then they become subject to diminishing returns and their society declines or becomes extinct. For example, Jared Diamond’s book Collapse[13] argues that many societies collapsed because of environmental problems.
In a technologically stagnant society, entropy and diminishing returns will prevail and that society will become extinct.
It appears that the sustainability movement is overly optimistic, in a technologically stagnant society. However, if humans choose to invent in broad technological areas, then they can escape this fate. Invention is the key to escaping the Malthusian Trap and growing real per capita income. This is consistent with Robert Solow’s paper “Technical Change and the Aggregate Production Function” paper and the subsequent work in this area of economics which shows all real increases in per capita income are due to increases in technology.[14] It is also consistent with groundbreaking econometric studies of Jacob Schmookler, in chapter V, “Productivity Advance: A Case of Supply and Demand” of his book Invention and Economic Growth.[15]
In a technologically dynamic society, inventions will result in growth that outstrips entropy and diminishing returns. People will escape Malthusian Trap and their per capita income will grow.
The question about whether humans are doomed to a Malthusian existence, where economic growth cannot keep up with population growth, has been one of the most vexing questions since the beginning of economics. Malthus was clearly correct for all of human history other than the last 200 years. Even since then he has been correct for the majority of humans until the last 40 years or so. On the other hand, critics of Malthusian theories have pointed to the West’s ability to overcome all predicted population bombs and resource limitations during the last 200 years. Critics often point to the famous bet between Paul Ehrlich and Julian Simon over the price of commodities. The reason this debate has been so contentious and has not been resolved is clear. There is no predetermined answer. It depends on whether large groups of people decide to invent fast enough. I say large groups because Matt Ridley has shown in his book, The Rational Optimist, that small population groups cannot even sustain their initial level of technology.[16] The book provides numerous examples of how various groups of humans regressed technologically because of inadequate population densities to support specialization, such as Tanzania. The book summarizes the lessons by quoting economist Julian Simon “population leading to diminishing returns is fiction: the induced increase in productivity is scientific fact.”[17]
[1] The Philosophy of Aristotle, Adventures in Philosophy http://radicalacademy.com/philaristotle4.htm, 10/7/10.
[2] Some animal trade like items across time. If I have extra wheat, I give it to someone who does not have enough and they return the favor later. Usually this only occurs between family members in other species.
[3] Brundtland Commision, Wikipedia, http://en.wikipedia.org/wiki/Brundtland_Commission, 11/7/10.
[4] http://www.clean-energy-ideas.com/energy_definitions/definition_of_renewable_energy.html 11/7/10/.
[5] Note that have been some alternative explanations proposed for how oil is produced that does not involve this biomass conversion
[6] Mark Ridley had numerous “Peak Oil” examples in his book The Rational Optimist: How Prosperity Evolves, Harper Collins, 2010, New York, pp 121 -156.
[7] Bailey, Ronald, Reason.com, Peak Everything?, April 27, 2010, http://reason.com/archives/2010/04/27/peak-everything, 10/16/10.
[8] Bailey, Ronald, Reason.com, Peak Everything?, April 27, 2010, http://reason.com/archives/2010/04/27/peak-everything, 10/16/10.
[9] Kurzwiel, Ray, The Singularity is Near: When Humans Transcend Human Biology, Penguin Books, 2005, p 67.
[10] If there is a limited amount of matter and energy in the Universe, which is open to debate, there may be a limitation to the number of potential inventions. However, this limitation would be so large as to be meaningless for all practical purposes.
[11] Kurzweil, Ray, The Singularity is Near: When Humans Transcend Human Biology, Penguin Books, 2005, p 44.
[12] Kurzweil, Ray, The Singularity is Near: When Humans Transcend Human Biology, Penguin Books, 2005, p 44.
[13] Diamond, Jared, Collapse: How Societies Choose to Fail or Succeed, Penguin Group,New York, 2005.
[14] Solow, Robert M, Technical Change and the Aggregate Production Function, The Review of Economics and Statistics, Vol. 39, No. 3 (Aug., 1957), pp. 312-320
[15] Schmookler, Jacob, Inventions and Economic Growth, Harvard Press, 1966, pp 86-103.
