Monday’s edition of the Cato Institute’s daily podcast features an interview with Robert Laughlin, a Nobel Laureate in physics who wrote a book called The Crime of Reason about the ways that national security, patent, and copyright laws are restricting scientific research and the pursuit of knowledge. While I was in DC a couple of weeks ago, I had the opportunity to attend a talk he gave on the subject.

During his career, Laughlin experienced firsthand the strict regulatory regime that was erected to limit the spread of knowledge about the atom bomb. Under the Atomic Energy Act, first enacted in 1946, knowledge about certain aspects of nuclear physics is “born classified,” and anyone who independently discovers such knowledge is prohibited from disseminating it. Laughlin’s provocative thesis is that these laws served as a template for modern regulatory regimes that limit the spread of knowledge in other areas. These regimes include regulation of chemical and biological research on national security grounds, and also (to some extent) patent and copyright rules that restrict the dissemination or use of certain ideas for the benefit of private parties.

I’m sympathetic to his thesis that we should be concerned about the dangers of laws that restrict research and free inquiry. And as an eminent scientist who has first-hand experience with such regulations, Laughlin is well-positioned to throw a spotlight on the problem. Unfortunately, his argument gets a little muddled when he turned to the subject of economics. Laughlin takes a dim view of commerce, characterizing it as a deceptive form of gambling. In his view, markets are a kind of amoral war of all against all, in which we get ahead by deceiving others and controlling the flow of information. Laughlin thinks that despite the baleful effects of strong copyright and patent laws on scientific research and free inquiry, we simply can’t do without them, because it’s impossible for anyone to turn a profit without such restrictions:

In the information age, knowledge must be dear. The information age must be a time of sequestered knowledge. Why is that? Simple: you can’t get anybody to pay for something that’s free. If it’s readily available, no one will pay you for it. Therefore, the essence of the knowledge economy is hiding knowledge and making sure that people pay for it.

This claim surprised me because there are lots of companies that have managed to turn a profit while building open technological platforms. So during the question-and-answer session, I pointed out that there seemed to be plenty of technologies—the Internet being the most prominent example—that have succeeded precisely because knowledge about them was not “sequestered.”

Laughlin responded that:

If you want someone to buy software from you, you have to make it secret because otherwise they’ll go on the Internet and get it for free. You say that there are successful models of software that don’t work on that model. You bet there are. But to my knowledge, all of them are functionally advertising.

It may be true that most firms that build open technologies rely on advertising-based business models, but it’s not clear what that has to do with his broader thesis that profits require secrecy. Google may be “only” an advertising company, but it’s an immensely profitable one. IBM’s contributions to free software projects may be a clever marketing gimmick to sell its hardware and support services, but it seems to be an immensely successful marketing gimmick. And indeed, the 20th century saw Hollywood earn billions of dollars selling advertising alongside free television content. I don’t think Rupert Murdoch stays up at night worrying that most of his profits “only” come from advertising.

More generally, as Mike Masnick has written at some length Laughlin gets things completely backwards when he claims that an information economy is one in which information is expensive. To the contrary, the cost of information is falling rapidly and will continue to do so. What is getting more valuable are goods and services that are complementary to information—hardware devices, tools to search and organize the information, services to help people manage and make sense of the information, and so forth. A world of abundant and ubiquitous information isn’t a world in which we all starve. It’s a world in which more of us make our living making goods and services help people get more value out of the information goods they have available to them. Both Google’s search engine and IBM’s consulting services fit this model.

Finally, it’s important to keep in mind that we don’t face a binary choice between today’s excessive copyright and patent laws and no protections at all. Software has enjoyed traditional copyright protections since the 1970s, and to my knowledge those laws have not caused the kinds of problems that Laughlin talks about in his book. It is more recent changes in the law—notably the DMCA and the expansion of software patents—that have proven highly controversial. Rolling back some of these more recent changes to the law would not leave software companies bereft of legal protections for their products. Software piracy would still be illegal.

In short, I’m pleased to see Laughlin publicizing the risks of overzealous information regulations, but I think his pessimism is unwarranted. We can have a legal system that protects national security, promotes economic growth, and preserves researchers’ freedom of inquiry. Audio and video of the full Cato event is available here.

I’m working on a three-part series on self-driving automobile technology for Ars Technica. In part one I covered the state of existing self-driving technology and highlighted the dramatic progress that has been made in recent years. In part two, I assume that the remaining technical hurdles can be surmounted and examine what the world might look like when self-driving cars become ubiquitous. The potential benefits are enormous: autonomous vehicles could save thousands of lives, billions of person-hours, and billions of dollars of energy costs.

