Why Profit Doesn't Work in the Media Business [updated]

In one of my previous posts, I looked at the reasons why the profit incentive doesn't get us the informed, reasonable news coverage that we'd like. Recently, I tightened up the argument. Here's the revised version:

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"No one ever went broke underestimating the intelligence of the American people." -H. L. Mencken

Scholars around the country lament a national media that’s in decline. Neil Henry, Dean of the Berkeley Graduate School of Journalism talks of “erosions in content and traditional journalistic standards.” Kathleen Jamieson, director of the Anneburg Public Policy Center of the University of Pennsylvania, describes a university setting where “students raised on faux news will enter our classrooms cocooned in their own biases and conditioned to mistake ridicule for engaged contention.” And Rick Davis and Peter Stearns of George Mason University agree that “the replacement of serious news by sensationalist nonsense” is undermining legitimate democratic discussion. [link to source]

To add fuel to these critics’ fire, the executives at Fox News unapologetically defend the state of the news, and their networks’ coverage of it. When Roger Ailes, president of Fox News, appeared on a January 31, 2010 edition of ABC’s This Week, he was criticized for certain ethically dubious choices the network made. His response? “I’m not in politics. I’m in ratings. We’re winning” [link]. In the same vein, Bill Sammon, vice president of Fox News, recently admitted to fabricating facts on air: “At that time, I have to admit, that I went on TV on Fox News and publicly engaged in what I guess was some rather mischievous speculation about whether Barack Obama really advocated socialism, a premise that privately I found rather far-fetched” [link].

What’s so upsetting about these quotes is that they reveal a complete disregard for ethics in journalism. Clearly, Fox News executives’ eyes are all on the bottom line. Normally, these two goals—profit and ethics—should align: a company that mistreats its customers should eventually stop receiving business. But there are instances, like this one, where the mechanism clearly doesn’t work.

The basic defense of the profit incentive is that you're almost always likely to getter better results when you incentivize good behavior than when you force it. Profit supposedly sets up an incentive system that induces businesses to serve the public interest as much as possible. Ideally, businesses make profit when they produce goods or services that create a lot of value for people. Customers get what they want, and the business reaps the reward of going through all that effort. Everybody's happy.

But this system isn't foolproof. For it to work, at least a couple key things must happen. First, consumers need to be able to represent an effective check on business. If people generally can't tell when they're getting duped, or swindled, or cheated, or they have no alternatives (i.e. monopoly), then businesses can gain profits at the cost of the public. Second, the consumer’s individual interest can’t be opposed to a broader, collective interest. If individuals demand a good that’s harmful to everyone else, than supplying it can actually be welfare-reducing overall.

The problem with profit in the media business is that neither of these criteria is satisfied. For one, it’s very, very difficult for a well-intentioned layperson to stay informed. As David Foster Wallace puts it, grappling with the “Total Noise” means "dealing with massive, high-entropy amounts of info and ambiguity and conflict and flux… to really try to be informed and literate today is to feel stupid nearly all the time, and to need help" (q.v. "Host" in Consider the Lobster and Other Essays). In this light, news organizations have a moral obligation to help their fellow citizens make informed opinions and cast informed votes. Instead, what happens is that news organizations pose as guides through this media mess while simultaneously producing narratives of their own (Fox News is the best at this, which is why they’re “winning”). Since this strategy is successful, the profit incentive encourages news firms to pursue it; and average consumers of news, who may not realize the spin they’re being fed, also don’t realize that their news only contains half-truths, instead of the Truth that they were expecting. Unwittingly, they receive a defective product, like the Americans who ate tainted meat before health inspections were instituted.

In many cases, though, viewers know exactly what they’re getting out of their news. They like news that caters to their biases and preconceived notions about their world (a.k.a. “infotainment”) and news organizations profit by offering such programming. But is society really better off if everyone just decides which slanted version of the news she is going to watch? Clearly not. Biased news eviscerates reason, dialogue, and compromise—precisely the qualities necessary to have a healthy democracy—and replaces them with polarization, resentment, and suspicion. It’s impossible to come to a reasonable agreement when most people can’t even agree on the facts. So the profit incentive, though encouraging news organizations to satisfy individual preferences, also has the effect of allowing those news organizations to undermine the very democracy they are tasked with upholding.

