Widespread layoffs of journalists across the country will have an adverse effect on society. C. Edwin Baker, Gallicchio Professor of Law at the University of Pennsylvania, argues that tax credits for employing journalists might be a solution to reverse this society-crippling trend.

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SHARP losses of advertising revenue, continuing circulation declines, massive layoffs of up to 50 percent of the journalists at some newspapers, and bankruptcies and closures at others create a foreboding spiral. The future of news hangs in the balance, with no remedy in sight. Of these five problems, I put aside bankruptcies, mostly caused not by lack of operating profits but by excessive debt generated by shortsighted buyouts. And I put aside closures, like that threatened by the Seattle P-I, which reflect the 20th century’s experience that competing local dailies are seldom economically sustainable. Any adequate response to the first three requires a clearheaded diagnosis.

What explains the declining circulation? The answer is not a reduction in young people’s interest in news or even in news provided by newspapers and produced by their professional journalists. Continuing circulation declines reflect two factors: First is the movement of readers to online editions, a movement whose main significance is that these readers generate much less advertising revenue. Second is a real decline in readership due to a degraded news product. A paper’s quality is simply not the same, and thus there is less reason to buy and read it, when produced by fewer journalists and editors.

Circulation, revenue, layoffs

Editors know how to maintain print circulation and, with online included, even to expand total circulation. Namely, they can achieve this by improving rather than degrading quality. These steps are not taken simply because the circulation kept or gained does not produce enough revenue to pay for the improvements.

Layoffs reflect attempts either to squeeze higher profit margins often necessitated by debt loads created by ill-advised leveraged buyouts or to maintain at least minimal profit margins in the face of reduced advertising.

Reduced advertising is partly a consequence of the current recession but more long term relates to a likely permanent and increasing diversion of advertising to online endeavors. The result is that newspapers today simply do not produce the revenue needed to employ enough journalists to provide the quality news that supports circulation.

Before suggesting a solution, a preliminary question must be considered. Does mourning a decline in journalism merely parallel a conservative romanticism about a decline of the family farm — or the jobs in a no longer robust automotive industry — or is something more serious at stake with journalism? What actually is at stake?

Here’s what’s at stake

The reality is that quality journalism produces huge benefits that go to people in addition to its immediate consumers but these people do not pay for the benefits. Everyone, not just the paper’s readers, benefits by readers becoming more informed voters and civic participants, thereby leading to a more responsive government. Everyone, not just the papers’ readers, benefits when a paper’s exposés lead to corrective responses to incompetence or corruption. Everyone benefits when the newspaper has no exposés to report — or sell — because its reputation for quality reporting deters corruption and encourages good performance.

Any sensible cost-benefit analysis must conclude that the failure to adequately pay news entities for these benefits leads to less quality journalism than society needs. As the most important private institution needed for good government, the decline of the news media may be a more direct and more serious threat to democracy than, say, terrorist threats.

A possible solution

So what is the solution? The public-good aspects of the press might tempt adoption of a direct subsidy for the press. But this would be absolutely the wrong solution. Media owners are likely to take any subsidy out as profit — or use it for debt payments. A general subsidy does not respond to the destructive spiral of reduced advertising revenue leading to layoffs leading to a degraded journalist product leading to further circulation losses leading to further revenue losses.

In addition, a subsidy to newspapers challenges ingrained notions that the press should maintain an arm’s length relation to government — right? Again, wrong — at least historically. At the nation’s beginning, Congress believed that spreading of news to a far-flung republic was crucial in keeping the nation together and, therefore, legislated major postal subsidies for newspaper on which they were heavily dependent. Early in the 20th century, these postal subsidies for the press were roughly $70 million annually or, in today’s dollars, a little more than $1.5 billion. Given population growth, this subsidy per person would amount in today’s dollars to $6 billion.

Given little hope for advertising to return to old levels, the place to break the press’s downward spiral is to reverse the layoff of journalists. How? Editors already recognize that each journalist employed increases the quality of the paper and thereby marginally contributes to circulation and revenue (as well as benefiting the public). But layoffs occur when this “marginal” contribution does not equal the salary.

The total employment today of journalists in American newspapers is only slightly more than 50,000 — a number in sharp decline. Average wages are no more than $50,000, creating a collective annual budget for journalists of roughly $2.5 billion. If the federal government, paying with administratively simple tax credits, covered up to half the first $100,000 of the salary of each employed editor or journalist, the incentive for a paper to employee journalists would increase dramatically, eliminating the rationale for layoffs and leading to increased employment.

Targeted subsidy a bargain

This targeted subsidy, at present employment levels, would cost about $1.25 billion, well less than the amount the press was subsidized 100 years ago. More journalists would be hired, readership would go up.

History suggests that a subsidy of this magnitude is the norm, not an exception. It reflects the public value of the press. Enactment, however, will occur only if publishers, editors, journalists and the public promote it out of recognition that the future of professional news media depend on such a step.

If adopted, the public would benefit hugely due to the press surviving to better perform its democratic Fourth Estate role.

C. Edwin Baker is the Gallicchio Professor of Law at the University of Pennsylvania.