The Jobs Argument for SOPA and PIPA or for Broader Copyright, More Generally, Represents a Perfect Example of Frederic Bastiat's Broken Window Fallacy

In that sense, the jobs argument for SOPA [Stop Online Piracy Act] and PIPA [Protect Intellectual Property Act] or for broader copyright, more generally, represents a perfect example of Frederic Bastiat's Broken Window Fallacy. Writing in 1850, Bastiat emphasized the need to account in economics and politics both for that which is seen and that which is not seen. ("Ce qu'on voit et ce qu'on ne voit pas.") When a boy breaks a shopkeeper‘s window, the shopkeeper must employ a glazier to fix it. If we focus solely on the employment of the glazier—that which is seen—then one might conclude that the government should hire children to go around breaking windows in order to increase the employment of glaziers in the economy. However, as Bastiat cautioned, we must also account for that which is not seen. Because the shopkeeper had to spend his money on the glazier, he could not spend that money elsewhere: on new shoes or a new book for his library. When we account for this lost spending elsewhere—that which is not seen—we find that the broken window generates no net stimulus to employment. The glazier earns more; but whoever would have received that money but for the broken window—whether cobbler, bookseller, or another—earns exactly that much less.

The mercantilist argument for broader copyright suffers from much the same fallacy. It urges us to focus solely on that which is seen—the increased revenue and enhanced employment broader copyright brings to the copyright industries. It asks us to ignore that which is not seen—the reduced revenue and diminished employment broader copyright brings to every other sector of the economy. Once we account for both that which is seen and that which is not seen, we find the mercantilist argument for broader copyright entirely empty. Just as the broken window generates no net stimulus for the economy, so too does broader copyright. Whatever increased revenue broader copyright generates for the copyright industries, it simply takes from elsewhere in the economy.

--Glynn S. Lunney Jr., "Copyright's Mercantilist Turn," Florida State University Law Review 42, no. 1 (Fall 2014): 99-100.

The Long-Venerated Idea that Legal Authority Must Provide Some Artificial Inducement to Artistic and Technological Progress Has Been Debunked and Falsified by the Evidence

The whole idea of copyright and patent law is that people won’t create or invent things without incentives. If people can just swoop in and make copies, the reasoning goes, these necessary incentives will be lacking. This is the classic economic argument for intellectual property law. And it makes perfect sense. But it turns out to be wrong.

Without anyone really noticing it, the primary rationale underpinning intellectual property law has become hollow. New strains of thinking in the fields of economics, psychology, and business management studies now debunk the long-venerated idea that legal authority must provide some artificial inducement to artistic and technological progress. At the same time, the incentive theory is being roundly contradicted by the deluge of citizen-produced digital content that is distributed over the internet without any expectation of compensation. These unfolding events confirm the view that has developed among social scientists: External rewards are, as a general matter, unnecessary for the flourishing of arts, entertainment, and technology.

Contrary to orthodoxy, the great driver of artistic and technological progress is not external, but internal. Call it inherent motivation. People have an intrinsic drive to create. Business firms have natural reasons for innovating. The idea of inherent motivation may be counter-intuitive, but the evidence is compelling. Survey-based studies and even controlled experiments have confirmed this view time and time again. Astonishingly, when it comes to the psychology of the individual, there is even evidence that extrinsic rewards have the opposite of the intended effect and can actually defeat inherent motivation, thus inhibiting creative and inventive endeavor. 

The upshot of all this is that is now possible to say with confidence that the classical economic dogma that lies at the heart of intellectual property law is a mistake.

The incentive theory is, and always has been, elegant. The simplicity and transparent logic of the incentive theory is one of its strongest features. But the theory’s attractiveness should not be allowed to hide its very best quality—its falsifiability. The incentive theory yields predictions about the world that can be tested. Specifically, the incentive theory predicts that economic actors will tend not [to] engage in economically valuable creativity and innovation without external rewards. And, as it turns out, digitally networked technologies have been testing this prediction. The evidence is in, and it refutes the theory. What’s more, work in business-management studies and the social sciences is putting together a new, more nuanced theoretical picture of innovation and creativity. That new theoretical understanding—while less elegant as a matter of theory—is manifestly in line with empirical observations. The necessary implication is that thinking about intellectual property must be completely revised.

--Eric E. Johnson, "Intellectual Property and the Incentive Fallacy," Florida State University Law Review 39, no. 3 (Spring 2012): 624-625.

Justifications for Copyright Protection Have Taken a Mercantilist Turn; The Shift from Neoclassical Welfare Economics to Mercantilist Justifications Defines US Trade Policy for Intellectual Property

Over the last twenty years, justifications for broader copyright protection have taken an increasingly mercantilist turn. In the recent debates over the Protect Intellectual Property Act (PIPA) and the Stop Online Piracy Act (SOPA), proponents did not seriously argue that these measures would enhance welfare by encouraging the production of more and better works of authorship. Rather, they argued that these bills would increase revenues to domestic copyright owners and thereby create jobs. This shift from neoclassical welfare economics to mercantilist justifications for policy is not unique to PIPA and SOPA, however. Rather, it has become a defining feature of United States trade policy with respect to copyright and intellectual property, more generally, over the last few decades. Moving away from the tenets of free trade, trade policy in the intellectual property arena has sought increasingly to protect domestic industries from foreign competition and to ensure thereby more revenue for and more jobs in those industries within the United States.

--Glynn S. Lunney Jr., "Copyright's Mercantilist Turn," Florida State University Law Review 42, no. 1 (Fall 2014): 95-96.