Limiting the number of TV stations has unusual effects on media slant and muckraking.
Tyler Cowen argues that competition by itself is not a powerful force for media accuracy.
In the traditional conception of the demand for news, audiences read, watch, and listen to the news in order to get information. The quality of news is its accuracy.
But when there are many media outlets, competition results in a common slanting of news towards reader biases in the audience niche each network are serving. The market is very good are serving up what the customer wants.
Competition forces news outlets to cater to their customer’s niche preferences.
Realised profit is the criterion by which the market process selects survivors: those who realise positive profits survive; those who suffer losses disappear.
Positive profits accrue to those news outlets who are better than their competitors. These lesser rivals will exhaust their retained earnings and fail to attract further new investor support.
On topics where reader beliefs diverge on politically divisive issues, media outlets profit from segmenting the market and slanting reports to the biases of their niche audiences.
There is less bland truth-telling and more of the polemics that each market niche wants.
This means that left-wing and right-wing media outlets will hound the political enemies of their readers to cater to the preferences of their audience niche.
The clearest illustration of infotainment is the Lewinsky affair:
The left wing press presented information designed to excuse Clinton’s sins; and
The right wing press dug out details pointing to his culpability.
When there are only a few media outlets, the networks instead go for the median viewer/reader and offer more sedate and less scandal driven coverage.
More media competition increases the chances of the muckraking that brings down ministers and governments.
Both political parties used television licensing and the threat of cable TV to manipulate Murdoch, Packer and the other press barons. They were victims of Fred McChesney’s concept of rent extraction:
Rent extraction is the politician’s pastime of threatening harmful legislation to extract political support and contributions from well-heeled private institutions.
Payments to politicians are often made not for political favours, but to avoid political disfavour, that is, as part of a system of political extortion or rent extraction.
Rent extraction is money for nothing – money paid in exchange for politicians’ inaction.
The politician is paid, not for rent creation, but for withholding legislative and regulatory action that would destroy existing private rents.
McChesney establishes the conditions under which of rent creation or extraction will occur. The relative attractiveness of the two strategies depends on the elasticities of demand and supply.
If demand is relatively inelastic, rent creation will occur; and
If supply is relatively inelastic, rent extraction will occur.
The existence of an organization or a large established firm lowers transaction costs for the politicians negotiating and collecting donations and support, making rent expropriation threats easier.
It is hard to extort rents from those with little in the way of organisation. A cost of being an established lobbying organisation or a large firm with high fixed costs is a greater potential for rent extraction.
The print and electronic media are ripe for rent extraction because of their immobile assets and heavy regulation.
Investors in heavily regulated capital intensive industries such as the mass media, digital and print, do not bite the hand the feeds them.
Little wonder that the media barons were honoured supplicants to whomever is in power in Canberra. They are soon Labor’s business mates whenever Labor was in power.
Threatening to allow cable TV was the big stick in every Australian government’s hand until the 1990s to extract support or at least subservience from the media.
Rupert Murdoch has unashamedly backed political winners, only to dump them when he was convinced that they were washed up or that his newspapers might be left stranded on the losing side of politics.
Murdoch’s see-sawing political stances are entirely pragmatic. He has always been prepared to back winners just before they win, and to shift allegiances on non-ideological grounds.
But this is also an example of natural selection. Most predators fear a fight so standing up to them may tip the balance. The young of other prey animals sit still so as to not trigger the chase, kill instinct.
The web site formally known as People Enjoy Eating Tasty Animals (PEETA) is one of my favourite web sites.
When called PEETA in 1996 or so, this web site was the subject of a pioneering intellectual property court case by PETA.
The web site is a resource for those who enjoy eating meat, wearing fur and leather, hunting, and the fruits of scientific research. More on animal testing later with the help of Penn and Teller.
BTW, why are people not allowed to eat tasty animals, but other animals are allowed to eat each other if they can catch them. Should carnivores be required to become vegans? That would be a death sentence for them.