Thus, the profit incentive is flawed—but it’s unlikely that a patchwork of changes in incentive structures will work either. The difference between legislating about, say, food quality (which has clear, objective measures) and journalism quality (which is hard to define, let alone capture systematically) means that regulation will likely be sidestepped by exploiting loopholes. Likewise, restructuring incentives, such as changing executive compensation packages or making quality reporting more attractive, can only get us so far. As long as most people prefer infotainment to real news, news companies will face a constant temptation to cater to their tastes.

In these kinds of situations, appealing to morality can solve a number of economic problems that external incentives can’t: morality drastically reduces monitoring costs by making people self-policing; and it, unlike most external pressures, tends to be self-reinforcing, since people, once convinced about the morality of certain behavior, generally do not to deviate from it. A sense of morality hasn’t always been absent from journalism. Don Hewitt recalls in his memoir that upon the launch of “60 Minutes” his producer came to him and told him to “make us proud.” “Which,” he says, “may well be the last time anyone ever said ‘make us proud’ to anyone else in television” [link]. We need to bring that sense of morality back.

The Limits to Meritocracy

In the wake of the financial crisis, income inequality has become a sexy topic again among economists. Following a host of notable commentators on the subject (including economists like Raghuram Rajan and Daron Acemoglu and a host of politicians), The Economist has chipped into the discussion with its own article.

The Economist article calls into question the perniciousness of income inequality in itself. It argues that policymakers would do better to focus on eliminating barriers that allow the "most pernicious, unfair sorts of income disparity" instead of focusing on redistribution. Their recommendation? Allow for increased competition and social mobility. "Governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top." That means reducing trade barriers, investing in access to good education for everyone, and, at heart, promoting more competition and meritocracy.

I think they have the right idea in mind. There are definitely more fair and unfair types of inequality. But I have reservations about The Economist's embrace of meritocracy. If we follow the principles of meritocracy all the way to their logical conclusion, then we end up with a grim picture.

Pure meritocracy means, for example, that parents have no way of ensuring that their children will be as well off as they are. To properly judge who deserves to get better positions and opportunities, kids grow up constantly being evaluated and competing with each other. Tensions amongst parents and kids rise to a boiling point when success, or getting ahead, becomes a zero-sum game, where the success of my friend only implies one less opportunity for myself.

Competition is not only a benefit, as The Economist sees it, but also a cost. For some people, competition is a healthy motivator for them to develop their natural abilities. But for most people, it is a form of coercion to work harder than they wouldn't want to, for the sake of positions they otherwise wouldn't aspire to.

High social mobility (in itself a desirable thing) has the cost of intense competition. We already see an example of what that kind of intense competition would like in primary schools in New York City, where some parents are spending thousands of dollars on test prep sessions for their 4 year-olds in order to ensure that they make it into the city's gifted kindergarten program. When I saw an article about this in the New York Times, I was prompted to write a post about the paradoxical nature of a middle class that lives amongst plenty, but which acts as it were fighting for its very survival.

There are limits to how much meritocracy we're willing to tolerate. At some point, the burden of competition weighs down on the benefits of increased/equal opportunity. A world where people are heavily advantaged by their intellectual endowments is not really fairer than a world where people are heavily advantaged by their wealth endowments.

In the end, though, my point against The Economist is pretty weak: I agree with their main thrust, that we should remove people that systematically deny people opportunities. I just want to make sure that we're careful not to rush headstrong into meritocracy either.

Update (March 14, 2011):
John Rawls gives a much stronger argument against meritocracy in A Theory of Justice:

"[In meritocracy] there exists a marked disparity between the upper and lower classes in both means of life and the rights and privileges of organizational authority. The culture of the poorer strata is impoverished while that of the governing technocratic elite is securely based on the service of the national ends of power and wealth. Equality of opportunity means an equal chance to leave the less fortunate behind in the personal quest for influence and social position." (106-107, my emphasis)

So the complaint is not so much that meritocracy makes people work too hard, but that it punishes people for not being bright. This is why the competition that I stressed in the post is a problem: given the severe disparities in life chances that a pure meritocracy produces, one can't afford not to make it.

