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September 18, 2009

Economist's View - 4 new articles

"Regulating for an Independent Media"

This research says that advertising has "seriously interfered with the quality, accuracy, and breadth of content and programming in the media." The proposed solution is to ensure that there is "vigorous competition in media markets," and to provide "public funding of informative media as a public good":

Regulating for an independent media: The problems of political and commercial bias, by Matthew Ellman and Fabrizio Germano, Vox EU: There is a crisis in media and journalism, and policymakers have to tackle both political and commercial influence in the media.
Political bias has been thoroughly analysed in the economics literature, but commercial bias has received markedly less attention than it deserves. For decades, commercial interests delayed public awareness of tobacco health risks. The literature on tobacco and public health contains the most systematic evidence. Health risks went essentially unreported in the mainstream press for decades (Baker 1994;Bagdikian 2004).
Reporting on climate change and its causes suffered similar delays. More recently, some critics are suggesting that business interests (especially of insurance and pharmaceutical companies) are impeding an informed and balanced media debate on healthcare reform in the US. Others claim that a truly independent media could have helped to avert or mitigate the current financial and housing crises.
In a recent article, we show how advertising can seriously interfere with the quality, accuracy, and breadth of content and programming in the media (Ellman and Germano 2009). Biased content is most likely when competition amongst media outlets is limited or when advertisers are large and can threaten to withdraw their advertising business from the media. The analysis extends to media dependence on any business or state actors that can substantially affect media company profits.
Analysing the delicate interaction between advertisers, financiers, media outlets, and media audiences within a two-sided markets framework generates new insights for policymakers. Our work points to the need for independent media and makes the case for promoting competition and public funding.
Mechanisms of influence
There are two basic mechanisms, beyond direct ownership, through which businesses can distort media reporting. First, the media earn a share of advertising surplus and can therefore benefit from making advertising more effective. Frequent reporting on cancer lowers returns to tobacco advertising. Reports linking carbon emissions to global warming may put off viewers from buying fuel-intensive cars. Dumbing down appears to enhance most types of television advertising.
How far these advertiser preferences influence media outcomes depends on the structure of the media and advertising markets. There is a subtle interaction between the two sides – advertisers and readers – of media markets: even if all advertisers want the same distortion, increased advertising can actually reduce distortions, because the growing advertising surplus leads newspapers to compete more intensely for each reader. This result provides strong support for regulation to maintain competition.
Second, large advertisers can influence even competing media outlets by threatening to withdraw their advertising; numerous small advertisers can exert influence if they share a common interest and can coordinate (e.g., when represented by an advertising agency). As a result, media competition alone is not always sufficient to prevent commercial media bias.
Trends and current media difficulties
The global financial and economic crises have taken away attention from another crisis – the crisis in media and journalism which pre-dates the others and is now deepening and accelerating. Important newspapers around the world have been shutting down, while others file for bankruptcy or are on the verge of doing so. US newspapers have been particularly hard hit – a recent Pew study shows that 15,000 US journalists lost their jobs in 2008. The European Federation of Journalists warns of similar concerns in Europe (Phillips, 2009). Given the vital importance of the media, this problem deserves urgent attention.
The simplest response to media collapse – allowing media companies to merge – is unwise. Some media economists disagree, but their view derives from focusing on ideological, especially demand-driven, bias, where market concentration is somewhat less of a concern. Our research underlines sharply the need to maintain vigorous competition. The hope that the internet by itself will save journalism is not convincing either. The internet presents significant threats as well as important opportunities. Websites permit individuals to reach potentially vast audiences, but there remain important fixed costs, such as in building and maintaining a reputation for quality and breadth. The combination of high fixed costs and minimal variable costs lead some experts to predict more severe market concentration in the mass audience segments than in traditional media.
