Economist’s Expertise is in Demand in DC
By: Office of Media Relations | March 30, 2009
What do popular music and the mortgage meltdown have in common? Dr. Stan Liebowitz, for one.
The UT Dallas economics professor addressed controversies involving both topics this month in remarks delivered to federal lawmakers and regulators.
Prof’s Research Backs Music Artists
Addressing the music controversy, Liebowitz testified before the U.S. House Judiciary Committee about a proposal to require AM and FM radio stations to pay musicians royalties for playing their songs.
Liebowitz, a leading copyright expert and the Ashbel Smith Professor of Economics in the School of Management, has conducted several studies on radio’s impact on record sales.
The hearing involved a long-standing debate between radio stations and the music industry. Big-name artists such as Aretha Franklin, Sheryl Crow and Lyle Lovett have lobbied Congress to end a royalty law that governs satellite, cable and Internet radio outlets. The law requires those stations to pay artists and record labels to play their recordings but lets broadcast stations get by with paying only the songwriters..
The proposed legislation would extend payment to include performing artists.
The committee met March 10 to consider the Performance Rights Act (H.R. 848) and heard testimony from both sides of the debate. Witnesses favoring the bill included Smashing Pumpkins frontman Billy Corgan and the Recording Industry Artist Association. Opponents included the National Association of Broadcasters.
Opponents contend that performers and recording companies that own recording copyrights benefit from promotion of their music over the airwaves. That airplay offsets the need to pay performance royalties, they argue.
However, Liebowitz found no support for the claim that broadcast radio enhances overall record sales in his research of radio’s impact on music sales. In fact, his historical analyses, one of which goes back to the 1920s, actually indicates radio play has a negative impact of on sales.
His work – which includes two papers on the subject and a statistical examination of record sales and radio play using U.S. Census data from 99 American cities – suggests that radio listening is often a substitute for purchasing music.
“The time people spend listening to the radio (over two hours a day) is four times as great as the time they spend listening to pre-recorded music (30 minutes a day). If radio did not exist, many of these individuals would likely be listening to pre-recorded music in place of the non-existent radio, since the two are substitute activities,” Liebowitz said in his written statement to the committee.
“I do not view it as my role here to argue for the proposed law being considered by this committee,” he told the committee. “I can say that it seems far more logical, given what I know of the economic factors involved, to have a system where radio stations are being asked to pay for their usage of sound recordings as opposed to the current system where the radio stations can take their primary economic input for free without the permission of the owners of that input.”
Media Contacts: Jill Glass, UT Dallas, (972) 883-5989, jglass@utdallas.edu
or the Office of Media Relations, UT Dallas, (972) 883-2155, newscenter@utdallas.edu
 Dr. Stan Liebowitz is the Ashbel Smith Professor of Economics in the School of Management. |
Commission Seeks Liebowitz’s Help
on Causes of Subprime Loan Crisis
Although Liebowitz is well-known for his work on issues related to the economic impact of new technologies, copying and the creation of intellectual property, he also has conducted research on the mortgage market.
His article, “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown,” led him once again in March to Washington, D.C.
The U.S. Commission on Civil Rights invited Liebowitz to speak as a panelist March 20 at a hearing titled “An Examination of Civil Rights Issues with Respect to the Mortgage Crisis.” Other panelists included economists and representatives from government agencies and community groups.
Liebowitz argues that federal regulators’ affirmative action policies in mortgage lending loosened underwriting standards that led to wide-scale defaults. He says that the government pushed the mortgage industry so hard to increase home ownership levels that it ultimately undermined the country’s financial foundation.
“To get those underwriting standards in place, the government used the bully pulpit, legal and regulatory threats and political and academic persuasion perhaps more accurately termed as propaganda to at first coerce the market into bending to its will and then, in effect, making it an enthusiastic partner in the project,” Liebowitz said in his statement before the commission.
He testified about the history that led to the relaxed lending standards, including a landmark study from the early 1990s by the Boston Federal Reserve Bank that supported reforms, but which Liebowitz and his UT Dallas co-author Ted Day say was deeply flawed. In 1998, they published their critique in an article “Mortgage Lending to Minorities: Where’s the Bias?” in the journal Economic Inquiry.
“The propaganda received positive reinforcement when loans based on relaxed lending standards seemed to be doing fine because the continued increase in home prices kept the danger hidden from view,” Liebowitz said in his written statement.
“And it turned out that money was to be made in swallowing the Kool-Aid of flexible underwriting standards. As housing prices kept increasing, money was being made by borrowers, by banks, by ratings agencies, by builders and by investors. That is the nature of bubbles. Lots of people make money … until, of course, it comes to an end.”
Media Contact:
Office of Media Relations, UT Dallas, 972-883-2155, newscenter@utdallas.edu, or the Office of Media Relations, UT Dallas, (972) 883-2155, newscenter@utdallas.edu.