[16] Matt Ridley in his book The Rational Optimist shows that self sufficiency is an economic dead end. Only large groups of humans can afford to have people specialize so some or all their time is devoted to inventing.
[17] Ridley, Matt, The Rational Optimist: How Prosperity Evolves,Haper Collins,New York, 2010,p. 83.
This is a multi-part post on the science of economic growth. Standard economic theory has failed miserably to define the source of economic growth, which means it is impossible for it to provide rational policies to restore economic growth. This series of posts defines a scientific theory of the source of economic growth.
Introduction
Since economics is the study of how man meets his needs, the paper will first examine the nature of man. Man is like other life forms in that he is subject to laws of evolution. Evolution is the result of entropy. However, it is not absolute entropy but what is defined herein as biological entropy that controls life forms. The paper starts with an examination of biological entropy.
Every species has unique features that allow it to compete in its evolutionary struggle. Homo Sapiens ’ unique feature is their ability to use their rational mind to alter their environment or invent. If humans did not invent, then the study of economics would be the study of human evolution.
The defining condition of most life is that it exists in the Malthusian Trap, which is the forcing function of evolution. An important question is whether humans can escape the Malthusian Trap. The Malthusian Trap is the result of biological entropy, which implies diminishing returns. Escaping the Malthusian Trap requires humans to overcome diminishing returns. Whether humans can invent their way out of diminishing returns is explored.
The paper shows that the answer to this question is that it depends. If large groups of humans invent quickly enough, then humans can permanently escape the Malthusian Trap. However, it is clear that in a technological stagnant environment, humans will eventually fall back into the Malthusian Trap. This leads to more mainstream economic questions, such as whether inventing is endogenous or exogenous? The paper shows that it is clear that inventing is endogenous. Another more mainstream economic question that is examined is whether dissemination of new technologies is inhibited by property rights in inventions? This question logically leads to the question of whether perfect competition or monopolistic competition encourages economic growth? The paper shows that incentives are not only necessary for the creation of new technologies, but for the dissemination of new technologies and that perfect competition destroys technology creation.
These ideas are then applied to an understanding of the Industrial Revolution, which was the first time that large groups of humans escaped the Malthusian Trap. It is shown that the Industrial Revolution, which was really a constant invention machine, occurred because of specific incentives for ordinary people to invent.
Finally, given the central role of invention to economics the paper examines whether there are any natural laws that apply to inventions. Six natural laws of invention are presented.
How Does Entropy Apply to Life?
Life requires energy to exist because of entropy. Otherwise a living organism could just not expend energy and it would live forever. This setups a struggle between organisms and between species for energy sources, which forms the basis of evolution. According to Peter A. Corning in “Thermoeconomics:
Beyond The Second Law” the idea that evolution and entropy are related has been long recognized.[1] This connection has been espoused by Jean Baptiste de Lamarck, Herbert Spencer, Ludwig Boltzmann, Alfred Lotka, and Erwin Schrödinger, in his book What is Life?[2] However, Corning warns us about confusing energy entropy, information entropy, and physical order. Keeping this in mind, we need to define entropy in a consistent manner. As used herein entropy does not mean information entropy or physical order or strictly energy entropy, which I will call absolute entropy. Entropy means biologic entropy or the ability of an organism or a species to extract useful energy from their surroundings. While this is related to absolute entropy in that it is about extracting useful energy, what matters in biology is the organism’s ability to extract energy from its environment to sustain its life not the absolute amount of useful energy available. For instance, a buffalo (Bison) standing on a vein of coal in an open pit mine is surrounded by useful energy or low absolute entropy. However, the buffalo cannot turn the coal into useful energy for itself and if there is not any grass or sage around, it is an area of high biological entropy for a buffalo. Let’s explore this idea of biological entropy in more detail. When a bison dies it has not reached a point of maximum absolute entropy, its carcass may still provide useful energy for vultures, mountain lions, and people. Despite this, the bison’s biological entropy has reached a maximum, meaning its biological entropy has increased to a level that it no longer is alive.