So far, media providers on the web have had difficulty getting audiences to pay for news; both subscription and micro-payment models have mostly failed. Advertisers are concerned that internet users are less receptive to news-bundled online advertising, and newspapers have lost classified advertising to specialist websites like Craigslist. To add to the troubles, telephone and cable companies are now seeking to extract greater profits by charging content providers for audience access. Such departures from "net neutrality" are hotly contested. A strong form of net neutrality is necessary if the internet is to fulfil its greatest promise; that of a potentially immense diversity of sites that can be created and accessed by anyone from anywhere.
The future development of the internet remains an open question, but it is sobering to recall that the hopes for radical improvements from an earlier technological innovation – radio – went largely unrealised.
Policy recommendations
Our analysis points to two types of policy response. First, it reiterates the importance of regulating for vigorous competition in media markets. Second, it calls for public funding of informative media as a public good, with designs that aim for maximal editorial independence.
The independence challenge is not unlike that faced by central banks. It is more complex and will require ongoing attention to rules and mechanism design, but creating a wide range of media alternatives at least guarantees a diversity of types of bias.
Some options include:
  • creating national endowments for journalism and media to ensure long-term financial independence
  • allocating funds to content-providers as a function of audience and/or via a range of voting mechanisms
  • expansion of the public broadcasting model to provide space and visibility for these outside content-providers
  • subsidising investigative reporting (at the local, national, and international levels) as well as professional training for journalists
  • subsidising media infrastructure (see e.g., Obama and Gordon Brown's commitments to breach the digital divide)
  • removing advertising from public TV stations, as imminent in France and Spain. This reduces commercial bias of their content and pressures their competitors to reduce bias; it also shifts ad revenues to private media, complementing plans to subsidise media consumption and media entry.
Ackerman and Ayres (2009), Cohen (2009), and Lambert (2007) discuss these and related proposals in depth.
Doing nothing or reducing media competition (deregulating) in response to the current financial straits of our media is definitely the wrong answer.
Ackerman, B., and I. Ayres (2009), "A National Endowment for Journalism," The Guardian, 31/08/2009.
Anderson, S.P., and J. McLaren (2009), "Media mergers and Media Bias with Rational Consumers," mimeo, University of Virginia.
Bagdikian, B.H. (2004), The New Media Monopoly, Boston: Beacon Press.
Baker, C.E. (1994), Advertising and a Democratic Press, Princeton: Princeton University Press.
Boykoff, M. (2007), "Flogging a Dead Norm? Media Coverage of Anthropogenic Climate Change in United States and United Kingdom, 2003-2006," Area 39(4), 470-481.
Boykoff, M.T. (2008), "Lost in Translation? United States Television News Coverage of Anthropogenic Climate Change, 1995–2004," Climatic Change, 86(1-2), 1-11.
Boykoff, M.T., and J.M. Boykoff (2004), "Balance and Bias: Global Warming and the US Prestige Press," Global Environmental Change, 14(2), 125-136.
Cohen, J. (2009), "Reflections on Information Technology and Democracy," Boston Review, 3 April 2009.
Curran, J. (2002), Media and Power, London: Routledge.
Della Vigna, S., and E. Kaplan (2007), "The Fox News Effect: Media Bias and Voting," Quarterly Journal of Economics, 122(3), 1187-1234.
Dyck, A., and L. Zingales (2003), "The Bubble and the Media," in P. K. Cornelius and B. Kogut: Corporate Governance and Capital Flows in a Global Economy. New York: Oxford University Press, pp. 83-102.
Ellman, M., and F. Germano (2009), "What do the Papers Sell? A Model of Advertising and Media Bias," Economic Journal, 119, 680-704.
Gentzkow, M., and J.M. Shapiro (2008), "Competition and Truth in the Market for News," Journal of Economic Perspectives, 22(2), 133-154.
Hamilton, J.T. (2004), All the News that's Fit to Sell, Princeton: Princeton University Press.
Lambert, R. (2007), "The Future of the News in the Digital Era," Economic Affairs, June 2007.
Oreskes, N. (2004), "Beyond the Ivory Tower: The Scientific Consensus on Climate Change," Science, 306, 1686.
Phillips, L. (2009), "Emergency Call on EU to Save Journalism," EU Observer, 25/03/09.
Reuter, J., and E. Zitzewitz (2006), "Do Ads Influence Editors? Advertising and Bias in the Financial Media," Quarterly Journal of Economics, 121(1), 197-227.
Strömberg, D. (2004), "Radio's Impact on Public Spending," Quarterly Journal of Economics, 119(1), 189-221.
Wilbur, K.C. (2008), "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, 27(3), 356-378.

