New York Times v. Sullivan: Should the NYT Go Private?

The New York Times reports earnings on July 23, 2008. Its stock price has declined as younger readers eschew newspapers for the internet. The NYT's reporting itself is still stellar--its recent reports on the economy have been fantastic, and its charts and easy-to-read graphs showing various economic statistics are unparalleled. Many outlets use the NYT's links or re-publish their articles and statistics, so demand isn't the NYT's problem. The real issue is monetization: "How does the NYT maintain its dual roles as a pillar of news reporting, which requires wide distribution, and as a public corporation, which requires more cash flow to please shareholders?" Both aims are not necessarily synonymous, because free content is more widely distributed, while paid content reaches a smaller audience. These conflicting aims render the NYT heavily dependent on advertising dollars, which are being shifted more to Google and other internet outlets. If Google's recent earnings results are any indication, the NYT may have a difficult future. Still, cash flow is not everything, and the NYT's reputation is still gold in terms of goodwill.

It is vitally important to remember that the NYT is directly responsible for one of the defining legal principles of our country--free speech. Every American should read Justice Brennan's opinion in New York Times Co. v. Sullivan, 376 U.S. 254 (1964):

The First Amendment, said Judge Learned Hand, "presupposes that right conclusions are more likely to be gathered out of a multitude of tongues, than through any kind of authoritative selection. To many this is, and always will be, folly; but we have staked upon it our all." United States v. Associated Press, 52 F. Supp. 362, 372 (D.C. S. D. N. Y. 1943). Mr. Justice Brandeis, in his concurring opinion in Whitney v. California, 274 U.S. 357, 375 -376, gave the principle its classic formulation:

"Those who won our independence believed . . . that public discussion is a political duty; and that this should be a fundamental principle of the American government. They recognized the risks to which all human institutions are subject. But they knew that order cannot be secured merely through fear of punishment for its infraction; that it is hazardous to discourage thought, hope and imagination; that fear breeds repression; that repression breeds hate; that hate menaces stable government; that the path of safety lies in the opportunity to discuss freely supposed grievances and proposed remedies; and that the fitting remedy for evil counsels is good ones. Believing in the power of reason as applied through public discussion, they eschewed silence coerced by law - the argument of force in its worst form. Recognizing the occasional tyrannies of governing majorities, they amended the Constitution so that free speech and assembly should be guaranteed."

Thus we consider this case against the background of a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government and public officials.

To summarize the decision, American libel law after the NYT case made it very difficult for a public figure to sue someone for criticism. Europeans and Singaporeans, in contrast, sacrifice free speech for more civility. This remarkable difference would not exist had the New York Times not chosen to fight a libel judgment all the way to the Supreme Court. Today, one wonders if the NYT would have authorized such legal fees for the sake of principle. Would shareholders today agree to receive fewer dividends if it meant spending money to establish a long-term legal principle? The more I think about it, the more I believe the New York Times and newspapers should go back to being privately held so they can focus on long-term trends rather than short-term shareholder whims. Perhaps the earnings release on July 23, 2008 will force that result if it is bad enough. If earnings are good, we win because NYT's stock goes up; and if earnings are poor, we win, because we might get a newspaper more focused on reporting, not pleasing shareholders.

Indeed, America's Founders--as much as they hated their newspapers (just ask Alexander Hamilton, whose affair was exposed by the media, making him the original Bill Clinton)--intended media outlets to be the "fourth pillar" of government, keeping it in check. But as media have consolidated operations and focused on profit, it is hard to see any real criticism of government policies. Having hundreds of channels and outlets competing for our attention has fractured the public and its ability to engage in deliberative democracy. Keith Olbermann and Jon Stewart aside, where are our modern-day Edward R. Murrows? It is a sad and telling commentary on today's media that the most critical pundits of government policies are a former sports newscaster (Olbermann) and a comedian (Stewart). As good as they are, we deserve better.

Here are some excerpts from the Supreme Court's decision:

Justice Black:

[S]tate libel laws threaten the very existence of an American press virile enough to publish unpopular views on public affairs and bold enough to criticize the conduct of public officials...We would, I think, more faithfully interpret the First Amendment by holding that at the very least it leaves the people and the press free to criticize officials and discuss public affairs with impunity...I doubt that a country can live in freedom where its people can be made to suffer physically or financially for criticizing their government, its actions, or its officials...An unconditional right to say what one pleases about public affairs is what I consider to be the minimum guarantee of the First Amendment.

Justice Goldberg is even better:

In my view, the First and Fourteenth Amendments to the Constitution afford to the citizen and to the press an absolute, unconditional privilege to criticize official conduct despite the harm which may flow from excesses and abuses...The theory of our Constitution is that every citizen may speak his mind and every newspaper express its view on matters of public concern and may not be barred from speaking or publishing because those in control of government think that what is said or written is unwise, unfair, false, or malicious. In a democratic society, one who assumes to act for the citizens in an executive, legislative, or judicial capacity must expect that his official acts will be commented upon and criticized...Our national experience teaches that repressions breed hate and "that hate menaces stable government."

