Eyes on the Prize

It is, of course, the silly season, or rather the silly year. That is, leap year, when the presidential campaigns make the year seem longer than the one extra day might otherwise indicate. It is a year when candidates try to display their care and concern for whatever concerns the public at that particular moment. They advance “ideas” (I use the term advisedly) whose purpose is not so much to be serious policy proposals as to be markers for their empathy with the voters. Most of these “ideas” do not survive until inauguration day, and that's probably for the best, at least in most cases. The “ideas” were only campaign ploys and most do not—and should not—survive the campaign. Since the major concern du jour is gas prices, candidates have to come up with something that indicates their solidarity with the suffering public, even if the idea makes no sense. Certainly, Obama's support of ethanol falls in this category, although it also has to do with his pandering to corn state voters. McCain's “gas tax holiday” is a bit of silliness designed mainly to use a few billion dollars of public money to buy votes, with no discernible benefit to the public.

But occasionally, candidates come up with something that actually could be a good idea and do touch on real issues. This is probably accidental, nevertheless, we take good ideas where we find them. And McCain's proposal for a $300 million prize for a new auto-battery could be a good idea, depending on what McCain actually means. Now, it is likely that the candidate has no idea of what he means; it was likely just a publicity stunt to begin with. In its present undefined form it is somewhat useless. Whoever comes up with such a battery will get a patent that will be worth a lot of money, maybe even $300M. In that case, the “prize” is of no effect whatever, and will just be an additional payment for what somebody was going to do anyway. There is a tremendous amount of research in this area, and pretty soon someone will break the code and find the answer, regardless of what the govmint does.

However, if McCain means that the government will buy the patent for the new battery in behalf of the people of the United States, this could be a very good idea indeed. The whole idea of a patent is to ensure that those who come up with new ideas will reap an economic reward. The theory is that this will both encourage and fund new research, to the betterment of all. The problem with patents, however, is that they create monopolies and spread economic inefficiency throughout the economy. Further, they are not necessary for funding new inventions. They could easily be replaced with licenses. Inventors could be required to license their ideas to however can pay the license fee and meet the manufacturing standards required for the product. This means that the inventor will receive a proper revenue stream to fund new discoveries, while providing multiple firms the right to make the product and thereby eliminate monopoly pricing while encouraging competition.

We see the effects of monopoly pricing most prominently in drug prices, where products that cost a few cents to manufacture cost $10's, or $100's, or even $1000's per dosage, depending on what the market will bear. Big pharma claims they need these high prices to pay the costs of research, but the claim is dubious. Actually the high prices mostly fund high marketing expenses. A good portion of our health care problems can be traced to the current system of patents. But the problem is not just with drugs; patents spread monopoly pricing throughout the economy in many areas. Wherever you see a product with a patent, you are probably looking at at least some economic inefficiency in the pricing of that product.

Now, if McCain wants to buy the patent and license it to firms making both the battery and the car on American soil with American workers, this could be a very good idea, and $300M would be a small price to pay. If he merely means to give an additional wad of taxpayer money to a monopolist, then it is just a publicity stunt, and an extra expense for the taxpayers. We will just have to see what McCain means. Most likely, McCain will have to see what McCain means. I suspect he has not thought this thing through and hasn't the faintest idea of the relationship between patents and monopolies. It is not one of the things he seems to think much about. But I am willing to give him the benefit of the doubt and see how this plays out.