On an individual organism level I define maximum biological entropy as the point at which the organism dies. Many things can cause the entropy of an individual organism to reach it maximum and organisms use a variety of mechanisms to overcome biological entropy. Plants create useful energy by photosynthesis. They convert carbon dioxide into sugars (energy) using light. They use this energy to reduce their biological entropy. Animals eat plants or other animals and use the energy to reduce their biological entropy. Note that when animals eat plants or other animals, they are increasing the biological entropy of the plants and animals they eat. Thus, there are two general mechanisms that increase the biological entropy of life forms: internal and external. Internal mechanisms are those that result from the failure to consume enough calories (energy) and aging. Animals require oxygen, water, and food, in that order, to survive.[3] Without oxygen, the animal cannot oxidize enough sugar (fat, protein) to survive – overcome biological entropy. Without water, the animal’s cells are unable to absorb energy and expel wastes.[4] Aging is a process of increasing biological entropy. This is caused at least in part by disorder in genetic information.[5] This genetic disorder results in the organism not being able to create enough useful energy to survive or increasing the amount of energy necessary to survive. External mechanisms include being eaten or attacked by other living organisms, diseases, accidents (for animals), and the elements.
In general, living organisms use energy to overcome biological entropy first and then to increase their size. However, some animals also create simple shelters or seek shelter to ward off the biological entropy increasing effects of the elements and predators. Rain, sun, hail, snow, heat, and cold all contribute to the increase in biological entropy of living organisms. Life has two main methods of overcoming the effects of the biological entropy: 1) food (energy) consumption and 2) shelter creation (inhabitation).
A species of life becomes extinct when the species as a whole reaches a certain level of biological entropy either because it cannot consume enough energy or because external mechanisms increase its biological entropy to reach the extinction level. The biological entropy level at which a species becomes extinct is the maximum biological entropy for the species. A species reaches the Malthusian Trap when increases in population of the species results in the total required energy (food) to support the population being greater than the supply of food. Most life forms exist in the Malthusian Trap, most of the time, including humans until the Industrial Revolution.
Evolution
It is widely known that Malthus’s Essay on the Principles of Population influenced Charles Darwin and shaped his ideas on evolution. Darwin himself recorded in his 1876 autobiography the following:
In October 1838, that is, fifteen months after I had begun my systematic enquiry, I happened to read for amusement ‘Malthus on Population’, and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. The results of this would be the formation of a new species. Here, then I had at last got a theory by which to work.[6]
Evolution is then a way of selecting species or variations on species that have low biological entropy and causing those species with high biological entropy to go extinct. The limited amount of food (energy) for each species ensures that evolution is a dynamic ongoing process. The variations are the result of sexual recombination of the parent’s genes and mutations in the organism’s genes. The unique feature of humans is that they alter their environment to fit their needs, they do not just rely on genetic variations that allow them to better adapt to their environment. The way humans do this is by inventing, which will discuss more in the next section.
[1] Corning, Peter A., Thermoeconomics:
Beyond The Second Law, Journal of Bioeconomics, Journal of Bioeconomics, Vol. 4, No. 1. (1 January 2002), pp. 57-88, p. 58.
[2] Ibid
[3] There are few exotic life forms that do not need oxygen, but all require energy to overcome entropy.
[4] BNET, Physiological Effects of Dehydration: Cure Pain and Prevent Cancer, http://findarticles.com/p/articles/mi_m0ISW/is_2001_August/ai_78177228/, 10/6/10.
[5] Hayflick, Leonard, Entropy Explains Aging, Genetic Determinism Explains Longevity, and Undefined Terminology Explains Misunderstanding Both, PLoS Genetics, http://www.plosgenetics.org/article/info:doi/10.1371/journal.pgen.0030220, 10/7/10.
[6] The Autobiography of Charles Darwin, location 680-686, by Charles Darwin (Mar 17, 2006) – Kindle eBook
I have been predicting that the United States is suffering a brain drain. I have reported on this phenomena several times including my post Phil the Expat, which discusses a highly skilled scientist moving to Belize and Exodus From the US, which discussed a person with strong marketing and computer skills moving to Argentina. Well I now have another story to add to the US brain drain. I just meet a person who was a professor at an Ivy League school in the school of 
Medicine. He has decided to move to New Zealand to start a company around some new technology he has developed for the medical field. Just over a decade ago it would have been inconceivable that you would leave the US to create a technology startup. Now SOX has killed off the venture capital market in the US and the patent system is so bogged down that your company can die a thousand deaths before the Patent Office issues a patent. We are no longer the land of opportunity for highly skilled and motivated people. This is a bad sign for the US economy and for our future.
