Freeman

IT JUST AIN'T SO

Ted Koppel Needs Antitrust Protection?

Safire's Economic Arguments Are Profoundly Ignorant

AUGUST 01, 2002 by JOSEPH T. SALERNO

William Safire prefers hard news to jokes on late-night television–and he is willing to roll out the coercive power of the federal antitrust police to impose his preferences on American TV viewers and stockholders of telecommunications firms.

Generally the grumblers and malcontents who object to the outcomes of the free market typically do so on one of two grounds. First, the outcome may violate their personal moral, aesthetic, intellectual, or health standards, presuming their own subjective system of values is appropriate for everyone everywhere. Thus, according to some, the free market fails abysmally because it supplies too much fatty “junk” food and not enough wholesome fare or because it produces too many mindless action films and stints on intellectually edifying theatrical productions. These folks never consider that most of their fellow citizens might actually prefer tasty, juicy Wendy’s hamburgers to bland tofu burgers or viewing The Terminator in a comfortable, air-conditioned multiplex to squirming through Miss Saigon in uncomfortable seats–and that the market is simply catering to these preferences.

The second factor underlying criticisms of the free market entails gross ignorance of the economic laws that govern the operation of market processes. For example, when a sharp rise in the price of oil occurs, as it did in 2001, it is alleged that oil companies have suddenly and arbitrarily decided to fatten their profit margins; or when it is observed that laborers in less-developed countries are paid extremely low wages by Western standards, it is attributed to unrestrained greed on the part of gigantic multinational corporations. Why oil companies that supposedly possess such pricing power should ever consent to the precipitous decline in oil prices that generally follows their sharp run-up, or why corporations restrain their rapacity in developed nations and do not push all wage rates down to the minimum wage-level for non-unionized employees, never seems to concern these natterers.

In his March 7 New York Times criticism of Disney’s tentative decision, since rescinded, to terminate ABC’s late-night news program, “Nightline,” hosted by Ted Koppel, and replace it with the entertainment program “Late Night with David Letterman,” Safire adopts both arguments. Thus he blithely assumes that his own viewing preferences are the expression of an absolute moral standard when he comments, “Letterman’s banter appeals to youthful acquisitors, whom advertisers lust after.” In contrast, according to Safire, “Koppel’s news interests older people, who do less buying and more dying.” In short Disney’s decision to “scrap the news, go with the jokes” represents an ethically unwarranted reallocation of resources because it panders to the frivolous desires of morally base groups–greedy advertisers and shallow, grasping yuppies–at the expense of supplying the serious demand for news by more mature and worthy viewers like himself.

Safire attempts to bolster his ethical argument by an appeal to economic considerations. Unfortunately, his economic case against Disney is based on a fallacious and profoundly static view of the free market. According to Safire, the market is an arena in which each firm comes into being and exists to pursue an inherently fixed “mission” come hell or high water. Thus, “The Disney combine’s mission . . . is to dispense profitable entertainment, and its misbegotten purchase of a news medium allows it to prostitute ABC News’s journalistic mission to conform to the parent company’s different goal.” Evidently, in Safire’s book whenever a merger takes place between two corporate entities that causes the “the swallowed-up company’s resulting loss of corporate identity and dilution of mission,” it is ipso facto grounds for antitrust action.

Radically Dynamic Process

Safire’s argument that the diversion of a formerly independent firm from its previous pattern of productive activities by a merger somehow represents a monopolistic misallocation of resources evinces a profound ignorance of basic economic principles. To begin with, the market economy is a radically dynamic process driven by rivalrous competition among entrepreneurs whose quest for profit can succeed only if they excel their competitors in serving the most urgent demands of consumers as cheaply as possible.

It is the consumers, therefore, who ultimately determine which corporations are successful by their choices of what to purchase and what to avoid purchasing. However, since consumer tastes and preferences are continually changing, along with technology and the availability of different kinds of resources, no firm, large or small, regardless of how successful it has been in the past, can afford to pursue what elitist critics–or even its owners-perceive as its intrinsic mission.

A firm that blindly pursued such a mission in arrogant defiance of consumer sovereignty would waste scarce resources and be stiffly, and eventually fatally, penalized by a sea of red ink. The Big Three American automakers in the 1970s, IBM in the 1980s, and Lucent Technologies in the 1990s all exemplify powerful firms that attempted to persist in the pursuit of self-ordained missions that conflicted with the reality of market conditions and were severely punished by financial losses, decline of market share, and the prospect of bankruptcy. Under the free market’s profit-and-loss system, then, the consumers, and the consumers only, are the final arbiters of what a particular firm’s “mission” is at any given moment, and their decision is indefeasible.

Safire’s claim that a firm by dint of its sheer size can gobble up another firm and impose a new and alien mission on it that reduces consumer welfare is therefore lamentably uninformed. In fact, many “megamergers” occur precisely because entrepreneurial investors in one or both of the formerly independent corporations have conceived a novel mission for the subsidiary corporation that they anticipate will involve a more value-productive use of its capital assets and employees. To the extent that their anticipations are realized, the merger will benefit not only stockholders of the corporation that has been absorbed but also consumers who are supplied with new and more valuable products.

In this vein, replacing Koppel with Letterman might have represented a competitive adaptation of ABC’s resources to changing market conditions, and it is ludicrous to characterize it as a monopolistic distortion of resource allocation that would have required antitrust action. To argue the contrary, as Safire does, is to implicitly assume a static world in which the population of news-hungry “older people” who stay up late never changes relative to the population of “young acquisitors” enticed to indulge their sybaritic lifestyle by the commercial interludes between Letterman’s jokes.

But even if the former group shrinks compared to the latter, the market still provides a niche for late-night hard-news junkies with programs on cable television stations, not to mention radio programs and Internet news sites. And it does so simply because such niche programming is profitable and not because these subsidiary organizations are morally pre-ordained to do so. Profitability is, by the way, also the reason why the New York Times does not replace Safire’s column with a comic strip–and not because, as Safire complaisantly suggests, the Times “understands that its reason for being is primarily to inform.”

-Joseph Salerno

Pace University

ASSOCIATED ISSUE

August 2002

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