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NancyLebovitz comments on Some Heuristics for Evaluating the Soundness of the Academic Mainstream in Unfamiliar Fields - Less Wrong
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No, the status quo is heavy subsidization. I have an essay on how there is too much art & fiction (http://www.gwern.net/Culture%20is%20not%20about%20esthetics.html) and one of my points is that the arts are heavily subsidized both directly and indirectly, which contributes to the over-supply.
I think the major way fiction is subsidized is people producing fiction in spite of it not being at all lucrative for most of them.
What are you planning on doing about fan fiction?
Nothing. If people wish to write as their recreation, that's fine. I'm not arguing that gardens be banned either. The suggestions in my linked essay are that the subsidies be dropped and possibly a Pigovian tax imposed on commercial fiction.
(Am I being unreasonable in expecting people to read the essay which is all about how much fiction/art is produced, its value, and what we should do about it? It seems to me that much of the math discussion is isomorphic.)
I admit I read your essay very quickly, and skipped the footnotes.
I don't think fiction is very heavily subsidized compared to the amount that's produced. Copyright enforcement is the only thing you list that I think matters, and I believe we'd be drowning in fiction even without it.