Kudos to Ari Armstrong at FreeColorado.com for motivating this post. Ari makes some good counter arguments as to why the American Booksellers Association’s (ABA) October 22nd letter to the DOJ is, well, without merit. The letter is actually a request for an investigation, and it incorporates several flawed presumptions that Armstrong deals with nicely. While reading Ari’s piece, and then reviewing the letter itself, the dual thoughts of social treason and book subsidies popped into my head… Perhaps it is due to my growing up in west-central Wisconsin in the heart of America’s dairy land, but I think we may have a new dependent class of looters emerging in America: the family bookstore. Can it be long before we hear not a request for an investigation, but rather a demand for a literary works price support system designed to benefit not authors, but small-time booksellers?
We have a huge precedent for such whining by trade groups in America (sadly). A model to look towards-in horror-is the Dairy Product Price Support Program. This federal program, in operation since 1949, has “supported” dairy prices through a standing offer to purchase dairy products (butter, cheese, and nonfat dry milk) at minimum prices set by law within the confines of the Farm Bill. If you are a cheese producer and cannot make money by selling a 40-lb block of cheese for $20, no worries. Just call up the CCC (Commodity Credit Corporation), and they will buy it for $45.20 (current guaranteed price is $1.13/lb). Or, ee-ghads, imagine if there is an aggressive, well capitalized, innovative and efficient producer of cheese selling his cheese for substantially less than $45.20, and thus quickly captures market share to your detriment. What are you to do? Well, in a free market you would need to become more efficient or more specialized. Either distributing your cheese in more creative ways-as the new competitor has done-or come up with new products that consumers actually desire, and are willing to pay more for, that perhaps do not lend themselves to mass production efficiencies. One could also compete by selling through new channels, or perhaps offer your product in combination with other products; products where our margins are better. It would be up to you to meet the market, and this sort of a response is how prices become and remain competitive, ancillary industries are born and develop, while valuable resources are used most efficiently; the consumer, not the government, determines success or failure of both producers and distributors based upon real demand by actual consumers.
On the other hand, the results of anti-trust in general-and its spawn, subsidies-has been to prop up inefficient producers and distributors, overcharge consumers, misdirect/misuse capital, and undermine the free market system. The point here is that market intervention by government forces overproduction in dairy products, including cheese, due to an artificial pricing mechanism. Consequently, you find cheese and cheese by-products in other foods that don’t necessarily need it, and all too often it is shoved down the throats of children in government schools, etc., to sop up the oversupply that ought not be there. Moreover, due to this artificial demand caused by price supports, you find infrastructure and mechanical equipment built and manufactured that isn’t really needed; built and manufactured only to support this artificial demand. Those capital dollars could be, ought to be, used elsewhere (somewhat related to Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Not Seen) by Frederick Bastiat).
The complaint by the American Booksellers Association, although not explicit, is tacitly presuming that there is either a monopoly already, or one developing quickly, in the selling of books. This is about as absurd as the arguments made by independent dairy farmers who cannot compete against larger, more efficient, corporate style farms. Or, for that matter, the quintessential case of Standard Oil. It is self evident that there can be no monopoly in a free market of un-coerced buyers and sellers. To presume such is to maintain that a contradiction exists. Just imagine a local diner complaining to the DOJ that it is unfair that McDonald’s can sell McDoubles for a buck or two, and then appealing to the government to create a market of last resort for hamburgers at $2.75. Or, restrict McDonald’s from selling hamburgers for less than $2.75. In all these cases, including Standard Oil, large-scale farms, McDonald’s, and the Amazon’s of the book-selling world, consumer dollars drive the movement towards lower prices, and they do so particularly when the minimum efficient scale for efficient delivery is large. The key flaw of all anti-trust notions is the economic ignorance of efficient scale, coupled with the broken window fallacy.
As a result of being faced not with a coercive monopoly (establish-able only by force of government), but rather the realities of economics, free market capitalism, and their own inherent inefficiencies, emotional pleas were made that the family farm would go out of existence unless the government stepped in to protect them from the “predatory pricing” of large scale farm operations. With the ABA it is precisely this language as well, using the same flawed thinking. The real story is that it is just that action, the government intervening to guarantee a floor price for a class of goods, or a commodity (or restrict the production of a large producer or distributor – forcing him to be less efficient), that creates incredible malinvestment in the economic system. Consequently, a huge government bureaucracy and utter confusion in the public’s mindset has evolved since the time of both Woodrow Wilson’s and F.D. Roosevelt’s policies were pursued, policies that suck money out of taxpayers pockets under the bizarre notion of making a free market better, or correcting perceived flaws (“imperfections”) in a marketplace of un-coerced buyers and sellers. The results are, but ought not be, surprising and include such inane ideas as subsidies for corn (a food) to be used as ethanol (a fuel). In the case of book sellers, the ABA is in the same position as whining independent dairymen – they are making a plea to government for protection not from Amazon.com, but rather economics 101.
When the ABA sits down with the DOJ, my suspicion is that they will be making demands instead of rational arguments. Armstrong pointed out the fact that reason and rationality rest with Amazon, Barnes and Noble, and other large-scale marketers of books. The only argument left is not an argument, but rather a desperate plea. And the plea will be for their survival against the free market of un-coerced buyers and sellers by having government intervene to save their profit margins; in effect, subsidizing the growing fact that they are simply not as economically efficient as the large distributors.
The market is sending a signal, and the signal is that consumers of media including books, magazines and newspapers prefer (demand) delivery of such media in more efficient and less costly ways. Please note, neither consumers or authors are crying in their milk over the lower prices for books. They are not marching on Washington demanding action. It is the independent booksellers who seem be implying that the mere selling of a book at a particular price reflects directly upon the value to society of the ideas in the book – such is not a sustainable argument. As an author, the value of my ideas is not what one single book sells for at one particular dealer, rather if I can sell 10,000 books through Amazon and only 1000 through a local bookstore, where do you think I would be better off, in total, selling my work? Moreover, it is the Amazon’s of the book world that are responding to the consumer market with innovations such as The Kindle, which, in fact, is spawning and developing new technology and therefore growing and enhancing the electronic publishing industry and market.
Lastly, there is another, more sinister, message being sent here by the ABA: that it is social treason to allow large, efficient, corporations to succeed by virtue of the operation of a free market because inefficient distributors get run out of the business – and this, under the social treason doctrine, is unfair and immoral. This whole matter bears watching, as the ABA’s plea may very well be for a farm subsidy-styled price support system for the family bookstore – thus ushering in a book bill just as intrusive and irrational as the farm bill.