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Archive for August, 2011


Patent reform

The latest incarnation of patent reform would change our system from a first-to-invent system to a first-inventor-to-file system. It should be possible to understand the implications of this system, because it is a system that exists elsewhere in the world. So some bright lights might say that we should have a first-to-file system in order to coordinate with the rest of the world. Perhaps this is true . . . in this case. However, coordinating with the rest of the world may be a bad idea in general. For example, the USA has been going it alone pretty much with respect to software and business methods patents until the recent Bilski case. In the Bilski case, the Supreme Court reaffirmed the machine (no mental processes) or transformation test. It also opined that there may be other valid tests but declined to indicate what those tests might be. The bottom line is that the machine or transformation test harking back to inventions of the 19th century, appears to be the only current test. How many serious, non-trivial or non-obvious inventions in the areas of software or business methods can meet this test? Few, if any.

Let’s digress to discuss why such patents would be socially valuable. In general, economists who are pro-patent will argue that giving inventors some degree of market power for a limited time through patents will generate more invention. This is an empirical question which I would leave for others to investigate and debate. There is, in fact, another reason . . . a more powerful reason in my estimation. Without a patent, inventors will seek to protect their invention through the use of trade secrets. This is costly, uncertain, and generates uneconomic behavior: industrial espionage and reverse engineering. The use of trade secrets also deprives researchers of the very methodologies which should be studied in order to evaluate and improve the methods.

The patent office has been stung in recent years by the criticism that they have approved a raft of trivial and obvious patents in the software and business methods area. The solution to that is to stop approving trivial and obvious patents. Well, you need a test for that I suppose. The test needs to be consistent with patent law. Here is the test. If an expert in the field would need to read the claim in a patent in order to functionally reproduce it after being informed of the high-level purpose of the claim, then it is not trivial and it is not obvious. For example, I and countless others thought of the Cybersource “patent” before they did . . . but who would have the gall to try to patent such a thing (look it up). On the other hand, the Schrader auction patent application that failed to make it was profound and certainly non-obvious (look it up).

Perhaps I should try to patent this test of patentability. Alternatively, let’s include the inventions of the information age in the information age. Let’s do it through legislation. Patent reform ought to affirm that software and business methods inventions are legitimate subjects of patents. Of course, they should not be trivial or obvious. Of course, they should have a practical purpose.

For those who say that we would not be coordinating with the rest of the world if we went in this direction, I would say “good for us.” Let all those who have profound inventions in the software and business methods areas come to the USA for your patent. The market is big enough here for such patents to have an impact worldwide even though the subject matter is not patentable everywhere. That is, who wants to develop a product that rips off a USA patent and cannot be sold in the USA? Obviously, some will do so, but others will resist.


Is global warming global?

Global warming since 1978 has been about 0.6 degrees centigrade in the Northern hemisphere. It has been about 0.3 degrees in the Southern hemisphere.  The global average has been between these two extremes. Why is global warming not global? Could it relate to the fact that it takes much less energy to heat land than water? Note that the Northern hemisphere is about  39.3% land, whereas the Southern hemisphere is only about 19.1% land. So the land mass is almost exactly twice as large in the Northern hemisphere as it is in the Southern hemisphere. Hmmm. The temperature increase in the Northern hemisphere is twice as large as that in the Southern hemisphere AND the land mass is twice as large too. This is kind of suggestive, isn’t it?

An alternative hypothesis is that global warming is related to something that humans are doing? But the distribution of population is even more extreme.  The Southern hemisphere population is only about 10 to 12 % of the global population. Wouldn’t this lead to even greater warming differences if human activity is the cause? It seems to me that the order of magnitude of the differential warming effects is way off if global warming is due to human activity, unless the humans in the Southern hemisphere are much worse behaved than those in the Northern hemisphere. However, it is the conventional wisdom that the industrial processes of the Northern hemisphere are the culprit. That is, Northerners are worse behaved than Southerners.

Does the fact that global warming is not global provide us with any information as to what causes global warming?


A balanced budget amendment

If the expenditures of the Federal Government exceed its revenues during any fiscal year, there must be a proportional reduction in the expenditures of all agencies so as to achieve a balanced budget during that year, the exception being during years of declared war.


The Gold Standard

First and foremost, it would be impossible for the United States to intervene in the gold market to cause the price of gold to be constant for some marketbasket of goods. Thus, under the gold standard, our monetary policy would be subject to the vagaries of the international price of gold. Inflation and deflation will be the result.

One of the worst disasters that can befall a nation is deflation. It destroys the credit market and the economy. Suppose we had a gold standard now. With the price of gold rising (and not just because of what is going on in our economy), we would have a deflation. With a gold standard, we will be able to look forward to running a deflation and a recession every time risk rises internationally.

Suppose that new gold is discovered in Canada or elsewhere or that risk declines internationally so that the demand for gold subsides (supply increases or demand decreases), then we would have an inflation. This would be bad, real bad, but not as bad as deflation. In any event, “debasement” is not eliminated by having a gold standard.


What is wrong with Keynesian economics?

So what is wrong with Keynesian economics? Lots of things, but let’s focus on government expenditures. The Keynesian doctrine indicates that an increase in government expenditures is an “expansionary” fiscal policy. They talk and write about multipliers, pump priming, stimulus, and such. But it doesn’t work. Why?

So-called “expansionary” fiscal policy is a negative sum game. That is, the multiplier is not even zero, it’s negative. The Keynesian doctrine is based on ceteris paribus analysis (this just means that everything else is held constant). This is magic. If the government gives resources to Joe in the form of government expenditures, it must find a way to extract resources from Jim. Ordinarily, this happens by way of additional taxes or inflation. Unfortunately, it must extract more resources from Joe than it gives to Jim, because it must also pay Jerry, who works for the government and processes the transaction. The analysis should not be ceteris paribus. Instead, it should be mutatis mutandis (with all the necessary changes).