Is This the Most Exciting Idea Out There?
I discuss an exciting idea and interview Dean Baker.
My 23 March 2021 piece “Listen, Progressive People!” makes the case that Dean Baker needs to be elevated more in the public discussion because he’s one of the most important progressive thinkers in the world.
But even people who appreciate Baker’s work might not be familiar with Baker’s most exciting idea, which I’ll call “Fund Creative Work” (FCW) in this piece.
Before you plunge into this piece, make sure to read my 13 October 2021 piece “Can We Fix Journalism?” for context.
This piece’s fourth section is an interview with Baker where Baker answers some questions that many people might be curious about—I was honored/thrilled to do the interview, which I edited for flow and organized by topic and added hyperlinks to.
Please make sure to subscribe if you like my pieces because that means a lot to me and helps me to thrive on Substack! Enter your email and click this button—that way you’ll get an email whenever I publish a piece:
The Basic Idea
Our society can’t fund certain things right now—journalism is dying and artists are starving. But we can’t simply get the government to fund these things, since we don’t want Big Government to choose which journalism to support and which art to support. As a solution, FCW would give every US adult—even those who pay zero income tax—$100 annually to direct to some form of creative work, whether that’s local journalism or local art or local music.
It would be absolutely incredible to get Taylor Swift and/or other huge celebrities to support FCW, so hopefully that celebrity support happens one day.
Jeff Spross writes in his fascinating 2015 piece that Taylor Swift helped everyday artists when she successfully got Apple Music to back down from its effort to give away musicians’ music for free without giving the musicians any royalties. But Spross writes that “if Swift really wants to help the common musician, her stance needs to get considerably more unorthodox”. Spross then outlines how FCW works:
Back in 2003, economist Dean Baker—who heads up the Center for Economic and Policy Research in Washington, D.C.—proposed what he called the “Artistic Freedom Voucher,” or AFV for short. The government would provide every adult taxpayer a $100 voucher, which they could then send to an artist of their choice, or divvy up to multiple recipients. (Baker suggested doing it as a tax credit.) Any artist that chose to participate in the AFV system would, in exchange, give up their copyright protection for a certain time. (Baker suggested five years.) Participation by both artists and the people sending the vouchers would be voluntary.
Baker figured the AFV system would create a big enough pool of money to provide around 500,000 artists a modest, middle-of-the-road annual income. It would also save Americans tens of billions annually, depending on the participation in the system, due to more artistic material becoming freely available.
Spross writes that FCW would “allow fans to cut out the middle-men and compensate the artists directly”—under the status quo, these middle men take all the money for themselves and leave the actual artists with very little. It’s insane that middle men take such a huge amount of the money that people want the artists to have—when I pay for art, I want to pay the artist. Spross gives some striking figures:
Back in 2003, Baker estimated that, of the $245 billion that Americans paid each year for any sort of copyrighted material, less than $20 billion made it back to the artists themselves.
Twelve years later, the numbers have changed, but the relationship remains the same: Record labels currently nab about 73 percent of payouts from Spotify’s premium service, for example.
But Spross lays out the deeper point that FCW would also allow us to financially support artists in a world where the market can’t do that:
The inherent costs involved in recording a single performance and pushing it out to millions of people—costs which then justify the price tag—are getting pushed close to zero by advancing technology. We may well be entering a future where the traditional act of economic exchange—buying and selling goods and services—simply isn’t able to capture the income necessary to support all the genuinely socially valuable work done by artists, rich and poor alike.
If you want to get really big picture for a moment, there are all sorts of socially valuable labors—from the arts to parenting to community work—that are just intrinsically difficult for the job market and traditional economic exchanges to compensate or support. So we ought to be thinking about new and different avenues to get that income to those people.
The Details
FCW is outlined in Baker’s free book Rigged (see Chapter 5):
Like patents, copyright terms are protected by international agreements. However, it is possible to develop a comparable system or alternative funding to work around the copyright system. It is important that the system respect individuals’ choices in supporting music, books, movies, and other types of creative work rather than having a government agency decide which work should be supported. For this purpose, an individual tax credit would be appropriate.
