Paul Krugman, Amazon, and the left's backwards view of book-industry titans

More and more, Paul Krugman is turning into a caricature of himself.

The Nobel Prize–winning New York Times columnist wrote an op-ed this week arguing that Amazon wields a dangerous amount of clout, using Amazon's dispute over book prices with Hachette publishing group as his prime evidence. Amazon "has too much power," Krugman writes, "and it uses that power in ways that hurt America." Krugman compares Amazon to the Big Oil robber barons of a century ago, arguing that no matter how much customers love Amazon, the e-tail giant is bad.

There are a lot of problems with Krugman's stance. First off, it is usually understood that anti-trust action against a company with a dominant market position is justified only if that company uses its position to harm consumers. That's not what's happening here. The conflict between Amazon and Hachette was sparked because Amazon wants to cut prices. Krugman blithely ignores that, instead just asserting that Amazon is "abusing" its power.

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But in reality, if you want to see which book-industry players truly have overwhelming market power and the capacity to abuse it, you need look no further than the four biggest publishing houses, who together control 85 percent of the book market (this fact never features in Krugman's column). These publishers can actually coordinate to work together as a cartel, as their conspiracy to drive up the price of ebooks shows.

Historically, the dominance of the big book publishers has made it hard for smaller, indie publishers to break in. Distributors and retailers demand harsher terms of the smaller publishers than they do of the big ones, who use their market power to get better terms — exactly the kind of thuggish behavior that Amazon is accused of, but without endless coverage in The New York Times.

How can these small publishers find readers, then? Well, before Amazon they mostly couldn't. But today, Amazon gives small publishers reasonable terms, as small publisher Martin Shepard wrote passionately in a little-noted post defending Amazon.

Using anti-trust authorities to force a pro-consumer retailer to hand more money to multibillion-dollar conglomerates so they can keep squeezing out their smaller rivals is pretty much the best description you could imagine of what not to do.

Krugman also argues that Amazon exerts undue influence over the book market because it can kill a book's all-important "buzz" (you know, unlike The New York Times). He offers absolutely no evidence for this. He says that if Amazon makes a book hard to find or buy, that would kill its buzz, but this makes no sense: You hear buzz about a book — maybe in the pages of The New York Times! — and then go to Amazon to buy it.

It's not unlike the way the progressive movement ever so conveniently sets the level of income above which you should count as "rich" and have your money taxed away substantially above the income of city professionals like professors and writers, even though most of them make a lot more money than most in America's middle class. It's because inequality is a Really Important Issue, you see, not because of Status-Income Disequlibrium Syndrome.

Similarly, in the eyes of many on the left, Amazon is a monopsony that is abusing its market power. The big conglomerates who have 85 percent of the publishing market? Nothing to see there.

Writers who make money from the big conglomerates are part of the social group Paul Krugman and New York Times readers affiliate with, and the kind of consumers who might benefit from cheaper books are not. And so the power of government should be used to enhance the former's status at the expense of the latter. This makes perfect sense as social group interest politics. But as economics, it does not.