This just in...D&S reads the news (#6)

by Dollars and Sense

The sixth in a series of blog entries by D&S collective member Larry Peterson.

Perhaps the most far-reaching yet underappreciated economics-related story hitting the news this week concerned the fight in Congress over patents. This fight features as antagonists two of the most important and influential sub-sectors in the economy (not to mention their lobbyists): pharmaceutical firms and high-tech companies. Since the Democrats won control of Congress in November, patent reform has been something they have increasingly set their sights on. According to the Washington Post article, the political shift has "energized a congressional drive to revamp the patent system for the first time since the 1950s."

Besides being noteworthy in itself, the article shows how vastly different incentives and reward structures have created a situation which threatens to clog the entire research-driven part of the economy up in legal or legislative congestion, and underscores how difficult it will be to come to a new settlement. Large tech companies, who are for reform of existing law, argue that they cannot respond to a fast-changing marketplace in products as ethereal as software (which essentially consists of nothing more than sequences of code) without a flexible standard of patents; otherwise, the threat of launching court cases involving arcane and sometimes incomprehensible (at least to most juries, and even jurists) distinctions will be sure to slow research and development to a crawl.

On the other hand, pharmaceutical companies, which require comparatively high up-front costs, call for the maintenance of a strict interpretation of the present law: they are interested in having their products protected as long as possible, so as to spread the large fixed costs out over as long a period as possible to pay them back. And though, no doubt, much of the substance of the claims and counter-claims is no doubt somewhat disingenuous (many tech firms themselves have been among the most enthusiastic bringers of lawsuits, and, as we all know, more money is dedicated by pharmaceutical firms to advertising and marketing than to research and development in the first place), the point is that such a fundamental showdown between the two juggernauts of the most advanced segment of our economy will certainly result in either far-reaching legislation or serious, costly gridlock. If there’s anything approximating a clash between the forces of production and relations of production specific to the so-called "new economy," this is bound to be an important manifestation of that. Keep an eye on this bill as it wends its way through Congress.

A couple of global warming—oh, excuse me, "climate change"—stories really need to be highlighted this week. The Christian Science Monitor had an article about a real Hobson's choice that will be faced my many of the largest and fast-growing communities and regions in the country (in the Southeast, West and Southwest, particularly) very soon: between secure water supplies and electricity that itself requires considerable amounts of water to generate it. Barring any huge technological breakthroughs, the choice between water and electricity is rapidly turning into a zero-sum game in these parts of the country, with the situation set to get far worse as more and more air conditioning units are installed there. By the way, large parts of Southern Asia are set to face the same set of problems, but with far larger population densities undergoing the adjustments. Today's Independent features a front-page story on drought-ridden Australia; it notes that the drought, which may constitute (I’m sure many in our Western states would disagree) "the first extended drought brought about by climate change in a developed country," has caused even the loathsome Howard government to announce plans to ban inefficient light bulbs to reduce Australia's carbon emissions. Of course, Howard is more concerned about the elections he faces later in the year, and of the wrath of the farm lobby, but Asian countries (especially China) who have been importing huge amounts of Australian commodities lately to fuel their economic booms, and are already experiencing rising inflation (in Japan this isn’t an issue), must be alarmed at this phenomenon (especially if it is world-wide, thus possibly preventing other locations from picking up the slack if Australian supplies dwindle). Besides these stories, lefty heavyweights Mike Davis and Doug Henwood write in The Nation about some unexpected and, at times, frightening aspects of the phenomenon.

Finally, the pound broke the $2 mark this week, based on far higher inflation numbers (3.1%) in the UK than expected. An inordinate amount of the increase came in furniture and furnishings costs, which are growing at an astounding 10% a month. An impressive sign of the importance—and potential danger of—real estate related sectors in the post-manufacturing economy. 

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4/20/2007 07:09:00 PM