The model for a tax credit to support creative work could be the tax deduction for charitable giving. It allows individuals to make tax-deductible contributions to religious, educational, social assistance, and cultural organizations with minimum interference from the government. In effect, the government is subsidizing the contribution at the taxpayer’s marginal tax rate, which is 39.6 percent for the highest-income taxpayers. Because the deduction is not capped, it is limited only by the size of the taxpayer’s tax liability (i.e. it is not refundable).
The marginal tax rate is what you pay on your next dollar of income—once you hit the top threshold, you pay 37 cents of your next dollar to the government.
But you can choose to donate the dollar to charity—if you do that then the government forgoes its 37 cents, you just donated 63 cents that you otherwise would’ve kept, and you just kept 37 cents out of the government’s hands that the government otherwise would’ve gotten.
That’s philanthropic activity—every dollar you give means that you lose 63 cents that you otherwise would’ve kept. But you’re potentially denying the government a lot of money, and there’s no cap on how much you can do this, and not everyone will agree that your charity is a good cause.
Baker explains that whatever an FCW recipient produces can’t be copyrighted:
Because this system is intended to be an alternative to the copyright system, the condition for getting funding for both individuals and organizations is that they not would be eligible for copyright protection. In effect, creative workers would be given the option of relying on one or the other system of support. They could choose to rely on copyrights to support their work or they could opt to join the tax-credit system, but they could not do both. In order to ensure that the tax-credit system did not become a copyright farm system, in which people established their reputations in the tax-credit system and then cashed in with the copyright system, there should be a substantial gap (e.g., five years) between the last time creative workers received funding through the tax-credit system and when they could first receive copyright protection.
This is all beautiful. And Baker continues:
A convenient feature of this system is that it would be largely self-enforcing. A person who attempted to secure copyright protection on material for which he or she was not eligible would have the burden of suing the alleged infringer. Because there would be a registry of everyone in the tax-credit system, it would be a simple matter to show that the creative worker had been in the system too recently to qualify for copyright protection. In this case, there is no need for the government to do anything—it protects the integrity of the tax-credit system by doing nothing; the person does not have an enforceable copyright.
This is absolutely fantastic. Baker continues:
From the standpoint of individual taxpayers, the tax-credit system would specify a limited sum (e.g., $100) that they could give to individuals or organizations registered as eligible recipients. This means they could give their tax credit directly to a writer, singer, musician, or other creative worker that is in the system or they could contribute to organizations that are within the system and are committed to supporting particular types of creative work. Individual taxpayers would have the option to give the tax credit to a single individual or organization or divide it up among as many individuals as they choose. One major difference with the tax deduction for charitable contributions is that the tax credit would be refundable, meaning that every person would have the option to support creative work of their choosing, even if they had no tax liability.
Intermediaries would mean that you don’t have to pick specific news organizations—or specific artists—to support. You could just give your money to an organization that would support local journalism or local art or local music.
Intermediaries will probably be central to FCW—it’ll probably be the case that most people won’t want to direct their FCW money to specific people or specific organizations and will instead want to broadly support local journalism or local art or local music.
The two obvious issues with FCW are where you’re allowed to direct your FCW money and how the system will prevent fraud.
On the issue of where FCW money can go, there’s no judgment under FCW as to what constitutes serious journalism or what constitutes serious art or what constitutes serious music—or whether an FCW recipient is doing pornography or not. Baker explains that to qualify for tax-deductible charitable contributions:
an organization need only file with the IRS and indicate the sort of tax-deductible activity in which it is engaged. The IRS does not attempt to determine whether an organization is “good” as a religious organization or as a provider of food to the poor; that determination is left to the taxpayer. The only concern for the IRS is that the organization is in fact engaged in the activity that provides the basis for its tax-deductible status and that it is not engaged in prohibited activities such as political campaigning or profit making ventures.
Eligibility to receive funds through a creative work tax credit would work much the same way. Individuals or organizations would register to be eligible to receive funds by indicating the type of creative work in which they engaged as individuals or supported as organizations. This means that individuals would indicate that they are writers, musicians, video producers or engaged in some other type of creative work. The only issue from the standpoint of the IRS (or any other enforcement agency) would be whether the person is in fact engaged in the activity and whether the organization used its funding to support the type of creative work it claimed to support. In other words, if an organization claimed to support the writing of mystery novels or jazz music, then the concern would be whether they had actually used their funds for this purpose.
