Artificial Scarcity Makes Itself Scarce

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The use of the term “artificial scarcity” by Reddit users has declined dramatically since its peak in 2008. (Source FiveThrityEight.com)  

The use of the term “artificial scarcity” is becoming increasing rare in generalized discussions concerning copyright on the internet.  At least on Reddit as measured by FiveThirtyEight.com   It’s a positive for artists that this pseudo scientific argument appears to be dying.

Artificial scarcity is one of those dubious (and more dubiously applied) concepts from economics that has been used for the last decade to direct moral opprobrium at individuals and companies that hold rights to intellectual property in some form: music, books, films, patents etc. The idea is that the owners of intellectual property control the copying and production of each additional copy by authorizing only certain websites or manufacturers to reproduce a good, thus creating “artificial scarcity.” In the case of copyright, the argument is often made that file sharing and torrenting websites are “naturally” making available a good that has been “artificially” made scarce.

And of course like artificial coloring and artificial sweeteners anything artificial is bad, right?

The problem with this argument should be obvious:  the goods in question are generally not scarce at all. My recordings that are legally licensed to Apple’s iTunes may be infinitely reproduced by the terms of the contract. Like all recording artists I make no restrictions on the number of copies Apple may reproduce. When music distribution was largely confined to the physical reproduction of vinyl it wasn’t scarce either. My independent record label was happy to produce as many copies as the public demanded. Consequently properly licensed and reproduced music is not scarce and never was. This basic fact seems to have gone unnoticed by those who decry the “artificial scarcity” imposed by copyright.

Sure, if a consumer is unwilling to pay for a recording there is a sort of “scarcity.” My recording may be scarce in the user’s music library. But this is a condition the consumer has freely imposed on themselves. Isn’t it? Perhaps the consumer is unable to pay for the song?  The problem then is not that my song is “scarce” the problem is that money is scarce for that consumer. It seems stupid to have to note this but: this is not a condition imposed by copyright!

The dubious concept of “artificial scarcity” as applied to copyright doesn’t even seem to rise to the level of pseudo science. It is not logically coherent. It hardly seems like something worthy of review and discussion by academic economists and law professors. Yet,look at all the papers a Google Scholar search produces for “copyright and artificial scarcity.”

Fortunately the argument seems to be dying.  Good riddance!

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Rather than “artificially scarce” a more accurate description of a copyright protected work is a non-rivalrous good that is also excludable.  That is, making a copy of my song does not make less available elsewhere or somehow diminish or degrade preexisting copies.  And since it’s a private good I can exclude others from using or reproducing it.    Sometimes economists call this type of product a “club good.”  Unlike the dubious application of “artificial scarcity” to copyright there are legitimate debates as to whether some forms of club goods are harmful to the greater good.   For example a company creates a life saving medicine but poor people are unable to afford this medicine.   Clearly there is a real human and economic loss if thousands of people needlessly die.  One solution of course is to allow other manufacturers to make very cheap generics of the drug, thus effectively making the good non-excludable.   I believe this is what  happened with life saving drugs used to treat HIV in poor countries in Africa.

The problem comes in when economists (and especially law professors) try to assume a generalized economic loss (“dead weight loss” no pun intended)  for all forms of club goods.  Some critiques of club goods  are well thought out. But in my experience when these arguments are applied to cultural goods they fail.  In it’s most common formulation critics argue that profits above and beyond the fixed and marginal costs of producing club goods are creating a dead weight loss.   The problem is these arguments rarely take into account the cost of the “failures.” Many songs, recordings, books and other works never even make it to market!  I work on at least a dozen song ideas for every one that I finish.  I often spend days  on these before I abandon them. Further for every professional working there are thousands of aspirants producing dozens of songs hoping to one day become at least a semi professional.  Without accounting for this “hidden” effort it is impossible to calculate a dead weight loss.

If such a loss even exists.

Considering the fact the culture business is so aspirational, I suspect if it could be accurately measured copyright incentives would prove to provide a valuable surplus to consumers.

 

 

 

 

About Dr. David C Lowery

Platinum selling singer songwriter for the bands Cracker and Camper Van Beethoven; platinum selling producer; founder of pitch-a-tent records; founder Sound of Music Studios; platinum selling music publisher; angel investor; digital skeptic; college lecturer and founder of the University of Georgia Terry College Artists' Rights Symposium.

One thought on “Artificial Scarcity Makes Itself Scarce

  1. Another good article. Like you say, it’s a stupid argument. Is there an “artificial scarcity” of green beans because grocery stores charge for them?

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