Your Money or Your Democracy

It's the most privileged industries that demand protection

“We’re more worthy of a bailout than the jokers on Wall Street,” Jason Whitlock wrote in The Kansas City Star just before the annus bailoutus of 2008 wound to a close.

The “we” in this case wasn’t Detroit’s Big 2.5 automakers, or the country’s 39 or so governors running budget deficits, or even plucky nonprofits that fund school crossing guards, though certainly all these and many more have made the same argument during the last several months of envious Wall Street bashing. No, Jason Whitlock is a sports columnist who covers collegiate athletics for a big-city newspaper. Like many members of the privileged minority that has workplace access to a large printing press, Whitlock used it this winter to fret that unless Washington or some other higher power intervenes quickly in professional journalism’s oldest medium, tyranny will be right around the corner. “You can’t have a democracy without us,” he warned. “If newspapers are dying, so is our system of government.”

Legacy-media journalists may be the most irritating special pleaders when times get rough (which, for them, has been at least every day since I got into the business), but they’re hardly alone. Our noble farmers, the breadbasket of America, need tens of billions annually to help provide “food security” against foreign hordes of dastardly sugar producers. Ever-shrinking steel plants provide the iron core of our threatened industrial base (which actually was growing like gangbusters until late 2008, but never mind) and so require tariffs from “dumping” countries such as comparatively impoverished Poland. Airlines are our first defense against murderous hijackers, so here’s $18.6 billion for your troubles and a hideously consumer-punishing regulation preventing foreign-owned airlines from offering domestic flights. And all these examples predate the financial crisis of 2008, though they foreshadowed how a feckless Republican president would respond.

And our allegedly feckful new president? Don’t get him started. “The auto industry is the backbone of American manufacturing,” Barack Obama said just days after winning the presidency. “I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America.” When the lame-duck Congress later narrowly voted down a bailout package for Detroit automakers, and lame-duck President Bush responded that he would bail them out anyway using a different pile of cash, Obama called the move a “necessary step,” thus sending an ominous signal about how the new president views the constitutional separation of powers after eight years of an executive branch run amok.

It’s not hard to make the case that any industry, sector, or even individual company requires either the urgent expenditure of taxpayer money or the less direct money waster of federal protection to help keep the country prosperous and safe. Construction? Only U.S.-owned companies should ever be allowed to win a contract to build an interstate highway, because of, you know, terrorism. The billionaire New York Yankees organization, which has spent more than $400 million this off-season alone on just three ballplayers? Here’s nearly $1 billion in city subsidies and tax-free bonds to build a fancy new stadium that will allow the Steinbrenner family to pocket even more revenue. Even Hollywood, with all its famous excess? California and Los Angeles both need to shell out various goodies to keep crucial “below-the-line” jobs (wellpaying, unionized positions in set building and the like) in Southern California, first because of the cheap Canadian dollar, then (after the looney started gaining on the greenback) because of race-to-the-bottom competition from subsidy-spewing Louisiana, Georgia, and New Mexico.

The preceding examples also predate the current frenzy of bailouts/shakedowns in Washington, but they provide a window into the mentality that justifies them. When I debated Mark Schmitt, executive editor of the pro-labor (but strangely nonunionized) American Prospect, about the bailout in December, I pointed out that car manufacturing in the U.S. was actually a pretty healthy industry outside of Detroit. He responded that, well, the state of Alabama (where Mercedes-Benz, Honda, and Hyundai make cars) had provided a bunch of subsidies and tax breaks too.

The problem with this logic will be obvious to playground supervisors, but it is apparently obscure to most Americans with easy access to a megaphone. As dead lemmings could tell you, “He did it too!” is no substitute for a cost-benefit analysis. Furthermore, as outgoing Securities and Exchange Commissioner Paul Atkins observes in our interview this issue (“‘I Think the SEC Was Distracted,’” page 30), private capital has a tendency to make better bets than central planners. “To compare a few people in government making decisions based on limited information to millions and millions of people making decisions every second with their own hard-earned money,” Atkins says, “there’s just no comparison there.” And though the Treasury Department and Federal Reserve seem to think otherwise, there is a limit to how many tax dollars can be thrown around to prop up every noncompetitive actor with a heart-tugging story.

And by “noncompetitive” I do mean “noncompetitive,” not “unfairly crippled by unforeseeable acts of God.” When September 11 gave the airline industry a quadruple whammy of customer fear, economic recession, rising fuel costs, and security hassles, it wasn’t the super-competitive (and until recently super-profitable) lowcost airlines Southwest and JetBlue that held their hands out for Washington billions. It was the poorly run, customer-unfriendly, money-bleeding legacy carriers. Just 10 days after California Gov. Arnold Schwarzenegger signed a state budget a full 45 percent bigger than the one he had inherited five years before, he warned Treasury Secretary Henry Paulson that the Golden State might go bankrupt if it did not receive an emergency loan of at least $7 billion. And it sure isn’t the online classified advertising giant Craigslist whining about its crucial role in our democracy. It’s the companies that for more than a century held something very close to a local monopoly on classifieds: big-city newspapers.

