I Do Not Think Those Words Mean What You Think They Mean

Josh Wright —  4 December 2009

Here’s Henry Waxman on the federal government saving the newspapers from failing:

“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).

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

Market failure.”  Here is the definition in my Carlton & Perloff textbook: “distortions or inefficient production due to improper pricing.”  So, what are the distortions here?  Or inefficient production?   Professor Bainbridge picks up on Waxman’s conflation of “market failure” with “failing in the market”:

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.

I’m also a little bit disappointed to see the Federal Trade Commission join in the fray here in talking about “helping” to support news organizations and getting into the business of picking winners rather than enforcing competition law to ensure that the competitive process is fair and encourages encourages the marketplace to be “the decider” rather than Congress or federal agencies.  Congress is one thing.  And nothing new.  But one would hope that the federal agencies responsible for thinking rigorously about competition issues would refrain from discussing seriously the idea of regulatory subsidies for specific competitors that are losing the battle for consumer dollars in the marketplace to new technologies and innovation.

5 responses to I Do Not Think Those Words Mean What You Think They Mean


    Yes, I understand the concept. I’m a blogger afterall 🙂

    But that is clearly not what Waxman has in mind (I.e. the threat to the business model that has sustained them, the danger of an uninformed public, etc.).


    Unless you think that efficency has skyrocketed, the fact that newspapers have gone out of business, the widespread elimination of foreign bureaus (and even domestic bureaus outside of a newspaper’s hometown), and staff layoffs must have some effect on the output of news. All these laid off journalists are not just reporting and publishing news on blogs instead of getting paid by a traditional newspaper.

    There’s no doubt a lot of “news” out there, but much of it is just republished from other sources(or commentary on news others have gathered, which is a perfectly fine thing).

    None of this means that the right solution is government subsidization, let alone subsidization of newsprint delivery. But I think there are externalities — societal benefits exceed willingness to pay.


    This has testable implications. Do you think that the output of “news” has increased or decreased over, say, the last decade? My hunch is that competition has increased, price has fallen, and output has gone up. And of course, the Waxman and the FTC are not talking about subsidizing the dissemination of a particular type of information (says, investigation journalist) but the dissemination of that particular form of information in a particular form, i.e. printed on paper and sold at coffee shops or delivered to your door.


    I think there are externalities. The societal benefit of, e.g., investigative journalism exceeds aggregate willingness to pay for the costs of newsgathering and publication. My individual benefit from discovering the next Watergate (or even the next government mismanagement of a multi-billion dollar defense contract) is small, so as the newspapers’ advertising revenue declines I’m not willing to pay $2 for a newspaper instead of $0.50, particularly with news widely reproduced (lawfully or not) online. This leads to the production of less news than is socially optimal.

    Donald Alexander 5 December 2009 at 6:48 am

    What is Waxman talking about? If anything, the Internet has increased the flow and diversity of information to more people than ever before.