Baker explains that it would be a bad idea to try to somehow police boundaries and somehow determine what’s journalism and what’s art and so on:
An issue that would naturally arise with this system is its scope. For example, should journalism be included as a type of creative work? How about video games or software?
The logic of the system would suggest that the boundaries be drawn broadly, for two reasons. First, it would be difficult if not impossible to police the boundaries. If a person were being supported for writing non-fiction books but also posted weekly or daily pieces on the web on political events, would he or she be violating the rules if the system was not intended to support journalism? There would be a similar story with video games. At what point would interactive art become a video game? Do we want the IRS making this assessment?
The second point in favor of broad boundaries is that they would minimize the need for copyright protection. The goal of the creative work tax credit is to make a large amount of material available to the public that can be transferred at zero cost. Putting more material in the public domain in different areas is a positive benefit, as long as people value this work. The ultimate check on the boundaries of the system is what people are prepared to support with their tax credits. If few people opted to support journalism or video games, then these industries would remain largely dependent on copyright protection.
And what about fraud under FCW? Baker addresses this:
There would be some risk of fraud, just as there is with the charitable deduction. However, the risks are likely to be considerably smaller with the tax credit than with the charitable deduction because the sums involved per person would be much smaller. If a high-income person contributes $1 million to a bogus charity, he or she receives an effective tax subsidy of $396,000 that the charity and the individual could, in principle, split between them. A $100 tax credit would require 40,000 people to scam the government by the same amount.
A mechanism for preventing simple frauds would be to require a modest minimum level of funding for a person or organization to be eligible to receive any funds. Requiring that an individual has a floor of at least $3,000 and an organization of $10,000 would largely prevent simple trade-off arrangements whereby people agree to give each other their credits. Coordinated tax credit swapping might still be possible, but it would require a considerable amount of coordination, and therefore risk for a relatively small payout.
Baker makes good points here—right now people who want to commit fraud can make around $400,000 in one shot with a $1 million contribution. But under FCW, it would take 40,000 people all working together to pull off an equivalent fraud—that kind of coordination is obviously impossible.
And setting a minimum eliminates the simple fraud where you give $100 to your dad and he gives it back to you—a $3000 minimum would mean that you’d need 30 people to all get together in order to carry out the fraud, and that would mean that 30 people all engaged in a fraud just to pocket a grand total of $100 each, which is an extremely unattractive fraud.
The Numbers
How much creative work could FCW really fund? FCW would only change the world if the amount were huge. Baker gives these numbers:
A credit of $100 opted for by 90 percent of the adult population (a high percentage, but this is free money) would generate more than $22 billion a year to support books, movies, music, and other creative work. This amount would vastly exceed the amount currently going to creative workers through the copyright system, although it would total far less than the current subsidy for charitable contributions, which is likely in the neighborhood of at least $54 billion in 2016.
This is fantastic—$22 billion would “vastly exceed the amount currently going to creative workers through the copyright system”. Just think for a moment about what that ocean of financial support for creative work would mean for our society!
But McChesney told me in my interview with him that Washington was subsidizing journalism to the tune of $35 billion (in 2010 dollars) back in the 1840s and that the US should do a subsidy of about that size today—that’s well above Baker’s $22 billion, and you also have to remember that a lot of Baker’s $22 billion wouldn’t go to journalism, so I’d like to see Baker and McChesney discuss how much we want to subsidize journalism.
And remember that FCW-funded creative work all goes into the public domain, which means a double benefit to society—creative work happens that wouldn’t otherwise happen, but the public can also enjoy this work for free. Baker shows this table:
There are eight items listed here, and next to each item you see two columns (“Current spending” and “Potential savings”) where figures are given in billions USD per annum. You can see why Baker gives so much commentary on prescription drugs—in that area the table indicates a huge potential savings of over $315 billion. It’s also interesting to look at “Educational books” where the table indicates that about 70% of the current $10.5 billion spent in that area could be saved.
FCW applies to every item listed except “Prescription drugs”, “Cable and satellite television and radio services”, and “Medical equipment and instruments”—these three items are all patent-related, not copyright-related.
