This Law of Economics Shows Why Print Journalism Is Doomed

by John B. Judis | December 3, 2013

photo credit: Hulton Archive/Getty Images

Yesterday’s announcement that New York Magazine, which pioneered the new journalism, will now be coming out biweekly rather than weekly is the latest indication that high-quality print magazines and newspapers are slowly but surely passing from the scene. New York’s abandonment of weekly publication comes on the heels of Newsweek’s closing, Time being spun off from its corporate parent (as a prelude, perhaps, to its moving entirely to the web), U.S. News and World Report devolving into a consumer guide, and the closing or shifting onto the web of a score of major daily newspapers.

The principal causes are declines in advertising and in circulation. The shift of classifieds to the web particularly hurt New York and many local newspapers. But there is an underlying economic factor that jeopardized these print publications and may also threaten their efforts to reproduce on the web what they’ve done in print. It’s something called “Baumol’s Law” after New York University economist William J. Baumol. It’s as simple as it is devastating.

The law was first formulated by Baumol and William Bowen 50 years ago. They have applied it to health care, education, the performing arts, and most social services that cities provide, but it can also be applied with some modification to serious magazines and newspapers. In his most recent book, The Cost Disease, Baumol distinguishes between progressive and stagnant sectors of the economy. In the progressive sectors, such as manufacturing, increases in productivity defray the costs of increased wages, so that as wages rise, the costs of production do not. In the stagnant sectors, such as health care, productivity rises too slowly to defray the costs of rising wages, so that the costs of production keep going up. Here is how the distinction works.

On the progressive side, through the introduction of technology, the same number of auto workers become able to produce twice as many cars. Their wages also double, but the cost of production per car do not. In the stagnant sector, the amount of money a string quartet charges for its performance may double over time—wages generally reflect workers’ level of education and social status—but the amount of time it takes the musicians to produce a piece of music—their productivity—does not. So the costs of production keep going up. The same goes for doctors who see and treat the same number of patients today as they did ten years ago, or kindergarten teachers who may even teach fewer students today than they did before. If they make more money, the costs of production go up. In the stagnant sector, business owners or governments can, of course, introduce some labor-saving technology—for instance, computerized learning—that lowers cost, but productivity in these sectors still does not approach that of the progressive sectors. 

Two immediate effects of Baumol’s Law are worth considering. First, the rise in the costs of stagnant services is translated into prices that rise faster than average. Thus, the costs of healthcare and higher education go up even faster than the rate of inflation. That may not matter to workers whose income is rising proportionately and who have to pay less for products from the progressive sectors, but it hurts workers at the lower end of the income scale whose wages may not be rising or even falling. They get priced out of a college education and decent health care. 

Secondly, the rise in the costs of public services translates into more money that governments have to pay. This is no problem if tax revenues keep rising in line with rising incomes, but if a recession stalls incomes, or if conservative tax cuts drops revenues, then the result is a fiscal crisis. Conservatives generally blame greedy or lazy public workers for the crisis, but the blame lies instead with their ignorance of Baumol’s Law. Now, how does this all apply to magazines and newspapers?

Print newspapers and magazines combine progressive and stagnant economies. There have been huge advances—from monks copying out manuscripts to computerized printing and design—in the production of the physical objects. But the production of news and features—while benefiting, too, from computers as well as cell phones—belongs more properly to the stagnant sector. It still takes reporters months to develop an investigative piece. The best feature pieces also require months of work by editors and writers. That hasn’t changed dramatically over the last century. A reporter is more similar to a performing artist than to an autoworker.

If print newspapers and magazine had to rely only on their readers for income, they probably would have suffered the fate of other stagnant services. But they could rely on an additional source of revenue from advertisers who wanted to reach their readers. With the help of this income, they could pay rising wages to writers and editors and still make a healthy profit. Once advertising revenue began to decline, however, the rising costs of producing news and features began to eat away at profit margins. Many of these publications were still profitable, but at lower rates than other businesses. They began to lose stockholders as well as advertisers. Others were no longer profitable at all and could only be kept in business by wealthy benefactors or by wealthy companies that were willing to run them at a loss.

How to cope? First, many of the print newspapers that have survived have drastically cut their newsrooms and bureaus. Even a decade ago, one could count on at least five general interest newspapers—The New York Times, The Washington Post, The Los Angeles Times, The Chicago Tribune, and The Boston Globe—to cover not only their regions, but the world. Now there is one, The New York Times. Its only rival is the business paper, The Wall Street Journal. So costs of production go down at the expense of overall quality.

Secondly, newspapers and magazines have shifted from print to the web. There is an obvious advantage to web publishing. Its cost of production and circulation are far lower. But shifting to the web doesn’t necessarily solve the problem of declining ad revenues. And it puts a premium on shorter gossipy items rather than on the kind of extensive news stories or long features that print newspapers and magazines specialized in. Politico, the great success story of web news publications, is basically People Magazine for the political classes. In the long run, the rise of tablets might encourage the kind of stories that print magazines and newspapers have run, but tablet won’t necessarily solve the problem of cost. (I marvel at the fashionable new term “longform journalism.” It’s a term that has had to be invented to defend the usual products of magazines and newspapers against the priorities of the web.)

Smaller specialized publications with niche audiences and advertisers have survived the transition to the web. So have smaller political publications that have always depended on sympathetic benefactors to make up their losses. Bigger general interest magazines like New York or Time will, if they survive, become more dependent on the kind of consumer features that have allowed U.S. News to limp along. But the danger here is that the kind of features or reporting for which they were known will become accessories the way they are in airline or fashion magazines. I worry even more about the big newspapers. Who will be around to fund investigative stories into local corruption, or who will have the reporters ready to report on a revolution in Jakarta that threatens to spread through Asia? 

The obvious recourse in this case is the one that has allowed many regional theaters to survive or that has made healthcare accessible to the poor—public funding. Public funding allows a society to overcome Baumol’s Law by recycling income from the most profitable businesses and wealthiest Americans to less advantaged Americans and to unprofitable but socially valuable enterprises like schools and museums. But public funding of news enterprises and magazines will incur the wrath of anti-government agitators and will also raise questions about government control of political debate and discussion. If the government were to help fund a publication like The New York Times or Los Angeles Times or a magazine like New York or The New Yorker, would these publications also be free to print editorials or run features that harshly criticized the government?

There is clearly a problem here, one for which there is no obvious solution. It affects not only the income of writers like me, but also the advance of civilization, to which the arts of writing are integral, and the viability of democracy, which depends on citizens’ access to reliable information.

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