December 15, 2010

When Is Copyright Infringement Not Copyright Infringement? [11:17 am]

When it’s marketing and promotion, of course. Music Blogs Caught Up in Labels’ Online Piracy Fight [pdf]

“At first I thought it was hackers,” Mr. Hofman said. But within hours a notice went up on the site saying that its domain name had been seized by the United States Immigration and Customs Enforcement unit of the Department of Homeland Security; it was one of dozens of sites shut down, accused of copyright infringement and selling counterfeit goods.

But Mr. Hofman, a brawny Long Islander in his early 30s who formerly worked for a major record label, does not think of himself as a pirate.

OnSmash.com and the handful of other music blogs shut down by the government post brand-new songs and videos without licenses, but much of that material is often leaked to them by managers, music labels and even the artists themselves.

As a result, these sites have a complex symbiosis with the music business. While the Recording Industry Association of America wants to shut them down, the rank and file of the record labels — particularly in hip-hop circles — uses them as marketing tools and publicity outlets.

Nice to see that DHS is doing it’s best to keep America safe from terrists!

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From The Rare Earths Front [9:34 am]

I recognize that this isn’t really on-topic, but it’s interesting to watch the way that this issue is being orchestrated in the press. Today’s New York Times trumpets Economy Vulnerable to Rare Earth Shortages, Report Says [pdf].

The United States is too reliant on China for minerals crucial to new clean energy technologies, making the American economy vulnerable to shortages of materials needed for a range of green products — from compact fluorescent light bulbs to electric cars to giant wind turbines.

So warns a detailed report to be released on Wednesday morning by the United States Energy Department. The report, which predicts that it could take 15 years to break American dependence on Chinese supplies, calls for the nation to increase research and expand diplomatic contacts to find alternative sources, and to develop ways to recycle the minerals or replace them with other materials.

At least 96 percent of the most crucial types of the so-called rare earth minerals are now produced in China, and Beijing has wielded various export controls to limit the minerals’ supply to other countries while favoring its own manufacturers that use them.

It’s interesting that we seem to be in a 30 year cycle when it comes to thinking about resource scarcity and what to do about it.

Why do the Chinese have such a high fraction of the supply? Because they sell it cheaper than anyone else — period. Rare earths are found in lots of places; the “rare” is a historical artifact of the difficulty of their extraction, rather than any character of their abundance in the earth’s crust.

And why is it cheaper? Partly because of government support (in financing and in looking the other way when it comes to environmental harm) and partly because of a conscious effort to use this market power to try to capture the technologies that employ these materials — strong magnets, specialty sensors/controls, etc.

Are industries vulnerable? Well, yes, but only as much as they are vulnerable to supply disruptions generally. And firms have strategies to combat some of these (stockpiles, etc.). Moreover, each time the Chinese play games with their rare earth market power, they undermine themselves, because consumers get nervous and start making plans to be more efficient in their use of what they have, exploring alternatives and substitutes, and developing better recycling and recovery technologies.

But, I guarantee that this report and the consequential press fallout will be used to get the US government to intervene in these markets, and it will result in the usual counter-productive effects: overdevelopment of underperforming mines, stockpiling leading to gross market manipulation, and institutional corruption. Arguments will be made for exceptionalism and that the lessons of the past will have been learned — except for the lesson that says we collectively come up with this “issue” every 30 years, with occasional disastrous results when the political forces are aligned just right, rather than recognizing a simple economic fact reducible to a simple Socratic dialog:

Q: How do you know that something is scarce?

A: It has a price.

We have taken advantage of the fact that the Chinese elected to undervalue their resource to get market share. Now that they are talking about revising the price and availability of their resource, market incentives will convince investors to develop other sources of the material, or find out ways to make do with less. That’s what markets do — it’s why we put up with all their failures; this is what they are specifically set up to deal with. So, it’s something to work on, yes — but to present it as a crisis is a gross misrepresentation of the situation.

For sheer amusement, nothing can beat the title of this article, but I would highly recommend it: You Don’t Bring a Praseodymium Knife to a Gunfight, from Foreign Policy [pdf].

Later: Interesting — the report is still not posted, but the DOE.gov site blog now points to this webcast that was supposed to start at 9:30AM (no time zone indicated, of course) from CSIS Rare Earth Elements: Geology, Geography and Geopolitics. Maybe the report will turn up once the webcast begins….

Finally released: Department of Energy Releases New Critical Materials Strategy; the report: US Department of Energy Critical Materials Strategy.

And *shock* the executive summary includes the following:

DOE’s strategy with respect to critical materials rests on three pillars. First, diversified global supply chains and multiple sources of materials are required to manage supply risk. This means taking steps to facilitate extraction, refining and manufacturing here in the United States, as well as encouraging additional supplies around the world. In all cases, extraction and processing should be done in an environmentally-sound manner. Second, substitutes must be developed. Research leading to material and technology substitutes will improve flexibility to meet the material needs of the clean energy economy. Third, recycling, reuse and more efficient use could significantly lower world demand for critical materials. Research into recycling processes coupled with well-designed policies can help make recycling economically viable over time.

While stockpiling *is* cited in the next paragraph, it almost appears as if the report writers decided to consult and listen to some real resource economists. Of course, we’ll see what the typical industry apologists have to say, but it’s not as scary as I had feared — at first blush, anyway.

We’ll see how I feel after I read the whole report.

Later: from Chapter 9; p 108

Based on preliminary analysis, this Strategy does not recommend stockpiling critical materials for potential use in commercial clean energy technologies at this time. The demand projections for material use in clean energy technologies presented earlier in the Strategy highlight the difficulties in accurately forecasting material requirements due to uncertainties in market conditions, choice of component technologies among manufacturers and competing demands. From a practical standpoint, these factors would make it difficult to develop a national industrial stockpile with sufficient material stocks and flexibility. Even if material requirements could be calculated with a reasonable degree of certainty, the U.S. Government would incur significant upfront costs and downside risk to develop a stockpile sufficient to meet domestic material demand. Maintaining a national stockpile would also put the government at risk of distorting market price signals for key materials by competing with the private sector for materials on the open market. However, given the demonstrated interest of other nations, such as China, in stockpiling, this issue merits further study.

There’s still wiggle room (as well as a preceding section about government support for domestic industry development and price supports), but it’s probably necessary to head off those who have been screaming for a market intervention for the past year or so. Nice!

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