Baker notes that the “total potential savings are $435 billion, or 2.4 percent of GDP”, although he also notes that these figures “are speculative, of course, because there is no way to determine in advance the effectiveness of an alternative funding mechanism to replace patents and copyrights”.
All of this is extremely exciting and extremely inspiring—can we imagine an ocean of financial support for local journalists and local artists and local musicians, and in addition to that ocean can we imagine everyone being able to enjoy FCW-supported work for free?
Baker’s ultimate intention is that FCW will cause the copyright system to wither away over time as more and more artists—maybe even including some major artists like Taylor Swift—migrate over to FCW. As copyright withers away, more and more creative work will be enjoyable for free.
Baker Answers Questions
1) Why did you now refer to “tax credits”? You used to refer to “vouchers”.
It’s the same thing—I decided that “tax credits” sounded more familiar to people.
2) How much do you expect FCW to support local journalism, local art, and local music? And how significant will the impact be on these local things?
I expect that a good chunk will go to these people, since their friends and neighbors will support them, and journalists and artists and musicians will presumably develop a local reputation.
The impact is likely to be large on local journalism, since local journalism is currently dying. As for artists and musicians, it could be a substantial supplement to their income and many will probably be able to give up day jobs.
3) Is your system’s purpose to supplement the copyright system? Or to replace the copyright system, as people come to expect free stuff?
I expect that it’ll replace the copyright system—the system will create a large amount of free material, people will get used to free material, and eventually people will be reluctant to pay for music and movies and books and so on when they’re used to getting them free.
4) Have you spoken to a lot of journalists and artists and musicians about whether FCW would be financially attractive to them? Some musicians get a decent income from Spotify—according to Business Insider, the music streaming service Spotify “generally pays between $.003 and $.005 per stream, meaning you’ll need about 250 streams to make a dollar”.
I’ve spoken to some.
Only a very tiny number of musicians get much money through Spotify.
5) Is it fair to say that FCW will be most attractive to journalists and artists and musicians who are just starting out and who haven’t had success yet?
There are a lot of people who are past their prime who might want to try a new route—for example, there are plenty of laid-off reporters.
And if the system takes off, successful people may want to take FCW money so that more people can hear and see their work.
6) What would be the incentive for Taylor Swift to jump over to FCW?
There wouldn’t be much incentive for her—unless the system really takes off and no one feels like paying for music.
7) Won’t all the high-quality artists stick with the copyright system so that people will have the option of free low-quality music or copyrighted high-quality music?
People will eventually become reluctant to pay for music and movies and books over time, since they’ll be used to getting stuff for free.
Plenty of artists—whose work at least some people like—make nothing under copyright. These artists will enter the system, many will build up a following, and they’ll be locked into the system because they won’t be able to switch for 3–5 years.
8) Won’t most FCW money go to non-meritorious “creative work”, since a huge percentage of people will give their FCW money to people they know?
I’m not worried about this—I don’t think that creative work will necessarily be bad just because the person who did the creative work got FCW money from their friends and relatives.
9) Won’t FCW money just go to whatever cancerous and insane and ridiculous “journalism” people were interested in before FCW was implemented?
We really have no idea where FCW money will go.
But this doesn’t bother me at all—people don’t worry too much about the fact that government-granted copyright monopolies go to terrible things or about the fact that plenty of really awful people and organizations benefit from the charitable income-tax deduction.
10) What about the idea that FCW money will just go to pornography?
You won’t keep from watching pornography if that’s what they want to do.
I’m sure that public money goes to pornography right now through tax-exempt 501(c)(3) organizations, which aren’t prohibited from supporting pornography.
11) What about fraud where you give someone the money and they give it back to you?
Take a look at the charitable income-tax deduction that we currently have—there’s lots of potential for fraud there.
And there’s a minimum (say, $3000)—if someone wants to round up 30 people for this brilliant fraud to pocket $3000, they can go ahead, but I think most people wouldn’t want to spend that much time and take such risks for such a low payout.
12) How did you arrive at the $3000 minimum—wouldn’t a higher floor mean less fraud?