The Pecking Order of the Social Sciences

The Google Books Ngram Viewer confirms it—there is a clear pecking order in the social sciences. Here we see graphs of how frequently the following words (case sensitive) appeared in 4% of all English Language books published in the world.

See larger version here.

It's hard to read, so I'll read it off: we have economics on top, followed by sociology, then anthropology, and lastly, political science. The people have decided which subjects are most worth talking about!

I'm not well versed in the history of these disciplines to explain any patterns that may appear in these graphs, but there are some features of it that catch my eye. I find it fascinating that even though all the keywords started out neck-and-neck in the late 1800s, they ended up diverging completely. I'm also surprised to see political science at the bottom; though, admittedly, most of political science strikes me as recycled and refurbished economics/sociology.

Economics, of course, is king. I've heard professors (indirectly) explain why this is by saying that economics provides a really powerful predictive framework. It's because of this power, for example, that economics has a habit of colonizing areas of research that were previously the domain of other fields (e.g. Becker's study of crime coopted the study of deviance from sociology).

But I think another less-discussed reason why economics is so dominant is that the allocation problem is the most basic and most fundamental problem of society. It's the academic discipline that rests at the bottom of Maslow's Pyramid, as it were: first we want food on the table, a roof over our head, a way to earn a decent living, and then we can talk about the subtleties of cultural sovereignty.

Irrational Lawsuits

From the New York Times, we have here a distinctly American litigation case: a New York judge has determined that a 4-year-old who accidently hit an old woman in a bike race with a friend can be sued for negligence.

Here's a quick overview of the story:

Juliet Breitman, 4, and Jacob Kohn, 5, were racing their bicycles, under the supervision of their mothers, Dana Breitman and Rachel Kohn, on the sidewalk of a building on East 52nd Street. At some point in the race, they struck an 87-year-old woman named Claire Menagh, who was walking in front of the building and, according to the complaint, was “seriously and severely injured,” suffering a hip fracture that required surgery. She died three months later of unrelated causes.

Her estate sued the children and their mothers, claiming they had acted negligently during the accident. In a response, Juliet’s lawyer, James P. Tyrie, argued that the girl was not “engaged in an adult activity” at the time of the accident — “She was riding her bicycle with training wheels under the supervision of her mother” — and was too young to be held liable for negligence.

[...] But Justice Wooten declined to stretch that rule to children over 4. On Oct. 1, he rejected a motion to dismiss the case because of Juliet’s age, noting that she was three months shy of turning 5 when Ms. Menagh was struck, and thus old enough to be sued.

Mr. Tyrie “correctly notes that infants under the age of 4 are conclusively presumed incapable of negligence,” Justice Wooten wrote in his decision, referring to the 1928 case. “Juliet Breitman, however, was over the age of 4 at the time of the subject incident. For infants above the age of 4, there is no bright-line rule.”

The lawyer blogs are abuzz with this story, and thousands of other laypeople have already given their opinions. At the risk of being redudant, here's my two cents:

In none of the blog posts and op-eds that I read did I find a discussion of whether litigation is even a valid means of redress. Since the money can't bring back life, these kinds of  lawsuits seem to be principally about deterring people from acting negligantly by penalizing them for doing so. But even if we determine the child is fully negligent, lawsuits can't punish her in a meaningful way. Four-year-olds have no income of their own to be deprived of. They don't even know what "litigation" means.

This case is by no means an isolated incident of irrational litigation; the U.S. seems to be an especially fertile breeding ground for it. It's easy to chalk it up to some cultural flaw, but I suspect there's something deeper going on—I just haven't had the time to research it properly.

Sir, I have a bone to pick with you

From the Economist's online edition comes this article about the Argentine government's offensive against Clarín, the nation's media conglomerate. After describing the Kirchner's efforts to "kick Clarín out of the ISP business" and "wrest control" of its share in Argentina's newsprint company, Papel Prensa, the author, D.P., makes the following conclusion:

By declaring war on Argentina’s most powerful opinion-former, the Kirchners are gambling with their political future. If they can bloody the company enough to make its management seek a truce, they could secure friendlier coverage of the 2011 presidential election. Even then, however, the strategy might backfire. First, it has made them look hypocritical: by trying to kill Fibertel, they have made the already-concentrated ISP market even more so. Moreover, they have given the fractious opposition a new cause to unite around.