"We Can't Cut Spending"

Bruce Bartlett says Republicans are unrealistic about the ability to solve our budget problems by cutting spending. He is saying, implicitly, that tax increases cannot be avoided:

We Can't Cut Spending, by Bruce Bartlett, Commentary, Forbes: Every time I write about the need to raise revenues to pay for federal spending, some nitwit always demands to know why we don't just cut spending. That is not a viable option to deal with our fiscal problem.
The first point that people need to understand is that we live in a democracy. We don't have a dictator who can just wave his hand and abolish government programs. We have a president who may propose spending cuts, but before they take effect he must get agreement from both the House of Representatives and Senate, both of which may be controlled by a different party. ...
Direct presidential control over spending is extremely limited. ... Even if the president's party controls Congress by a wide margin--as is the case today--getting agreement even on popular measures, such as expanding health coverage, is very, very difficult, as we are seeing. ... Therefore, it is simply stupid and a waste of time to say that massive budget cuts are the answer to our problem without taking account of inevitable congressional resistance. ...
Devising a package of budget cuts large enough to prevent national bankruptcy must also deal with other realities that make them almost impossible to achieve. These include the changing nature of the federal budget and the changing composition of the population.
Many of those favoring budget cuts have ridiculous notions about how much of the budget can be cut without reducing services. A recent Gallup poll found that Americans generally believe that 50% of the budget is wasted. This suggests that they believe the federal budget could be cut in half without cutting anything important like Social Security benefits or national defense.
Just so people know the round numbers, total spending this year is about $3.6 trillion. At most, $200 billion of that represents stimulus spending, so even if there had been no stimulus bill and the economy had done as well as it has done, we would be looking at a $3.4 trillion budget.
Revenues are only about $2.1 trillion, so we would be looking at a substantial deficit even if the stimulus package was never enacted. Revenues would be even lower if Republicans had gotten their wish and the stimulus consisted entirely of tax cuts. How tax cuts would help people with no wages because they have no jobs or businesses with no profits to tax was never explained. But many right-wingers are convinced that tax cuts are the only appropriate governmental response no matter what the problem is.
Looking at last year's budget, only 38% was classified as discretionary; that is, under Congress's control... All the rest was mandatory: entitlements and interest on the debt. Within the discretionary category, 54% went to national defense. Just $37.5 billion, 3.3% of the discretionary budget, went for international affairs including foreign aid. Over the years I have encountered many conservatives who thought that abolishing foreign aid was just about the only thing needed to balance the budget. Obviously, that's nonsense.
Domestic discretionary spending amounted to $485 billion last year. With a deficit last year of $459 billion, we would have had to abolish virtually every single domestic program to have achieved budget balance. That means every penny spent on housing, education, agriculture, highway construction and maintenance, border patrols, air traffic control, the FBI, and every other thing one can think of outside of national defense, Social Security and Medicare.
This means that it is impossible to get control of spending without cutting entitlement programs. Many Republicans agree, but they never make any serious effort to do so. On the contrary, they defend entitlements when Democrats suggest cutting them. The Republican National Committee has run television ads opposing cuts in Medicare because Obama proposed using such cuts to fund health reform. Many demonstrators at right-wing tea parties were seen carrying signs demanding that the government keep its hands off Medicare.
Last year, we spent $456 billion on Medicare, and it is the fastest growing major government program. How likely is it that the people protesting Obama's Medicare cuts will stand with Republicans if they propose cutting that program even more to balance the budget? They will switch sides in an instant. The elderly will fight anyone who tries to cut their benefits even as they hypocritically demand fiscal responsibility and rant about the national debt. The elderly are the reason why we have a national debt. Unfortunately, the ranks of the elderly are rising. ... Furthermore, the elderly are a rising portion of the electorate. ...
When I raised these facts with a prominent Republican recently he recounted that Reagan had cut spending. But he didn't. Spending rose from 21.7% of the gross domestic product in 1980 to 23.5% in 1983 before declining to 21.2% in 1988. And that improvement came about largely because favorable demographics caused entitlement spending to temporarily decline from 11.9% of GDP in 1983 to 10.1% in 1988. (Last year it was 12.5% of GDP.) ...
In short, there is no evidence that it is politically possible to cut spending enough to make more than a trivial difference in our nation's fiscal problems. The votes aren't there and never will be. Those who continue to insist otherwise are living in a dream world and deserve no attention from serious people.