The article has sparked interesting discussion around the blogosphere. Matt Yglesias has a long-standing interest in urban planning issues, so he did a post about the urban planning implications of self-driving technologies. I argue that by making taxis cheaper, self-driving cars would shift a lot of people from owning cars to renting them. And that, in turn, would dramatically reduce demand for parking lots, which will allow more pleasant, high-density cities. It’s hard to overstate the extent to which the need for parking exacerbates sprawl and congestion problems. Parking lots consume vast amounts of land in suburban areas. This, in turn, means that stuff is farther apart, which forces people to rely even more on their cars to get from place to place.

Matt’s post prompted a number of interesting responses. Ryan Avent chimed in with some thoughts about how self-driving technologies would make urban living more attractive. On the other hand Tom Lee offers a counterpoint: making car travel cheaper and more convenient will, on the margin, cause people to drive (or “ride” anyway) more. This is a good point, and it’s not clear how these factors would balance out. But even if Tom is right, this wouldn’t be an entirely bad thing. Increased mobility is a virtue in its own right.

I think Atrios and Kevin Drum are on less firm ground when they argue that this technology is so far in the future that it’s not worth thinking about. Drum compares self-driving technologies to cold fusion and human-level AI, while Atrios compares them to flying cars and jet packs. I can only assume they didn’t read the first installment of my series, in which I discuss the state of the technology in some detail. The basic technology for self-driving is already here. There are cars in university laboratories that can navigate for hundreds of miles without human supervision, and can interact safely with other cars on urban streets. Of course, there’s still a lot of work to do to enable these vehicles to safely handle the multiplicity of obstacles they would encounter in real urban environments. And after that the technology will need to be made reliable and affordable enough for commercial use. But these problems are nowhere close to the difficulty of human-level AI. Your car doesn’t have to understand why you want to go to the store in order to find a safe path from here to there. If you’re skeptical that this technology can be made to work, I encourage you to read my first article and watch PBS’s excellent documentary on the 2005 DARPA Grand Challenge. There’s a lot of uncertainty about how long until this technology will be mature enough to let loose on our streets, but I think it’s pretty clearly a matter of “when,” not “if.”

If you’ve paid attention to copyright debates in recent years, you’ve probably seen advocates for more restrictive copyright laws claim that “counterfeiting and piracy” cost the US economy as much as $250 billion. When pressed, those who make these kinds of claims are inevitably vague about exactly where these figures come from. For example, I contacted Thomas Sydnor, the author of the paper I linked above, and he was able to point me to a 2002 press release from the FBI, which claims that “losses to counterfeiting are estimated at $200-250 billion a year in U.S. business losses.”

There are a couple of things that are notable about this. In the first place, notice that the press release says counterfeiting, which is an entirely different issue from copyright infringement. Passing stronger copyright legislation in order to stop counterfeiting is a non-sequitur.

But the more serious issue is that the FBI can’t actually explain how it arrived at these figures. And indeed, it appears that nobody knows who came up with these figures and how they were computed. Julian Sanchez has done some sleuthing and found that these figures have literally been floating around inside the beltway for decades. Julian contacted the FBI, which wasn’t able to point to any specific source. Further investigation led him to a 1993 Forbes article:

Ars eagerly hunted down that issue and found a short article on counterfeiting, in which the reader is informed that “counterfeit merchandise” is “a $200 billion enterprise worldwide and growing faster than many of the industries it’s preying on.” No further source is given.

Quite possibly, the authors of the article called up an industry group like the IACC and got a ballpark guess. At any rate, there is nothing to indicate that Forbes itself had produced the estimate, Mr. Conyers’ assertion notwithstanding. What is very clear, however, is that even assuming the figure is accurate, it is not an estimate of the cost to the U.S. economy of IP piracy. It’s an estimate of the size of the entire global market in counterfeit goods. Despite the efforts of several witnesses to equate them, it is plainly not on par with the earlier calculation by the ITC that many had also cited.

It’s not surprising that no one is able to cite a credible source because the figure is plainly absurd. For example, the Institute for Policy Innovation, a group that pushes for more restrictive copyright law, has claimed that copyright infringement costs the economy $58.0 billion. As I’ve written before, these estimates vastly overstate losses because IPI used a dubious methodology that double- and triple-counts each lost sale. The actual figure—even accepting some of the dubious assumptions in the IPI estimate, is almost certainly less than $20 billion. But whether it’s $10, $20, or $58 billion, it’s certainly not $250 billion.

There are a couple of important lessons here. One concerns the importance of careful scholarship. Before citing any statistic, you should have a clear understanding of what that figure is measuring, who calculated it, and how. The fact that this figure has gotten repeated so many times inside the beltway suggests that the people using the figure have not been doing their homework. It’s not surprising that lobbyists cite the largest figures they can find, but public servants have a duty to be more skeptical.

