You’d think that the Wall Street Journal would own the biggest story of the past year, the meltdown of capitalism-as-we’ve-known-it. But the paper’s coverage has lagged. It did good work on the collapse of Bear Stearns a year ago, but for the most part it has done a mediocre job of explaining all that has gone wrong with our economic system. It has been left to the marquee names at the paper’s biggest competitor, the New York Times, to help us begin to understand where we are and how we got here: writers like Joe Nocera, Gretchen Morgenson, David Leonhardt, Floyd Norris, and of course Paul Krugman. Their pieces — like, for instance, Nocera’s explanation of where those billions we’re shoveling at AIG are really going — have regularly been essential reading, whereas the Journal’s coverage just hasn’t risen to that level too often.

One can think of several possible explanations for this failure. For one thing, the Wall Street collapse represents not only a story on the Journal’s home turf but also the disintegration of its motivating vision. The paper that champions “free people and free markets” is, I think, having a hard time coming to terms with the fact that free markets have just failed free people in a very big way. It has also, I imagine, been hard for the Journal’s troops to concentrate as they undergo a wrenching change of ownership and begin to adjust to new marching orders from the Murdoch regime.

Still, it seems very wrong-headed that, at the precise moment the Journal ought to be (pardon the usage) capitalizing on its strength in in-depth financial coverage, it is instead distracting itself with an effort to become a sort of upscale USA Today (with utterly superfluous features like a new sports section).

In Mother Jones, former Journal reporter Dean Starkman asks “How Could 9,000 Business Reporters Blow It?” One suggestion is that the Journal’s tradition of attending to the colorful titans of the business world became a liability in covering an impersonal credit crisis:

Jesse Eisinger, a former financial columnist for the Journal and now a senior writer for Portfolio, says the paper, like business journalism generally, clung to outdated formulas. Wall Street coverage tilted toward personality-driven stories, not deconstructing balance sheets or figuring out risks. Stocks were the focus, when the problems were brewing in derivatives. “We were following the old model,” he says.

Where did that old model come from? Monday’s Journal happened to carry a review of a new book by former Journal exec Richard Tofel — a biography of Barney Kilgore, the legendary editor who made the Journal what it is today (or, rather, what it was till recently).

Kilgore believed in humanizing articles on even complicated subjects, insisting that editors and writers try to make room in news stories, whenever possible, for anecdotes, narrative details and portraits of individuals, thus bringing topics alive for that “average reader.”

So was it Kilgore’s fault the Journal failed to offer early insight into the real estate crisis, derivatives, the instability of the banking system, and so on? We can’t blame him exclusively for that; the approach credited to him is one that is nearly universal in journalism today. The reasons behind the Journal’s weak showing in the current crisis seem of more recent vintage.

Still, there’s a lesson here in the limits of the daily journalism world view. Sometimes the heart of the story lies beyond “one person’s tale.” Sometimes, as Felix Salmon’s fascinating piece in the latest Wired — The Formula That Killed Wall Street — shows, it lies with a mathematical insight. Sometimes we need to turn to demographics, or history, or science.

Reading the Journal’s review of the Kilgore book, I did get an odd feeling that there was some elephant-in-the-room avoidance going on. Both review and book laud the man who shaped the modern Wall Street Journal at the very moment that new owners are radically altering, if not dismantling, that institution. Yet the review did not even offer a tip of a hat or wink of an eye to that fact.

It’s not easy to write about change at a newspaper in the pages of that newspaper, but it’s one of the things we expect our independent press to be able to handle when the occasion arises. This occasion is one that appears to have been handled by sheer ostrich-like avoidance.

Today Walter Isaacson, the venerable former editor of Time and current boss of the Aspen Institute, unleashes a multipronged offensive on behalf of the idea of micropayments for news. In a lecture delivered yesterday and also in a Time magazine essay, he argues that the advertising-only model for Web revenue warps traditional journalistic values, and advocates new efforts by publications to charge tiny sums for access to individual pieces of content.

I have to admit that my jaw dropped at the point where Isaacson admitted that he no longer pays for the New York Times. Something tells me Isaacson is in a slightly higher income bracket than me, yet I still buy the paper. Thanks, Walter, for making me feel like a chump! Keep talking and you may yet drive the Times’ circulation down a few more points.

Seriously, though, Isaacson’s argument is worth following. In his speech he presents a ready familiarity with the history of the early Internet and its evolution from the “walled gardens” of the for-profit online services to the open Web. (He was running Time’s ill-fated digital efforts back then, so he knows the stories first hand.) Though he admits that recent history is littered with failed micropayment schemes, and mentions the “many tracts and blog entries [that] have been written about why the concept can’t work because of mental transaction costs and the like,” he believes that “things have changed.” Like David Carr before him, he points to the success of iTunes and the Kindle as “pay-per-drink” precedents.

The key for attracting online revenue, I think, is coming up with an iTunes-easy, quick micropayment method. We need something like digital coins or an E-Z Pass digital wallet – a one-click system that will permit impulse purchases of a newspaper, magazine, article, blog, application, or video for a penny, nickel, dime, or whatever the creator chooses to charge.