Justice Brandeis from WHITNEY v. PEOPLE OF STATE OF CALIFORNIA, 274 U.S. 357 (1927) (a Bay Area/Alameda County trial case):

Those who won our independence believed that the final end of the state was to make men free to develop their faculties, and that in its government the deliberative forces should prevail over the arbitrary. They valued liberty both as an end and as a means. They believed liberty to the secret of happiness and courage to be the secret of liberty. They believed that freedom to think as you will and to speak as you think are means indispensable to the discovery and spread of political truth; that without free speech and assembly discussion would be futile; that with them, discussion affords ordinarily adequate protection against the dissemination of noxious doctrine; that the greatest menace to freedom is an inert people; that public discussion is a political duty; and that this should be a fundamental principle of the American government.

WSJ Article: Rage against the Machine

The Wall Street Journal published a James Grant (of Interest Rate Observer fame: http://www.grantspub.com/) article today titled, "Why No Outrage?"

http://online.wsj.com/article/SB121642367125066615.html?mod=todays_us_nonsub_weekendjournal

In the old days, you'd expect a William Jennings Bryan preaching to the masses, and Howard Beale being mad as hell at Wall Street's alleged fleecing of the poor. But the William Bryan analogy isn't quite on point, and the populist movement was declared dead as early as June 1990. Take a look at this Kirk Scharfenberg Atlantic Monthly article, "Populism in the Age of Celebrity"--if it was published today, we wouldn't know the difference, even though almost two decades have passed:

http://www.theatlantic.com/issues/96feb/buchanan/scharf.htm

Mr. Scharfenberg's point is we have elevated celebrity and materialism over quieter, more intellectual pursuits, and in doing so, have extinguished "deliberative democracy." To wit: "As a nation, we have lost the capacity to ponder events, reflect on their meaning, and act." Another point Mr. Scharfenberg makes is materialistic pursuits (e.g., studying the stock market) render us more separate from each other, while community-based pursuits (e.g., Little League) bring us together, allowing for active democracy and an exchange of ideas. Put another way, we reap what we sow; however, if we've sown and accepted materialism for the last eighteen years, then who's to blame for our current financial mess?

Overall, the constant strain of greed is probably just one factor in our current malaise. Capitalism seems made for constant boom-and-bust cycles, so when times are good, no one complains, and when times are bad, no one also complains because they expect the next bubble to be around the corner. To borrow from Churchill, perhaps consistently steady growth for everyone isn't as desirable as the inconsistent opportunity for unequal wealth. Thus, the recurring hangover America experiences every ten years seems vaguely familiar but not bad enough to want to actually do something about it.

Personally, I am conflicted about whether outrage is justified. There is no doubt we have become a more craven society, more harried, more avaricious, less God-fearing, and less civil. But we have also become more affluent, more connected through electronic advancements, less hungry, and less stagnant. In France, the youth riot because they cannot find jobs due to the socialist structure, which always favors older persons. In America, even most of the unemployed have televisions, food in the fridge, a car, a cell phone, and internet access. America is also more diverse than ever, and most of the economically vibrant cities have less than a 50% white, native-born population (Chicago, Miami, New York, San Francisco, San Jose, etc.). Even the South is revitalizing itself, as manufacturing moves back to cities like Louisville, KY and Huntsville, AL. It's quite a turnaround from the days of Bull Connor attacking his own city's residents and Sandra Day O'Connor being unable to find a job as an attorney after graduating at the top of her law school class.

So a question has to be asked: is it possible for civilizations to reach a saturation point in terms of progress? Is it possible that while America still has eons of progress remaining in terms of spreading wealth, increasing media diversity, reducing its prison population, and re-discovering a more peace-minded foreign policy, most of the work relating to the spread of basic comforts has already been done? Perhaps we do not riot like the days of Watts because we know we are better off than our ancestors and most of the current world population. As one satirist (P.J. O'Rourke?) has remarked, "When my young daughter tells me, 'Life is unfair,' I tell her, 'Honey, you live in the greatest country in the world. You're not starving. You will not experience government-sanctioned sex discrimination. You have economic prospects. You are relatively safe. You'd better hope life keeps being unfair to you.'"

