Blog Ipsa Loquitur

How many tablets and phones have boasted Flash support, only to have reviewers shuffle their feet and mumble “actually, um, well, Flash video stutters a lot and isn’t very good but Adobe is working hard at it, and will have it working great soon.”

Today, Adobe’s throwing in the towel. Good riddance. HTML5 is a better solution for streaming media, and it’s an open platform.

Published on under The News

The average student graduates college with about $25,000 in loans that will take years to repay. (When I graduated law school, I had … more than that.) That kind of indebtedness can seem oppressive when you’re struggling to start a career; who’s really going to try to start the next Twitoogle or Fourspacebook when you have payments to make right away? Why not just have the government pay off everyone’s student loans, freeing up the next generation of entrepreneurs and innovators to take risks and lead us into our digital destiny?

That’s the sort of stuff we hear as the “forgive the student loans” crowd becomes more boisterous. To be fair, there are more than just social media portmanteaus at stake here; none of the other arguments let me write the word “Twitoogle,” so I went with the goofy one.

Of all the folks looking for student loan forgiveness, the crowd with all the student loans is probably the loudest. This sort of self-interested advocacy is far from unique: it’s the basis of what I can only assume is somewhere between “most” and “all” of the lobbying in America today (with a handful of very notable exceptions). But I do have to take the calls for forgiving student loans with a grain of salt, because it seems kind of like a shameless handout, just for actual people instead of banks with legal personhood.

Middle Ground and Deducting Interest

Death and Taxes has an article rounding up most of the points I’ve talked about, and I wish I’d read it first dammit recommend you give it a read. Kevin Hand gives a good account of the arguments against the stimulative effects of forgiving over $1 trillion in student loans. He also mentions an interesting middle ground, and you know how I love me some compromise pie, Dear Reader.

Right now, Congress is pretending to care about debating a number of different ways to get the economy going. One of the measures pundits have kicked around but which will never get a real vote is the elimination of the Home Mortgage Interest deduction. If you’d like an interesting and concise discussion of some of the primary effects this would have on our economy, I liked Mark Thoma’s view.

Briefly, the home mortgage interest deduction lets you deduct from your taxable income the amount of money you paid in interest on your mortgage. (Conditionally; I’m glossing over as always for the sake of discussing principles.) If you make $50,000 a year, and you paid $15,000 on your mortgage this year, of which $3,000 was interest, you get to list $47,000 as your income. Simple, right?

Student loans work the same way. The interest I pay on my student loans is deductible just like the interest I pay on my mortgage. Piece of cake.

Industrial Machinery and You

Paul David, Professor Emeritus in Economics at Stanford University, has a cool title and a cooler idea. In 2002, he proposed an income tax regime that treated student loans less like mortgages and more like industrial machinery; like a capital expenditure.

Actually, I find Professor David’s rationale for this proposal as interesting as the proposal itself. He notes that investing in new machinery is treated more favorably by the tax code than investing in education for workers. Even better, (he argues) that a progressive tax regime encourages the sheltering of income in the form of tangible property instead of in “human capital” – educated workers make more money and pay more in taxes, but a new machine is 100% deductible over time.

Capital expenditures are tangible goods that are going to be employed by a business over the course of a number of years. My income tax class always used a doughnut-making machine as an example. You buy a Donut-Tron 5000 and you expect it to last 5 years. The income tax code lets you deduct the cost of that machine, over a period of several years – the exact span depends on how long the machine is expected to last, and yes, the IRS has decided how long it thinks doughnut making machines are expected to last. (Compare with a “normal” business expense, which is deductible all at once in the same year in which it was incurred.)

So capital expenditures are deductible from your income, like interest payments, but you do it over a much longer period of time. In this way, we promote investment in updated industrial equipment every so often, by giving tax breaks to companies that invest in new equipment.

A Capital Idea

See where this is going? Professor David likes that we promote investment in shiny new things for our businesses. He doesn’t like that said promotion dis-incentivizes investment in education. His solution?

Treat student loans like capital expenses. Don’t just let people deduct their interest payments – let them deduct the whole thing over time.

