Death and Taxes
February 17, 2011
LCD Soundsystem’s James Murphy last week involved himself in one of the nastiest public spats in recent memory between fans and ticket providers. Murphy passionately championed and defended his fans, but in the process he also beautifully, if inadvertently, illustrated the evils of financial deregulation.
On February 11, tickets went on sale for LCD Soundsystem’s last show at Madison Square Garden in April. A small pre-sale of tickets had sold out quickly, and it was anticipated that the farewell show would sell out with relative alacrity. But Madison Square Garden, which with 20,000 seats is New York’s largest venue, was a big space for a band LCD Soundsystem’s size to fill. Murphy himself wrote, “I personally thought I was being bold in suggesting to our manager that we might sell it out in 10 days.”
But when tickets went on sale at 11am last Friday, they sold out instantly. In less than minutes—seconds, even. 20,000 tickets simply vanished in a blink. What happened?
After initial shock and congratulations about being the world’s most beloved band, it became clear: professional scalpers had gobbled up most of the tickets using “bots” to hit Bowery Presents ticket sale web page tens of thousands of times in seconds.
The saturation of requests automated the purchase of tickets and blocked out actual humans who were entering credit card information and hitting “submit” the old-fashioned way.
Sure enough, in no time tickets from scalpers started flooding secondary ticket-seller sites like StubHub for 10 to 12 times face value. The band and fans alike were enraged, and no one more than Murphy himself, who went on an apoplectic rampage both on the LCD Soundsystem blog and Twitter .
But what the scalpers had done is perfectly legal. ‘ Slate ‘ has valuable insight on the matter, which is worth quoting at length:
The “efficient-market hypothesis” says that in this free-market ticket ecosystem, the price of LCD Soundsystem tickets will be determined perfectly by demand. Without regulations to get in the way, the market will move the price of tickets precisely in line with their value—no more, no less.
But this fails to account for the “bots”—the computer programs buying up all the tickets with tens of thousands of requests in seconds. If it were just humans trading tickets, you might have a theoretically efficient ticket market—or at least more so. The bots complicate the picture, however, because you essentially create a secondary market by first sucking the supply of tickets essentially to zero, and then setting the price high and seeing if the market will follow it up the price scale.
One would think the way to make this market more fair would be to remove the bots—to regulate it. Since people compete with bots, the market is rigged against them. Far from being perfectly efficient, this market follows a predictable price curve weighted to favor the few and powerful (those controlling the bots) over the many (the people).
This is essentially the same problem plaguing the financial system and the banking industry. Beginning with Reagan and culminating with Clinton, U.S. financial policy has systematically discarded the regulations that were put in place after the Great Depression to keep markets in line with the interest of people.
With Clinton’s repeal of the Glass-Steagall act in 1999, the market essentially opened the gates wide open to “bots.” Complex financial instruments were invented to game the system, making outsized profits for those pulling the strings at the expense of the masses in the middle, just like scalpers raking in cash on SubHub. And unlike the concert ticket market, the powerful few players at the top of the financial market know that if their investment strategies fail, they government will bail them out.
This is part of why progressive economist George Soros writes that in truly free markets, the efficient-market hypothesis is a myth. Markets, he argues, need regulation in order to remain both efficient and fair.
Eventually LCD Soundsystem realized it could counter the market forces by flooding supply, adding more shows before their final concert and this time selling them via a different mechanism that would keep the scalpers and their bots out.
Murphy indignantly (and endearingly) wrote on his blog : “A small thing to scalpers: ‘It’s legal’ is what people say when they don’t have ethics. We are supposed to have ethics, and that should be the primary guiding force in our actions, you fucking fuck.”
It’s an astute point—if only the world were like this. If financial markets would regulate themselves, we wouldn’t need regulators. It doesn’t. And unfortunately, the financial system has successfully lobbied itself off the regulation leash over the last 40 years—so the market, along with our own potential, we’re told—can be “free.” If more government regulators thought like LCD Soundsystem, we’d be a lot better off.