Saturday, May 23, 2020

the degeneration of media

Last week on NBC’s “Meet the Press,” moderator Chuck Todd played a clip from a recent CBS News interview with Attorney General William Barr. Unfortunately, the clip had been edited in a way that gave the opposite impression of what Barr was trying to say. NBC was publicly taken to task and has now apologized. 

The fiasco is one more example of general problems we’ve seen over time with the media: a decline in the quality of reporting and news coverage; an increase in media partisanship; and a tendency to pursue viewers through flash and style rather than substance. Their desire to appeal to customers shouldn’t be surprising. Even though our reflex might be to think of media serving “the public interest,” they are certainly passionate about profit and their employees are interested in career advancement. 

The current episode is also an illustration of two concepts in economics: "negative externalities" and “implied cartels.” First, a “negative externality” is a harmful by-product of a person's actions or a market exchange that is imposed on another party. COVID-19 provides a great contemporary example. An infected person is contagious and can spread the virus to others. 

The classic textbook example is pollution. The goal of a company is to produce, not to pollute. But pollution is part of the "bargain" — and unfortunately its costs are imposed on others. For example, when you buy a car from Ford, you're asking Ford to pollute for you. If a negative externality is significant enough, government intervention may be helpful. Then again, government action itself routinely creates significant negative externalities. 

When “Meet the Press” creates buzz for itself and partisan viewers with a fraudulent claim, it causes “pollution” — damage to society. If the fraud is detected, the entire industry is harmed. It also hurts itself, so that's good news in terms of incentives and fairness. But the damage extends well beyond itself. 

Second, the media acts as an “implied cartel.” A cartel is a collusion of sellers or buyers — to manipulate prices and gain more money. (Think about OPEC in oil, the NCAA in college athletics and labor unions in the market for labor.) An implied cartel functions like a cartel but without explicitly organizing. 

Without help from the government, it’s difficult to keep cartels together. The incentives to cheat on the agreement (to gain even more profit) — or to enter the market (to compete with the cartel members) — are too great. As such, it’s common for interest groups to ask government to restrict their competition — to establish or strengthen a cartel.

So, cartels, whether explicit or implicit, are likely to degenerate and fail, if they can form at all. "Black Friday" is a good example. Remember when it started years ago? Businesses opened early on the Friday morning after Thanksgiving and offered special prices. And then, the start of Black Friday moved back to midnight. And then it moved back to Thursday. 

And now, it goes for the entire week. Nobody formed a cartel, but the arrangement acted like a cartel —before it fell apart. 
The media is in a similar position. It had an implied cartel to be relatively objective, fact-oriented and serious. And for a long time, top-tier news providers stayed in line and were punished if they got out of line. But now, this line has eroded tremendously. So, the incentive to cheat the standards of truth and to grab viewer eyes has undermined the credibility of the media over time.

Negative externalities are difficult to stop without government regulation. But government regulation of the press is a troubling solution for many reasons. The best answers are in the market. But if enough people value “news” like this, it’s difficult to imagine how we avoid the continuing degeneration of news. Likewise, media are trying to make a buck. Their “greed” will continue to encourage them to cheat on the cartel — to buck the “standards of journalism” they’re supposed to pursue. 

Tuesday, May 12, 2020

more porn: food, houses, politics, and COVID

A number of years ago, I read an article describing "food porn"-- and it gave me a new angle to consider the popularity of such shows. Think about the camera work, the appeal to our "appetites", what consumers are looking for, hiding imperfections, its unreality-- and a comparison to (sexual) porn. (The same can be said of the various "house" and remodel shows.)
Now, not nearly all consumption of those shows is pornographic, but some of it is. The same is true of the current moment. A lot of folks have moved from "politics porn" to "covid porn" (or the intersection in many cases). If that's you, do yourself a favor, put down the magazine-- and if you have issues, don't renew the subscription.

