Megan McArdle is the business and economics [sic] editor of the Atlantic. She and I have crossed swords mice before and if she recalls those debates at all probably thinks I have no manners and don’t like her. As to the first, I do wish I were more gracious in person and in print, and as to the second, I don’t think we’ve ever met and presume she’s a perfectly nice person; she is certainly decent and just. She has more formal economics training than I have (an actual MBA) and beats me on credentials right off the bat.
Unfortunately, her current column, on the business prospects and options for digital media requires attention both because (i) the topic is really, really, important and (ii) it’s in a widely read publication, and because rather than shedding the least ray of light, it raises serious questions about her employer’s understanding of the words business and economics.
She records a bunch of anecdotes about how hard it is to make a living generating music, video, or text these days, and a few more about folks who have managed to scrape by in niches, or issuing recordings effectively free but charging for tickets at live events. She rails that we have become ethically unmoored (stealing content) along with a little potted psychology. But she seems to be completely innocent of the most basic economic ideas that could actually illuminate her topic for an educated reader, and to have read absolutely nothing written by real, um, economists or other experts in this field. There is a large literature in copyright and intellectual property (if you haven’t met Lessig, Fisher, Towse, Scotchmer, and Pam Samuelson you really have a nerve writing about this).
Her theme sentence is “Maybe it’s time to admit that we may never find a way to reconcile consumers who want free entertainment with creators who want to get paid.” Only a stone [deaf] libertarian, who believes market failures are imaginary, could write that sentence and not think, like instantly, “does this sentence make any sense at all if I plug policing, parks, or clean air to breathe into it in place of entertainment?”
OK, let’s do it again: digital content is a non-rival good. If I consume it, there’s no less for you, so its marginal cost on the consumption side is zero. It’s like a spot on the grass in the park, or a (literal) breath of fresh air. The efficient price of anything to consumers is marginal cost, period, end of story, line feed, -30-. This is what people who download music understand: it doesn’t feel like stealing because it doesn’t leave any less for anyone else.
But oh dear and oh gosh, how can we possibly provide something that’s costly to make free to its users – has a civilized society ever done anything so difficult? Um, yes, lots of stuff (cf parks, defense, the Smithsonian museums, streets to walk on, foundation grants, on and on). What I think makes McArdle crash around in the dark bumping into things here is that the mechanism by which we do this is (outrage alert, not safe for work at AEI, faint of heart stop here!) government, sometimes including its distinctively American non-profit arm. If you think government is ab initio a moral outrage and a tool of the devil, you simply should not be writing for pay about digital media (or a lot of other stuff). Market failures are technical properties of certain goods, not ideological choices or figments of an overheated lefty’s imagination. If you don’t understand that, you just have to stay in chapters 1 to 3 of the textbook and stick to guns and butter and stuff that can be put in a burglar’s sack and carried away; you will get a lot of egg on your face and a terrible headache if you get into environment, education, defense, health policy, crime, recordings, and all that ill-behaved stuff.
Machinery to give away music, video and text, but still pay artists and other creators properly (that is, according to the value they create so they get the right signals about what to do more of) is not trivial to design, especially because unlike a park, we don’t want the government making quality judgments about it, nor observing what individuals are consuming. But it’s not impossible, and Terry Fisher has laid out the basics in a scheme that could be made entirely workable (not perfect) with recent advances in hashcoding identification like 411-song or Shazaam.
The desperate desire of publishers, record companies, and their ilk to keep rents they have come to enjoy, and to make us treat non-rival goods like a ton of coal or an oil painting even though they are nothing like those things, is not only impoverishing all of us in the ways McArdle worries about, but in combination with the use controls technology provides, doing a lot more, and more serious damage. What libertarians could usefully get exercised about in this area is the assaults on individual freedom that outrage Netanel and Lessig, not a bunch of kids who intuitively understand marginal cost pricing downloading their music.