Increasing Marginal Utility

A blog so good it violates the law of diminishing marginal utility.

What do patent reform and nation building have in common?

Nation-building frequently fails because, basically, things are too complicated for a power as great as the United States to plan. We could set up institutions just right and get cultural buy-in, but those times are typically sheer luck and are far rarer than neoconservatives believe. The robust systems that will last are ones that evolved over a long period of human history.

But I don’t think that means we should never override the outcomes of an emergent order when the results of that emergent order are sufficiently bad. Suppose we want to do patent reform. The way I look at it is we are rolling the dice by reforming intellectual property. We can pretend we understand how and why it works, but there isn’t even agreement that it does work. We can try something out and hope it gives clearly better outcomes – but it’s just that, hope.

Nation-building is a similar roll of the dice, only nation-building is more like a hard four than a natural seven. And either way, it will end up costing several billion dollars.

In patent law, the perversities of the system are so severe that it is fairly unlikely that a new system, even one that completely fails, will be much worse than what we’ve got today.

If we want to do patent reform, there are basically two mindsets we could turn it over to, populists and technocrats. Both are planners. What we are doing is planning a new system. Whether we get something better than what we have is first-and-foremost a matter of luck, not a deep understanding of the economy.

However, on the margin, the technocrats will be better than the populists. Certain things that are fairly well understood, like financial incentives and asymmetric information, if not accounted for completely, will at least be acknowledged. This means that if asked to reform patent law, I would just favor handing the job over to elite neoclassical economists. People like Andrei Shleifer, Joseph Stiglitz, and Kevin M. Murphy (no relation). They might significantly overestimate their understanding of what is going on, but if we let them plan the system, we’ll be working with dice loaded in our favor. If we let populists plan the system, we’ll be working with dice loaded against us.

I think this is the properly Hayekian way of viewing emergent order at a meta-level. It isn’t just to eliminate patent law altogether and let things “emerge” on the market with the rationalistic presumption that they must be better on the market. Changing patent law, whether that means changing the legal structure or outright eliminating it, is a random mutation in the group selection architecture articulated by Hayek inĀ The Fatal Conceit. Random mutation isn’t quite as scary when it comes to something like patent law that has failed us so greatly. And if neoclassical economics has anything to give us at all, it isn’t quite a random mutation; there is some expectation over the baseline that we’ll get something better than what have right now.

One response to “What do patent reform and nation building have in common?

  1. Gene Callahan October 29, 2012 at 3:02 am

    Pretty good analysis, I think.

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