Deadly Monopolies: The Shocking Corporate Takeover of Life Itself–And the Consequences for Your Health and Our Medical Future, by Harriet A. Washington
There have been several books suggesting that you can patent human genes or parts of humans. The latest is entitled Deadly Monopolies, which appears to be a rehash of David Koepsell’s Who Owns You?: The Corporate Gold-Rush to Patent Your Genes. The first person to raise this issue was Michael Crichton. None of these people are patent attorneys and they all misinterpret the claims of patents to be broader than they are. We know Ms. Washington does not understand patents, because she mislabels them as a monopoly in the title of her book. Ms. Washington also does not understand property rights. Patent are property rights and you obtain title to your invention because you created something. Monopolies are granted based on political decisions.
In Washington’s blog, she suggests that Myriad Genetics has patented a part of John Moore’s body. This is clearly incorrect on its face. The patent is for an isolated form of a gene that is an indicator of breast cancer. The critics of gene patents have made this outrageous accusation that a patent covers a part of your body. With the implication that just by being alive you are violating their patent. This is complete nonsense, but great propaganda. It appears that Ms. Washington really adds nothing to the discussion, but is just rehashing points that have already been made and proven wrong.
The Court of Appeals for the Federal Circuit when ruling on the Myriad case provided the following insights “Isolation of a DNA sequence is more than separating out impurities: the isolated DNA is a distinct molecule with different physical characteristics than the naturally occurring polymer containing the corresponding sequence in nature.” (P. 11 Slip Opinion – Judge Moore) He further states, “I decline to extend the laws of nature exception to reach entirely manmade sequences of isolated DNA, even if those sequences are inspired by a natural template.” P. 14 Moore. He further explains the difference between this case and purified vanadium or uranium as, “Given the chemical differences highlighted by Judge Lourie’s opinion and discussed supra, the mere fact that the larger chromosomal polymer includes the same sequence of nucleotides as the smaller isolated DNA is not enough to make it per se a law of nature and remove it from the scope of patentable subject matter. The actual molecules claimed in this case are therefore not squarely analogous to unpatentable minerals, created by nature without the assistance of man.” P. 15 Moore. Harriet Washington, seems to have ignored all this information or simple does not understand the science and certainly does not understand the patent law. I attempted to find out about Washington’s background to determine if she had a scientific background. The only information I could find was that she had been a medical ethicist at Harvard, but nothing about her education.
While I have not read the book, Deadly Monopolies: The Shocking Corporate Takeover of Life Itself–And the Consequences for Your Health and Our Medical Future, by Harriet A. Washington, all indications are that the author does not understand the science or the law involved in this topic. Her statements on her blog that gene patents spur profits not cures is example of the shallowness of her research. See David E. Adelman & Kathryn L. DeAngelis, Patent Metrics: The Mismeasure of Innovation in the Biotech Patent Debate, 85 Tex. L. Rev. 1677, 1681 (2007), as clearly showing biotech patents have resulted in increase innovation. Washington’s book is not about science, the law, or the truth, it is a propaganda attack on patents, property rights, and the pharmaceutical industry.
It is quite common for academic economists and others to suggest that the incentive of the patent system could be replaced with government funding of Research and Development. In fact, this argument was made by Mayo in their brief to the Supreme Court in the Mayo v. Prometheus case. These academic economists often complain that patents lead to rent seeking and are monopolies. There are two fundamental flaws in their arguments. One is that patents are a property right and protection of property rights is not only necessary for economic growth (see the Frasier Institute and Heritage/Wall Street Journal survey of economic freedom), but necessary for a just society. Second, the real rent seeking happens when governments attempt to fund R&D and act as a source of venture capital as two excellent articles showed this week. Solyndra is only the latest in a long line of failed government investment that prove this point.
