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Tuesday, May 17, 2005

Is Newsweek Our Agent? (the Agency Problem)

Wretchard at the Belmont Club discusses a subject that I have been contemplating for years. What is the remedy for intellectual pollution?

The 20th Century has seen the acceptance of the theory that physical pollution by industries and individuals is not acceptable. A business cannot simply dump its waste products onto the public and get away with it. There are laws and regulations that prohibit this. And while businesses fought and argued about he legality and costs involved in environmental laws, they have been accepted both by industry and the general public.

The Newsweek story, now retracted, about the desecration of a Koran is an example of intellectual waste. Who will bear the burden of this type of pollution?

Wretchard writes:

The Agency Problem arises when a conflict of interest arises between a principal and his agent. The press often represents itself as an 'agent' of the larger society, a seeker after the truth on behalf of the public. It is perfectly legitimate to ask whether a conflict of interest can arise between the media and the public. A moment's reflection is enough to establish it is not always the case that the press -- whether a newspaper or an individual blogger -- has interests which completely coincide with the general public because any media entity is a proper subset of the public: being a part it cannot be the whole. In the case of the Newsweek decision to print a poorly sourced story on the descreation of a Koran at Guantanamo Naval Base it is pertinent to ask how the costs and benefits of the magazine's action would be distributed; whether the interests of the agent substantially coincide with the principal -- the public -- in whose name the press often claims to act. But any boost in circulation would accrue benefits to the employees and stockholders of Newsweek and not to general members of the public unless they had shares. It is equally clear that any externalities arising from the Koran story would not normally be borne by Newsweek. Though people might die, places destroyed or riots occur they would not likely happen to people or places associated with Newsweek.

The fallacy in the argument, of course, is the premise that Newsweek acts as an agent for the general public. It isn't, and is free from any responsibility as a public agent in the uproar it has caused by its retracted story. Newsweek is not an agent, but the purveyor of a product for which there happens to be a market protected by the First Amendment. This should be clear, and there is nothing wrong with it. But the question arises: to what extent is a commercial organization free to dump the external costs of their business on others. For historical and political reasons, society has been reluctant to make the purveyors of this sort of information accountable for the full cost of their speech, reasoning it would be better for society -- the Commons -- to bear the externality than to risk restricting expression. As in any case where an economic actor does not bear the entire cost of its actions, there is a tendency to overexploit the capacity of the Commons; to privately appropriate the gains and leave the effluent on the village green to be swept up by everyone else.

Read the whole thing.

I am not sure just how we can make the creators of intellectual pollution pay for their own actions without infringing on our own freedoms. But my concerns may be an echo of those 19th Century industrialists who never imagined that they would be required to, one day, clean up their own filth.

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