The National Party-led Government is keen on smart specialisation.
The Labour Party wants a Manufacturing Upgrade targeting R&D and innovation.
The case against picking winners is the answer to the question in the picture of the weirdoes below.
One of the people in the photo won a competition on the radio that offered free company photos. That is how Microsoft could afford the photo. That photo became one of the most iconic photos in American business history.
I first saw this photo 12-14 years ago at a presentation, so who first designed the caption is lost in time.
The rationality postulate is under attack from the other people are stupid fallacy: not you, not me, not present company, of course, but the nameless them over there; the perpetually baffled, every man jack of them.
These no-hopers are deemed competent to vote and DRIVE CARS, but they cannot get their head around a credit card. How the them over there find their way to work every morning must be a mystery to behavioural economists. One summary of behavioural labour economics is this:
The key empirical findings from field research in behavioural economics imply that individuals can make systematic errors or be put off by complexity, that they procrastinate, and that they hold non-standard preferences and non-standard beliefs
The tokens were for spending money at the hospital canteen and trips to town and other privileges. They were earned by keeping you and your area clean and helping out with chores.
The first token economies were for chronic, treatment-resistant psychotic inpatients.
In 1977, a major study, still considered a landmark, successfully showed the superiority of a token economy compared to the standard treatments. Despite this success, token economies disappeared from the 1980s on.
Experiments which would now be unethical showed that the occupational choices and labour supply of certified lunatics responded to incentives in the normal, predictable way.
For example, tokens were withdrawn for helping clean halls and common areas. The changes in occupational choice and reductions in labour supply was immediate and as predicted by standard economics.
Some patients would steal the tokens for other patients, so the token individually marked, and the thefts almost stopped. Crime must pay even for criminally insane inpatients.
Kagel reported that:
The results have not varied with any identifiable trait or characteristic of the subjects of the token economy – age, IQ, educational level, length of hospitalization, or type of diagnosis.
Behavioural economics is an excellent example of how engaging in John S. Mill’s truth that engaging with people who are partly or totally wrong sharpens your arguments, improves their presentation and deepens your analysis.
People have a better understanding of rationality such as through the work of Vernon Smith on ecological and constructivist rationality and of how people deal with human frailties and correct error through specialisation, exchange and learning.
George Stigler in his Existence of X-inefficiency paper opposed attributing behaviour to errors because error can explain everything so it explains nothing until we have a theory of error.
Kirzner in “X–Inefficiency, Error and the Scope for Entrepreneurship” wrote that error is pervasive in economic processes. Rational Misesian human actors are human enough to err.
What is inefficient about the world, said Kirzner, is at each instant, an opportunity for improvements, in one way or another and is yet simply not yet noticed. The lure of pure entrepreneurial profits harnesses the systematic elimination of errors and points the way to the market generated institutions necessary for steady social improvements to emerge. Brand names are an obvious example of an institution to overcome doubts about product quality. Middle-men and brokers specialise in performing much of the calculation burdens in their markets.
Many still compare real-world marketplaces to idealised regulation overseen by bureaucrats free of the very biases they are nudging us along to overcome. There are real constraints that limit the options available to fix what are seen as problems to be solved.
Vernon Smith when asked about behavioural economics, wondered how so cognitively flawed a creature made it out of the caves. Vernon Smith argued that the answer had a lot to do with the institutions that emerged to overcome human limitations:
Markets are about recognizing that information is dispersed in all social systems and that the problem of society is to find, devise, and discover institutions that incentivize and enable people to make the right decisions without anyone having to tell them what to do.
Smith and Hayek both posit that market institutions rather than individuals bear the primary cognitive burden in coordinating economic activity. To quote Vernon Smith:
What we learn from experiments is that any group of people can walk into a room, be incentivized with a well-defined private economic environment, have the rules of the oral double auction explained to them for the first time, and they can make a market that usually converges to a competitive equilibrium, and is 100 per cent efficient—they maximize the gains from exchange—within two or three repetitions of a trading period.
