As noted here here, one of Obama’s transition “team members is Reed Hundt, who was Bill Clinton’s FCC Chair from 1993 through 1997. Hundt is slated to work on the agency review team in charge of international trade and economics agencies.” In a 2006 Forbes op-ed, Hundt had various suggestions for patent reform. They are not all terrible, but they continue to miss the point by struggling to find some way to make the system work better. Part of his proposal is to reduce the number of patents granted, increase fees, and increase funding of the USPTO. Writes Hundt: “First, we should slash the number of patents granted each year by 90%. In 2004 the U.S. Patent &Trademark Office issued 165,000 patents. Sixteen thousand is more like an optimal number.” He proposes a $500k fee companies can pay for a “fast-track” one-year patent application review.
Typical bureaucratic hubris to think he knows the “optimal” number of patents–though technically he is right that 16,000 is “more like” an optimal number than is 165,000, since the optimal number is zero. This is not dissimilar to another recent proposal to improve patent quality and reduce the number of patents granted by radically increasing filing fees from the $1000 level to about $50,000. As Manuel Lora noted to me, this is like the Laffer Curve of Patents (see Rothbard’s evisceration of the Laffer Curve). Such high fees would of course reduce the number of patents, but would also tend to benefit large corporations.
These guys ought to give up trying to fine-tune an inherently unjust system and just admit it ought to be scrapped. Hundt writes, “We have a horribly expensive system, with huge backlogs and a daunting litigation risk. No wonder the Chinese don’t want to adopt it. Let’s get rid of it and start from scratch.” Well, he’s half-right.A few more responses to selected comments by Hundt:
Second, we need to spend more money on the system. The budget of the U.S. Patent & Trademark Office is $1.5 billion. That ought to be tripled to $4.5 billion . . .
Who do you mean, “we,” kemosabe? Not if it requires taxpayer funding.
We don’t want grossly overworked professionals trying to figure out whether specific algorithms used to refresh the pixels on a computer monitor screen ought to be patented.
No, we want bright young Clintonite master bureaucrats!
Fourth, all patent case awards should be forward looking and linked to lost sales. In other words, plaintiffs who win patent-infringement challenges should be able to enjoin only future competition.
I thought he was onto something with his first sentence, but then he shys away from radical reform by not urging the abolution of all patent injunctions.
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Issuing 1/10 the number of patents and charging 50x or 100x as much to file them? This sounds like pure cartelization. Or rather, even stronger cartelization than previously. A bailout in all but name of large US companies by giving them even more preferential access to protection.
If they really want to reduce the number of patents, they should simply increase the price. Perhaps the government could even make some revenue out of the whole deal.
But then again, as Henry pointed out, it will simply protect wealthier businesses and individuals over the less wealthy.
I like how Hundt just pulls 16,000 number out of the air. Even if somebody believed in a patent system, how would they know what the yearly “optimal” level of patents was supposed to be?
Besides the rather short explanation in the Rothbard reference of this article, can anyone point to a more detailed praxeological analysis of the Laffer Curve?
I understand the concept, but it seems to have many implicit simplifications of human behavior built into its assumptions. Tax shelters, offshore corporations, trust funds, retirement plans, mortgage refinancing, and probably hundreds of other behaviors I cannot think of will affect indivduals’ decisions relative to tax planning, and thus affect the Laffer curve’s shape. Who has writen about this from an Austrian perspective?
Thanks,
K
–GOVT is a four letter word. Let’s abbreviate it!–
The bigest assumption in the use of the laffer curve is that the government should “optimize” tax revenues.
This implies a goal of extracting as much in taxes as possible…
george,
That is simply Rothbard’s primary argument in the referenced page.
This argument is not based on logic, but on values. I share the value that we should minimize taxes, rather than maximize them, but that is not a basis for arguing with statists, whose values are different.
More convincing, to change their beliefs in the utility of seeking an “optimal” point on the Laffer curve, would be to offer “proof” that the curve is based on fallacious logical arguments and cannot accurately predict the full consequences of lowering or raising tax rates.
Demonstrate that manipulation of taxes does not have the outcome predicted by the model, because the model is flawed, and the statists will have to find a different argument to make their theft seem rational and beneficial.
“Tu Ne Cede Malis…”
Rothbard doesn’t exactly eviscerate the Laffer curve. He criticizes the notion that the government should try to maximize tax receipts, but one can still accept the Laffer curve and reject this doctrine. The Laffer curve is not prescriptive. He also accepts that the Laffer curve applies to excise taxes. But Rothbard thinks it won’t apply to income taxes because people won’t work less to avoid higher taxes, which is going to be mostly true. But people on the lower end of a tax bracket may in fact work less to jump to a lower tax bracket. But Rothbard really forgets that people may be more willing to illegally avoid taxes, such as simply falsely reporting earnings or taking more salary under the table. In addition, people, especially wealthy people, have the option of managing wealth judiciously to avoid taxes (investing in certain things, like real estate, buying things that will count as tax deductions, putting possessions in other people’s names, avoiding selling stocks). Rothbard even admits that if the tax rate rate falls from 99% to 95% then tax receipts will go up. So, he even admits there is a Laffer point in income tax, even though it is very high. I doubt that it’s this high, though I’ll admit it’s probably much higher for income tax for lower tax brackets than for higher tax brackets, and probably even lower for other taxes, like excise taxes, sales tax, luxury taxes and capital gains.
At lot of the disagreement is merely the result of what people mean by the “Laffer curve.” If we simply accept the Laffer curve as saying that some tax cuts will decrease tax receipts, some will increase tax receipts and vice versa, then Rothbard’s criticisms don’t apply. It’s when we try to make Laffer curve say too much (like many supply side advocates have), that we are led into error– like saying that ALL tax cuts lead to higher tax receipts or saying that the government should try to maximize receipts. And Rothbard justly criticizes these ideas.
Joseph,
“It’s when we try to make Laffer curve say too much (like many supply side advocates have), that we are led into error–”
That is what I wanted us to think more about.
What are the parameters that determine the actual apex for the Laffer curve, where tax revenue is maximized? I suspect that there are far too many variables involved in determining where that apex sits for the Laffer curve to ever be useful as a quantitative predictive model. As a concept, it is useful, as you point out, “as saying that some tax cuts will decrease tax receipts, some will increase tax receipts.” But being able to predict that a particular percentage change in tax rate will result in a predictable percentage change in revenues involves way too much complexity and knowledge for a single individual or model to accomplish. The individual decisions of the millions of tax-paying “players,” using the strategies you mention (and many more), make such a mathematical prediction impossible. Human action is to complex.
Has anybody seen a rational discussion of what parameters might push the apex in either direction? This is what is needed to improve the predictive value of a Laffer model, but I suspect the list of variables to consider would be far too great for it to ever be a mathematically useful tool.
Sort of like trying to model the weather and climate and predict how much fossil fuel combustion is needed to raise global temperature by 5*C. Even with super computers, the complexity is beyond human understanding.
I thought patents were supposed to protect the little guys from the big corporations. The current system seems to work in the reverse. At $500K the situation will only be worse for the small business person.
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