As for William Jennings Bryan, some readers will remember him as a fiery populist ("You shall not crucify mankind upon a cross of gold"). Yet, almost no one knows the context of the famous gold gobbet. Bryan was attacking the banks for not lending farmers more money. Banks, as we all know, loan more money than they actually have. They can do that because the money isn't linked to any hard asset. A bank doesn't need one bar of gold to loan 100 dollars. It can have no gold in its vault and lend as much money as it wants. In the old days, however, the gold standard meant the U.S. could only loan money based on how much gold it had in its vaults, because it had to be able to redeem the paper money for gold at any time. So if the U.S. didn't buy more gold, it couldn't loan more money to the banks, and the banks couldn't loan more money to the people. The gold standard, by linking paper currency to a fixed quantity of gold, prevented banks from taking in two dollars and loaning the same two dollars to others four or more times through multiple loans. If we had a gold standard today, the subprime mess would not have occurred, because banks would not have been able to fund all the loans without unrealistic quantities of gold.

So when Bryan railed against the gold standard, he wanted more inflation and more loans, because his farmers were already in debt, and their customers didn't have money to buy their products/produce. This double-bind meant the farmers were not getting paid, and their debt was increasing. By advocating more inflation, the value of the farmers' debt would be reduced and more people would have money to buy their products, breaking the debt cycle. Thus, Bryan wanted exactly what we had from 2002 to 2007--easy money.

Lost in all the reporting on the financial crisis is the unprecedented access to money the poor had, leading to a small window of opportunity to escape a lifetime of low hourly wages. As Bryan discovered, easy money helps the poor when compared to having no money. Easy money allows the poor to buy homes. Easy money allows the poor to open a small business. Easy money helps the poor, who get greater access to new jobs created by the influx of new money to spend. Easy money hurts the rich, who see their savings reduced by inflation. In a stunning reversal that would have made Marx proud, shareholders--thought of as rich--took the hit along with the poor. The problem, then, wasn't easy money--it was financial mismanagement and greed on all sides. Such factors make it harder to get outraged. For example, my immigrant, middle-class parents were able to refinance their house at a low interest rate, freeing up more money to spend and giving them more security. At the end of the day, we've reaped what we've sown.

Having said all that, I'm going to let Howard Beale have the last words:

I don't have to tell you things are bad. Everybody knows things are bad. It's a depression. Everybody's out of work or scared of losing their job. The dollar buys a nickel's worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there's nobody anywhere who seems to know what to do, and there's no end to it.

We know the air is unfit to breathe and our food is unfit to eat. And we sit watching our TVs while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that's the way it's supposed to be!

We all know things are bad -- worse than bad -- they're crazy.

It's like everything everywhere is going crazy, so we don't go out any more. We sit in the house, and slowly the world we're living in is getting smaller, and all we say is, "Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials, and I won't say anything. Just leave us alone."

Well, I'm not going to leave you alone.

I want you to get mad!

I don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street.

All I know is that first, you've got to get mad.

You've gotta say, "I'm a human being, goddammit! My life has value!"

So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell, "I'm as mad as hell,
and I'm not going to take this anymore!"

William Greider and Bill Moyers

William Greider wrote one of my favorite economics-related books, Secrets of the Temple: How the Federal Reserve Runs the Country. I've never heard him speak before, so when I saw him on Bill Moyers' PBS show, I eagerly watched. Mr. Greider also has a blog:

http://www.thenation.com/blogs/notion/_by-greider

Here is his most salient post on our current economic mess:

http://www.thenation.com/blogs/notion/336722/wall_street_s_great_deflation

Mr. Greider isn't a charismatic speaker, so hearing him speak was a bit anti-climatic; however, I will look forward to more of his writing. Mr. Greider made it clear the problem cannot be blamed on any one party, and the absence of financial regulation has long been the province of both parties since 1980. He indicated that a Democratic Congress did away with usury laws, thereby paving the way for the current Wild West of Wall Street.

His most interesting point was this: usury laws have been around since the beginning of religion and were designed on the common sense notion that moneylenders have more power than the poor and must be regulated to avoid enslaving the poor through one-sided terms. He believes the current subprime mess is a modern-day form of usury.

Full transcript is below, courtesy of PBS:

http://www.pbs.org/moyers/journal/07182008/transcript2.html

Another blogger had an interesting take on usury from Adam Smith's perspective:

http://thinkingecon.blogspot.com/2008/04/adam-smith-and-counter-productive.html

Starbucks (SBUX) and the Economy

Starbucks (SBUX) published a list of stores it is closing across the United States. The WSJ published an interactive map of the store closings:

http://online.wsj.com/public/resources/documents/info-STARBUCKS_080718.html

PDF file of store closings here:

http://www.starbucks.com/aboutus/USStoreClosureInfo.pdf

I'm not a huge fan of Starbucks regular coffee (I prefer Peet's, especially the Guatemala blend), but it occurred to me that an economist or potential real estate buyer could use Starbuck's information to assess how well a local economy is doing. Starbucks would not be closing stores in a particular place if it believed growth was imminent.

