Hayek (1945) on Why Network News Is Losing Control

Knowledge is decentralized

by Gary North

In 1945, economist F. A. Hayek wrote what turned out to be a classic paper on how decentralized knowledge is made available to the public by means of the free market.

He argued that most knowledge is decentralized, and the free market allows people who own such knowledge to reap profits from this ownership. There is no way that any government committee can assemble accurate comparable knowledge, and then implement this information, with anything like the efficiency of the free market system. This article is reprinted in Chapter 4 of his 1948 book, Individualism and Economic Order. You can read it on the website of the Mises Institute. Click here.

What Hayek wrote about economic information is equally applicable to information in general. Accurate information is held by individuals at the local level. It is highly decentralized. There is no way that any central bureaucracy, or group of bureaucracies, can assemble more than a tiny fraction of this information.

Fast forward to 2013. Scott Pelley, CBS News anchor, said this:

"The country is only as strong as its journalism -- that's the way democracies work. The higher the quality of the information, the better informed the electorate is and the better the government runs. And the American people can always be trusted with the information."

Mr. Pelley is a representative of broadcast journalism. He therefore is a representative of the federal government.

GOVERNMENT-LICENSED JOURNALISM

From 1928 until the present, the federal government has regulated the creation of over-the-air radio stations and television stations. Historians generally date the first commercial radio broadcast in the United States with the 1920 broadcast by Pittsburgh radio station KDKA of the results of the presidential election. The multiplication of radio stations led to overlapping broadcasts, due to the limitations of radio spectrum. The federal government intervened in 1927 by passing the Radio Act, and a regulatory system was set up in 1928. From that time on, the federal government has controlled the number of radio licenses, and it has used politically progressive standards to allocate the increasingly valuable spectrum.

Broadcasting over the airwaves has therefore been a government-approved function since 1928. There is no question that politics was decisive in deciding who was going to get access to this extraordinarily valuable radio spectrum. This was how Lyndon Johnson accumulated his initial fortune. It began in 1943, when the FCC was about to be abolished. Congressman Lyndon Johnson intervened. He saved it from extinction. Almost immediately, his wife was granted a broadcasting license. This story is revealed in Robert Caro's biography of Johnson.

Once Lady Bird completed her purchase of KTBC, the "five years of delays and red tape, or delays and unfavorable rules" from the FCC that had stymied the previous owners "vanished … and slowness was replaced by speed," according to Caro. In short order she got permission to broadcast 24 hours a day (KTBC had been a sunrise-to-sunset station) and move it to 590 on the dial--"an uncluttered, end of the dial" where it could be heard in 38 surrounding Texas counties. It was no coincidence. Lyndon and Lady Bird recruited a new station manager, promising 10 percent of the profits, and Lyndon told him that the changes in the license restrictions that would make KTBC a moneymaker were "all set." In 1945, the FCC OK'd KTBC's request to quintuple its power, which cast its signal over 63 counties.

When Lyndon visited William S. Paley, president of CBS radio, and asked if KTBC could become a CBS affiliate and carry its lucrative programming, he didn't have to spell out why the request should be granted. The radio networks feared the regulators in Washington as well as the members of Congress who regulated the regulators. KNOW in Austin had been repeatedly denied the affiliation because a San Antonio "affiliate could be heard in Austin." CBS Director of Research Frank Stanton approved Johnson's request.

When Lady Bird died, none of the hagiographic obituaries mentioned this blatant payoff. It made her a millionaire. This background is found in an article in Slate. The monopoly extended to television in the 1950s. Wikipedia reports:

KTBC signed on the air on November 27, 1952, becoming the first television station in Austin and Central Texas. It was originally owned by the Texas Broadcasting Company (from whom the call letters are taken) which was in turn owned by then-Senator Lyndon Johnson and his wife Lady Bird, alongside KTBC radio (AM 590, now KLBJ-AM) and FM 93.7, now KLBJ-FM). It carried all four major networks at the time: ABC, CBS, NBC and the now-defunct DuMont Television Network.

The Good Old Boys at the local level got the monopolies from the Old Boy Network in Washington.

WORLD WIDE WEB

The World Wide Web is now in the process of undermining the value of these legal monopolies. Pelley is correct about the importance of American journalism, but he is incorrect about the nature of the American journalistic system that prevailed until the graphic browser turned the Internet into a mass phenomenon in 1995. Prior to that, the barriers to entry, both economic and legal, prevented anything like decentralized journalism. It kept the control of news in the hands of a network of very rich people who had secured government monopolies over the airwaves, and another group which had secured local newspaper monopolies by means of the extremely high costs of getting into the newspaper business in local communities.

The World Wide Web is steadily destroying the monopoly over the airwaves, and it has just about destroyed the profitability of newspapers. This is a tremendous breakthrough for freedom in our time. It has broken the Progressives' 130-year control over public opinion.

The audience for network TV is shrinking. In 1985, it was 45% of the viewers. It is 25% today. This decline is irreversible. It began before the World Wide Web.

More to the point, network news is old, fast. It lasts for one evening. The Web keeps stories on-line permanently. These stories can be reviewed. They constitute memory. This is what journalists consult, not TV news.

Pelley speaks of 12 stories per evening. Matt Drudge has three times this many stories every morning, and these can change throughout the day. Drudge writes headlines and creates links to the digital stories. One man, sitting in front of a computer, is able to generate $15 million a year in advertising revenue, and it does not take a federal monopoly for him to get this information to millions of people. There is no such monopoly.

Pelley says that 25 million Americans watch the evening network news. If we assume that there are about 150 million adults in the United States, network news affects very few of them. The number of people that it influences drops continually. The networks have lost market share every year since 1995. It is an irreversible decline in their influence.

Pelley is on the Titanic. He does not perceive, or least does not admit, that the passengers had been climbing into digital lifeboats, and the crew has been lowering these lifeboats into the water.

Pelley thinks that 12 brief news stories, each less than two minutes long and are interspersed by advertisements, are going to shape the thinking of the American electorate. He is incorrect. What is going to shape the thinking of the American electorate is access to the Web, which enables people to read in-depth stories that interest them, and which interest people of similar perspectives. The social media will determine which news stories are read, not a handful of news screeners at the four major television networks.

CONCLUSION

Knowledge is decentralized. This decentralized system of knowledge is now being made available to the whole world. There are a billion people on Facebook. They share links to stories. These stories take longer than two minutes to read and evaluate. People may not read 12 different stories a day, but they read those stories that interest them, and which they can read in depth.

We are seeing the breakdown of the Progressives' control over the electorates of the West. They have possessed a government-granted monopoly since 1928 in the United States. All over the world, government-granted monopolies of control over radio spectrum are declining in political value. The spectrum is very valuable for other kinds of communications, but its value to the monopolists who are in bed with the federal government has declined for over a decade, and it will continue to decline.