Friday, May 1, 2020

COVID and the USPS

You may have heard that the Post Office is in the hospital with COVID-19. Part of the problem is that it has some pre-existing conditions. It enjoyed something of a sheltered and spoiled childhood. But that led it to becoming soft and flabby later in life. It has also endured capricious parenting—with regulations that have made its life more difficult. And it’s grown quite old, so it tends to be stuck on tradition and set in its ways.

Now, the U.S. Postal Service (USPS) wants a “bailout”. (Hey, who doesn’t?) It’s been subsidized by taxpayers for years, but things have gotten more serious. The Post Office would be on the way to the ICU and likely death—if not for its rich parents (the federal government—well, taxpayers).

The USPS lost $8.8 billion last year—and this year will be worse. It has been designated as an “essential business”, so it remains open during the lockdowns. Our current macroeconomic woes are making things more difficult. But its problems are clearly persistent and systemic: operating with chronic budget deficits and producing services inefficiently in a sector dramatically impacted by technological advance.

As with some other businesses, its flaws have been more clearly revealed by the crisis. The weaknesses are especially evident when struggling businesses are in sectors that haven’t been hit that hard. They ought to be ok, but are not. Government budgets and pensions are in a similar position. When governments have spent recklessly, then the tough times are that much tougher. You might say that economic downturns tend to reveal the “co-morbidities” in business and government.

Over the last decade, USPS revenues are down slightly. Prices are up and shipping volume has doubled. But marketing mail has dropped a bit; overall mail is down 15%; and 1st class mail is down 30%. On the cost side of the ledger, the Post Office has the same number of workers as in 2013 and 6% more vehicles. It’s difficult to imagine that this makes good business sense in the face of stable revenues and advances in automation.

The Post Office has some inherent advantages. The government subsidizes shipping from overseas, especially China. It also subsidizes magazines and junk mail. (Thanks taxpayers!) And the USPS has been granted a monopoly in first-class mail. (Do you know that you don’t own “your” mailbox?) Having a monopoly is usually helpful for profitability!

But the USPS also faces two key problems. First, their employee compensation includes pensions and supplemental health care to Medicare in retirement. Most of the labor market has transitioned to “defined contribution” plans—where you and/or your company put money into a retirement account that you control. Among other advantages: if your company goes under, you still have your retirement account. But pensions and retirement health care are pay-as-you-go liabilities—promises by an employer to pay retirees as long as they live.
It’s easy to see why the private sector has moved away from these risky plans. But governments and their employees don’t face as much risk. They can bury the costs where the general public won’t pay much attention. And the government’s promises are seen as more secure, since they can tax us.

Beyond that, it’s not clear how such promises pensions should be financed. Actuaries can estimate how much will be needed and how much “should” be set aside—assuming life spans, rates of return, etc. But there is no simple answer to what percentage of anticipated future spending should be “in the bank” today or added each year. In 2006, Congress believed that these plans were dramatically underfunded and responded by drastically increasing the amount that the USPS had to pay into its funds—a significant part of its budget woes since then.

Second, the Post Office’s business model is obviously obsolete. Imagine that you were starting the USPS from scratch. You might offer home delivery for free—once maybe twice per week. (What mail do you receive at home that couldn’t wait a few days?) People could pay for more service if they want. Businesses would be offered a range of paid services. The Post Office wouldn’t receive any subsidies. And it would easily be profitable—with its monopoly in first-class mail and its monopoly power as one of a few companies in the package delivery industry.

Federal provision of mail services is actually encouraged in Article 1, Section 8 of the Constitution. But this doesn’t imply that the government must deliver mail—or do it so inefficiently. Without dramatic changes to its retirement benefits and its business model, it should not receive any more subsidies or a bailout.

UPDATES: 1.) A nice essay by Chris Edwards-- with a greater emphasis on privatization (fine with me) and noting that the USPS is exempt from federal, state, and local taxes. 2.) A good article on USPS real estate holdings / wealth-- which should be leveraged against financial problems and cash flow.