Starving The Watchdogs: Who Foots The Bill When Newspapers Disappear?

April 27, 2020 / 2:11 pm

The value of local newspapers can hardly be overstated right now. We read our local papers to track the spread of COVID-19 in our states, and the availability of ICU beds at nearby hospitals. We read to get a sense of how nearby businesses are faring, and what nursing homes are doing to keep residents safe. More of us are reading more news all the time. But at the same time that readership is soaring, advertising revenue—which keeps newspapers financially afloat—is plummeting. As a result, a number of newspapers across the country are laying off workers, even shuttering.

For many newspapers, the economic crisis brought on by the pandemic is merely the final nail in the coffin. For decades, the financial health of many newspapers has been fragile, in good economic times and bad.

At root is a fundamental shift in the news industry: There are plenty of ways today to pay little—or nothing—to read the news. There are free blogs. There's Facebook and Twitter. Who needs a subscription to a local newspaper?

Millions of Americans have decided they don't. But new research suggests this strategy may have costs in the long run. That's because newspapers are not like most things we buy. If you decide not to buy a watch or a cappuccino, you save money. But if you decide not to pay for a police department, you might save money in the short run, but end up paying more in the long run.

Whereas most of us treat newspapers like consumer products, new research from Paul Gao, Chang Lee, and Dermot Murphy suggests that they might be more like police departments. Gao, Lee, and Murphy looked at how newspaper closures might affect the cost of borrowing in local governments. What they found is a price tag that may give many taxpayers sticker shock.

This week on Hidden Brain, we look at an unusual case of what economists refer to as a free-rider problem. And we ask, who bears the cost when nobody wants to pay?

Additional Resources

"Financing Dies in Darkness? The Impact of Newspaper Closures on Public Finance" by Paul Gao, Chang Lee, and Dermot Murphy, Journal of Financial Economics, 2020.

"The Effect of Newspaper Entry and Exit on Electoral Politics" by Matthew Gentzkow, Jesse M. Shapiro, and Michael Sinkinson in American Economic Review, 2011.