The Agent

The Agency Problem arises when a conflict of interest arises between a
principal and his agent. The press often represents itself as an 'agent' of the
larger society, a seeker after the truth on behalf of the public. It is
perfectly legitimate to ask whether a conflict of interest can arise between the
media and the public. A moment's reflection is enough to establish it is not
always the case that the press -- whether a newspaper or an individual blogger
-- has interests which completely coincide with the general public because any
media entity is a proper subset of the public: being a part it cannot be the
whole. In the case of the Newsweek decision to print a poorly sourced
story on the descreation of a Koran at Guantanamo Naval Base it is pertinent to
ask how the costs and benefits of the magazine's action would be distributed;
whether the interests of the agent substantially coincide with the principal --
the public -- in whose name the press often claims to act. But any boost in
circulation would accrue benefits to the employees and stockholders of
Newsweek and not to general members of the public unless they had shares. It
is equally clear that any externalities arising from the Koran story would not
normally be borne by Newsweek. Though people might die, places destroyed
or riots occur they would not likely happen to people or places associated with
Newsweek.

The fallacy in the argument, of course, is the premise that Newsweek
acts as an agent for the general public. It isn't, and is free from any
responsibility as a public agent in the uproar it has caused by its retracted
story. Newsweek is not an agent, but the purveyor of a product for which
there happens to be a market protected by the First Amendment. This should be
clear, and there is nothing wrong with it. But the question arises: to what
extent is a commercial organization free to dump the external costs of their
business on others. For historical and political reasons, society has been
reluctant to make the purveyors of this sort of information accountable for the
full cost of their speech, reasoning it would be better for society -- the
Commons -- to bear the externality than to risk restricting expression. As in
any case where an economic actor does not bear the entire cost of its actions,
there is a tendency to overexploit the capacity of the Commons; to privately
appropriate the gains and leave the effluent on the village green to be swept up
by everyone else.

In this specific case, it is possible to entirely dispose of the argument
that responsbility is somehow the "Bush Adminstration's" because Newsweek
itself has retracted the Koran story. Whatever else the "Bush Administration"
may be guilty of, it is not guilty in this particular case; but since
Newsweek will not bear the costs of its mistake (because it is under no
agency obligation to do so) it is equally clear that the costs must be borne by
someone else in this particular case also: by the Commons; in this instance
largely by the elected agents of the public, i.e. the government and its
representatives, that is, by someone in Afghanistan or Iraq.

The interesting question is what should prevent this from happening again and
the answer, insofar as I can see, is nothing. The system works that way by
design choice. One thing that may create pressure for change is the increasing
cost of dumping such externalities onto the Commons. In a world where certain
groups are likely to detonate car bombs or radiological devices in response to
any real or imagined slight, the Commons may be unable to bear the external
costs of news organizations mindlessly purveying inflammatory and poorly-sourced
news products. That is essentially the argument for censorship in wartime. Yet
censorship itself imposes such huge costs that it is questionable whether such a
cure would be better than the disease. In the past the choice of evils was
avoided by resorting to social pressure like appeals to patriotism or personal
requests. A newsmagazine in 1944 would probably not even considered publishing
the equivalent of the Koran story on the basis of the slightest of sources and
without any collateral confirmation whatsoever. But we're not in Kansas any
more. Without that self restraint there is nothing for it but for the Commons to
keep bearing the full cost of Newsweek-type journalism until the system
snaps, to the detriment of all.