For the first time, I actively disagree with the Economists' appraisal of the facts. Kirchner, I feel, is actually winning political points in this campaign against Clarín. No one I met there truly supported them. The left excoriated Clarín as a propaganda machine for the wealthy.¹ Moderates admitted that it attacked the government more than necessary, and preferred to read La Nación. Above all, almost everyone felt uneasy by Clarín's near-monopoly status over print, radio, and television media.

The backdrop of President Kirchner's actions, which the Economist article strangely omits, is the push to pass La Ley de los Medios (The Media Law), whose explicit intent and purpose is to trust-bust Clarín's monopoly. Although the law is controversial (like everything in Argentina), it enjoys broad popular support. Here, for example, is a snapshot of the turnout for the rally in favor of La Ley de los Medios outside Congress in Buenos Aires in late April:

Most people I talked thought the law was a good idea. The professor who taught my peronismo class, someone who struck me as an intelligent and consummately careful scholar, opposed it, but only because she thought it was badly crafted. The law would simply replace Clarín's monopoly with a government monopoly, she said, but she didn't disagree that something had to be done about Clarín.

So I don't know why D.P. feels that the Kirchners are "gambling with their political futures." Perhaps the issues of Papel Prensa and Fibertel, both of which developed after I left Argentina, have created new opposition or turned the tide of opinion. But I doubt it.

Update (Sept. 1, 11am):
Another point, which I forgot to mention—The article, entitled "Pressed," portrays Clarín as a poor victim of government abuses. I think the abuse really goes both ways. In any case, I don't think anyone feels sorry for Clarín.

Notes:
1. I've heard people claim that Clarín has fabricated facts, grossly misrepresented inflation, and engaged in all kinds of journalistic malfeasance; but in Argentine politics there are so many claims and counterclaims flying everywhere that it's difficult to assess their veracity.

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Bonus Feature!

The article offers this link (available only in Spanish) to a government report on business dealings with the Papel Presna company. The report is full of account balances, citations of laws and decrees, and other boring details, but in true Argentine fashion that doesn't stop the authors from proclaiming this issue as a matter of the most profound human rights. The excerpt from the Acknowledgments section reads (with my translation):

We thank especially those people who, having been participants in these acts, through their testimony permitted us to reconstruct an era of history in which were carried out the most dark and horrible acts of of physical, moral, and psychological violence that human beings can suffer.

It should be highlighted the interest demonstrated in the search for the Truth, shown by all the institutions, organizations, and people who, in one way or another, and from their respective places, helped with their contributions so that this present report would illuminate a part of history that tried to be submerged in darkness until it fell in negation, lies, and oblivion.

They're obviously referring to El Proceso, the brutal internal genocide that took place during the military dictatorship of the 70s. Many of the incidents of this report probably also take place during the 70s, and I'm sure that the business dealings they describe are pretty messy, and probably involve violence—but there's no way it can compare to the torture, murder, and rape of the era they are so strongly evoking.

America, The Teenage Pop Star

Uno de los cuentos más populares de Gabriel García Márquez se llama "Los funerales de la Mamá Grande." Además de tratar, obviamente, los funerales, también incluye una gran crónica del reinado de la Mamá Grande, una figura matriarcal que maneja todo el poder del pueblo. Ella pasa los días en su mecedor de bujico, mientras que su sobrino Nicanor se ocupa con la resonpsabilidad que inevitablemente viene con tanto poder.

Una interpretación de la Mamá Grande es que en ella encontramos una imagen de Colombia: su reinado es una dictadura, su poder viene de herencia, su único trabajo es coleccionar arrendamientos, y, sobre todo, se está muriendo. Es el resumen del sistema de poder agobiante y opresivo de Colombia.

Una línea de pensamiento para entretenerte: Si bien Colombbia se puede caracterizar como una vieja Mamá Grande, cuál imágen escogerías para tu propio país (en mi caso, los EE.UU.)?

Es bastante divertido—y difícil—pretender clavar la esencia de la vida política y social de tu patria con un solo personaje. Pero creo que mi respuesta será: los EE.UU. son como un Teenage Pop Star.