Almost every major technological advance made in the US was due mainly to property rights provided by the patent system. These property rights made it possible to invest in creating and deploying these technologies and without the patent system they would never have made it into the marketplace. Among these technologies are the telegraph, the telephone, the technology behind drilling for oil, the technology of fracturing oil, the airplane, the copy machine, radio, television, the computer industry, the electronics industry, and yes the internet. While DARPA can claim that their funding creating the basic building blocks of the internet, it did not create the advances that were necessary to make it a viable commercial product. The Patent Office is a totally self funded agency, which means it receives no federal tax dollars. The American people received this benefit without any cost to themselves. For those who argue that there were social costs to these patents, please look at North Korea or the USSR and see the true costs of a patent system.
What great technologies can government funding claim? The atomic bomb, sonar, some improvements in radar, and some credit for getting the American System of Manufacturing started. Government funding is good at creating weapons technology, which is a legitimate role for government. Two great articles point out the fallacy of government replacing the patent system. One is Before Solyndra, a long history of failed government energy projects, By Steven Mufson. Mr. Munson documents the abject failure of government investments in the energy field. These failed investments represent tens of trillions of wasted taxpayer money. The article points out that:
Not a single one of these much-ballyhooed initiatives is producing or saving a drop or a watt or a whiff of energy, but they have managed to burn through far more taxpayer money than the ill-fated Solyndra. An Energy Department report in 2008 estimated that the federal government had spent $172 billion since 1961 on basic research and the development of advanced energy technologies.
Another great article showing the fallacy of government investment is Solyndra Case Reveals Gateway Between Administration Loans, Obama Allies. This article points out that “government investment” is always politically connected. According to the article “This is a payoff to people who are your political backers and supporters. And this is really a wealth transfer from middle class taxpayers to billionaires, Schweizer said.” Schweizer is author of the book, “Throw Them All Out,” This is the system that these academic economists suggest can replace the patent system. This is the system that is suppose to replace the supposed “rent seeking” of patents.
“Do Government Regulations Really Kill Jobs?” opinion November 14,2011 Washington Post by Jia Lynn Lang, explores the concept that one industry’s losses on overbearing regulations are another industry’s boon. Leaving aside the Broken Window Fallacy introduced by Bastiat that’s been around over 160 years for the moment, let’s look into the brilliant mind of Roger Noll, an economics professor at Stanford and co-director of the university’s program on regulatory policy. “Some people identify with the beneficiaries, others identify with those who bear the cost, and no amount of argument is ever going to change their minds.” This is a leading economist paid by a major university to come up with this explanation to downplay the absolute economic wreck the US regulation and tax policies have had on our country. You cannot make this stuff up. By “some people” identifying with the beneficiaries, is the esteemed professor suggesting parasites are interchangeable with producers? Some will identify with thieves, others with the victims, according to the Stanford professor. Since the author of this article has only plumbed the depths of a few 
“economists, ” I’d like to introduce her to some basic facts in from a relatively short snapshot in History.
From 1998-2000, the US saw 4470 IPOs or Initial Public Offerings. From 2001-2010, that number fell almost 4/5th in ONE DECADE. What the heck happened?? A little beauty of a regulatory law, just under 60 pages, sponsored by legislators Sarbanes and Oxley in 2002. What about that horrible tech bubble that caused the stock market to tumble in 2000? That “bubble” was the strongest contributor to the U.S.’s position as the undisputed economic and technological leader of the world. It resulted in disruptive technologies that changed the world and every one of our lives and is still doing so today. Then we passed SOX. This was supposed to stop bubbles from occurring. Fast forward to 2008. Well, there weren’t many IPOs for your money to invest in-which left real estate all by its lonesome. Hmmm, that SOX sure did work on real estate.
Today, we are getting ready to face the regulatory tsunami of Dodd-Frank. This nifty law is over 2300 pages. What sane US company wants to stay on this island?
Well, it’s possible Sarbanes, Oxley, Dodd and Frank might cook up a new law to force them to stay here. Slavery, 2012 style.
Here is a great cartoon by Dennis Evers
According to a Fox News story, President Obama: U.S. Gotten a Bit “Lazy” on Attracting Businesses, “President Obama said that the United States has gotten a “little bit lazy” when it comes to bringing in new businesses in to the states”. He said some of the advantages of the US are its stability, and its innovative free market culture.
I guess I am just a little confused how a 2300 page health care law provides stability or how the government taking over 1/7th of the economy is free market? How is a patent law (AIA) written by large companies to entrench their position furthering our innovation? How does Dodd Frank also over 2300 pages further the free market? Or contribute to stability? How does interfering with Boeing’s decision to move to South Carolina result in stability? How is that a free market?
