The Demise of Newspapers: A Market Failure? I Don't Think So.

So the government bailed out banks, the automotive industry, and so on. Now Henry Waxman claims that the government is "going to have to be involved in one way or the other" in saving the newspaper industry from its long and continuing decline:

"The newspapers my generation has taken for granted are facing a structural threat to the business model that has sustained them," said Representative Henry Waxman, a Democrat from California.

The loss of revenue has spurred a vicious cycle with thousands of journalists losing their jobs," he told a meeting on journalism in the Internet age hosted by the Federal Trade Commission (FTC).

He says that like it's a bad thing. ;-)

"We cannot risk the loss of an informed public and all that means because of this market failure," he said.

I'm puzzled. What exactly is the market failure here? Welfare economics classically recognizes four basic sources of market failures: producer monopoly; externalities; the good to be produced is a public good; and informational asymmetry between producer and consumer.

I don't see any of these as the newspaper industry's problem. Instead, I see obsolete technology coupled to an antiquated business model.

It's like saying that the demise of the buggy whip industry was occasioned by a market failure. (Of course, if Waxman had been around back then, he probably would have bailed out the buggy whip makers too.)

What we are observing here is the process of creative destruction that lies at the heart of a market system. It is evidence of a functional market, not of a market failure.

Granted, Waxman also opined that:

“Congress can’t impose a solution” to that structural problem, he said. But the government should partner with the media industry to ensure a sound future for journalism. Waxman praised the record of “independent” reporting in U.S. history and said it has implications for democracy.

“There needs to be a consensus within the media industry and the larger community it serves” before the government acts, Waxman said. “We have to figure out together how to preserve that kind of reporting.”

But even that's too expansive a role for government. Instead of trying to pick winners and losers, government's sole function ought to be creating a level playing field on which both new and old technologies can compete fairly to see which is best.

But try telling that to Henry Waxman.

Comments

[William Sjostrom]

This is not complicated, and is unrelated to market failure. Old media is cozy with Waxman, and new media is much less so. Waxman is merely protecting his base.

[Joe Blow]

So we're going to ensure "independent" reporting by making the newspapers dependent on government financing? Sure! I don't see how this could possibly go wrong.

Seriously though, how stupid are this guy's supporters? I suppose the other possibility is that they are not stupid but thoroughly cynical power worshippers and think that government should in fact control the mass media, and that this will help produce "the good life"...

[The Rich Wasp]

The only market failure here is a failure to understand the market. Most newspapers tend to have a liberal bias. Newspapers readership is far more common among older people. People who grew up reading the newspaper continue the old habit.
Both strike me as by definition being conservatives. Conservatives not buying a product with a liberal bias?

Personally, my wife and I subscribe to the Sunday paper mostly for the coupons.

[Robinsolana]

Its the Pravda type main stream news, stupid.
Why would I spend a dime to get news that is manipulated to censor and whitewash stories to fit a political agenda.
Why pay for dosing yourself with intellectual poison.

[TM Lutas]

This type of problem won't get fixed until the voters stop voting for Waxman type legislators or they get punished in some way that they personally feel for violating the US Constitution.

Right now there's a culture of impunity on violating the Constitution. A working majority of legislators do not feel there's a separate obligation not to pass unconstitutional legislation. That's a much larger problem than Waxman advocating unconstitutional press legislation.

[adder]

Any Federal bailout for newspapers must be ipso facto unconstitutional. The First Amendment requires freedom of the press. Any financial dependency on government certainly curtails press freedom. Freedom includes the freedom to fail.

[WJ]

Well said

[brian]

As I have told the local paper that keeps calling me trying to get me to subscribe - why should I buy your product when by the time it lands at my door I've already read everything of importance in it.

What I need from a paper is local news, and there's precious little of that in any of them.

[Katherine]

I loved the L.A. Times. I moved seven times between graduating from High School and marrying and buying a house. The L.A. Times was always my first notice of change of address.

The Times changed. I remember Jack Smith and Jim Murray, truly excellent columnists of my youth; my entire family would read and discuss what they were writing about.

Slowly the Times became more ideological, and I kept reading because it’s always good to know what your enemy thinks. I kept reading because the Times had an excellent Calendar section that had good movie reviews. Even that became tedious to endure. I am a conservative catholic women, and the Times offered me a slap in the face with every article, every review. It got to be too much.

They printed an editorial about the line stickers people put on their cars rear windows celebrating their families. The writer of the editorial hated this when the family was clearly a mom and dad and kids, and went on (and on and on) about how this was only acceptable when they were celebrating some alternative family grouping of mom and mom or dad and dad or which ever non traditional grouping was to be uplifted de jure. The entire editorial was (un)fit for a Jr. High school news paper, as a species of “ninner ninner ha ha I’m not going to conform.”

Yuck. I’m not going to pay to get my face slapped as a consumer; I sure don’t want to subsidize them slapping my face as a tax payer.

What are these politicians thinking? The free markets work, just get out of the way.
Katherine

[Tom Oster]

He's confused "market failure" with "failing in the market".