Por un lado, los pop stars, como los EE.UU., tienen mucho glamour, mucha buena fama, mucha popularidad, muchos afanes. Siempre se habla de ellos, siempre llevan las modas más nuevas, tienen los cuerpos más codiciados, las vidas más interesantes. Se piensa que tienen lo mejor de todo (una vez un muchacho argentino me contó que le sorprendió la pobreza que vio en Denver, Colorado, como no esperaba que la encontrara en el "Primer Mundo"); son admirados por muchos (los commentarios que he oído de los argentinos incluyen, por ejemplo, ¡qué estable! ¡qué creativo! ¡qué disciplinado!); y tienen una presencia cultural omnipresente (todo el mundo conoce tanto a los pop stars norteamericanos como la cultura general norteamericana, desde los Simpsons y películas hasta el football y música).

Fíjate que este es el discurso del exterior. Adentro, nosotros ciudadanos no solemos ver el país como un gran milagro sino una larga serie de problemas para enfrentar: una economía temblante, gran recortes en los presupuestos estatales, el terrorismo, la inmigración, la jubilicación de los baby boomers, un sistema de salud terrorífico, y un racismo intransigente, entre otros. Esta "realidad interior" se parece al hecho de que la vida privada de los Teenage Pop Stars es bastante cotidiana. Tendemos a olvidarlo, pero los pop stars son personas también, con las mismas frustraciones, las mismas ambiciones, los mismos deseos, y las mismas preocupaciones que tenemos todos. Igualmente, los EE.UU., por más poderoso que sea, es a la vez sólo un país más.

¡Ya te toca a tí! ¿Cómo describirías a tu país? Deja un commentario con tus ideas.

The Power of Corporations

Google has announced it will exit China unless the government stops censoring its search engine, and now everyone's talking about it (see, for example, these good articles at The Economist, The New York Times, and The Wall Street Journal).

Google's actions come in response to hackers who attempted to breach the Gmail accounts of Chinese human rights activists. Now human rights activists around the world are celebrating. To show solidarity, many Chinese have laid flowers outside Google's office.

What strikes me about this development is that it dramatically demonstrates how corporations can function as powerful political actors. We're already very familiar with the rapacious-political side of corporations, but Google's case suggests that there also exists a principled-political side. Whether or not Google is truly acting on principle, as it claims, is besides the point; the move still forces China to confront its human rights problems, which is really more success than U.S. diplomacy can speak for.

Thus, in this incident we see how corporations can pick up where states fail. The U.S. government can wheedle and reprimand and scold the Chinese government indefinitely, but when it comes to business, money talks. Plus, corporations are more politically agile than governments, which are weighed down by treaties and concerns over trade relations.

In the coming decade, I expect corporations to play a larger role in internatinal affairs. They have weight and power and they can use those for good as well as for ill. Please, corporations of the next decade, don't be evil.

More Drama In Argentina

I used to think that modern-day heads of state operated within the basic confines of their constitution, but that was before I read Mary O'Grady's article, "Constitutional Showdown in Argentina," in the Wall Street Journal.

In what seems to be traditional Argentine autocratic fashion, the president, Cristina Kirchner, has sacked the central bank president, even though the constitution specifically forbids it. She has issued a decree to amend the bank's charter to force him out legally, but the court system is ruling in favor of the central bank president. Here, as O'Grady puts it, "the constitutional battle lines were drawn."

This development is very serious. What little economics I have studied has repeatedly emphasized the importance of maintaining the independence of the central bank—lest it be exploited by the government for easy money, which is exactly what has happened throughout Argentina's rocky history, and exactly what President Kircher seems to be doing now. Just as Argentina is getting its wind back after the financial meltdown of 2002-2003, President Kirchner seems to be poised to repeat the mistakes of the past.

More fundamentally, it seems Argentines have a hard time figuring out constitutional democracy. Military governments have suspended the constitution numerous times as they've come and gone. Perón came up with his own constitution when he came to power. Between 1999 and 2003 Argentina went through 5 presidents. In their press conferences, you can see that Argentines demonstrate an overt concern with following democratic principles; they talk about democracy in the abstract, as a set of values to live up to, in a way that reminds me of a recovering alcoholic who talks about the virtues of sobriety after hitting rock bottom.

Amidst this institutional fragility, a "constitutional showdown" is the last thing the country needed. Let's see how they pull through.

