Category: Law

High speed rail, especially California’s project, looks to me to be monorail economics, a costly boondoggle whose appeal lies not in rational calculation (also here) but in the desire of some politicians (and voters) to feel visionary and sexy. In theory, CA HSR  might work but the inevitable reviews, delays, lawsuits and special interest payoffs make the prospects of a beneficial project look dim, demosclerosis kills.

Slow speed rail, however, i.e. freight transport, isn’t sexy but Warren Buffett is investing in rail and maybe we should as well. In particular, there are basic infrastructure projects with potentially high payoffs. Congestion in Chicago, for example, is so bad that freight passing through Chicago often slows down to less than the pace of an electric wheel chair. Improvements are sometimes as simple as replacing 19th century technology with 20th century (not even 21st century!) technology. Even today, for example:

…engineers at some points have to get out of their cabins, walk the length of the train back to the switch — a mile or more — operate the switch, and then trudge back to their place at the head of the train before setting out again.

In a useful article Phillip Longman points out that there are choke points on the Eastern Seaboard which severely reduce the potential for rail:

…railroads can capture only 2 percent of the container traffic traveling up and down the eastern seaboard because of obscure choke points, such as the Howard Street Tunnel in downtown Baltimore. The tunnel is too small to allow double-stack container trains through, and so antiquated it’s been listed on the National Register of Historic Places since 1973. When it shut down in 2001 due to a fire, trains had to divert as far as Cincinnati to get around it. Owner CSX has big plans for capturing more truck traffic from I-95, and for creating room for more passenger trains as well, but can’t do any of this until it finds the financing to fix or bypass this tunnel and make other infrastructure improvements down the line. In 2007, it submitted a detailed plan to the U.S. Department of Transportation to build a steel wheel interstate from Washington to Miami, but no federal funding has been forthcoming.

Longman points out that:

Railroads have gone from having too much track to having not enough. Today, the nation’s rail network is just 94,942 miles, less than half of what it was in 1970, yet it is hauling 137 percent more freight, making for extreme congestion and longer shipping times.

I believe that there are valuable infrastructure projects but I am dispirited by the fact that these projects have been valuable for a long time and progress is very slow. Why haven’t the gains from better infrastructure already been taken? Why haven’t the $500 bills been picked up? It’s worrying that the bullet boondoggles get all the attention while simple things like updating 19th century technology is ignored. And it’s not just rail, sewers and the water supply are another example. Consider:

The average D.C. water pipe is 77 years old, but a great many were laid in the 19th century. Sewers are even older. Most should have been replaced decades ago.

Does that sound like the infrastructure of an advanced nation?

We need better, more trustworthy, institutions for infrastructure investment. As I said in Launching:

Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build the system today. Unfortunately, we cannot rely on the infrastructure of our past to travel to our future.

Hat tip: Mark at Observation Epidemiology.

As suggested by earlier rulings, Posner has thrown out the entire Apple-Motorola case. As I argued in Launching the Innovation Renaissance our patent system has became a weapon wielded by large corporations against competitor innovations. Posner’s ruling is complex but one point is clear he thinks that the courts should not act as a second in these corporate battles:

…The danger that Apple’s goal in obtaining an injunction is harassment of its bitter rival, requiring particularly watchful supervision by the court should it issue the injunction, is suggested by the fact that while a delayed injunction would in principle render no benefit to Apple besides harming its competitor by forcing it to waste time and money finding a new way of performing the functions now performed in an allegedly infringing manner, an ongoing royalty would yield significant income to Apple—yet which it wants to forgo in favor of imposing costs and litigation burdens on its adversary.

The notion that these minor-seeming infringements have cost Apple market share and consumer goodwill is implausible, has virtually no support in the record, and so fails to indicate that the benefits to Apple from an injunction would exceed the costs to Motorola. An injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare. That is the insight behind the “balance of hard-ships” component of the eBay standard for injunctive relief in patent cases.

Hat tip: @postlibertarian.

Adeel Malik has a very interesting essay responding to Timur Kuran’s excellent book The Long Divergence. There are many previous MR posts on Kuran’s thesis that Islamic law impeded the transition to impersonal exchange in the Middle East (see here and here).

I think The Long Divergence is one of the most important recent contributions to New Institutional Economics (incidentally I reviewed it for Public Choice). Malik takes on board Kuran’s main argument but then argues that it is not institutional enough because it does not tackle the argument that Islamic law was endogenous to the politics of the region.

‘Islamic law can be described, at best, as a proximate rather than a deep determinant of development, and that there is limited evidence to establish it as a causal claim. Finally, I propose that, rather than exclusively concentrating on legal impediments to development, a more promising avenue for research is to focus on the co-evolution of economic and political exchange, and to probe why the relationship between rulers and merchants differed so markedly between the Ottoman Empire and Europe.’

Last but not least, Glass-Steagall helped restrain the political power of banks. Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda. This excessive power has damaged not only the economy but the financial sector itself. One way to combat this excessive power, if only partially, is to bring Glass-Steagall back.

There is much more at the link (“Why I was won over by Glass-Steagall”), interesting throughout.  An ungated version is here.

Our patent law is by and large judge created and thus it is judges rather than legislators who are responsible for most of the dysfunction in patent law. It was judges who expanded (or endorsed) patents to cover business methods, software and animals. It was judges who weakened the obviousness, enablement and possession requirements. Finally, it was judges who interpreted vague patents broadly, thereby midwifing fearsome patent trolls.

Fortunately, judges also have the power to reform patent law which is why Judge Posner’s recent suggestion that he may dismiss with prejudice the Apple v. Google/Motorola  suit over smartphone patents is potentially ground breaking.

We don’t yet have a full ruling but in early rulings Posner referred to claims made by Apple and Motorola as “silly” and “ridiculous.” Most importantly, Posner has said:

“injunctive relief would impose costs disproportionate to the harm to the patentee and the benefit of the alleged infringement to the alleged infringer and would be contrary to the public interest….”

which I read as saying that Posner is tired of the patent system being used by big business as a cudgel against competitive innovation.

Posner is a founder of the law and economics movement and one of the most influential judges in America. Indeed, as I have said before, Posner is the only person in the world who deserves a Nobel prize in economics and a seat on the Supreme Court so this ruling will be closely followed.

…Apple has been awarded a patent on wedge-shaped computers. Once again it is difficult to see why this sort of competition-stifling government-enforced monopoly would be beneficial to the overall cause of innovation. It’s absolutely true that the record should reflect the fact that Apple made wedge-shaped computers popular and the new wave of Ultrabooks are slightly lame imitators. But we progress as a society because of imitators! People come up with good ideas and then those ideas spread.

Copied from Matt Yglesias who I take it will not mind that I am helping to spread good ideas.