Cutting Medicare cost growth through eliminating administrative waste, unnecessary procedures, non-competitive prices, etc. does not reduce benefits, but that distinction is not made above (and has been lost in the public debate). Let's get the waste out of the system first and then evaluate whether benefits are sustainable. Also, is military spending really untouchable? Are there no potential savings at all in this area of the budget?

I'm curious. Keeping in mind that a cut in a growth rate is different from a cut in the level of services, do you think cuts in Medicare benefits are inevitable?

Paul Krugman: Baucus and the Threshold

Should "serious supporters of health care reform" vote for the Baucus plan?:

Baucus and the Threshold, by Paul Krugman, Commentary, NYTimes: So Senator Max Baucus, the chairman of the Senate Finance Committee, has released his "mark" on proposed legislation — which would normally be the basis for the bill that eventually emerges from his committee. And serious supporters of health care reform will soon face their long-dreaded moment of truth.
You see,... whatever health-care bill finally emerges will fall far short of reformers' hopes. Yet even a bad bill could be much better than nothing. ... How bad does a bill have to be to make it too bad to vote for?
Now, the moment of truth isn't here quite yet: There's enough wrong with the Baucus proposal as it stands to make it unworkable and unacceptable. But that said, Senator Baucus's mark is better than many of us expected. If it serves as a basis for negotiation, and the result ... is a plan that's stronger, not weaker, reformers are going to have to make some hard choices about the degree of disappointment they're willing to live with.
Of course, those who insist that we must have a single-payer system — Medicare for all — won't accept [this] plan... But ... European countries, including Switzerland and the Netherlands, have managed to achieve universal coverage with a mainly private insurance system. ...
So something along the general lines of the Baucus plan might be acceptable. But ... the bad news is that the plan, as it stands, is inadequate or badly conceived in three major ways.
First, it bungles the so-called "employer mandate." Most reform plans include a provision requiring that large employers either provide their workers with health coverage or pay into a fund that would help workers ... buy coverage on their own. Mr. Baucus, however, gets too clever, trying to tie each employer's fees to the subsidies its own employees end up getting.
That's a terrible idea. As the Center on Budget and Policy Priorities points out, it would make companies reluctant to hire workers from lower-income families — and it would also create a bureaucratic nightmare. This provision has to go and be replaced with a simple pay-or-play rule.
Second, the plan is too stingy when it comes to financial aid..., suggesting that for many people insurance would not, in fact, be affordable. Fixing this means spending more than Mr. Baucus proposes.
Third, the plan doesn't create real competition in the insurance market. The right way to create competition is to offer a public option... The Baucus plan instead proposes a fake alternative, nonprofit insurance cooperatives — and it places so many restrictions on these cooperatives that, according to the Congressional Budget Office, they "seem unlikely to establish a significant market presence in many areas of the country."
The insurance industry, of course, loves the Baucus plan. Need we say more?
So this plan has to change. What matters now is the direction in which it changes.
It would be disastrous if health care goes the way of the economic stimulus plan, earlier this year. As you may recall, that plan — which was clearly too weak even as originally proposed — was made even weaker to win the support of three Republican senators. If the same thing happens to health reform, progressives should and will walk away.
But maybe things will go the other way, and Mr. Baucus (and the White House) will, for once, actually listen to progressive concerns, making the bill stronger.
Even if the Baucus plan gets better, rather than worse, what emerges won't be legislation reformers can love. Will it nonetheless be legislation that passes the threshold of acceptability, legislation they can vote for? We'll see.

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