Archive for September, 2011
Usual disclaimer: I’m not speaking for my employer.
Matt wrote a post keying off of Dylan Ratigan’s proposal to outlaw money in politics. He doesn’t see the point of it:
Like let’s say you’re Elizabeth Warren and you want to run a campaign against Scott Brown. How do you pay your campaign manager? How do you let people know that you’re running? To me, this doesn’t solve the problem that when Washington regulates the financial system, it’s dependent for expertise on people with ties to the financial industry. It doesn’t solve the problem of the revolving door. It doesn’t solve the problem that politicians need the “legislative subsidy” of lobbyists to do policy analysis. Nor does it solve the problem of monied interests exercising disproportionate influence over think tanks, advocacy groups, or even (through speaking fees and the like) journalists and pundits. Presumably the people who make the F-22 will still be allowed to advertise about how high levels of defense spending are awesome, just as ExxonMobile will still be allowed to advertise about how fossil fuel extraction is the road to prosperity. You’ll have created some big new logistical hassles for political campaigns without, I think, addressing any concrete issues.
I don’t watch Ratigan’s show, so I don’t know for sure, but I would be surprised if he was pitching this proposal as a way to end lobbying as a legislative subsidy, much less as a means to address the revolving door problem. And of course there won’t ever be a silver bullet that makes money completely irrelevant to the political process.
But, contra Matt, I think it’s easy enough to see Ratigan’s motivation. In the absence of contributions, campaigns would have to deprofessionalize and rely to an even greater degree on motivated volunteers. An optimist would say that this might produce less homogenous candidates and campaigns, but you could easily make the case that it would just entrench the electoral power of crazy old people.
On the legislative subsidy front, well-funded lobbying campaigns would no doubt still yield results. But it’s not crazy to think the situation would be improved if corporate lobbyists were competing for legislators’ attention with public interest NGOs on a level playing field. Matt says that “it’s too difficult for elected officials to get expert technical opinion on issues without relying on interested parties,” but outside of the government itself I’d say that avoiding interested parties when seeking advice is pretty much a non-starter.
I think the most compelling argument for defunding elections is that it might select for a different class of politician. I’ve read estimates from retired congressmen that put the share of their time spent fundraising in the 30% range. That’s insane. To endure the rigors of constantly begging wealthy supporters for large sums of money — to say nothing of excelling at it — must require a very strange set of skills. I suspect that those skills don’t relate much to aptitude for governing. And I suspect that that time investment comes at the expense of other duties. I’m not naive enough to think we’d have a wave election that stuffed Capitol Hill with policy experts. But perhaps we’d get a few, along with some better orators, coalition-builders, horse-traders and glad-handers.
To be clear, it’s obvious that Ratigan’s proposal is mostly about making good TV (a nobler motivation than most proposals to amend the Constitution). And I don’t want to pretend that it wouldn’t carry substantial problems. Offhand, it seems very likely that, short of explicit restrictions on political speech, this policy would just formalize the de facto requirement that candidates be personally wealthy; celebrity candidates would be massively empowered by their name recognition; the press’s political coverage pathologies would become all the more problematic as their role in conveying campaign messages increased in importance; turnout might drop, leaving an electorate that behaves more like primary voters, selecting for politicians with more extreme views; and the whole thing would be an enforcement nightmare.
Still. It’s hard to escape the sense that federal politicians have become so professionalized — so good at the game they play, so aware that the incentives they face have little to do with the quality of governance they deliver — that we’re all beginning to suffer for it. I’m not sure there’s a solution to this problem short of a societal collapse and reboot, but it’s easy to see why an optimist reach for a different answer.
Matt pointed me to this post, by Matt Rognlie, as an argument against my previous post‘s a la carte pricing dreams. I’ve seen this pro-bundling argument before, but I’m not swayed by it. Still, since I now have several people who are smarter than me about economics telling me I’m wrong, perhaps it’s best to spell out my objections here rather than via sputtering, half-formed tweets.
Unbundling might be desirable even if it reduces efficiency in dollars per entertainment program available. It might be desirable even if it raises the price per entertainment program consumed! As you might’ve guessed, what follows will have more than a whiff of paternalism about it. I know that some people feel that so long as a dollar isn’t spent on a drug raid, a war, or some other destructive purpose, the appropriateness of its use shouldn’t be questioned. I’m at least a little bit sympathetic to that view. Still, I think the TV industry has understandably structured itself in a way that maximizes television consumption (in both dollars and time–but mostly dollars), reaching a level above what most consumers would prefer. I think the industry has been able to do so because of various limits on competition. Consequently I’ll be glad to see its size reduced, even if by some measures the result is a worse deal.
It’s obvious that we have too much television. This should be apparent even if you consider me a snob for thinking society would be improved if Repo Games were disappeared forever (and, ideally, its creators imprisoned). The still-recent advent of high-quality time-shifting/on-demand technology removes 24-hour programming as a requirement for television outlets; and allows content, free of time constraints, to be efficiently recycled to viewers who previously couldn’t watch it. This should have allowed us to dramatically reduce the amount of television that’s being produced and sold while keeping viewers’ satisfaction constant. But of course that didn’t happen.
Now to Rognlie’s argument. While in broad terms the windfall of utility from infinite supply born of zero marginal cost seems like it should dwarf any fixed costs, in practice — at the level of an individual subscriber — it seems as though the utility we derive from additional television consumption and variety falls off quickly. Netflix streaming’s success — despite wide acknowledgement that its selection is poor — speaks to an appetite for satisficing behavior in this area, doesn’t it? Most people would agree that there is a lot of garbage on TV and that they are paying too much for it. I appreciate that Rognlie’s argument anticipates this, but in practice it seems doubtful that everyone will have perfectly idiosyncratic views about what that garbage is in the way that his parks example supposes. It seems like there are good reasons for thinking that we are investing more resources in television production than a real market dynamic would afford.
