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Posts Tagged ‘Trade’

Frequent contributor (and my brother-from-another-mother) Tom suggests we add an “ask a libertarian” section.  Now we are hardly mouthpieces for a wildly diverse movement that is part party, part philosophy, and we won’t try to be.

But we’re certainly glad to engage readers and try to shine some light on why we think freedom, limited government and private cooperation could lead us to a better world.  We can’t speak for everyone, but we can offer you our particular lens on an issue that concerns or interests you.

Hence, the inaugural Reader Questions.  The topic: Patents, exclusivity, and innovation.  Tom’s question is a good one, and I’ll reprint it in full:

I’m hesitant to form strong opinions on issues involving patents and intellectual property because, well, I’m not a lawyer. I have a hard time drawing the line between where patent laws encourage innovation and where patent laws change innovators’ focus from the act of innovating to milking patent protection to finding a balance with patent-assisted profits and further innovation, perhaps at the cost of further innovation.

I guess what I’m pondering, fueled by the role of pharmaceutical companies in American health care, is when do patent laws become a reverse incentive for innovation, artificially elevating prices and discouraging or eliminating competitive innovation for similar products?

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Once a friend claimed to me that a free market was ultimately unsustainable because in the long run, all wealth would be channeled to one person.  The implication here is that the government provides a necessary check to prevent such injustice.  The claim is one that addresses complex social and economic features of how humans behave, one that seems intuitively correct to people that, so it survives as a factoid that’s passed around without much question.  The richest in society are richer now than they ever have been, because they’re withholding resources from the lower classes, right?  This is not the way economists think about the world.

Economists see trade as a positive-sum game, which means that when two parties make a voluntary exchange, both are better off.  Have you’ve ever thanked someone at a cash register and heard them thank you in response?  In a free market, wealth doesn’t accumulate to the richest by exploitation; it is produced from the bottom up.

Evolution has left us with an unfortunate bias to think in zero-sum terms.  Our ancestors functioned in a zero-sum environment, which means that one party benefited at the expense of another.  If two warring tribes were competing over resources, then inequality between the them was a signal of injustice.  In contrast, today’s economic institution, a free market, functions contrary to our evolved intuitions.  Zero-sum thinking is quite pernicious because it is so psychologically ingrained, and as such, it strongly motivates people to advocate for protectionism and all sorts of policies that decrease human welfare.

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