Yet knowledge is dispersed, with no participant informed of market supply and demand, or even understanding what that means.
This strikingly demonstrates what Adam Smith called ”a certain propensity in human nature . . . to truck, barter, and exchange one thing for another”
These double oral auctions converged to the competitive price even with as few as three or four sellers with neither the buyers nor sellers knowing anything of the values or costs of others in the market. Price-taking behaviour was not necessary to reach these competitive outcomes.
Behavioural economics is a clumsy way of discussing the pervasiveness of errors because insufficient attention is paid to decentralised, emergent market processes that correct them, often long ago.
Camped firmly over the middle-ground. Sorry to disappoint.
Leigh and Gans in "How Partisan is the Press? Multiple Measures of Media Slant" in The Economic Record 2012 employed several different approaches to find that the Australian media are quite centrist, with very few outlets being statistically distinguishable from the middle of Australian politics.
The minor exceptions were ABC Channel 2 and perhaps the Melbourne Age in its news slant in the 2004 election. Their media slants were small.
Australian newspapers tended to endorse the Liberal-National coalition in the federal elections from 1996 to 2007 although The Australian, right-wing rag that it is, backed the Labor Party in 2007! I agree that this was a serious lapse of judgement.
Another lapse is the editorial of April 6, 1995, where the Australian said: "The scientific consensus that global warming is occurring unnaturally, primarily as a result of industrial development and deforestation, is no longer seriously disputed in the world." Murdoch’s paper supports global action on climate change based on science.
The editorial endorsements series should have been longer in the analysis of Leigh and Gans because some newspapers back winners just before they become winners and oppose the re-election of tired and smelly governments that have being there too long no matter what their party.
The results of Leigh and Gans should come as no surprise. Newspapers that are out of tune with their readers lose sales and risk going broke. Plenty of newspapers are losing money these days because of the digital revolution in media. There is no scope left to indulge the political preferences of the owners at the expense of circulation. Margaret Simons got it right when she said:
The market is too small to support newspapers that don’t play to the centre ground … In a marketplace full of bland centrist publications and carefully mixed stables of commentators, small deviations can look extreme.
Who would own up to personal greed and selfishness? But who sends a tip in with their taxes?
George Stigler said that if you ask business owners if they maximise profits, they say no, no, no. They are just there to provide employment, a service for their customers, and then they put a small amount aside for the education of their children.
Stigler then said that if you asked them if they lowered their prices, would they increase their profits, the answer is invariably no.
Stigler then said that if you asked them if they raised their prices, would they increase their profits, the answer is invariably no.
Stigler then said that if you asked them if they have in the last 12-months substituted some other objective for profit, they throw you out of their office.
What people do is far more important than what they say and what they say motivated them.
Alchian pointed out the evolutionary struggle for survival in the face of market competition ensured that only the profit maximising firms survived:
Realised profits, not maximum profits, are the marks of success and viability in any market. It does not matter through what process of reasoning or motivation that business success is achieved.
Realised profit is the criterion by which the market process selects survivors.
Positive profits accrue to those who are better than their competitors, even if the participants are ignorant, intelligent, skilful, etc. These lesser rivals will exhaust their retained earnings and fail to attract further investor support.
As in a race, the prize goes to the relatively fastest ‘even if all the competitors loaf.’
The firms which quickly imitate more successful firms increase their chances of survival. The firms that fail to adapt, or do so slowly, risk a greater likelihood of failure.
The relatively fastest in this evolutionary process of learning, adaptation and imitation will, in fact, be the profit maximisers and market selection will lead to the survival only of these profit maximising firms.
These surviving firms may not know why they are successful, but they have survived and will keep surviving until overtaken by a better rival. All business needs to know is a practice is successful. The reason for its success is less important.
Great store is placed in industry economics on how firms in direct competition in the same market producing even rather standard products such as cement can have far greater measured productivity than others. Some firms produce half as much output from the same measured inputs as their market rivals and still survive in competition (Syverson 2011).
