The Freakonomics blog has an excellent post on the bills in Congress popularly known as SOPA and PIPA. The “Stop Online Piracy Act” and the “Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act” aka the “PROTECT IP Act” would attempt to frustrate online copyright violations by tinkering with the inner workings of the Internet.

Would amending the Internet be justified? The post is called “How Much Do Music and Movie Piracy Really Hurt the U.S. Economy?”:

Supporters of stronger intellectual property enforcement … argue that online piracy is a huge problem, one which costs the U.S. economy between $200 and $250 billion per year, and is responsible for the loss of 750,000 American jobs. These numbers seem truly dire: a $250 billion per year loss would be almost $800 for every man, woman, and child in America. And 750,000 jobs – that’s twice the number of those employed in the entire motion picture industry in 2010. The good news is that the numbers are wrong …

Freakonomics’ authors picked up two good authorities: Cato’s own Julian Sanchez and Cato’s own (adjunct) Tim Lee. It’s nice to see Cato scholars getting high-profile credit for their dogged insistence on real numbers, something Congress routinely fails to exhibit.

Losses from violations of copyright law are hard to calculate.

There are certainly a lot of people who download music and movies without paying. It’s clear that, at least in some cases, piracy substitutes for a legitimate transaction … In other cases, the person pirating the movie or song would never have bought it. This is especially true if the consumer lives in a relatively poor country, like China, and is simply unable to afford to pay for the films and music he downloads. Do we count this latter category of downloads as “lost sales”? Not if we’re honest.

And there’s another problem: even in the instances where Internet piracy results in a lost sale, how does that lost sale affect the job market? While jobs may be lost in the movie or music industry, they might be created in another. Money that a pirate doesn’t spend on movies and songs is almost certain to be spent elsewhere. Let’s say it gets spent on skateboards — the same dollar lost by Sony Pictures may be gained by Alien Workshop, a company that makes skateboards.

The challenges go deeper: The theoretical arguments about intellectual property laws are a congeries. Libertarian advocates of statutory intellectual property protection will cite Ayn Rand, who was a stalwart on defending creations of the mind as property. But a coherent system of rights does not produce conflicting claims, and intellectual property laws seem to exalt the property of some at a cost to the liberty of others. The some, in this case, are the music and movie industries, the others, Internet content companies and users.

This area still needs a good deal of sorting out. For the time being, a firm insistence on real numbers is a good thing. Serious empirical work is sorely needed. Killing off bogus numbers can only go so far.

The other day I saw a bumper sticker with an Obama logo and the words YES WE DID. This was hardly a surprise, as Obama got 67 percent of the vote in my neighborhood and 72 percent in my county, home to lobbyists and bureaucrats. And the embattled Republicans don’t flaunt their dissidence on their bumpers. But I began to wonder just what the driver was proud of.

Yes we did increase the national debt by $4 trillion? Yes we did create a national health insurance program passed in such haste that it’s full of gross errors and requires restrictions on telling the media about it? Yes we did continue the wars a lot longer than we promised? Yes we did launch a third war in the Middle East without congressional authorization? Yes we did exercise presidential power more aggressively than George W. Bush? Yes we did laugh at the very idea of not arresting people for smoking pot? Yes we did ratchet up regulatory costs in a weak economy? Yes we did create the slowest recovery in postwar history?

Soon even my Republican neighbors may be sporting bumper stickers reading YES YOU DID.

The reviewers warned me — don’t see The Iron Lady, the new movie starring Meryl Streep as Margaret Thatcher. Kelly Jane Torrance of the Washington Examiner mourns, “The climax of this movie about one of the most important people — not just women, but people — of the 20th century comes when Margaret Thatcher decides to throw out her dead husband’s clothes.” James Verniere of the Boston Herald asks, “Mamma mia! Why would you turn the story of Margaret Thatcher into a tale of a sweet, dotty old lady having a love affair with her beloved late husband?” Virginia Postrel excoriates the filmmakers: “These supposedly feminist filmmakers could have portrayed Thatcher as an ambitious woman who had nothing to feel guilty about. Instead they chose to inject guilt where it did not belong. They obscured Thatcher’s public accomplishments in a fog of private angst. The portrait of dementia isn’t the problem. The way the film uses old age to punish a lifetime of accomplishment is.”

Even the Washington Post, the New York Times (“You are left with the impression of an old woman who can’t quite remember who she used to be and of a movie that is not so sure either.”), and the New Yorker wonder why you would make a movie about one of the most influential and controversial political figures, the first woman to lead a Western country, the woman who arguably saved Great Britain and helped Ronald Reagan win the Cold War, and then spend half the film depicting her as a confused old lady with hallucinations.