The more important lesson is for the journalistic profession. Far too many reporters at reputable media outlets credulously repeat these figures in news stories without paying enough attention to where they come from. If a statistic is provided by a party with a vested interest in the subject of a story—if, say, a content industry group provides a statistic on the costs of piracy—reporters should double-check that figure against more reputable sources. And, sadly, a government agency isn’t always a reliable source. Agencies like the BLS and BEA who are in the business of collecting official statistics are generally reliable. But it’s not safe to assume that other agencies have done their homework. The FBI, for example, has made little effort to correct the record on the $250 billion figure, despite the fact that it is regularly cited as the source of the figure and despite the fact that it has admitted that it can’t explain where the figure comes from.

Julian gives all the gory details on the origins of the $250 billion figure. He also digs into the oft-repeated claim that piracy costs 750,000 jobs, which dates back even further (to 1986) and is no more credible. And he offers some interesting theoretical reasons to think that the costs of copyright infringement are much, much less than $250 billion.

Tom Lee makes an interesting point about the satellite case I wrote about on Saturday: the problem facing EchoStar and other satellite manufacturers is strikingly similar to the challenges that have been faced for many years by video game console manufacturers. There’s a grey market in “mod chips” for video game consoles. Typically, they’re sold in a form that only allows them to be used for legitimate purposes. But many users purchase the mod chips and then immediately download new software that allows them to play illicit copies of copyrighted video games. It’s unclear exactly how the DMCA applies in this kind of case.

But as Tom notes, this dilemma is likely to get more common over time. As hardware gets cheaper and more powerful, companies are increasingly going to build their products using off-the-shelf hardware and custom software. And that will mean that increasingly, the hardware needed to do legitimate reverse engineering will be identical to the hardware needed to circumvent copy protection. The only way to prevent people from getting their hands on “circumvention devices” will be to prevent them from purchasing any hardware capable of interoperating with a manufacturer’s product without its permission.

Policymakers, then, face a fundamental choice. We can have a society in which reverse engineering for legitimate purposes is permitted, at the cost of some amount of illicit circumvention of copy protection schemes. Or it can have a society in which any unauthorized tinkering with copy-protected technologies is presumptively illegal. This latter position has the consequence of making copy protection more than just a copyright enforcement device (and a lousy one at that). It gives platform designers de facto control over who may build hardware devices that interoperable with their own. Thus far, Congress and the courts have chosen this latter option. You can probably infer from this blog’s title where many of its contributors stand.

My friend Julian Sanchez reports on a September 29 ruling by a federal magistrate judge that retailers will not be required to disclose the names of customers who purchased open satellite hardware that is currently the subject of a copyright lawsuit. The Plaintiff, Echostar, sought the records as part of its discovery procedures in a lawsuit against Freetech, a firm that manufacturers consumer equipment capable of receiving free satellite content. The equipment attracted Echostar’s attention because it’s also the case that with minor modifications Freetech’s devices can be used to illicitly receive Echostar’s proprietary video content. Echostar contends that satellite piracy—not the interception of legitimate free content—is the primary purpose of Freetech’s boxes. And it argues that this makes them illegal circumvention devices under the Digital Millennium Copyright Act.

The ruling is a small victory for customer privacy. But as Julian notes, the case still has some troubling implications. Echostar claims it can demonstrate that Freetech has been colluding with satellite pirates to ensure its boxes can be used to illegally intercept Echostar content. But it is a long way from proving that allegation in court. Unfortunately, the very existence of the lawsuit has had a devastating impact on its business. Freetech’s sales have dropped about 90 percent in recent years. In other words, Echostar has nearly destroyed Freetech’s business long before it has actually proved that Freetech had done anything wrong.

Second, and more fundamentally, it appears that Freetech’s liability may turn on whether there is a “commercially significant” use of Freetech’s products other than satellite piracy. As Fred von Lohmann points out, that has the troubling implication that Freetech’s liability under copyright law is dependent on the actions of customers over whom it has no control. As Fred puts it, this means that under the DMCA, a manufacturer could “go to bed selling a legitimate product and wake up liable.” It’s a basic principle of law that people should be liable for what they do, not for what third parties do without their knowledge or consent.

None of this is to condone satellite piracy. I have little sympathy for people who face legal penalties for obtaining proprietary satellite content without paying for it. But there are legal principles that are even more important than enforcing copyright. The progress of the Echostar case so far suggests that in its zeal to protect the rights of content owners, copyright law is trampling on those principles. Which is one more reason to think that the DMCA’s anti-circumvention provisions needs to be reformed or repealed.