Government's Role

A friend sent me a postcard that reminded her of me--it was very kind of her, and absolutely up my alley:

It is not the function of government to keep the citizen from falling into error; it is the function of the citizen to keep the government from falling into error. -- Justice Robert Jackson (Nuremberg Trial Judge)

The key point here is good governance is a two-way street. Citizens should be wary of government attempts to solve problems, because in the absence of omnipotence, unintended consequences will arise from government intervention. One recent example occurred around 1992, when Bill Clinton promised to limit CEO pay by placing a cap on salary deductions. Although it sought to limit CEO pay, Congress's one million dollar cap on the tax deductibility of salaries ended up with corporate boards increasing CEO pay to just under a million dollars. The result was that the middle class got their taxes hiked while the executives got more stock options.

Also, rarely does Congress pass a law with a view towards long term consequences. Such consequences could include the creation of a new enforcement agency (e.g. Homeland Security), more taxes diverted or raised to support the agency, and a broadening of power. Given this natural predilection to increase rather than decrease jurisdiction and scope, most laws ought to have sunset provisions that subject them to more debate down the line about whether they are still necessary. The way Congress currently passes most laws and regulations, they stay on the books forever and spawn new enforcement measures, whether they are necessary or not.

Wall Street Finally Calls a Bottom on Banking...5 days after I did

As readers know, I correctly called a short-term bottom in banking and was one of the few people to do so in the country. See July 14, 2008 post: "I am calling a bottom in well-capitalized regional bank stocks."

http://willworkforjustice.blogspot.com/2008/07/colonial-bancgroup-cnb.html

And here:

http://seekingalpha.com/article/84988-well-capitalized-regional-banks-the-bottom-is-in

Now, after most bank stocks have jumped 20 to 50 percent, Wall Street deigns to tell the masses the bottom is in:

http://bigpicture.typepad.com/comments/2008/07/its-unanimous-b.html

It just goes to show you don't need specialized training to correctly pick stocks. Peter Lynch and Warren Buffett made billions picking stocks at the right time. The best skill as a stock picker isn't being able to discern a company's future cash flow prospects, but to know when to buy a stock. It took me over ten years to get some intuition on the market. Timing beats good research--as we've just seen.

Choose Life. Choose a job. Choose your future.

Paul Kedrosky (from http://paul.kedrosky.com/) cited Sterling Hayden's Wanderer in his blog recently:

Little has been said or written about the ways a man may blast himself free. Why? I don't know, unless the answer lies in our diseased values. A man seldom hesitates to describe his work; he gladly divulges the privacies of alleged sexual conquests. But ask him how much he has in the bank and he recoils into a shocked and stubborn silence.

"I've always wanted to sail to the South Seas, but I can't afford it." What these men can't afford is not to go. They are enmeshed in the cancerous discipline of "security." And in the worship of security we fling our lives beneath the wheels of routine---and before we know it our lives are gone.

What does a man need---really need? A few pounds of food each day, heat and shelter, six feet to lie down in---and some form of working activity that will yield a sense of accomplishment. That's all---in the material sense. And we know it. But we are brainwashed by our economic system until we end up beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention from the sheer idiocy of the charade.

The years thunder by. The dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed.

Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life?

Here's the direct link to Paul:
http://paul.kedrosky.com/archives/2008/07/16/words_to_live_b.html

It sounds a bit Communist in places ("brainwashed by our economic system"), but the overriding idea is true: when we remind ourselves what's really important in our lives, money won't be at the very top of our list.

In case you didn't recognize the title of this post, it's from Trainspotting, a film about the horrors of drug addiction (far better than any "Just Say No" government campaign). The addict in the film, Renton, has a less eloquent way of bashing an existence based on materialism. I've edited the curse words from his monologue after a reader complained. If you are interested in the full version, check out the video link below.

Choose Life. Choose a job. Choose a career. Choose a family. Choose a big television, choose washing machines, cars, compact disc players and electrical tin openers. Choose good health, low cholesterol, and dental insurance. Choose fixed interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisurewear and matching luggage. Choose a three-piece suite on hire purchase in a range of f*cking fabrics. Choose DIY and wondering who you are on a Sunday morning. Choose sitting on that couch watching mind-numbing, spirit-crushing game shows, stuffing junk food into your mouth. Choose rotting away at the end of it all, pishing your last in a miserable home, nothing more than an embarrassment to the selfish brats you spawned to replace yourself.

Choose your future.

Choose life.

http://www.youtube.com/watch?v=T3g9nTOV9KM

(Link above may not work after a while, but you can do a search using "Trainspotting Intro" to get a fresh link.)

Renton, as film-lovers know, chose heroin, making the materialistic existence he refers to above seem better to him. Ironically, his jaded view of "life" drew him to heroin, and had he been more materialistic, he might have been better off.