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Patent Abuse September 30, 2006

Posted by federalist in Government Regulation.
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There are plenty of great essays out there explaining why our current patent system is broken and how to fix it.  While I was on vacation last week I caught up on some old copies of Network Computing and thought this perspective by David Wall was noteworthy:

Patent filers get to write the laws held in their legal claims, and patent clerks get to enact those laws by approving the patents. Patent legal claims are not written in a straightforward manner, so you can’t just read a patent and know if you’re infringing on a claim. As a victim of a patent lawsuit, you must spend tens of thousands of dollars just to get a judge to tell you what the patent office granted when it awarded the patent. Why must the victim go through this? Why doesn’t the PTO ensure that all patents have clear legal claims before it approves them and subjects us to bad laws?

Grammar: Indexes vs. Indices September 28, 2006

Posted by federalist in Language.
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The plural of the noun index should always be indices. This handily distinguishes it from the present tense of the verb index, which can only be indexes.

E.g., “The investor indexes his many holdings so that he can easily cross-reference them against his benchmark indices.”

Regrettably, the Wall Street Journal, among others, does not follow this strict rule and will accept both indexes and indices as the plural of the noun index.

Something there is that doesn’t love a wall September 22, 2006

Posted by federalist in Economic Policy, Government Regulation, Taxation.
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Apparently Republicans have not yet learned the futility of building walls to separate supply from demand.  Whether we’re talking about Mexican labor, Columbian cocaine, or Afghan opium, when there’s a huge imbalance between supply and demand outlawed goods and services will find a black market if the white one is closed.  Pouring resources into trying to restrain these market pressures is almost always counterproductive because the black market they fuel protects itself by subverting the systems that guard the white market.

It’s like trying to construct a wall to hold back the ocean (see: New Orleans): you can try to do it in small areas at great expense, but when your walls inevitably fail the damage is even greater.  We’re better off letting water seek its level, and when we do build walls it should just be to create a harbor or some other buffer against storm surges.  We can channel water to a great degree, and even focus its energy to productive uses.  Likewise, we can tax “undesirable” markets, and if we structure them right maybe even use them for constructive purposes.

QOTD September 21, 2006

Posted by federalist in Uncategorized.
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Peter Drucker

Good intentions are no excuse for incompetence.

Jim Collins

You can never use incentives to turn the wrong people into the right people.

Ambrose Bierce

Politics: Strife of interests masquerading as a contest of principles.

Best Way to Write Left-Handed September 20, 2006

Posted by federalist in Uncategorized.
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It is painful to watch left-handers try to write left-to-right.  If their writing implement bleeds, then their hand is constantly inclined to smudge what they have just written.  And many end up contorting their hand through an unergonomic 90-degree bend to facilitate the left-right motion that comes naturally to the right hand.

We should instead encourage left-handed writing to be performed from right to left.  In order to facilitate this with left-to-right languages, we should teach left-handers “specular writing,” i.e., mirror-reversed writing.  Their script can then be read either in a mirror, through the back of the sheet on which they have written (e.g., holding it in front of a light source), or by scanning it into a computer and mirror-reversing it.  It worked for Leonardo DaVinci.

The Other Child Tax Deduction – Part I September 17, 2006

Posted by federalist in Taxation.
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There is a straightforward way to avoid a few more taxes for anyone with children and a bit of investable money: Dependents do not have to file a tax return on unearned income of up to $800 in a year.  So as soon as your child gets a social security number, buy him a (taxable) bond or CD with an $800/year fixed payout.  That’s $800/year of investment income that your family will not be taxed on.

(According to the same IRS Publication 929, your child can actually collect up to $1600/year in unearned income before your tax rate will kick in, so if you don’t mind filing a tax return for them (or they’re already filing for another reason), it may pay to give them more investments.)

What should your child do with that income?  It may make a reasonable allowance:  I was intrigued by Christina Binkley’s article last month on allowances.  Being a fervent capitalist I always assumed I would give my children an introduction to the markets at a young age by making them work for their allowance.  But this article made me rethink that, and I am now convinced that a fixed allowance is the right approach for the following reasons:

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Government Regulation Hurts — In More Ways Than One September 15, 2006

Posted by federalist in Government Regulation.
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Mary O’Grady has an interesting column today in the WSJ, “Doing Business in Latin America.”  She summarizes the World Bank’s “Doing Business” report, which looks at the regulatory policies and tax climate of 175 countries:

The 2007 edition was released last week and, not surprisingly, finds that poor countries could be much better off if only they would stop discouraging legal, tax-paying business activity.

When governments make it expensive to operate in the legal sector, small and medium-sized businesses go underground, giving up economies of scale, the benefits of technology and productivity gains. Governments have to rely more and more on large companies for tax revenues and high tax burdens take a toll on competitiveness. Growth rates suffer. Joblessness and poverty persist.

I hadn’t considered these indirect costs of regulation.  It’s obvious that increased regulation will stifle the creation of new enterprises and reduce the international competitiveness of existing ones.  But it also increases the incentives for entrepreneurs to operate underground businesses, where they lack not only economies of scale but also legal protections and access to capital (at least on the same terms as the governmentally sanctioned economy; I guess there’s always organized-crime tactics).