As bailout season bled into the holiday publishing schedule, with its requisite year-in-review thumb sucking, many legacy media romantics used the opportunity to propose radical fixes for what was until recently one of the most profitable sectors in the U.S. economy. (According to industry analyst John Morton, newspaper companies to this day enjoy average profit margins of between 10 percent and 20 percent, higher than Wal-Mart has ever dreamed.)

Writing in the December 21 San Francisco Chronicle—ironically, one of the papers that has embraced Web-based competition most effectively through the mere act of putting all its stories online, for free, at static URLs—former New York Times foreign correspondent and current Stanford journalism professor Joel Brinkley made the curious argument that giving customers what they want (free content) was the biggest threat to print publications. “The newspaper industry,” Brinkley suggested, “should ask the Justice Department for an antitrust exemption that would allow publishers to collaborate on a decision to begin charging for their Web site.”

A previous antitrust exemption aimed at “saving” newspapers—the Newspaper Preservation Act of 1970—shows how such approaches tend to have the opposite of the intended effect: A majority of the newspapers being “saved” ended up closing down, while the cities they served were able for decades to scare off any new entrants to the market.

More likely in this never-ending bailout season will be proposals like the state of Connecticut’s new plan to offer tax breaks, training money, negotiating help, and other incentives to print publishers, in part to stave off the shuttering of such papers as The Bristol Press. “The media,” the legislative sponsor of this newspaper bailout told Reuters in December, “is a vitally important part of America.” The question we should all ask going forward: What isn’t?

Matt Welch is editor in chief of reason.

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  • ||

    The more things change ...

  • HAL-9000||

    It will be interesting to see how the legacy media outfits get some cash or favors from the government. It is truly an incestuous relationship, with lots of wonks being either journalists, "academics" at a think tank, real academic at an elite college, or some grey-area lobbyist when their political patron isn't in a position to give them a G12+ government job. Sometimes they jump ship to another campaign, but elections are too cyclical for consistent employment.

    Since these people are essentially the same clique at school, they will probably find a way to divert some resource or favor to this group. Given that most of those career waypoints (think tanks, academic chairs in "public policies" and the fruits of lobbying) are basically publiclally financed directly or indirectly, print journalism seems a natural fit for Uncle Sugar love from that perspective, then the circle will be complete.

  • ||

    Little bit off topic, but one of the better editorials on the indecent "stimulus"/bailout haste was posted by Megan McArdle today:

    http://meganmcardle.theatlantic.com/archives/2009/02/the_madness_of_crowds.php

    I'm less definitely a skeptic than Tyler--I'm more concerned by the composition of the stimulus than by its size. But Tyler's concerns are not unreasonable. Many of the concerns raised about the stimulus are not unreasonable. And the response to requests for better evidence are too often being met by enraged proponents metaphorically jumping up and down and screaming "Concede! Concede! Concede!" This is not usually the activity of someone who has solid empirical evidence and an irrefutable model backing him up. If the evidence is so overwhelming, why not just lay it out? What, exactly, is the model we're using; what are the assumptions about things like marginal propensity to consume; and what is the empirical evidence backing up these estimates? What's the justification, other than "it's a good way to fool the American people into supporting spending I want", for packaging so much permanent spending as stimulus, rather than debating those programs on their own merits?

    We could use a lot more of these posts and articles, and a lot fewer "Here's another theoretical model under which the stimulus could be even more awesome than previously thought".

    Incidentally, I think it's perfectly okay to say "there are a lot of unknowns here, but I still think it's worth trying". I'm with you, as far as the temporary components go. But I don't understand why no one has said this when the empirics just don't seem strong enough to support the confidence.

    At least with the TARP, one could argue that action needed to be taken quickly--that the whole point was a fast firewall to block further damage. But most of the stimulus won't even be spent until after the 2009 fiscal year. What's the cost to taking a few weeks hashing things out? Is there something dangerous about making sure that the stimulus is going to be effective and well spent?

    The one thing I can say is that the tendency of the proponents to get angry at anyone who questions them, and/or pick on side points, does not make me more confident in their judgement. It doesn't seem to me like the irritation of confidence. It seems like the anger of someone with something to hide.

  • Rationalitate||

    He responded that, well, the state of Alabama (where Mercedes-Benz, Honda, and Hyundai make cars) had provided a bunch of subsidies and tax breaks too.

    I debunk this argument in my blog. Long story short, studies show that foreign automakers pretty much don't take tax breaks into account at all, choosing the South because of its flexible labor laws, relatively low wages, and transportation infrastructure. The one possible subsidy that they have over Detroit is subsidized power from the TVA, but somehow I don't see Barack "new New Deal" Obama doing away with that monstrosity. So while the southern states continue to dole out subsidies, they are ultimately unnecessary, as automakers would choose to locate there anyway.

