Economist James D.Miller is practically frothing at the mouth over on NRO in response to a California district court ruling in favor of the makers of peer-to-peer clients Grokster and Morpheus. But he should calm down, take a deep breath, and take a second look at some of his arguments

Miller makes mistake number one in his very first sentence. The court’s ruling was not, as he says, one “legalizing Internet file-trading tools.” These tools are and were legal. The court rightly refused to hold the makers of software liable for copyright-infringing uses of their programs, just as they have (thus far) rightly refused to blame gun makers merely because some people use guns illegally. It may be the case that infringing file trading is a problem, but attempting to destroy peer-to-peer for that reason makes about as much sense, pragmatic and moral, as attempting to ban cameras because they can be used to produce child pornography.

Peer-to-peer clients are just a way of transmitting data. Grokster and Morpheus don’t pass that data through any central server. That was the key feature that felled Napster, because it allowed the recording industry to argue that the company was, in some sense, party to infringing uses of its program. But if Grokster and Morpheus shut down tomorrow, file trading could carry on unmolested. If some of the files transmitted via these clients are illicit, that’s the fault of users, not the people who provide the medium. A p2p client is a tool, Marian. No better, no worse than any other tool.

Bankrupting these companies would not only be unfair, it would fail to provide the remedy Miller is looking for. With a plethora of clients already in existence, easily circulated, and not reliant on central servers, punishing the companies is a clear case of closing the barn door after the livestock have escaped. The court’s holding has not, as Miller argues, “reduced the value of intellectual property rights.” That has already, irrevocably, occured.

The rest of the article provides the familiar econ-101 argument for intellectual property. I’m actually largely sympathetic to that argument, but Miller’s agitation takes him too far here as well. First, Miller is so focused on the tenets of neoclassical theory that he neglects an obvious empirical reality. People still buy CDs. I, and many people I know, could quite easily download all our music for free, perhaps burning the occasional CD for the road. We don’t. I may even buy a few more than I otherwise would, because the ability to preview a wider variety of artists exposes me to new music and lets me know in advance whether I like an album before I plop down $15. Sure, some people have stopped buying albums. But many haven’t, and apparently millions more are willing to pay a reasonable fee for the digital versions of the songs they could find for free via p2p. Incidentally, this allows artists to capture revenue from people who like a few songs on an album, but aren’t willing to pay the full price for the entire thing.

Miller is right to point out that, on neoclassical behavioral assumptions, nobody should do this. As he puts it, “a central tenet of economics holds that if multiple firms sell identical products, consumers will patronize the lowest price provider. If pirates give away their product for free, content providers can compete only by also charging nothing.” Fortunately for artists, a central tenet of economics is just demonstrably wrong. Or, more precisely, Miller is applying it too crudely. On an alternative interpretation, the products are not identical, because patronizing iTunes allows us to consume the psychic good of knowing we’re supporting the artists we like.

Miller’s second problem is that he fails to do what any good economist ought and look at both sides of the ledger. On a chalkboard, you don’t have to do this because, on those faulty behavioral assumptions, nobody pays for intellectual work and creative output drops to zero. Since we don’t live on a chalkboard, that doesn’t happen and we have to weigh the marginal decline in output against the exponential increase in distribution of the good. Miller only counts the cost of the probable reduction in creative production resulting from less perfect protection of IP rights. He neglects to count as a benefit the near costless dissemination of each creative good that is produced to many more people. The logic of material goods dictates that the calculus almost always cuts in favor of exclusion in the case of physical property, such as agricultural land. But Miller’s blithe application of that conclusion to the non-physical realm is far too hasty. And his imagination is a bit impoverished as well: musicians can still charge for concert admission, but how (he wonders) can authors hope to internalize the benefits of their writing? As an academic, he must be familiar with the old scholarly maxim “publish or perish.” The royalties for Game Theory at Work may get smaller, but there’s still the lure of tenure. By extension, any number of other opportunties—speaking gigs, for example—open up to authors who get reputation benefits from the wider circulation of their work.

Finally, as a purely theoretical matter, I have to quibble with this:

The ability to exclude is the essence of property rights. If I “own” land but anyone can trespass I don’t really have any property rights. Similarly, if I own a movie, but anyone can freely watch it, my rights have disappeared

I think this is utterly wrong. The essence of property rights is a guarantee of one’s ability to enjoy that property. The power to exclude is strictly ancillary, though in the case of material goods almost always necessary. If people can tramp across my lawn at will, my ability to enjoy it is obviously apt to be diminished. But exclusion is instrumental, not essential. If someone can watch a movie I own, there may be privacy issues (what else are they watching? do they have cameras in my house?), but my own central right to it is diminished not one whit.

This becomes clearer if we think about a realm where our intuitions are less settled. Many of us support property rights in radio spectra. But what if an alternative technology made it possible for an indefinite number of users to broadcast on the same wavelenghts without interfering with each other. Would it make any sense to assign exclusive property rights in radio bands? Of course not: when neither rivalrous use nor questions of incentive to produce (in this case new spectra—not possible as far as I know) are at issue, coupling the right to enjoy with a right to exclude is preposterous.

Now, for incentive reasons, the right to exclude may also be desirable for creative works. But let’s not kid ourselves that what’s going on with file-trading is “stealing.” You haven’t stolen something if I still have the enjoyment of it. What’s going on is infringement on a legitimate, government granted monopoly.

Now, probably that’s a monopoly we need. On net, despite what I’ve said above, I think it is. But you’ll have to forgive me if I can’t suppress a smirk when I see interference with a monopoly grant from the federal government decried as “communism.”