Nevertheless, Thatcher is indeed a compelling figure, and the commercials and trailers showed Streep portraying her as a leader of conviction and strength. So I ignored the critics and bought a ticket. And the film was slightly better than I expected. It absolutely wastes about 40 percent of its time on the imagined scenes of a confused old lady. How much more rewarding it would have been to see a great actress play a pioneering political figure rising to power, leading her country, and facing opposition from both friends and enemies. Instead, we get a few vignettes of that, about half the film’s running time. So it wasn’t terrible, just a lost opportunity.

Interestingly, the marketing team at Weinstein Company seems to understand the appeal of a film on Margaret Thatcher far better than the writer and director. They know what the audience wants. Take a look at the trailer:

You’ll notice that there’s not a single shot of the old-lady part of the movie. Instead, it’s two fast minutes of Margaret Thatcher in action. Including a final scene (“Gentlemen, shall we join the ladies”) that harks back to an earlier scene of Thatcher on her way up, dramatizes her uniqueness — and is actually not in the film.

So I have a suggestion: Often the DVD of a film will include the film as released to theaters and also a “Director’s Cut” that reflects the director’s own artistic choices that the studio may have blocked. I recommend that the DVD of The Iron Lady include a “Marketer’s Cut” that omits all the old-lady scenes and just shows us Margaret Thatcher the political figure. And if there’s good material like the “join the ladies” scene left on the cutting-room floor, then the marketers could add that back in. In that case, I’d buy the DVD. In fact, someone should start a Facebook campaign: “Put a Marketer’s Cut of The Iron Lady on the DVD.”

By the way, Mitt Romney should not want Republicans to watch this movie: It will remind them of what it means to be inspired by a political leader.

Contrary to what various news outlets are reporting, President Obama is NOT proposing to cut government. The administration is proposing to take four independent federal agencies that specialize in corporate welfare – along with the Office of the U.S. Trade Representative – and combine them with corporate welfare programs at the Department of Commerce to form what I would argue should be called the Department of Corporate Welfare.

According to reports, this rearranging of the deck chairs would save $300 million a year. That’s peanuts. Worse, those alleged savings will be of no consequence to taxpayers as there is nothing to suggest that the president intends to cut overall spending for the agencies comprising the new bureaucracy. That portends bigger government, not smaller. The president is trying to sell the American taxpayer a false bill of goods.

The president’s proposal is also an attempt to counter the perception – an accurate one – that the administration’s policies are detrimental to commerce. But corporate welfare is detrimental to commerce because the market distortions it creates hinder economic output. Making it easier for select businesses to help themselves to taxpayer-financed subsidies would only perpetuate the same sort of crony capitalist schemes that gave us Solyndra and the Chevy Volt.

Of course, no transparent attempt to appear “business friendly” would be complete without a bone toss to the Small Business Administration. The “bone” this time is the president’s intention to elevate the head of the SBA to the Cabinet. As I discuss in a Cato essay on the SBA, rather than helping small businesses compete against big businesses, the SBA’s loan guarantees mainly help a tiny share of small businesses compete against other small businesses. In reality, the biggest beneficiary of the SBA is the banks, which reap the profits from the loans guaranteed by the agency.

Finally, Republican policymakers talk a good game about cutting government, but they often hide behind calls for making the federal government “more efficient.” Now that the president has seized a political opportunity to sing from the GOP’s hymnal, it’ll be interesting – if not entertaining – to see how Republican policymakers respond. To avoid embarrassment, I recommend offering specific spending cuts.

If you believe that the Constitution’s Commerce Clause empowers Congress to do pretty much anything it wants (that is, if you believe that me scratching my nose impacts interstate commerce), then you can stop reading now—you’re beyond help.

If, however, one follows both the history of banking law and the wording of the Commerce Clause, which in Article I, Section 8 in listing the powers of Congress reads “To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes,” then there arises the possibility that Congress lacks the authority to regulate non-bank financials, such as payday lenders, in the manner envisioned by the Consumer Financial Protection Bureau (CFPB), as created by the Dodd-Frank Act.

