I read two stories that got me thinking about subsidies.  One, a New York Times piece about streaming music, discussed new business models for the music industry after Napster destroyed the old industry.

The second, an Associated Press piece about a new report outlining transaction fees collected by financial institutions in the processing of unemployment payments, outlined how Wall Street's new business model of taking a cut out of the meager subsistence afforded the unemployed in today's economy after Wall Street destroyed the old economy.

As we are well aware, the internet reduced and in many cases eliminated the walls of information asymmetry.  Once upon a time, those who not just controlled the information but in many cases were the only ones with access to the information in the first place exerted overwhelming influence in society.

Then it became easy to share, trade, borrow and steal large stores of information, shockingly fast and extremely inexpensive.  Typically, this increase in speed and decrease in cost do not occur simultaneously in a market.  When this shift happens in a market that is the building block for all other markets - information - the change is so destabilizing that the effects can take years, even generations, to fully comprehend.

So computers make it easy for listeners to digitize their music collection.  Broadband makes it easy to share the digital files almost instantly with a virtually unlimited number of fellow listeners.  The music industry responds by suing its customers.  Because the way to attract and retain customers is by taking them to court.

Behind the scenes, the music industry worked by paying lump sums to artists to record one or more albums.  The record label was repaid through album sales.  A subsidy to the band.  The bands who got signed liked this because they got big checks and their music got played.  The bands who didn't get signed didn't like this, because they didn't get big checks and they didn't get played.  The label had the money and owned the infrastructure.

When the internet changed this format, the labels and the signed bands didn't like it but the fans and the unsigned bands benefited because more music became available at many different price points.  Sometimes you can even choose how much you want to pay for an album.

After many years of denying reality, the record labels decide that computers and the internet are here to stay and that streaming of digital music is now acceptable.  As the old music industry was dying throughout the 80s and 90s, we decided we were infatuated with the idea of the "free market."  Everything should be decided by the free market.  The free hand rules.  Theoretically, the fall of the old music business and the rise of "everybody's on their own" should have been perfect: only those bands that the market enjoys, not just who the record labels decide the market has the possibility to consider enjoying, will actually get paid.

Then we get streaming music.  Pandora.  Spotify.  Mog.  Artists get paid per listen.  We can argue all day about the appropriate fee for the artists.  I'll even argue that this is something the "market" should dictate.  And what do we get?  From the NYT:

Even for an under-the-radar artist like Ms. Keating, who describes her style as “avant cello,” the numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned $1,652.74. On Spotify, 131,000 plays last year netted just $547.71, or an average of 0.42 cent a play.
The artist complains that her paycheck is too small.  Although her songs were played 131,000 times, she only netted $0.42 per listen.  Nevermind that under the old model, she may have earned nothing if she didn't get a record deal.  Or that even if she did, those 131,000 plays could have taken place on the ten CDs she sold to her parents, aunts and uncles, who listened on repeat 131,000 times.  Then the $547.71 doesn't sound so bad compared to the ten CD sales at $10 each.

Or another way, the artist (read: entrepreneur) wants to be subsidized by the old model of the record labels, with the risk of no payment at all instead of the democratization of the business so that anyone can participate on a level playing field.

In the second article, we receive yet another example of Wall Street collecting generous profits from those with the least amount of wealth to share.  In fact, many of those collecting unemployment may be doing so after losing a job on Wall Street or indirectly due to the profligate lending practices of Wall Street.

This creates a sort of triple subsidy.  The first, of course, are the various benefits of TARP and ARRA enjoyed by Wall Street.

The second is the collection of fees to process transactions Americans receiving unemployment insurance (some of which are free to customers of the same banks not on unemployment).

The third is the contract demands, agreed to by the states, which stipulate that the debit cards - and therefore the transaction fees - are the first option, the easiest option and sometimes the only option - for Americans to receive unemployment insurance.  From the AP:

The trouble, the new report says, is that many states make it difficult for people to sign up for direct deposit. The rate of people using direct deposit ranges from a national high of 82 percent in Minnesota to a low of 16 percent in Arizona, the report says...

...Banks make more money when more people use the cards. In the past, some of their deals with states prevented states from offering direct deposit, or required states to promote the card program as a first option...

...To cover the cost of issuing cards and running the programs, banks charge a plethora of fees, including charges for balance inquiries, phone calls to customer support, leaving an account inactive for a period of months, or making a purchase using a personal identification number.

The article does not specify campaign contributions made by Wall Street to the state legislative leaders who approved these policies.  It is likely a worthy follow up.

The point is that everyone appreciates and understand the values of a subsidy.  Many business models require it.  Any student of business or the economy or political science or history can attest to the value of economies of scale, the strength of collective action, the power of leverage to spur growth.

But we apparently live in a time in which a very vocal group of people insist that will these things are true, we can only take advantage of the benefits in very certain times, places and ways that almost never intend to benefit anyone other than the very limited few who cling to an obsolete way of living life in an otherwise progressive society.

We are close to ridding ourselves of them.  It doesn't always feel that way.  But I can see it.

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