The decline of literary fiction and the principal-agent problem in modern publishing
"The purpose of a system is what it does."
One of the things I’ve always found interesting about Hollywood are the stories about failure and box-office bombs.
Film, like any other creative business, is enormously risky. With rare exceptions, film productions are capital intensive (budget-constrained horror studios like Blumhouse are outliers in an otherwise high-cost industry).
Because it’s so expensive to make a film that people will actually watch, the minimum cost threshold of any single project reduces the number of bets a studio can make and concentrates risk into a smaller number of projects. Each project therefore faces enormous pressure to recoup the costs of the financial investment required and requires a great deal of guidance and managing.
Good businesses are built around the mitigation of risk. This is done by leaning into predictability and systematization. Every expenditure has an expected return on investment and casting in a Hollywood film is a significant line item.
The logic goes like this: how much will a studio make if it pays for a no-name actor to star in one of its tentpole films? And—how much more will it make if it pays a “star” an additional $10 million to be in the film?
This is the type of calculation that is constantly being made, especially as film budgets increasingly bifurcate into low-budget or high-budget zones, the latter of which Hollywood focuses on. It’s not just about budgeting for casting, it’s about the financial ROI of this casting.
In theory, these studios should face enormous internal pressure to optimize for return on capital invested, including on casting decisions. But, it turns out that that major Hollywood studios get this wrong all the time.
As a general rule, they tend to consistently overpay for movie stars. Indeed, this seems to be a systematic error intrinsic to the design of the Hollywood system. There are a plethora of interesting and illuminating stories about crazy-expensive movies packed with stars that end up losing massive amounts of money, an event which reliably repeats itself multiple times every single year.
Partly this is likely an inherent constraint in any creative industry: a certain degree of unpredictability is baked into an venture in the space. But I don’t think that’s the entire explanation behind why big budget films fail to reach profitability so often.
Surely, some kind of reform could at least curtail the frequency of these financial misses, and yet that never seems to happen. The apparent irrationality of always overvaluing star power has always intrigued me, and I don’t think it’s merely a cognitive bias downstream from over-indexing on the conversion rate of any given actor’s fan-base.
In many of these stories about failed movies, a film that flops will have paid tens of millions of dollars to a movie star—even when it was apparent from the early stages of the project that it was very unlikely to succeed.
From the perspective of capitalism and the efficient market hypothesis, this doesn’t make any sense.
Why are studios wasting capital on high-status movie stars when the sole point of a corporation is to make money?
Aren’t film studios the very definition of psychopathic profit-maximizers? Isn’t that the core logic of these institutions?
And then I remember: the purpose of a system is what it does.
The principal-agent problem in creative industries:
Principals only want to optimize for money but agents sometimes optimize for status
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the "principal").[1] The problem worsens when there is a greater discrepancy of interests and information between the principal and agent, as well as when the principal lacks the means to punish the agent.[2] The deviation from the principal's interest by the agent is called "agency costs".[3]
Let’s say you’re a Hollywood producer. You are the agent (individual) acting on behalf of the interests of the profit-maximizing entity, the principal (the entity—in this case, the studio and its shareholders). Together, the principal and its various agents combine to make a system.
As a Hollywood producer, you are a member of the elite. You are wealthy and comfortable. You love money and money is the source of your power. But at bottom, money is not the only thing you care about, nor is it the only kind of power that can be accumulated.
You also care about status.
The reason you care about status is the reason that any human being cares about status: because being high-status confers numerous practical benefits, such as making you more attractive to other people. Its value is extra-monetary—it cannot be bought directly.
It can, however, be bought indirectly, through personal affiliation.
If you hire an A-lister for XYZ tentpole film, then there is the possibility that they will invite you to their parties and becomes friends with you. This allows you to name-drop said A-lister as a “friend” to an attractive person that you meet at a cocktail bar in Los Angeles. You might, for example, show this person at the bar a photo of you and said A-lister hanging out and having a good time. Upon seeing this, that person at the cocktail bar is perhaps now more likely to go home with you (there are, of course, more predatory instantiations of this).
That said, status-optimization isn’t only about sex. It can be as simple as ego gratification and getting invited to the right parties in the right circles. Status has multiple dimensions and is not solely sexually-oriented. Status confers numerous types benefits and can also be converted into monetary form at a later date and time (i.e. having a producer credit on an Oscar-winning film that made little money can still be good for your producing career later on).
Consider this situation from the perspective of the agent acting on behalf of the principal. Because Hollywood producers are already wealthy, in some cases, they might personally value the aforementioned status-boost more than they value the fiscal prudence of the studio. Even though making a more financially-constrained casting decision has a greater expected monetary ROI for the studio, it has a lower expected value to them as individuals.
So—they go ahead and cast Tom Cruise for the tentpole that everyone internally knows is a dog shit project unlikely to succeed.
In short, the phenomenon of Hollywood producers overpaying movie stars results from the principal-agent problem: sometimes the individual agents (producers) choose to optimize for personal status at the expense of the financial interests of the studio (the principal).
Together, the principal and its various agents combine to make a system.
“The purpose of a system is what it does.” A Hollywood studio exists to make profit, but it does not solely produce profit. It also produces status for some of its individual agents.
This is what the “system” does as a whole. It produces money for shareholders and employees, but it is not perfectly efficient in doing so. Sometimes, it produces status for some of its agents instead of optimizing for money as ruthlessly as possible.
Alex Perez’s structural analysis of the principal-agent problem in modern literary publishing.
remains one of the most interesting commentators in literary publishing today. After his breakout Hobart interview, he has continued to point out very fundamental patterns of dysfunction in the market of literary publishing and literary fiction in particular.One thing to understand about literary fiction: literary fiction is emphatically the province of our cultural elites. Importantly, it is the province of a subtype of cultural elite—elite wordcels. The New York Times book review, the prestige presses of the Big Five, etc. Unlike Hollywood actors, they don’t compete on the axis of looks or charisma, but rather, on a purer, more memetic level.