It’s arbitrary—the tradeoff is that a higher floor makes fraud harder but also makes it harder for new artists to get a foot in the door.
13) Will YouTube get to make ad revenue from FCW-supported films—under FCW, is it fair for YouTube to profit in that way?
Anyone can reproduce non-copyrighted material, so—barring monopoly issues—it’s fine with me if YouTube and their competitors profit in that way.
14) Won’t some people make vast sums—like $100M—from FCW?
Who cares—they make more than that with copyright monopolies the government gives them.
15) What if people say that FCW money is going to low-quality creative work?
The system is useful for funding a lot of creative work that people like—it’s not important for everyone to like everything that people direct their FCW money to.
16) Will it be a big burden to choose where to direct your FCW money—will that burden hinder the take-up rate?
I assume that it won’t be a big hassle.
And people who find choosing specific things burdensome just have to find one or more intermediaries that appeal to them—I actually think that most FCW money will be directed to intermediaries.
17) Did you ever respond to this criticism of your system?
No—I don’t know anyone other than them who thinks that the market would support creative work without some form of subsidy.
18) Isn’t Universal Basic Income a far superior solution to the “starving artist” conundrum and to the journalism crisis?
No—I want people to be able to get paid for doing creative work, and UBI doesn’t pay anyone a penny to do creative work, and a UBI of $12,000 would be 120 times more expensive than a system of $100 tax credits.
19) Chomsky said something like this regarding the charitable income-tax deduction: “Why should we pay rich people to choose how to allocate funds through this charitable income-tax deduction, rather than have the public decide how to allocate those funds?”
Chomsky is right—when Joe Rich Person gives $10 million to the charity of his choice and we hand him back a subsidy of $4 million, there’s no obvious reason that we should let this rich person decide where this $4 million of taxpayers’ dollars go.
It does provide an incentive, since you’re more likely to give $10M to charity if the government will give you back $4M than if it won’t. But maybe most people don’t like Joe’s charity. And most people don’t itemize and therefore—apart from being in a lower bracket—don’t get the same incentive.
20) Under FCW, what if you expect to get $100K one year but you only get $10K because you weren’t as popular as you thought you’d be—won’t FCW’s fickle and uncertain returns make FCW useless to artists who have to make investment decisions?
People’s tastes are fickle, and it’s unfortunate when artists aren’t able to make it, but I’m not sure why someone should get paid to do creative work that nobody likes.
And this problem exists under the copyright system too—sometimes your financial expectations for something you’ve copyrighted don’t pan out.
21) Under FCW, when will the “choosing time” be?
That’s a minor detail—you could work that out to maximize administrative convenience.
22) Under FCW, will there be a massive dump of art across the nation each year just before the “choosing time”, since artists will want to make sure that they were the last person you happened to see art from before you made your decision?
I have no idea what sorts of strategies artists will use to maximize their take under FCW, but I’m not concerned about it.
23) Would the government “earmark” FCW tax credits?
It would be an entitlement—everyone would get $100 or whatever amount Congress specified.
24) You wrote this about FCW: “The only issue from the standpoint of the IRS (or any other enforcement agency) would be whether the person is in fact engaged in the activity and whether the organization used its funding to support the type of creative work it claimed to support. In other words, if an organization claimed to support the writing of mystery novels or jazz music, then the concern would be whether they had actually used their funds for this purpose.” But who polices the “only issue” and how is the “only issue” policed?
The main thing would just be to respond to complaints about fraud—right now individuals will sometimes claim that an organization that’s getting tax-exempt status isn’t a real church, and you would have similar complaints under FCW.
To be FCW-eligible, the person has to say what they do—you might have a fraud case if the person can’t provide any evidence that they do what they claim to do.
25) What do you think about McChesney’s interesting comments about FCW?
I’m not really worried about a low take-up rate—you could use polling and focus groups to predict the take-up rate and then raise the tax credit’s sum in response to a lower-than-expected take-up rate. You could raise the tax credit’s sum by 30% if you end up 30% below the target, and it’s hard for me to imagine that you’d be all that far from the target—I’d be quite surprised if you had a 60% target and only 6% took advantage of it.