After you spend over a decade reading federal consumer finance laws, as I have, you notice a trend. Terms like “federally related mortgage loan,” which appears in, among other places, the Real Estate Settlement Procedures Act, or “national bank,” which appears in lots of places, like the Home Owners’ Loan Act or the Federal Deposit Insurance Act, or “housing creditor” as defined under the Alternative Mortgage Transaction Parity Act, appear repeatedly. The commonality of these terms? They always tie back to deposit insurance or some sort of federal guarantee, such as those made by the Federal Housing Administration or Fannie Mae and Freddie Mac.

The structure of federal consumer finance laws has historically gotten around the Commerce Clause by tying said laws to the acceptance of some federal benefit. In the case of banks, the bargain is, Banks get deposit insurance, which is ultimately backed by the taxpayer, and in exchange they get stuck with a whole host of regulations, some relating to safety and soundness, many others not. This scheme has been expanded by trying similar restrictions to the ability to sell a loan to Fannie or Freddie.

While I think this arrangement has been a Faustian bargain for the banks, the fact is they don’t have to take deposit insurance or ask for any other type of bailout.

What is truly revolutionary (in a bad way) about the CFPB’s new powers over non-banks is that they go beyond this traditional framework. I assume, and hope, we aren’t going to start bailing out payday lenders or check-cashers or give them any sort of federal insurance scheme. So if there is no “bargain” here, as there is with federal depositories, then where exactly is the federal nexus? The vast majority of payday loan transactions, for instance, do not cross state lines. The states already have full power to regulate these activities, and already do. There’s no national marketplace for most of these products.

So if non-bank financials lack a federal nexus (due to the absence of any federal guarantee) and are not interstate commerce, then where exactly is the authority (or the need) to regulate them?

Now, I’m not a lawyer, but it’s hard for me to see how the regulation of activities like payday lending meet the three categories spelled out in United States v. Lopez. So in addition to the Appointments Clause challenges to the CFPB, I wouldn’t be surprised to also see a Commerce Clause challenge.

As David Boaz recently demonstrated, the jeremiads emanating from Washington over proposed cuts in military spending are unfounded. Howard P. “Buck” McKeon’s op-ed in today’s Washington Post is only the latest to decry the “damaging blow to our military” that will be done by “massive defense cuts.”

Not only is Pentagon spending not at its lowest level in 60 years, as the Heritage Foundation claimed, it will not fall to such a level even if the Budget Control Act’s sequestration spending caps are implemented. David shows that charts can obscure the relevant facts or contribute to poor arguments.

But charts can also help shed light on the truth. For example, in the first chart below, prepared by my colleague Charles Zakaib, one might conclude that the reductions being contemplated as an outgrowth of President Obama’s strategic review (the brown line) would represent a dramatic cut in the Pentagon’s base budget. The automatic sequester cuts (the red line at the bottom) appear even more draconian.

What is not shown, however, is the context in which such cuts would occur. In the next chart, those projections are compared to defense spending since 1989. As you can see, the sequestration cuts would return military spending to no less than the spendthrift days of 2007, as others have noted in the past.

Should sequestration occur, defense spending will remain at historically high levels relative to the last post-war drawdown and not approach the low of 1998, much less a 60-year low.

* Thanks to Charles Zakaib with his assistance on this research and this post.

Corporations, corporate speech, and the 2010 Supreme Court decision in Citizens United v. Federal Elections Commission are a new Mason/​Dixon line in American politics. In late December, in true antebellum fashion, the Montana Supreme Court, in Western Tradition Partnership, Inc. v. Attorney General of Montana, tried to nullify the case by ruling that Citizens United doesn’t apply to Montana’s “unique” electoral system. Because the Montana Supreme Court’s actions were in blatant disregard of the Citizens United decision, the Supreme Court will likely overturn the opinion summarily—that is, without briefing or argument. Montana will not be a First Amendment-free zone for long.

Some who vehemently oppose the Citizens United decision have come out against the Western Tradition Partnership opinion as unsupportable judicial overreaching. Ian Millhiser of the Center for American Progress writes that, just as “it is wrong when Newt Gingrich plots a campaign of massive resistance against judges he disagrees with… Montana’s justices act no less illegitimately when they fail to follow a binding Supreme Court precedent.” Absolutely.

Mr. Millhiser is also correct in citing Justice James C. Nelson’s vigorous dissent as an admirable example of judicial modesty. While Nelson is very clear that he does not support Citizens United, he is even clearer in admonishing the majority of the court for ignoring binding precedent from the highest court in the land. The issue for Justice Nelson is clear, and it does not hinge on whether he disagrees with the Supreme Court’s opinion. Instead the question is simple: “Has the State of Montana identified a compelling state interest, not already rejected by the Supreme Court, that would justify the outright ban on corporate expenditures for political speech?” “Having considered the matter,” Justice Nelson writes, “I believe the Montana Attorney General has identified some very compelling reasons for limiting corporate expenditures in Montana’s political process. The problem, however, is that regardless of how persuasive I may think the Attorney General’s justifications are, the Supreme Court has already rebuffed each and every one of them.”