A priori, we should expect the agents of this kind of system to personally value moral status to a very high degree, because memetic competition usually expresses itself as a competition between different sets of moral norms. That is because, in our society, moral norms flow in a top-down fashion: from the vanguards of Liberalism itself down to the teeming masses below (if you are Asian-American of the middle to upper-middle-class, you’ve likely repeatedly encountered this type of inane lecturing from one of your Ivy-league brethren).
And indeed, as Perez has adroitly pointed out, this is exactly what we find:
Can you see the analogy between literary editors and Hollywood producers?
Can you see how absurd these advances are relative to the expected financial return of their associated literary commodities?
Whereas Hollywood producers optimize for personal status at the expense of their studio’s profits, literary editors optimize for personal status at the expense of their publishing company’s profit.
In contrast to film, instead of overpaying for the popularity of an A-lister, publishing gatekeepers overpay for the moral status of a writer (i.e., for their superficial diversity points).
They are, in effect, overpaying for moral celebrity.
Because the age of DEI is a (strangely) identitarian age, this naturally converges onto identitarian considerations (“diversity points”).
Of course, the nature of this status-optimization is different. My view is that this process is far less avaricious in literary market than it is in Hollywood. There’s no literary equivalent of a casting couch (at least, I hope there isn’t). Instead, this type of status optimization is about moral status, which makes it even more unimpeachable as a mis-allocation of capital.
It’s being done for the right reasons.
Here’s one hypothesis behind the decline in modern literary fiction: I believe that the literary market has become less efficient because of an increased degree of principal-agent conflict between editors and their publishing houses.
I suspect that the reason for this increased principal-agent conflict is increased status competition between literary editors driven by the culture war. To me, it seems like editors are competing on the axis of moral status.
The overriding imperative behind “elevating diverse voices” in publishing is actually an axis of moral competition between literary editors.
Let’s reproduce our scenario from before: imagine you’re an editor at XYZ Press and you’re at a cocktail party for publishing people in Manhattan. You’re bragging about deals. But what makes a deal brag-worthy? What’s something you can boast about that isn’t a crude capitalist reduction (i.e. money)?
You can boast about your author, and so authors with diverse backgrounds become tokens—much like Hollywood producers comparing the star power of their relative films.
literary editors as moral entrepreneurs
Who can accumulate the most virtue?
Who can best advance the important cause of representation in the arts?
Who can do the most good in the eternal arena of memetic competition, particularly at this critical juncture in the history of the American republic?
As we can see with these escalating advances for literary authors with the right backgrounds, this type of thinking has led to an apparent arms-race between editors as each individual editor races toward maximizing their own virtue.
The end result is that there is demand for books of a different stripe but the market (the publishing houses) cannot supply that demand, and indeed, actively suppresses it and dismisses all aesthetic dissent with what I might charitably describe as total annihilation. Further, these readers are permanently lost to fiction, because they are entrained by the available supply of books into believing that novels simply don’t exist for them.
I am not opposed to diversity in publishing. I am for it. I want to read all the works of genius that are systematically being repressed, even by people who have openly declared themselves to be my enemy.
The reason is (a) because I like good books, and (b) because I’m not convinced that there is substantive social harm that can come out of literary fiction, and even if that weren’t the case, I think the ethic of harm reduction is too stringently applied to textual arts.
However, any system of publishing that meaningfully advances genuine psychological diversity would be explosively controversial and inimical to the cultural conformity of our current cohort of wordcel elites.
I’ve written before about how I don’t think this type of system actually optimizes for true psychological diversity, even among minority writers. If that was actually the purpose of our publishing system (it is not), there would be a storm of controversy around platforming people who have aesthetic preferences that institutional publishing finds morally objectionable or aesthetically displeasing, a sort of Popperian totalitarianism.
Now, I’m emphatically not a doomer and I don’t think things will always be this way. My intuition is that the aesthetic Overton window compresses and expands over historical time in a sinusoidal-type of pattern as human societies alternate between phases of comparative aesthetic rigidity and aesthetic openness.
Already we see embers of a new phase of expansion in literary possibilities that go beyond our current era of restrictiveness. Already, we can see the shoots of a new ecosystem that’s searching for gaps to grow through.
The solution isn’t just going to be “indie publishing.”
The solution is going to be about scaling indie publishing effectively: a decentralized response function originating from smaller presses that can figure out ways to bypass centralized chokepoints like AMAZORG’s distribution monolith.
I’m happy to be a part of this movement.
We’re working on it!
Quite good, Arx-Han. Moral status meddling with economic success, literary editors as moral entrepreneurs. (Is there a longhouse factor to it?) Meanwhile technology increases competition for attention, and trains brains to shy away from the traditional reading experience. At the same time, technology makes decentralized reading easier and usually cheaper. Pull back a little, and the 20th century literary scene of the west seems like a market aberration. The centralized publishing houses used to carry a feeling of cultural high status, which served them well to perpetuate. But it didn't stop their market decline. Literary moralizing of the moment is showing itself as market failure. The decentralization of weird new global technology may surprisingly recall the old, innovative localized idiosyncratic forms. Books may naturally want to operate on the cultural market like any other market. If you don't mind me talking about myself briefly, I have written a couple of weird novels exploring the decline of the west, and I can't even get a publisher or agent to read it. Opportunity doesn't even rise to the level of gatekeeping against me. There is no market open for me, except eBooks (and related paper book publishing) make it available again. Well, we'll see.