I don’t like Rognlie’s use of parks. I think it’s an appeal to emotion, and that it ignores parks’ function as a means of progressively redistributing resources and as a source of positive externalities. The metaphor that’s more commonly applied to the cable industry — correctly, I think — is an all-you-can-eat buffet.
The buffet business model allows for a lot of variety in dishes, but at a low level of quality. Diners will be stuck cross-subsidizing one another in fairly arbitrary ways, and may face incentives to overconsume as they draw near the grim end of their personal utility functions. Decisions about how to allocate resources within the restaurant will be made in a way that’s only vaguely connected to market signals; to the extent that those decisions reflect diners’ preferences at all, they will probably be plagued by selection effects.
Buffets suck. They’re a bad deal for almost everyone.
Right now the home TV industry gives consumers few non-buffet choices. I think that’s likely to change, that it’ll mean fewer total resources will be directed toward the industry, that consumer satisfaction with the programming they buy will increase, and that that will be a good thing.
 There’s no reason that consumer satisfaction would have to remain constant, of course. But in a real market you’d expect consumers to be able to take the gains from this type of innovation either as consumption or by saving money while keeping consumption constant, right? The television vendors’ market power means that this latter scenario is not an option; gains have to be taken as consumption. The falling share of per capita hours spent on TV suggests to me that consumers would prefer to allocate this windfall differently.
 And in practice it doesn’t seem as though the proliferation of channels really has afforded the kind of utility-enhancing long-tail variety that a la carte opponents suppose. Not to get all Current TV on you (assuming Current TV still exists), but economic and cultural realities have led to each new channel just carving out tiny new “lifestyle” niches in the same suburban, straight, white, consumerist orientation. The model can’t even support a music video channel, for pete’s sake, or programming for huge market segments (women! black people! hispanics!) that isn’t an insulting, low-budget joke.
 Food has a real marginal cost, of course, but the price of cranking out one more steam tray of crappy lo mein is minimal compared to the operation’s fixed costs (which, for this argument, include the costs of adding each new menu item). And in most cases adding another menu item won’t push a diner to consume more in absolute terms; it’ll just improve the diner’s lot by providing them with more variety, shifting how they allocate their choices prior to getting full.
It’s not often that I disagree with Tim Lee, so let me relish this. I think Netflix is being smart! Or at least not-that-unwise. Tim casts his argument in terms of movie availability, and from that perspective he’s probably right: the DVD-only Qwikster (or however you spell it) might have a bit less leverage in amassing movie libraries than the currently-unified Netflix (then again, it might not; as far as I know Netflix has only committed to splitting its brand and customer base; the two entities might still sit together at the bargaining table).
But I think this fails to recognize the ambition of Netflix’s plans. They’re not competing with Blockbuster, or Redbox, or jeez, who is even in the movie rental business anymore? They’re now competing with DirecTV and Comcast, first by agreeing to sell consumers video content by the ounce instead of the unwieldy, one-size-fits-all sacks of the stuff that the cable companies insist upon. Second, I imagine they’ll begin riding the inevitable logic of a la carte pricing to its conclusion, making more deals with both marquee and low-cost cable channels, allowing customers to add that pre-time-shifted content to their lineups for a couple of bucks a month. Netflix is also pursuing original programming, establishing itself not only as a cheaper, higher-tech and more convenient disintermediating marketplace for television, but as an exclusive provider of certain high-esteem shows (imagine if they do manage to land an exclusive on one Mad Men-style success…).
To Netflix customers who mostly think of the service as a way to get movies, I can understand why today’s move seems dumb. But as someone who mostly thinks of the service as a way to watch television shows, it makes perfect sense. And of course I’m delighted to see a business/tech innovation achieve what the cable/satellite market and federal regulation could not: a la carte programming and the consignment of cable network operators to a bulk-bandwidth-vending fate (I’ve been saying for a while that the natural monopoly implied by the physical realities of cable systems means that they ought to wind up as utilities, every bit as boring and regulated as the water company; I think the net neutrality fight is best understood as the death throes of an industry that, understandably, doesn’t want to be in a commodity business).
I think that this shift means that your Netflix bill will inevitably get more complicated as new option plans are made available. That by itself is a pretty good reason for isolating the DVD-by-mail side of things; those customers want different things, and the situation was already getting confusing. And I think the move really will free the company to concentrate more on the streaming product (I expect that they’ll soon be pushing for more uniformity in the interfaces to the service that various integrated media solutions provide, for instance). The poisonous rage of the network operators that carry those streaming products’ bits remains a real threat, but if Comcast & co. can be successfully coaxed into a gentle senescence, I think the future of a net-only Netflix is bright.
INCIDENTALLY: I think all of this can be understood as a huge indictment of Apple. Not that iTunes hasn’t been a big success, but they’re retreating from the rental/streaming market. They never quite managed to move past thinking of the service as a content-supplier/”we have legal content!” validator for Apple hardware products, nor to meaningfully relax their quality standards (well, except for the iTunes software, of course) in order to compete for the market segment Netflix pursued. It’s ludicrous that new receivers don’t come with big “iTunes-ready!” stickers on it; that stereo equipment manufacturers have to play catch-up, begging Apple to let them provide iPod support. It’s flat-out insane that Airplay is a closed standard, its proprietary nature used to help prop up a consumer router business. A fucking consumer router business! If ever there was a market you wouldn’t want to be in… At any rate, it’s a reminder that even Apple misses occasional opportunities. And note that I say all this as a mostly-satisfied Apple TV owner. They settled for a lucrative niche when entertainment industry world domination was within their grasp.