Newspapers, iPads and Horse Carriages

Posted by Jason | Posted in Economics, Government | Posted on 04-06-2010

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In a free market, when people do not want a product, businesses have to adapt their products to deliver something that is wanted. If they do not, they will go out of business. This is a good thing, because it keeps what is produced aligned with what is demanded. For example, when automobiles came out, eventually no one wanted horse carriages anymore. Companies that didn’t adapt went out of business. You wouldn’t keep producing horse carriages when no one had horses and were driving around in cars.

Well, in modern day America this isn’t how it works. In the modern day United States of America, you just lobby the government to force citizens at gun point to pay for your product even when they don’t want it and you don’t even provide it.  Take for example the newspapers. Here is a business model that has been collapsing for years. The internet has changed the way people get their news. People can get articles from many different sources instead of just their local paper. This isn’t something that just started happening. The writing has been on the wall for a long time. So instead of adapting to deliver what people are demanding, what are the news papers doing?

The U.S. government has some creative ideas to “save journalism” or more aptly to save newspapers. Among their feel-good suggestions to help preserve the free press (paper) is to institute a 5 percent tax on all consumer electronics.

The U.S. Federal Trade Commission has submitted a multi-faceted proposal to President Obama and Congress. The FTC insists the proposal is “solely for the purposes of discussion”, though it expects aspects of it could work their way in to legislation.

The most controversial part of the proposal is to tax all digital electronics, including, but not limited to — iPads, iPods, iPhones, laptops, desktop PCs, Macs, netbooks, Zunes, Sansas, Creative MP3 players, digital cameras, video cameras, Android smart phones, Nintendo DS's, PSP Go's, Xbox 360s, Wiis, and the PS3.

The 5 percent federal tax, along with applicable state taxes, would bump total tax on these items to 10 percent or more in many states.

The proposal would suck in $25 per $500 spent on electronics goodness. The government would “redistribute” the $4B USD it hopes to haul in from the proposal to struggling print news businesses, who have seen their ad revenue drop 40 percent in the last decade as advertising has made the leap to the internet.

The full recommendation is available here [PDF]. Feel free to contact your Senators and Representatives and give them your thoughts.

Even if the government can’t find a way to enact a consumer electronics tax, state governments should help pick up the slack. Nationwide there's a wealth of measures looking to tax digital downloads such as iTunes tracks, video game downloads from Valve, and more. Critics say the laws will drive people to piracy, but advocates say they will allow the government to harvest much needed funds to pay for roads, schools, and police forces.

via DailyTech – FTC Discusses 5 Percent Federal Tax on Computers, Phones, and Consoles.

There you have it. Stick a gun to everyone’s head and  make them pay for newspapers, when they neither want nor get a damn newspaper. Instead of the person, who will have to pay this tax, being able to spend that money on something they want and that will generate new business, they are having it stolen from them to give to another business, which will not provide a product in return. Think about that.

Say you have $525 to spend. You decide you want to buy an iPad for $500. Under this tax, you’d have to pay $25 for newspapers. Do you get a newspaper. No you do not. The newspaper gets your money without providing a product. Does this stimulate business in any way? They are basically selling their products at inflated prices, but the difference between what their real customers pays and what the real price is is what the rest of society has to pay.  Nothing more is produced. There is no economic gain here. The consumer lost out on the enjoyment of whatever labor it took him to earn that $25, and the business is being reward for producing what people do not want.

Now if this consumer had the same $525 to spend as he pleases, he would buy his iPad for $500. Then he would have his $25 to encourage businesses to produce what he demands. He would actually get the enjoyment that he earned through his labor. That $25 may go to online media, which has adapted to the new business models. Who knows. When the money is spent, a product would actually be delivered and be produced. The economy would benefit. The consumer would get the benefit of his labor. The producer that was intelligent enough to produce something people want would be rewarded, and quality of life is improved. Price signals would do their job. The newspaper would then have to charge more money to stay in business. Consumers obviously wouldn’t want what they are producing, since they don’t want it at the current lower prices. The newspaper businesses would consolidate, change and adapt to survive. This is how the free market works, and the government should let it work. If we did this years ago, we’d all have horse carriages sitting in our driveways next to our automobiles.

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Comments (2)

This is frakin unbelievable, but Jason, you missed the best part – when the gov goes to redistribute this $4B, which newspapers do you think will get the money? I would bet the ones that contribute the most to political campaigns. Honestly, this is all a giant money laundering scheme, and nothing else. The government is stealing from us to give to the newspapers who will just give it back to the politicians.

And for a Congress and Administration that is so focused on being “green” and investing in green tech, is printing all these newspapers and using all that ink really the most green thing we could be doing? It’s more green to get our news virtually I would think.

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John, good call on the second part. Of course, we both know they don’t care about being green. They care about making money off of going green.

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