This actually seems quite paradoxical: The fundamental market enablers are government protections of property and contracts.  So if you’re trying to develop your country from the ground up you start with those principles and presumably hope to enhance things as you go from there, right?  How is it that so many developing countries have overshot and produced such stifling levels of government interference in business?  Some of these figures are really boggling:

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Build China Up September 12, 2006

Posted by federalist in Diplomacy.
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A lot of American military planning is done for the “major theater war,” and right now the most significant world military power outside of the United States the planners can see is China.  It’s not too hard to imagine China erupting onto the world stage in an offensive way.  After all, the country is still run by a repressive Communist Party.  It feels very strongly that Taiwan, our ally, should pay it more respect than Taiwan can reasonably afford to pay.  Their military has demonstrated a lack of that certain level of diplomacy and discipline that befits a superpower.  And they keep on trying to steal our military technology.

So as a military rival, it seems at times like it’s only a question of when it’s going to heat up and how hot the war’s going to get.

Meanwhile, a lot of lazy, unskilled Americans are unhappy to discover that China is overflowing with workers capable of churning out many of the same goods and services we used to get paid for, and willing to do it for a lot less money.

But James McGregor has a good counterpoint in today’s WSJ, “No More Chinese Whispers.”  After reading his essay I am left with the impression that maybe we can forge economic ties that will allow us to build China up into something of a partner, or at least a responsible world actor.

(It would certainly be nice if someday soon we could leave policing of the western Pacific rim to a coalition of the Koreans, Japanese, and Chinese.)

How not to evade taxes September 9, 2006

Posted by federalist in Taxation.
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So you go out of your way to make half a billion dollars in personal income in such a way that the government doesn’t hear about it.  The government believes its fair share of that income is $200MM, but you don’t volunteer any of those taxes.

If the government finds out it will make you pay and throw you in jail for a long time.  (Oh, unless you find a corrupt President you can pay off to grant you clemency.)

I’m ambivalent on this sort of thing.  On the one hand, it’s a sort of deliciously libertarian gesture.  On the other, only really rich people can afford to pull this off, and it’s not like they’re making big sacrifices as tax protesters: if it works they profit handsomely.

Which leads me to my big question: If you cheated the government out of more than $200MM, couldn’t you afford to invest some of those savings in a security and escape plan?  How does a guy like Walter Anderson actually get caught?  Or could it be that personal tax evasion on this scale happens all the time and it’s only the really sloppy or unlucky ones that go to jail?

Government Healthcare September 4, 2006

Posted by federalist in Economic Policy, Government Regulation, Government Spending, Healthcare.
2 comments

Ron Gettelfinger, President of the United Auto Workers, repeats (also here) one important characteristic of insurance: Its efficiency increases with the size and diversity of the insured group.  However, he follows this fact with four socialist fallacies on his way to concluding that American healthcare should be funded by the federal government.

Fallacy #1: The only way to increase economies of scale in health insurance is to publicly fund them at the federal level.  Reality: Health insurance at present is heavily regulated at the state level, making portability and competition at the national level impossible.  Simply opening a national market for health insurance would afford private insurers all of the diversification opportunities they could possibly need.

Fallacy #2: Healthcare would be more efficient if it were provided by government instead of employers.  Reality: Government has distorted the market for healthcare by allowing employers to buy it with pre-tax funds, but generally requiring individuals to purchase it with post-tax income.  This is the cause of our convoluted third-party-payer system.  Eliminating market distortions like this would take employers off the hook for buying healthcare.

Fallacy #3: Healthcare and insurance are monolithic commodities.  Reality: There may be some baseline level of healthcare that we can agree should be provided to all people: Perhaps obstetrics, vaccines, and trauma stabilization.  But in this age of burgeoning medical technology it is impossible to suggest that every individual is entitled to the same comprehensive level of healthcare.  That would be no more tenable than arguing that every car should be equipped with the most advanced safety features money can buy: In reality the rich can always buy more security than the average individual can afford.

Fallacy #4: If government provided universal healthcare our employers would become more competitive in global markets.  Reality: Just because government pays for something doesn’t make it free.  The source of the funds could be shifted around, but ultimately what is spent by government comes out of GDP.  And if history is any guide that government service will be higher cost and lower quality.

Universal government healthcare is not a panacea.  And it is no more American than requiring the government to buy every citizen an identical car.

Nuclear Energy Solutions September 1, 2006

Posted by federalist in Energy.
4 comments

Large-scale custom nuclear power plants are so passe.  We should push technology to standardize and miniaturize nuclear energy.  Here’s an essay advocating one fascinating design called the Pebble Bed Modular Reactor.

The fuel comes in the form of baseball-size graphite balls, each containing sugar-grain-size particles of uranium encapsulated in high-temperature graphite and ceramic. This makes them easier and safer to handle than conventional fuel rods, says Pretoria-based nuclear physicist Kelvin Kemm.

Not only are these reactors immune to meltdown risks, but they also are more fuel-efficient: 

Conventional fuel rod assemblies are removed long before complete burn-up, to avoid damage to their housings, but PBMR fuel balls are burned to depletion.

With this design we eliminate a whole host of concerns regarding transportation, fuel security, reactor safety, and waste recycling.  If we standardized nuclear fuel production on encapsulated uranium balls we could put these non-polluting PBMR reactors anywhere we need large doses of power.

Process heat from PBMR reactors can also be used directly to desalinate seawater, produce hydrogen from water, turn coal, oil shale and tar sands into liquid petroleum, and power refineries, chemical plants and tertiary recovery operations at mature oil fields.