Americans for Tax Reform Uses Correlation Between Physical Property Rights and GDP to Argue for IP

In the post A Picture Is Worth A 1000 Words, Americans for Tax Reform posts the graph at right, which shows a positive relationship between physical property rights and GDP per capita. That is: the stronger are property rights in scarce resources, the more prosperity there is. Basic free market economics. ATR writes:

The picture on the [right] proves it [the importance of private property rights] once and for all.

The Property Rights Alliance, an affiliate of Americans for Tax Reform, annually releases the International Property Rights Index (IPRI), an annual report sponsored by 54 organizations that tracks property rights around the world. It has found that that countries that protect their physical and intellectual property enjoy a GDP per capita up to nine times greater than those without legal protection.

Private property rights really are the only way forward.

Note how ATR combines physical property and IP together even though the very graph they use to illustrate this contention has the word “physical” right there in the very title.

As for the Property Rights Alliance, it no doubt does maintain that both physical and IP rights are important–it labels itself as “The Advocate for Physical and Intellectual Property Rights Around the World.” And it does have  an annual index that ranks countries based on how strongly they protect both physical and IP rights.  But so what? Correlation is not causation. PRA on its site has a post up “New Study Confirms IP’s Importance“–but as I discussed previously, in USPTO/Commerce Dept. Distortions: “IP Contributes $5 Trillion and 40 Million Jobs to Economy”, this study does not establish this at all. It only shows that industries that use IP generate jobs and wealth. It is equally true that industries that are subject to federal and state taxes and regulations generate jobs and wealth, but it would be wrong to attribute this to the taxes and regulations. Rather, these companies generate wealth despite state taxes, regulations, and IP.

The assumption that stronger or more IP rights generates wealth is just wrong; in fact IP imposes huge cost on the economy and reduces and distorts innovation and artistic creation. See, e.g., Yet Another Study Finds Patents Do Not Encourage Innovation; Software Industry Needs 2 Million Patent Attorneys and $2.7 trillion per year to avoid infringing software patents; Costs of the Patent System Revisited.