Posted 4:14 PM by Robert

Some Interesting Interest Rates

This interesting BRIEF OF GEORGE A. AKERLOF, KENNETH J. ARROW, TIMOTHY F. BRESNAHAN, JAMES M. BUCHANAN, RONALD H. COASE, LINDA R. COHEN, MILTON FRIEDMAN, JERRY R. GREEN, ROBERT W. HAHN, THOMAS W. HAZLETT, C. SCOTT HEMPHILL, ROBERT E. LITAN, ROGER G. NOLL, RICHARD SCHMALENSEE, STEVEN SHAVELL, H R. VARIAN, AND RICHARD J. ZECKHAUSER AS AMICI CURIAE IN SUPPORT OF PETITIONERS has been filed with the United States Supreme Court in support of the effort to overturn the Bono Act. The argument in this brief repeatedly uses a discounting interest rate of 7% in the actual discussion of the value of the additional 20 years of copyright monopoly provided by the Bono Act, although an appendix to the brief displays how some relevant calculations would look with assumed annual interest rates of 5%, 7% and 10%.

Those interest rates are interesting in their own way. But, as noted in a prior post, how is the Court to know that this is the appropriate range apparently thought by the worthy "authors" of this brief to have been incorporated into the meaning of the federal Constitution? Do the interest rates below taken from the web page of the Bank of Japan have any bearing on the Constitutional necessity of the 5% - 10% range? These current interest rates now in force in the world's second largest economy seem to be somewhat outside the range appearing in the appendix to this brief. Perhaps the Justices should ask the authors of this brief to submit some additional briefing showing how their calculations work out at, say something closer to the 0.249% annual rate applicable to certain 10 year deposits in Tokyo, and explaining why the Constitutional calculations shouldn't be done at that rate?

Average Interest Rates Posted at Japanese Financial Institutions by Type of Deposit

October 9, 2002.............Bank of Japan..........Financial Markets Department



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1. Average Interest Rates on Time Deposits of 10 Million Yen or More by Maturity1

Maturity....................1M............3M.............6M............1Y.............2Y.............3Y............4Y............5Y............7Y...........10Y
Percent per annum 0.020......0.020........0.022.......0.033........0.044.......0.069......0.091......0.129......0.154......0.249


2. Average Interest Rates on Time Deposits of 3 Million or More and Less Than 10 Million Yen by Maturity2
Maturity...................1M...........3M...........6M..........1Y..........2Y............3Y..........4Y...........5Y...........7Y...........10Y
Percent per annum 0.020......0.020......0.022......0.034.......0.045.....0.068.....0.076.....0.104....0.135....0.197


3. Average Interest Rates on Time Deposits of Less Than 3 Million Yen by Maturity2
Maturity...................1M............3M.............6M............1Y..............2Y............3Y................4Y...............5Y................7Y................10Y
Percent per annum 0.019........0.020.........0.022........0.033........0.044.......0.067........0.074.......0.102.........0.104..........0.167


4. Average Yield on Installment Savings by Maturity3
Maturity.....................1Y...............3Y...............5Y
Percent per annum....0.038............0.058.............0.064


5. Average Interest Rates on Savings Deposits by Minimum Required Amount3
Minimum required
amount outstanding...........100,000 yen............300,000 yen
Percent per annum...............0.010........................0.011


6. Average Interest Rates on Ordinary Deposits3
Percent per annum 0.003

[More]

Indeed, under the theory advanced in this brief what would happen to the original 14 year copyright monopoly if American interest rates become negative for any significant period of time? Would the copyright monopoly then be unconstitutionally short?

As noted in a prior post, the last big revision of the copyright laws - which extended the monopoly from 30 to 50 years after the death of the author - was effected in 1976, at the beginning of a period of historically high interest rates. Perhaps the Justices might also like to ask the authors of this brief to show how much that additional 20 year period (that is, the extension from 30 to 50 years) was worth assuming interest rates more in keeping with the late 1970's: Say 23% annually?

And since the original copyright monopoly extended for 14 years and was created rather hard on the heels of a period of hyper inflation, perhaps the Justices would like the calculations made in this brief run to show how much value to that 14 year period would be added by, say, its last 7 years at interest rates consistent with hyper inflation: Say 10,000% annually?

I believe it was Chief Justice Marshall who noted that the Constitution was designed to last for the ages. Those extra calculations might provide the current Justices with some Constitututionally scaled perspective of Marshall's dimensions.

This brief also makes the observation that the copyright monopoly can be viewed as two distinct sources of market power:

A copyright holder has two kinds of monopoly power, each of which is a potential source of producer profit and social cost. First, as discussed above, copyright imparts control over the quantity produced of a work, permitting the holder to maintain a price higher than marginal cost. Second, copyright provides control over the production of derivative works based in part on copyrighted material. In certain circumstances described below, this control results in higher costs and lower production of new creative works.

The brief then goes on to argue that terminating the copyright monopoly allows for dertivative works to be more easily created without high transaction costs and conflicts among copyright holders. It seems to the Man Without Qualitiesd that may very well be true in some cases. But transactions costs are not proffered as an excuse for terminating other property rights. What would one think of an argument that all stock ownership should be voided after a period of time because it is hard to locate some shareholders, etc? Can't most of these "transaction costs" be dealt with by requiring more current names and addresses be put in some central register? Do we really hear cries from would-be copyright users that they are being defeated by transaction costs - as opposed to simple refusal of the copyright owner to grant the requested right? Evidence of such cries is notably lacking from the brief.

But, in principle, the thought seems reasonable. It seems to the Man Without Qualities that the Court should invite more specific challenges to narrower categories of copyrighted materials - especially if it is concerned about the First Amendment issue. What is an appropriate time period for a copyright in politically charged or religious materials may not be the right period for materials constituting or embodying pure commercial speech, for example. The Court has traditionally used such a categorical approach in its First Amendment cases. Perhaps this challenge is too braod, and the Court would prefer to move in smaller, more easily understood steps?

UPDATE: An astute reader points out that nominal interest rates normally include an inflation or deflation component. In a period of deflation nominal interest rates can be zero or less. But should the inflation (or deflation) rate have Constitutional significance? Should the inflation component be removed, and the "real" interest rate used for Constitutional purposes?

That approach would have made matters even more impossible for the first Congresses, since as almost impossibly difficult as it would have been for such a Congress to determine the nominal interest rate to legislate the copyright monopoly period in the absence of capital markets as we know them, it was surely twice as difficult for such early legislators to determine the "real" interest rate in the complete absence of official or reliable inflation statistics. So the opponents of the Bono Act seem to have arguments that imply that the Copyright Clause was just decorative before the 20th Century. Of course, not a jot of evidence has been adduced that any early Congress even dreamed that interest rates mattered for this purpose, although it is critical under the reasoning now advanced to the Court.

It is also remarkable that the opponents of the Bono Act need to treat its life-of -the-author-plus-70-years (or 95 years for corporations) as "equivalent to infinity" to address the grant of power to Congress under the Copyright Clause to create copyright monopolies for "limited periods."

But consider the following: If one is wealthy and wishes to settle a trust fund on one's own child that will allow him to live comfortably for his entire life (suppose he is disabled, for example), then one will have to plan financially for just about one's-own-life-plus-70-years. And as my astute reader points out, the current debate on Social Security frequently concerns itself with solvency questions maturing 70 years into the future - and heaps blame on politicians who aren't planning that far ahead.

Does any of that sound like the equivalent of infinity to the reader?