The Porn Bailout: Not as Dumb as the Auto Bailout

January 8, 2009

Yesterday at the 2009 AVN Adult Video Expo in Las Vegas, Larry Flynt of Hustler Magazine and Joe Francis of Girls Gone Wild announced their request for a $5 billion government bailout of the porn (excuse me, “Adult Entertainment”) industry, along the lines of the bailout recently provided to auto manufacturers.

From MarketWatch:

[A]ccording to Flynt the recession has acted like a national cold shower. “People are too depressed to be sexually active,” Flynt says, “This is very unhealthy as a nation.

… “It’s time for congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly.”

This bailout request may seem like a joke, and it will certainly strike many people as humorous, inappropriate, or downright outrageous. However, we will, for the duration of this blog post, treat it as a serious request in order to explain some of the criteria that policymakers should take into account when considering whether/when to provide financial support to a private industry.

In general, there is a good argument for the government to subsidize activities that are public goods. A public good is non-excludable (meaning that, once it exists, you can’t stop individuals from enjoying it) and non-rivalrous (meaning that my use of the good does not diminish your enjoyment of it). Public goods tend to be underproduced because people gain benefits from them without having to pay for them; a government subsidy can increase public good production to a more efficient level.

So, is “adult entertainment” a public good? Like all intellectual property, porno is non-rivalrous: once a Girls Gone Wild video is produced, the content can be endlessly distributed and redistributed. And with the advance of the Internet and peer-to-peer file sharing, it is increasingly non-excludable: as noted in the bailout press release, a key driver behind reduced porn revenues is the illegal reproduction and sharing of porn content.

Pornography might have even greater public good characteristics if its benefits extend beyond its direct consumers. For example, pornography may have educational value that benefits not only its direct consumers but also those consumers’ sex partners. Under Coasean analysis, this does not necessarily make porn a public good: those sex partners could bear the cost of their indirect porn consumption, perhaps by paying a “porn surcharge” to their better-educated partners. However, the Coase theorem only applies when transaction costs are low, and given well-established social norms against the combination of sexual activity and financial transactions, it is likely that there is a market failure leading to porn underconsumption.

This is not to say that Congress should give money to the adult entertainment industry. However, these characteristics do make the providers of pornography a more attractive bailout recipient than, say, the auto industry, which produces goods that are clearly both excludable and rivalrous. Moreover, the U.S. porn industry can better argue that its financial difficulties stem from a market failure, as it does not (generally) face competition from foreign producers with better products and lower labor costs.

Of course, the idea of a porn bailout sounds preposterous, but If policymakers are determined to use taxpayers’ money to bail out private industries, then taxpayers should ask why certain industries are receiving help and not others.


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