As is too common, the conclusion is there is something wrong with the firms in these markets rather than with the analysis that fails to understand these puzzlingly large gaps in measured productivity.
Few ask the obvious question, which is how do these firms survive if they are so inferior to the market leaders. The important fact is they do survive. They must be doing something right for their customers that the productivity statistics miss.
One method of organising production and supplying to the market will supplant another when it can supply at a lower price (Marshall 1920, Stigler 1958). Gary Becker (1962) argued that firms cannot survive for long in the market with inferior product and production methods regardless of what their motives are. They will not cover their costs.
The more efficient sized firms are the firm sizes that are currently expanding their market shares in the face of competition; the less efficient sized firms are those that are currently losing market share (Stigler 1958; Alchian 1950; Demsetz 1973, 1976). Business vitality and capacity for growth and innovation are only weakly related to cost conditions and often depends on many factors that are subtle and difficult to observe (Stigler 1958, 1987).
An example is in Adam Smith’s study of religion. One thing he noticed was that religious sects with strict codes of honesty and intense mutual monitoring by co-congregants for the slightest moral lapses proliferated in cities. Many successful businessmen belonged to these strict religions. These highly religious businessmen were successful in their businesses because they were looked upon by the public as reliable trading partners in a time of weak law enforcement. These businessmen did not know that this was profit maximising but the businessmen with religious backgrounds slowly gained market share over rival firms that had less efficient ways of communicating both their reliability and that their personal honesty was under daily scrutiny.
Ethnic minorities are advantaged in the same way in business. Because of their extensive social interactions with each other because of their language or religious practices and inter-marriage, the costs of bad business behaviours are much higher due to the risk of social ostracism by everyone you know. This greater trustworthiness gives them a cost advantage in the marketplace even though they may be unaware of its source.
A leading characteristic of media bias is that people agree on its existence, but disagree on its manifestation.
The print media is under dire threats to its existence at the moment. A newspaper that ignores what its readers want does so only at great peril.
Armen Alchian and George Stigler both argued that realised profits are the criterion by which the market process selects survivors: those who realise positive profits survive and will grow their market share; those who suffer losses will eventually disappear unless they improve themselves. The surviving media outlets will be those firms that anticipated or adapted fastest to the current and future demands of their readers and viewers.
Any media bias is likely to be slightly to the centre-left for the following reasons:
Young women tend to be one of the most marginal groups of news consumers (i.e., they are the most willing to switch to activities besides reading or watching the news).
Young women often make more of the consumption decisions for the household so advertisers will pay more to reach this group.
Since young women tend to be more centre-left, on average, a news outlet may want to slant its coverage that way. Media sell space to advertisers and tailor the way they cover politics to gain more readers and viewers.
Using endorsements of state-level initiatives and referendums, newspapers are located almost exactly with the median voter – the average voter – in their home states.
Newspapers are moderate relative to interest groups and political parties.
Although newspapers exhibit some variation in their ideological position, they tend to be much closer to the median voter than most interest groups.
Newspapers appear to be more liberal than voters on social and cultural issues such as gay marriage, but tend to be more conservative on economic issues such as the minimum wage.
On average, the news and editorial sections have almost identical partisan positions.
Positive profits accrue to media outlets that are better at serving their readers and viewers than their competitors. Their lesser rivals will lose money, exhaust their retained earnings and fail to attract further investor support.
There is no best practice on measuring media bias. The literature is too young. Milton Friedman put up robustness as his test. Hit the hypothesis with as many tests as possible with many different data sets.
Most studies using many different data sets and methodologies suggest that the media reflects the politics of the market they serve. Newspapers and TV stations are big businesses, and they increased readership, ratings and revenue by presenting factual and informative news with a dose of ‘infotainment’.
Competition forces news media outlets, just like any other firm, to cater to their customers’ preferences. Why did anyone think the media industry was any different from any other?
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
Utopia, you are standing in it! 
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