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should anything be copyrightable?
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First we'd need good answers to the questions of what specifically should be funded and how much money should be spent overall. Copyright has the advantage of letting markets decide, which IMHO is a good thing in most cases (but not for things like drug patents or any research produced with public funding).
Yes, that would be an issue. If you had a hybrid system, markets could still decide prices, at least. Once the government is the only player things get very tricky indeed.