Of course Obama is such a narcissist that he would never look at his own idiotic policies and how they are causing the slowdown in American business. It is doubtful that Obama really wants the US to be successful. So, his speech was really an exercise in DOUBLESPEAK. 1984 predicted the future it just took twenty five years longer than Orwell thought.
Donald Trump is fond of saying that China is stealing our economy from us and he attributes this to China manipulating its currency. Here is an article, Counterfeit Chinese Parts in US Military Weapons, that would appear to support his point of view. The article explains that counterfeit Chinese parts are found in U.S. military weapon systems and the implication is that this is happening even more widely in the US economy. Pat Choate’s excellent book Hot Property: The Stealing of Ideas in an Age of Globalization, documented this problem. Counterfeit products are not the result of currency manipulation but lax enforcement of intellectual property rights. Our politicians talk a lot about protecting our intellectual property, but ten years ago they required U.S. inventions be published for all the world to see and steal at 18 months from filing a patent application. They passed the America Invents Act this year which made it easier to challenge patents issued in the U.S. and effectively eliminated the one year grace period. Congress is a bunch of hypocrites when it comes to intellectual property, they only want to protect Hollywood and software copyrights. They have done everything in their power to undermine our inventors, who are much more important to our economy than Hollywood.
The U.S does have a legitimate complaint with China, but it is not currency manipulation it is the theft of our Intellectual Property – particularly our inventions. Here is what Congress should do to revive our economy and protect our inventors.
1) Repeal the publication requirement for patents
2) Demand that China and other countries require reciprocity for patents. This means that if you receive a patent in the U.S. it is enforceable in China and vice versa without the cost of filing a patent application in every country around the world. The present situation with respect to patents is exactly the position that existed with respect to copyrights in the 1860s. We realized that it made no sense for copyrights and it makes no sense for patents to only apply in each country.
3) Fully fund the Patent Office. It now takes from 3 to 10 years to obtain a patent. This is severely hurting our technology startup companies. When combined with the publication requirement it has allowed China and the rest of the world to steal our technology.
4) Apply tariffs to those sectors of Chinese goods that have consistently violated U.S. intellectual property rights.
I wrote about the damaging effects of Sarbanes Oxley in my book, The Decline and Fall of the American Entrepreneur. It appears that the Republican presidential candidates have read my book. See this video, J. W. Verret Discusses Sarbanes-Oxley on Fox News, which shows the candidates explaining that we need to repeal SOX. Let’s hope that they don’t just tinker 
around the edges with SOX and while they are at it they need to repeal Dodd Frank. This would be a big step toward restoring innovation and getting the economy growing again.
According to the paper, Korea’s Patent Policy and Its Impact on Economic Development: A Model for Emerging Countries?, a strong patent system is a positive part of encouraging economic growth for emerging economies. The paper points out that:
Korea has long been a proponent of strong patent protection and of the need to maintain a robust, well-functioning patent office that supports the development of local technology. That view is consistent with the notion, to which Korea subscribes, that the patent system can help promote and sustain healthy economic development, particularly in emerging-or newly industrializing-countries. P. 443
Korea’s economic results have been some of the best among emerging countries.
In the early 1960s the Republic of Korea (Korea) was the poorest country in East Asia with a per capita income less than half that of Ghana or Honduras, and a per capita GDP of approximately $160. Today, Korea has achieved the status of a newly advanced economy. It ranks thirteenth in the amount of trade generated, fourth in the number of patent applications filed in 2008,3 and by 2007 its per capita GDP had risen to $20,000. P. 442
Korea has put real teeth into its patent laws and even has criminal provisions
There are serious consequences for infringing a patent right under the Korean Patent Act. A patentee is entitled not only to an injunction to prevent the infringing activity, but also to demand destruction of the infringing articles, and a patent infringer is subject not only to damages, but also to criminal sanctions, including imprisonment. P. 458
Korea requires separate compensation for inventions of employees.
