Jonathan Zittrain has responded to my response, thus:

Me: Substituting tax for copyright gets rid of the main mechanism, market prices, by which consumers communicate their needs to producers. No good substitute for this mechanism has been found. (If surveys and sampling work so well, why don't we run the entire economy that way?).

JZ: Well, the Neilsen ratings have been used for TV for decades. They might be laughably inaccurate, but they really do determine the hundreds of millions of dollars -- far larger than the entire music industry! -- that change hands thanks to ad buys on free TV. Is selling ads on free TV any less a market mechanism because the rates are agreed upon between broadcaster and advertiser nearly mechanically on the basis of those surveys?

Also - the "market" for CDs is itself distorted by the act that it's government entitlement to begin with that determines the scope and nature of what a producer is able to unilaterally hold back and therefore charge monopoly rents for. Even monopolists operate according to market forces, of course, but with the industry as concentrated as it is, and the relationships among current rights holders (performance licensing organizations, record companies, radio stations, etc.) as tangled as they are, the status quo is one in which there is a substantial amount of
friction in the market. (Indeed, nearly everyone seems to wish for a reconfiguration of the entitlements to allow for new business models.)

Surveys are a second best substitute for the price determined by a willing buyer and willing seller -- but of course a market itself is only a second best to rank abundance! Hence no market in the air that we breathe. The intangible goods in question here are abundant, and it's only the instrumental desire (a legitimate one, to be sure) to maximize their production through the right incentives, that points towards the creation of a market. But my point is that any market here is one whose very existence and boundaries will be (and are) determined by government policy intervention. (This is not so the way a "normal" market in, say, corn, might develop, even with laws prohibiting the stealing of corn. And putting corn subsidies aside. :) )

Me: Switching the complexity to the tax system and a bureau to dole out the
proceeds to make it less visible to consumers is not a good thing. Those best
able to navigate bureaucracies will continue to benefit disproportionately, and
hardly anyone will care. But we will all pay.

JZ: Yes, there are serious public choice problems to the extent the allocatory bureaucracy has any discretion in what it does. (Also perhaps a hydraulic pressure among the benefiting special interests to keep increasing the size of the pie to be distributed by pushing the surcharges/taxes higher and higher.)

Me: With the copyright system, true, the government sets the ground rules
(as usual with statutes) and the courts step in as arbiters in the case of
disputes. But the government is not present in the vast majority of exchanges
involving copyright, which are not disputed. But with a tax system, government
is present as a middleman in every single exchange. On balance, concerns about
free speech tip me in favor of copyright. (If one is wavering on this point, consider how a tax scheme would go over with the publishers of books!).

JZ: Every single exchange involving the use and publishing of music to the
public has a staggering array of rights holders at the trough. It is an odd form of freedom when one has to clear rights to, say, broadcast an interview with someone conducted at a public place when music happened to be playing in the background. The current system, ostensibly free of direct government restriction or participation, is one where those wishing to use the new tools of technology to "rip, mix, and
burn" their own speech are essentially stymied -- unless they want to risk
the government being called in to punish them.

Me: By doing away with market prices, it makes consumers less sensitive to
prices, which in turn reduces the incentive of producers to innovate to lower
their costs.

JZ: I think producers always have an incentive to lower costs, unless it's a Pentagon contractor-like cost-plus incentive scheme! No matter how much someone is making through monopoly pricing, cheaper inputs are always better. Hence the poor quality of food at the stadium to go along with the high prices, no? Consumer sensitivity
would be displaced from individual transactions -- this is a feature, since now they can enjoy all the music they can stand to listen to! -- to overall size of market, perhaps through objection to an increase in the overall tax.

Me: It would end competition and innovation in business models for delivering content. If there is something beyond P2P or disks, we will never know.

JZ: I'd have thought the opposite -- thanks to a clearing of the legal brush that has choked the mobility and derivability of music and movies, Fisher's proposal would make it easy to innovate with these materials -- creating new derivative works and new distribution models. The publishers would be behind this, because they'd profit
each time someone moves the work (or a derivative) over the Net. This seems a great incentive for downstream creativity, while allowing the forces that already are in place to distribute widely to continue to do so.

Previous blogs related this one may be found here, here, and here. Clearly, we could go on like this for some time.