With criticisms like this coming from ideological compatriots, one has to wonder what the five justices in the majority were thinking. When reading the opinion, however, what they were thinking is abundantly clear: they wanted to register their dissent with Citizens United as well as cling to a distant hope that the Supreme Court might review the scope of their decision. Unfortunately for them, because of the method in which they chose to do so, coupled with the recentness of Citizens United and a blistering dissent that catalogs their errors, the Supreme Court will not seriously examine their reasoning.

The only remaining question is whether the Supremes will unanimously vote to reverse the Montana court and thus resolutely affirm the status of SCOTUS within the judicial hierarchy. There remains a possibility, however, that one or more of the justices who disagree with Citizens United (and recall that Justice Kagan argued the case before the Court as solicitor general) will use the case to voice their opposition to the decision. This would be unwise, and it would only contribute to the perception of the Court’s fractured nature. The justices should not be fractured on condemning a lower court that blatantly ignores controlling precedent.

Yet the opinion is still worth reading for anyone interested in campaign finance law generally or in Citizens United itself. Not only does the majority opinion make a woefully inadequate attempt to distinguish Montana’s “unique” situation from facts already addressed by the Supreme Court, but it highlights fundamental differences in political philosophy that Citizens United has brought to the surface.

Contrary to popular opinion, including the opinion of President Obama voiced in his 2010 State of the Union address, Citizens United did not overturn a “century of law” or dramatically break with existing First Amendment doctrine. Instead, the Court merely logically extended what it said in the foundational campaign finance case of Buckley v. Valeo (1976): the government’s only compelling interest in regulating campaign finance comes from preventing the corruption or the appearance of corruption of elected officials. “Corruption” here means quid pro quo corruption—that is, “you give money to my campaign and I’ll vote the way you want me to, a way that I wouldn’t have voted otherwise.” It does not mean “corrupting” the supposed purity of the campaign process by letting one speaker have a louder voice than other speakers. Nor is it “corruption” for representatives to respond to the demands of their constituency. That’s democracy. The Court in Buckley ruled that the dangers of quid pro quo corruption are only substantially present when direct contributions are given to candidates. Those dangers are not as present when parties do not give money directly to the candidate but instead spend money independently of the campaign. Citizens United merely extended this reasoning to corporations.

This intuitively compelling distinction is consistently ignored by critics of Citizens United. Throughout the majority opinion, the Montana Supreme Court also ignores this distinction (which it is legally bound to enforce) and instead uses the term “corruption” to describe both bribery and disproportionate influence. In one particularly telling passage, the court explains how a corporation “willing to spend even hundreds of thousands of dollars, much less millions, on a Montana judicial election could effectively drown out all other voices.” This idea—the idea that the government should regulate the electoral marketplace of ideas in order to ensure that voices are not drowned out by louder voices—is not just wholly repugnant to the First Amendment, it is a dangerous power to give to government officials who depend on elections to keep their jobs.

Perhaps no one has put this idea better than Justice Scalia in the opening lines to his dissent in Austin v. Michigan Chamber of Commerce, which Citizens United overruled:

“Attention all citizens. To assure the fairness of elections by preventing disproportionate expression of the views of any single powerful group, your Government has decided that the following associations of persons shall be prohibited from speaking or writing in support of any candidate: ___.” In permitting Michigan to make private corporations the first object of this Orwellian announcement, the Court today endorses the principle that too much speech is an evil that the democratic majority can proscribe. I dissent because that principle is contrary to our case law and incompatible with the absolutely central truth of the First Amendment: that government cannot be trusted to assure, through censorship, the “fairness” of political debate.

Instead of focusing on quid pro quo corruption, the Montana court’s central worry is that corporate speech will be effective, that is, that people might actually believe it. It’s hard not to see some measure of paternalism in this idea, as well as an implicit assumption that corporations only try to deceive and brainwash rather than inform. Thus, a majority of Montana’s Supreme Court would empower the government to ensure that citizens are protected from these devious forces by benevolent officials who will in no way try to control the process for their own ends. This much faith should never be placed in elected officials. Thankfully, a majority of the Supreme Court of the United States agrees.