Under FCW, I’m sure that some people will want to pocket their $100. But right now each taxpayer contributes $3 to our very limited public financing of presidential campaigns, and I haven’t heard about any big push to get that $3 deposited into your bank account, and even at $100 I doubt that that cause would be significant.
I’m fine with McChesney’s voting route if that proves more salable. But one problem is that a 3%–4% minimum would be a big hurdle in a large county, and so smaller papers might have a hard time getting off the ground in major metro areas—it would only take 105 people to clear a 3% threshold in my county if 3500 people voted, whereas it could take over 50,000 people to clear a 3% threshold in Cook County if there was lot of participation.
Beyond FCW
Excuse a quick digression, but I think that we should also open up our imaginations when it comes to financing the other things that Baker discusses in Chapter 5 of Rigged.
Consider drug research—in a 2004 paper, Baker compared five different possible systems to finance drug research and Baker found that our system the worst of the five systems:
Our system is the leftmost one (“Patent System”) in the table, and you can see how our system compares to other systems if you read each row from left to right—our system only competes in two domains, but even in those two domains our system isn’t the best of all the systems, and in every other domain our system is the worst of all five systems. So our system is better than nothing, but terrible compared to the alternatives.
Baker concludes his paper as follows (“Table 2” is what I just pasted above):
Patent dependent financing for prescription drug research is leading to ever greater problems. The economic distortions associated with monopoly pricing are growing at a rapid rate, with the deadweight loss alone likely exceeding $100 billion annually within a decade. The waste associated with excessive marketing and sales efforts are growing at a corresponding rate. In addition, the corruption of the research process that is the predictable outcome of this form of government intervention in the market is becoming ever more pronounced. As a result, there is increasing interest in alternatives to the patent system for supporting prescription drug research.
This paper examines four of these alternatives. All four of them hold clear advantages over the patent system, most importantly all four systems would allow most drugs to be sold in a competitive market. Table 2 summarizes the assessments of the four systems according to several important criteria.
While this assessment is obviously preliminary—and certainly does not consider all relevant factors—hopefully it will stimulate further discussion of the merits of these four proposals, as well as contribute to the development of other alternatives to the patent system.
Baker wrote that paper in 2004, but he was absolutely correct in his extrapolation about the soaring cost of prescription drugs—15 years later (in 2019), Baker wrote this:
We will spend roughly $460 billion this year on drugs that would likely sell for less than $80 billion in a true free market. The difference of $380 billion a year is more than twice the size of the Trump tax cut and five times the size of the food stamp (SNAP) budget.
$380 billion is a huge savings—in 2019, the US spent $731.75 billion on defense, so that $380 billion figure would be more than 50% of the defense budget for that year. And other systems would give us better innovation, so it’s not like we get better R&D or anything for that $380 billion—it’s just inefficiency.
And the same point applies to textbooks—students will tell you what an insane ripoff textbooks are. Baker comments:
Textbooks are an enormous expense for college students: households are on a path to spend more than $10.5 billion on them in 2016, or about $500 per student. The figure is even higher for full-time students. A single textbook can cost several hundred dollars, and renting one can cost $50–100 per semester. As with prescription drugs, most of this cost is attributable to a copyright monopoly.
Public funding could produce a large number of textbooks free from copyright restrictions. The arithmetic here is striking. An appropriation of $500 million a year (0.01 percent of federal spending) to finance textbook writing and production would cover 500 books a year, assuming an annual cost of $1 million per textbook. After 10 years, 5,000 textbooks would be available in the public domain to be downloaded at zero cost, or printed out in hard copy for the cost of the paper
In addition to offering enormous cost savings to students, this system would offer more flexibility to professors, who could combine chapters from different textbooks without the need for time-consuming and costly permission requests. Updating a textbook would be much simpler because there would no need to have a complete new edition to add one or two additional topics.
And as Baker notes, if you don’t like the public-domain textbooks then you don’t have to use them because:
anyone could still produce textbooks under the copyright system. If the publicly financed texts proved to be inferior, few professors would use them. This competition would provide a clear market test of the quality of the publicly financed work.
So FCW is a major idea, but there are other areas—prescription drugs, textbooks, etc.—where we should also imagine something better than the status quo’s extreme inefficiencies.