[For those who understand Spanish, you can find a video of President Kirchner defending her actions here.]

The Paradox of the Middle Class

From the New York Times, an article whose subject seems to get at the essence of growing up in the middle class—Tips for the Admissions Test...To Kindergarten:

Test preparation has long been a big business catering to students taking SATs and admissions exams for law, medical and other graduate schools. But the new clientele is quite a bit younger: 3- and 4-year-olds whose parents hope that a little assistance — costing upward of $1,000 for several sessions — will help them win coveted spots in the city’s gifted and talented public kindergarten classes.

The article goes on to describe how the kindergarten tutoring business is taking off (the Bright Kids program featured here is just one of many) and why (many parents figure a couple thousand for tutoring is cheaper than private schools).

Although the whole affair seems outrageous and ridiculous at face value, it's difficult to resolve the issues here. If you ask people how we should distribute scarce rewards in a society fairly, most of them will say that they should go to the people who work the hardest (there is, in fact, research to back this up: q.v. Chapter 11, "Distributive Justice," in Homans, G.C., Social Behavior. New York: Harcourt, Brace, and Janovich, 1974; and also work by Guillermina Jasso). But you put that principle into practice and you end up with situations like these, which seem, frankly, dehumanizing.

There are a number of other issues entangled here (like what it even means to be "gifted"; whether such ability is innate or acquired; whether differentiating education is worthwhile/necessary/inevitable; what it means to provide equal opportunity; the extent to which education figures into the American Dream, etc., etc.), but what makes the article jump out at me is that it shows how hard we, the middle class, are competing. It's like we're fighting tooth and nail for our very survival, even though fighting for survival seems unnecessary in modern society. Desperation amidst plenty: this, I believe, is the paradox of the middle class.

Yikes!

Here we have commodity fetishism at its worst:

When people care more about things than their relations (and not even distant relations, but really really close relations!), the world is pretty much doomed. Don't tell Marx about this ad or he'll die a second death.

Vanishing Bats

Today on NPR I heard a story about how the most common species of bat in North America seems to be on the path to extinction due a fungal disease called White Nose Syndrome. As hundreds of thousands of bats die, bat scientists are calling "crisis!" and starting to mount efforts to prevent extinction.

Part of the story also noted how bats perform a tremendous service to farmers as insecticides, and hinted that extinction would be a catastrophe for the ecosystem. For now, the report said, conservation biologists are carefully monitoring the situation.

Now if White Nose Syndrome is caused by humans (and that's a big if), then I would understand the cause for alarm. But that's not what was being talked about; instead, the report focused on how the decline of bats is a calamity in and of itself.

As someone with minimal experience in ecology, I may be wrong on this, but I feel this approach is misguided. It seems that if an event (including extinction) happens automatically in nature, then it is helpful rather than harmful, and ultimately works for the benefit of the system. After all the Earth has been sustaining life for hundreds of millions of years and has been doing just fine without our help. Just because we are now marginally aware of the complex ecology around us does not mean that we need to correct for perceived "imbalances," especially when these corrections can lead to real imbalances of their own.

Of course, this entire argument is contingent on whether White Nose Syndrome is caused by humans or not. And there very well may be other facts to bear in mind. Nonetheless, I sense that we environmentalists have a knee-jerk reaction for preserving species diversity—and I want to suggest that this may not be a good thing.

"Cash for Clunkers"

Talk of the town: "Cash for Clunkers" (a government program that gives rebates to people who trade in their old cars for more fuel-efficient models) has run through $1 billion in about a week, which is quite something considering that that $1 billion was supposed to last until November at least.

The current angle: The national conversation has been focusing on what this running out of money means. The left calls it a success. The right calls it a failure.

What really matters: What makes "Cash for Clunkers" different from a pure subsidy is its environmental component. This is crucial because it is this difference that makes it a public-interest program--the public-interest of course being that greener cars lead to cleaner air and solve some foreign policy problems. Now, some people have suggested that the process of junking the clunkers greatly dampens the environmental benefit of greener cars. This claim may be bogus, but these are the kinds of questions people should be asking and answering. The focus of the conversation should really be on whether the program is achieving its purported objectives, and achieving them efficiently; not on the program's popularity.