26.7.06

A DIFFERENT MANIFESTATION OF NOSTALGIA FOR THE FIFTIES. Fortune's Marc Gunther gripes, "the explosion of choice has left us poorer." In particular, the end of concentration has been bad for journalism and politics.
I think the explosion of choice has left us poorer in at least two arenas. The first is journalism. (Yes, as a Fortune writer, I've got a stake in the health of the mainstream media, which bloggers call the MSM.) The network evening newscasts, big-city newspapers and the national news magazines once had the money, access, skills, commitment and power to deliver lots of original reporting and put important issues on the national agenda. Today, they are all diminished.
That rates a dissenting thesis on Newmark's Door.
Why do I suspect that the real complaint here is that yes, Conservatives more or less used to have to read the New York Times and the Washington Post and watch ABC, CBS, and NBC, but now--damn it all--we don't?
Or, as a commenter to the post suggests, Fifties nostalgia isn't just for conservative white folks. The "excessive choice" hypothesis must have been breakfast conversation at the Newmark house, as Betsy's Page is similarly unimpressed with the "excess choice" argument.
I always laugh at these people who moan and groan about how bad it is that we have more choice and competition in any market. Just go into any grocery store and note how many new products there are that weren't there 10 years ago. They might not be choices that you like and I'm sure Coke and Pepsi would prefer that we only had two major beverage suppliers, but the rest of us benefit. And if all the choices are paralyzing you, just go back to buying the same old stuff you always bought.
Economics, unfortunately, has not yet come up with robust welfare analyses of choice. The standard competitive model achieves Pareto efficiency with multiple sellers of interchangeable products serving multiple consumers. The most precise formulation of this problem has infitesimal producers of identical products serving a continuum of consumers. Product variety introduces efficiency losses. Concentrated industries (Coke and Pepsi, Westinghouse and G.E., three major networks, six flag-carrier airlines) can lessen competition, collude at Dirty Helen's, or share monopolies. But that hasn't stopped economists from contemplating the socially optimal level of product differentiation (Kelvin Lancaster, 1975) or optimum product diversity (Avinash Dixit and Joseph Stiglitz, 1977) or possible social inefficiencies in free-entry markets with standard products (N. Gregory Mankiw and Michael Whinston, 1986.) [Superintendent's note: texts of the articles require a JSTOR subscription.] That a diversity of models of product variety exist hints at the difficulty of characterizing allocative efficiency away from the limiting case of infinitesimals on a continuum. Reality is a bit more lumpy.

But economics might have something to say about Mr Gunther's second complaint.
The second arena where we are worse off is politics. This is related to journalism, as the moderate and responsible (okay, bland) voices of the MSM get drowned out by partisan, opinionated cableheads and bloggers.

Politics in America has become polarized for many reasons, but a big one is the fact that people can now filter the news and opinion they get to avoid exposure to ideas with which they disagree. Anderson suggests that this could well be a temporary problem, and that if the major parties continue to move to the extremes and the quality of debate continues to deteriorate, the Internet could well enable a new party or parties, to arise.
Not necessarily. The existence of new political media cannot by itself cause political parties to move to the extremes. The median voter theorem suggests that a party wins by catering to the median voter and all voters holding views ranging from slightly more extreme to the most extreme left or right of that voter, leading to minimum differentiation. In consequence, there's not a dime's worth of difference between two major parties. Governor Wallace recognized what Harold Hotelling and Anthony Downs made rigorous.

But the median voter theorem is the consequence of an undercutting problem inherent in simple preference mappings such as "prefer the party whose position is closest to mine." Make the voter's preference mapping one in which the distaste for a party increases with the square of the difference between the voter's position and the parties, and minimum differentiation is invalid but polarization is an equilibrium (C. d'Aspremont et. al., 1979). Consider more subtle specifications of the preference mapping and something other than polarization is the equilibrium, but minimum differentiation is still lost (Nicholas Economides, 1986.)

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