Econ lesson for PIPA author

by R.J. Lehmann on January 18, 2012

I don’t always find myself in agreement with Dean Baker, co-director of the liberal Center for Economic and Policy Research. But over at his Beat the Press blog, Baker offers a useful economic primer for Senate Judiciary Committee Chairman Patrick Leahy, D-Vt.

The author of the Protect Intellectual Property Act, which has prompted major websites like Wikipedia and Reddit to go dark today in protest, has claimed that failure to pass his measure would “cost American jobs.” Baker explains why this is terribly unlikely:

Insofar as individuals are able to able to gain access to copyrighted material for which they would otherwise have to pay, they are able to save money. This (is) effectively the same thing as a tax cut, putting more money in their pocket, the vast majority of which will be spent on goods and services in their community, thereby creating jobs.

If they are denied access to this material, most would not be paying the copyright protected price. Insofar as some of these people would pay the copyright protected price, it would mean some additional revenue to companies like Disney and Time-Warner. Most immediately this would mean higher profits for these companies. It may have some marginal impact on their employment, but the jobs lost from the money taken away from consumers would almost certainly be larger than the jobs gained by allowing these entertainment companies to gain more revenue. This is similar to imposing quotas on imported clothes. This will lead to more jobs in the textile industry, but fewer jobs everywhere else.

Senator Leahy’s bill will also impose additional cost on search engines like Google and intermediaries like Facebook. These costs are like a tax on the Internet. They pull money out of the economy and make these providers less efficient.

Tentatively scheduled for a cloture vote in the Senate early next week, the bill’s fate is uncertain after House leaders shelved a companion measure, the White House issued a statement of concern and, most recently, Senate Republicans Marco Rubio and John Cornyn announced they are dropping their support for the measure.

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