  • ||

    Long story short, studies show that foreign automakers pretty much don't take tax breaks into account at all, choosing the South because of its flexible labor laws, relatively low wages, and transportation infrastructure.

    I agree on this point. A tangential demonstration of that reality is the complete lack of capital investment going to the rust-belt states from any industry. No one consciously plows money into a factory where the labor force by default is organized against you, and is a political funding machine outside of your control bar paying for it.

    If California had labor laws as outdated and lefty as say, Michigan when it came to unions, there would be no Silicon Valley today. Anywhere a new and exciting piece of economic activity has happened over the past forty years or so in the USA, it was in a right-to-work state, or at least one that was not in the pocket of Big Labor. The pattern is so damning to those fools...

  • YouDontGetMeImPartOfTheUnion||

    The pattern is so damning to those fools...

    joe will be along shortly to tell you how wrong you really are

  • ||

    For some reason, I have a picture in my head of lions feasting on the carcass of a wildebeast, with hyenas and vultures circling, awaiting their chance at the scraps.

  • ||

    So while the southern states continue to dole out subsidies, they are ultimately unnecessary, as automakers would choose to locate there anyway.

    The subsidies are basically the way the low-tax, low-union states compete with each other for a given plant. The high-tax, high union states aren't even in the running, but when an auto-maker is deciding between two otherwise equally attractive locations, then the competing subsidy packages probably make some difference.

  • Gilbert Martin||

    This is just the corporate version of the same thing that government does on the individual level.

    On the individual level, government does it's best to punish success and reward failure with "progressive" taxation and multitudes of "entitlement" programs.

    Ditto for corporations.

    It won't be Wal-Mart or Exxon-Moblie that get balied out. All they get is excoriated for their success.

  • Gilbert Martin||

    "The subsidies are basically the way the low-tax, low-union states compete with each other for a given plant. The high-tax, high union states aren't even in the running, but when an auto-maker is deciding between two otherwise equally attractive locations, then the competing subsidy packages probably make some difference."

    Yeah - it's not as if the northern high tax and heavily unionized states aren't also offering all sorts of subsidies as well. They just can't compete on the other factors.

  • ||

    "If newspapers are dying, so is our system of government."

    Wait. All we have to do is kill the fucking newspapers?! We might be alright afterall, since they are suicidal. We don't even have to get our hands dirty (or inky).

  • zoltan||

    A little off-topic, but watching CNN this morning the anchor and an "economic analyst" were talking about how consumer spending is down and how "aggressive saving" is bad for the economy. These people were saying saving money is bad for the economy. Meaning not eating as much junk food is bad for the obese person.

  • Geoff Nathan||

    I debunk this argument in my blog. Long story short, studies show that foreign automakers pretty much don't take tax breaks into account at all, choosing the South because of its flexible labor laws, relatively low wages, and transportation infrastructure.

    I'll agree with Rationalitate here, but in Michigan nobody's talking about 'tax breaks' etc. as the 'real reason'. The real reason is that the attacks on the Big 2.5 are covert attacks on unions and middle class. No kidding. You can read about it (if you can stomach it) here

  • Gilbert Martin||

    "The real reason is that the attacks on the Big 2.5 are covert attacks on unions and middle class. No kidding."

    How many points do I get for guessing that somewhere in there the claim is made that unions created the middle class?

  • ||

    "The real reason is that the attacks on the Big 2.5 are covert attacks on unions and middle class. No kidding. You can read about it (if you can stomach it) here"

    I don't really see anything covert in the "attacks" on the Big 2.5 or their incestuous union. Fact is, the economic problems of the domestic car biz seem mostly self-inflicted.

    Unions and myopic regulatory burdens on cars have helped cripple the 2.5. But management of those companies have spent a considerable amount of time and money insuring not many people want to buy anything the 2.5 makes unless its a truck. Its even more telling that every time a oil-price shock hits, the domestics have a financial collapse of sorts, and lose ground to foreign competitors. The fact that history has repeated itself three times now indicates to me you've got a cultural old dog that just cannot learn a new trick.

    The failure of the 2.5 is most definitely a bi-partisan effort regarding the ideological spectrums at work there in the rampant capital destruction going on.

  • Other Matt||

    No kidding. You can read about it (if you can stomach it) here

    Guess I couldn't stomach it, says "file moved."

  • Ben1||


    "You can't have a democracy without us," he warned. "If newspapers are dying, so is our system of government."



    [steams]

    When's the last time you saw a newspaper, of all things, point out that congress, the supreme court, have essentially destroyed the constitution? No, they just get right down on their knees and lick the "for your safety" lollipop.

    Our government was intended to safeguard our liberties, with our help if required. At any cost.

    Today's government tries to create a situation where the population will never face anything challenging, even to the ears or the eyes. Safety at any cost, and that most *especially* includes loss and/or erosion of liberties.

    Let the newspapers die. They're useless. When we needed them, they didn't address the issues.

    Completely, utterly useless. Although - frankly - a sportswriter is definitely somewhere below that. I guess I'd add "pointless" for sportswriters.

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