The Korean patent law requires that inventors who are employees be compensated for their inventions. P. 461
Korea’s creative use of the patent system to promote technological capacity has arguably been a significant factor in the country’s economic growth. P. 480
Erstling, Jay, “Korea’s Patent Policy and Its Impact on Economic Development: A Model for Emerging Countries?” (2010). Faculty Scholarship. Paper 138. http://open.wmitchell.edu/facsch/138
Two Singapore professor show patents result in significant economic growth. Their paper, Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries concludes “the effect of strengthening patent rights on economic growth was substantial in economic terms.” P. 16
In the abstract of the paper, they conclude:
Our results have important implications for public policy. One is that patent laws and their enforcement matter for economic growth. However, our findings also suggest that patent rights vary by country and industry. We show that patent rights have a smaller impact on economic growth in poorer countries and in less patent-intensive industries. Since patent intensive industries account for a smaller share of the economies of the poorer countries, our results imply that the welfare gain in terms of economic growth for these countries is more likely to be outweighed by the welfare loss due to lower end-usage, and hence, tip the balance towards weaker rights being socially optimal. Abstract
The paper’s conclusion with respect to “poorer” countries being better off with a weak patent system is pure conjecture and was not part of their study. The reason that poor countries do not see a big boost by having stronger patent laws is: 1) poor countries are technologically backward and can advance economically by copying (purchasing) existing non-patented technologies, and 2) poor countries have poor property rights systems diminishing the effectiveness of their patent systems. A poor country is poor because of its low level of technology. Just raising a poor countries level of technology to the same level as the United States twenty years ago would result in huge economic gains. The reason poor countries have a lower level of technology is because they have weak property right systems that results in under investment in technology (Capital Spending). The paper hints at this point:
Our patent rights index depended on an assumption that enforcement of patent rights was correlated with enforcement of property rights in general, as measured by the Fraser index (The Fraser Institute does a study of economic freedom for all countries once a year). P. 10
In Figure 1, we plotted the Fraser index against the GP index (Patent Strength) scaled up by a factor of two. The two indices were highly correlated. P. 10
In other words, there is a strong correlation between the strength of property rights in general with the strength of a patent system in a country. This should not be surprising since patents are property rights in inventions. If you did a study of arbitrary government grants or monopolies versus the strength of patents in countries, you would find they are highly uncorrelated. Despite the nonsense that suggests that patents are monopolies.
Another interesting point in the paper:
Among 15 Western countries over several centuries, enactment of patent law was associated with higher rates of scientific discoveries, inventions, and innovations.
Hu , Albert G.Z. and Png , I.P.L., Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries, August, 2010.
Perfect competition is when no one producer or consumer has the ability to affect the market price and all producers and consumers compete for a homogenous product, driving down the cost of the product. Under perfect competition, a producer’s profit is eliminated or at least reduced to a trivial return. Why this matters to patents is that the theory of perfect competition is often used to attack the patents. It is argued that patents allow producers a differentiating feature or product and therefore they have a greater margin than their competitors. Economists argue this means that the patent holder is getting monopoly profits according to the “perfect competition” theory and they call this profit a “deadweight” loss. This supposedly shows that resources are not being allocated efficiently.
So why do I say Perfect Competition is the equivalent of Altruism morally? Altruism is the idea of self sacrifice as a moral value and perfect competition is the economic idea of sacrificing a producer profits and a consumer’s right to choice. The goal of perfect competition is that no one, producer or consumer, is treated as an individual and everyone needs to be sacrificed to the altar of perfect competition collective. There is never any discussion of property rights with respect to “perfect competition” or individual rights.
Ayn Rand often stated that so called defenders of capitalism are often worse than its detractors. Perfect competition is another example of this. The Chicago School of economics, which included Milton Friedman, pushed the idea of “perfect competition.” The book of A Random Walk Down Wall Street was the application of perfect competition to Wall Street by a Chicago School of Economics professor. Perfect competition is the enemy of capitalism, individual rights, and economic growth.
Real per capita growth is the result of increases in one’s level of technology. Under perfect competition, there is no reason to invest in creating new technologies and in fact there is no reason to invest at all. Under perfect competition every investment yields the same low rate of return or no rate of return. Perfect competition is used to justify antitrust laws that destroy property rights and most importantly property rights in inventions. Perfect competition results in the same sort of idea of self sacrifice as altruism and is totally incompatible with capitalism, property rights, natural rights, and human happiness.
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