Instead of the government dumping a trillion dollars into the economy today to forgive everyone’s student loans, let the government give smaller tax breaks every year, eventually adding up to tax breaks costing what the one time Student Loan Forgiveness Day would have cost. You’re either handing out a trillion dollar check today, or handing out a series of tax breaks worth a trillion dollars over a period of years.

Yes, But Is That Stupid?

It’s an interesting thought: and if you believe that rules permitting long-term deductions (called “depreciation” by tax professionals and people with blogs) of capital expenditures promote investment in personal property, why can’t it do the same for student loans?

I think you could argue that we don’t need to promote students to take out more loans that they won’t be able to pay back. However, I think the sensible reply is that business buy machinery and long-lasting goods no matter what, too. You don’t need to incentivize Krispy Kreme to buy a doughnut-making machine. They ain’t doing it by hand.

Krispy Kreme does, however, get to take the money they save by depreciating their capital expenses and apply it to other things: employment, expansion, research & development on new sprinkle technology, or whatever. Similarly, folks paying off their student loans would receive much larger deductions if their loans were classified as capital expenses.

If we can stimulate business growth by encouraging investment in capital goods, as Professor David suggests, can’t we encourage investment in human capital by treating student loans like we treat capital goods?

Published on under A Day in the Life

Ars has a stirring eulogy for the untimely demise of the creative industry in America. It was taken from us far too soon, but it lasted longer than any of us expected. Set upon by digital pirates, the USS Creation was no match for a broadside of broadband bootlegging. Now, we are left only with a smoking pile of debris where the new Michael Bay movie, “Hot Chicks in a Smoking Pile of Debris” would have stood.

Alas and alack, my countrymen. Mister Technica, please go ahead:

Battered by a decade of digital piracy and facing even more of it thanks to cheap computers, fast Internet, P2P file-sharing, and online file lockers, the US creative industries teeter on the verge of collapse. You can tell because the industry:

  • Pays better than most American jobs
  • Has outperformed the US economy through a horrific recession
  • Sells record-setting amounts of product overseas, earning more foreign revenue than the entire US food sector or US pharmaceutical companies

Things are going so “badly” that a major new report commissioned by copyright holders says that these “consistently positive trends solidify the status of the copyright industries as a key engine of growth for the US economy as a whole.”

DAMN YOU, PIRATE SCUM! DAAAAAAMN YOU!

Oh, seriously, does anyone buy the line that these guys are in dire straits because some kids who wouldn’t buy music just download songs instead? The IP titans are rolling in the money, and all they can muster is “yeah, but we’d be making more of it if it weren’t for you damn kids.”

I’d like to amend that statement. “We’d be making more of it if we had a product offering that was anywhere near as convenient as piracy. People are gagging for something like iTunes for TV shows, but we’re too concerned with maintaining our old revenue models to innovate or imagine anything but choking the life out of digital media. Herp derp derp.”

Published on under The News

Yesterday, the results for the 2011 New York State Bar Exam were published. I thought this was kind of interesting, from the New York Law Journal:

Of the candidates who took the test for the first time and graduated from American Bar Association-accredited schools, 86.1 percent passed, an increase of 0.5 percent for the same group last year. The passing rate for first-time test takers who graduated from New York law schools, however, was 86.3 percent.

Of all the 11,182 candidates who took the July exam, 69.2 percent passed. Last year, 70 percent of the record-breaking 11,557 test takers passed, compared with 72 percent in 2009 and 74.7 percent in 2008.

The legal industry is undergoing a slight correction like a guy with a blood clot in his carotid is about to undergo a slight headache. There’s not as much legal work to do as during the hilariously bubblicious economy from 2003-2007; worse yet, computers can do the legal work better, faster, and cheaper than human lawyers. Even if the work stayed steady, we wouldn’t need so many lawyers. But of course it didn’t.