Hello Pravda!

[Chuck Moul]

I don't mean to legitimize Rep. Waxman's point (because I am in full agreement with you on the futility of a newspaper bailout), but one could make a theoretically sound argument that information like that supposedly provided by newspapers is indeed a public good. It is both non-rival (in that my consumption of it does not diminish your satisfaction from consuming it) and non-excludable (once found, information wants to be free, and it is difficult to keep it from others). Thus, there may very well be an actual market failure (though, again, how the government could be trusted to remedy it is beyond me).

[tom swift]

Odd. Waxman seems to be indulging in a logical disconnect. If government "partners with the media industry," in what sense will journalism be "independent"?

[Aog]

Isn't Waxman operating on the "public good" theory of market failure?

I would disagree more with his view that modern journalism has a positive contribution to "informed citizenry".

[geokstr]

Let's say Fox TV and the WSJ and talk radio were the ones failing. Would Waxman rush in to save them too?

[willis]

""We cannot risk the loss of an informed public and all that means because of this market failure," he said."

Actually, it's the gaining of an informed public that's causing Waxman such anxiety. As long as the old mainstream media dole out the information, an un-informed public is guaranteed.

[Fen]

"We cannot risk the loss of an informed public"

What a laugh line. Newspapers think they serve as gatekeepers, and that the "informed public" doesn't need to know the details of the ACORN or CRU frauds.

If your stockbroker lied to you about Enron, would you still use him? And yet, we're expected to rely on the likes of the NYTs as our information brokers.

Let Pravda die. And let it suffer alot on the way down. I hope the hacks that enabled such propaganda machines starve to death.

[dude]

Waxman is just trying to save a free arm of the democrat party, this is nothing more than politics for him.

The current msm is so slanted that it's almost ridiculous to call it journalism

[Daryl Herbert]

"Market failure" is the liberal action word.

They say "we aren't commies, we only want to intervene in the event of 'market failure'"

Then, any time they want to intervene, in absolutely anything, they declare the existence of market failure.

[Tim Gannon]

"We have to figure out together how to preserve that kind of reporting."

Yes WE as citizens do, but the government doesn't.

[Richard]

Note that unlike the auto industry, there is no talk of making the business viable (increasing readership). THAT would require a change in newspaper content, something he is not interested in, for good reason.

[Tobias]

One thing that upsets me about this is the potential for denying me my right to free speech. I used to subscribe to the local paper, but was tired of the poor quality and political slant that permeated the pages. Probably from relying highly on wire stories....

So I unsubscribed, trying to send them the message that I do not want to endorse their behavior with my dollars.

Just as I can excercise my right to free speech by donating to whatever political cause I choose, I am making a statement by withholding subscription to my local paper. Now the government seems to be choosing to free my paper from the consequences of my freedoms.

Could this be a serious Constitutional question? Despite the other Constitutional questions this presents, of course.

[The Masked Marvel]

Surely a major factor in the decline of the big papers is that there is most certainly an "informational asymmetry between the producer and the consumer". The consumer can get much more accurate, honest, and timely information than the large papers are able - or willing - to provide.

Partisanship and dishonesty is not the same thing as an antiquated business model.

[GregS]

When a politician calls something a "market failure" he actually means "the market failed to produce the result I wanted it to". In other words, he thinks it's a problem that consumers make decisions he doesn't like, and he wants to use government power to impose his will on theirs.

[Banjo1]

Let's see if I can recall the stories newspapers chose to ignore. John Edwards, ACORN, Van Jones, Climategate, Rathergate . . . well, the list is long and life short. But I recognize something but be dropped if we are to celebrate the fabulousness of Barack and Michele, the splendors of socialized medicine, the obsequious apologies that we as a country must make to foreign leaders and ... well, that list is long too.

[Ima Soleman]

"The only market failure here is a failure to understand the market. Most newspapers tend to have a liberal bias. Newspapers readership is far more common among older people. People who grew up reading the newspaper continue the old habit.
Both strike me as by definition being conservatives. Conservatives not buying a product with a liberal bias?"

My fellow conservatives seem to love this meme. But it's wildly offbase.

Newspapers are struggling not because conservatives abruptly unsubscribed because of liberal bias (bias that had been present for decades); newspapers are struggling because of a technological tectonic shift wrought by the web, where advertising has been rendered impotent.

The newspaper problem isn't about readership numbers, per se. It's about advertising numbers, and how they are massively devalued online.

People who push this meme must explain, for instance, why conservative-leaning papers are struggling just as much as any other. They must confront the fact that newspapers today generally have readerships far greater than in the past -- web numbers that dwarf their old print base.

This whole thing is merely about what the web has done to the ad model, for EVERYBODY -- conservative, liberal and otherwise. That's all.

(Should the federal government get involved? Absolutely, positively, 100% not. But we all should hope the free market comes up with a solution. Because we've now had a decade and a half of journalism online, and so far nobody has figured out how to make it sustainable for the long haul. We're staring at the looming death of news as a profitable human endeavor, and that's not good for any of us.)