Over the summer, Economix, a New York Times blog, published a state-by-state look at the surplus of the American lawyer. It was pretty disheartening for us New York lawyers. In substantive part, Catherine Rampell wrote:

In 2009, 9,787 people passed the bar exam in New York. The analysts estimated, though, that New York would need only 2,100 new lawyers each year through 2015. That means that if New York keeps minting new lawyers apace, it will continue having an annual surplus of 7,687 lawyers.

Note that that annual surplus of Empire State esquires is the largest in the nation; it’s more than the next three states combined. Now, this year, only 9,600 folks passed the bar exam. See? We’re cutting down that surplus at the blistering pace of 78 lawyers a year. At this rate, we’ll be lawyer-neutral by the year 2108, or just in time for Slumdog Millionaire to hit public domain.

Which is worse? The inelasticity for the demand of a legal education in relation to the demand for lawyers’ services, or the obscene length of copyright?

Published on under The News

One of the leading candidates for the Republican nomination for the Presidential race in 2012 says China is developing nuclear capability.

Herman Cain on China:

[W]e already have superiority in terms of our military capability, and I plan to get away from making cutting our defense a priority and make investing in our military capability a priority, going back to my statement: peace through strength and clarity. So yes, they’re a military threat. They’ve indicated that they’re trying to develop nuclear capability, and they want to develop more aircraft carriers like we have. So yes, we have to consider them a military threat.”

Boy, I sure hope China never ends up with the bomb. Just think what that would do to the Eastern Hemisphere! Why, it’s as unthinkable as a Soviet Russia without Kruschev.

Published on under Irreverently Irrelevant

I think I vaguely recall hearing about this in law school at some point, but I didn’t imagine that things like this actually happened.

To start from the beginning: someone formed an LLC specifically for the purpose of suing companies like Wham-O and Brooks Brothers. What did Wham-O do, you may ask? Well, in 1957, they patented the Frisbee under the name Flying Toy – one can only wonder what college students did before the invention of the Frisbee. The patent expired a short time later (intellectual property rights that don’t last for decades? How delightfully absurd!), but Wham-O apparently didn’t remove the patent numbers from its Frisbees. The machine that manufactured the Frisbee had the patent numbers engraved in it, which kept stamping patent numbers after the patents no longer protected the Frisbee.

No big whoop, right?

Well, yes whoop. It’s a federal crime to lie about the patent status of your product. For the record, I definitely learned that in law school. However, I didn’t realize that people would wander around toy stores and look up patent numbers on products to see if they expired. Then, a bizarre kind of reverse patent troll firm would file suit in federal court. There was an explosion in this practice after the Federal Circuit ruled that defendants of such a suit were liable for $500 per offense; e.g., per Frisbee sold. Since the 1960s? That fine would be somewhere between $500 million and ‘Oh My God We’re Bankrupt What the Fuck’.

This story has a happy ending, however. As part of the America Invents Act, cases like these can now only be filed by (1) the federal government, or (2) a private plaintiff alleging an actual competitive injury. Reverse Patent Troll Firms will have to hope the federal government crushes the bastard Wham-O Frisbee empire. Both parties agreed that the lawsuit was now moot, and the plaintiff has agreed to shut up and go away.

the litigation industry

This kind of nonsense reminds me of the mass copyright infringement litigation industry. A lawyer with more bills than money goes to an indie movie studio with more bills than money and says “hey, I heard you spent a lot of money making a bunch of movies nobody bought. What would you say if I could make your movie profitable with no effort of your own?”

The lawyer takes on the studio as a client, and searches The Pirate Bay for the titles of the studio’s films. Finding one that’s reasonably well-seeded, the lawyer gets the IP addresses of the peers of the swarm, and fires off a barrage of John Doe lawsuits. Neither the lawyer nor the studio have any intention of litigating to jury verdict; rather, they intend to eke out settlements from a few scared kids.

I’ve written about this practice before, when a lawsuit for the C-movie Nude Nuns with Big Guns went awry after the plaintiff accidentally forgot he no longer owned the movie.

Torrent-chasing is the ambulance chasing of the information age. You know, besides the actual ambulance chasing that gives lawyers a bad rap.

Published on under The News