Micropayments may seem newfangled to some newspaper managers, but in advocating them, Isaacson is tapping into one of the longest-running debates on the Web. The canonical “tract” about why micropayments can’t work is Clay Shirky’s from 2003. Shirky, in turn, points back to a 1996 essay by Nick Szabo on the “mental transaction costs” of micropayment systems (the paper, alas, is no longer online). Here’s Shirky’s thesis:

The vanishingly low cost of making unlimited perfect copies put[s] creators in the position of having to decide between going for audience size (fame) or restricting and charging for access (fortune), and the desire for fame, no longer tempered by reproduction costs, [will] generally win out.

Shirky’s essay offered a critique of a new micropayments scheme then being championed by Scott McCloud (author of Understanding Comics), who was experimenting with charging a small amount for a new comic strip. As the author of Understanding Comics, McCloud already had a substantial following among the geek set who were interested in his project. McCloud also responded at the time to Shirky.

In April, 2007, the company that McCloud was using to sell access to his comic went under. McCloud began giving away his comic. Round to Shirky.

But April 2007 was another market peak like early 2000, and the micropayments debate revives every time there’s a downturn. My own experience at Salon, where we began selling subscriptions in early 2001 and briefly “closed the gates” on all of our news content after 9/11 sent advertisers into hiding, suggests that it cannot and will not save the newspaper business: We were a popular, high-traffic news website with enormous good will from our users and Web colleagues. Yet when we started asking for money, our traffic plummeted — users fled, and other sites stopped linking.

We soon changed course. True, we were asking for subscription fees, not per-article payments, but our experiments with the latter were failures as well. When you demand money for access, you’re not only invoking the “mental overhead” of a decision on the reader’s part; you’re effectively seceding from the Web, cutting off the online circulatory system of inbound links, and risking a slow, painful slide into irrelevance.

Here’s a telling example: as I prepared this post I found a reference to an IEEE article from 2004, Micropayments: An idea whose time has passed twice?, by M. Lesk, which is highly pertinent to the subject. But I originally decided not to link to it because I couldn’t easily read it. Even if you built an easy-to-use micropayment system allowing access to that article, I’d be thinking, “Should I point my readers to something that’s going to cost them money? Shirky’s post is pretty good reading, and it doesn’t cost a cent.”

OTHER LINKS: Bill Wyman takes Isaacson’s argument apart: “Newspapers had an advertising-only model. They made untold millions. (Billions.) And they did produce a lot of sections about gardening and home improvement.”

Mark Potts: “The idea that forcing readers to pay for general online newspaper content will somehow magically solve the industry’s problems–never mind the horrific effect subscription plans would have on traffic-based ad revenue–is just folly.”

The LA Times’ David Sarno wrote about micropayments last month, interviewing Shirky and Columbia professor William Baker. Doug Fisher wrote a response, quoting Wired editor (and Free author) Chris Anderson: “The huge psychological gap between “almost zero” and “zero” is why micropayments failed.”

In 1998 and again in 2001, Web usability expert Jakob Nielsen predicted micropayments would become a prevalent economic model.

The CapGemini consultancy assembled this report on micropayments in 2004.

This newscast from KRON in San Francisco in 1981 has been making the rounds recently. It’s labeled “primitive Internet report,” but what it presents is actually one example of the many pre-Internet efforts that the newspaper industry made to try to plan for an online future — and stake out its own turf in that forthcoming world.

This particular example has a lot of personal resonance because the newspaper involved is the SF Examiner. The video’s now antediluvian-looking images have a Proustian quality for me: In 1981 I was just graduating from college, but five years later I’d be going to work in the newsroom you see in this video. Those green-on-black screens you can see the reporters working on (“Coyotes,” they were called) strained my eyes for a decade. Dave Cole, the guy who introduces the Examiner’s “experiment” in making its content available via modem to home computer users, was still there, working on the computerization of the paper’s operations; he went on to become a well known industry consultant.

In the video, you can hear Cole say, of the “Electronic Examiner” he was demonstrating, “We’re not in it to make money.” At the end, the announcer points out that an entire edition of the paper takes two hours to download, at a $5/hour cost — making this “telepaper” little competition for the paper edition. “For the moment at least,” the reporter declares, over the image of a sidewalk news vendor hawking the afternoon edition, “this fellow isn’t worried about being out of a job.”

Though the piece does say that “Engineers now predict the day will come when we get all our newspapers and magazines by home computer,” its underlying message is — Don’t worry. This crazy computer stuff isn’t going to change anything much for now. And indeed it took 10 years for any sort of online service to become even remotely popular. Almost 30 years later, newspapers are still in business; some are even still sold by guys on sidewalks. It has taken this long for the technology to transform the newspaper biz in a big way.

What you can see at work in this clip is the “computers will replace trucks!” perspective that continued to hobble the news industry’s online efforts for many years. The “Electronic Examiner’s” use of the computer as an efficient transport mechanism for the same old product was understandable; it was a Herculean effort in 1981 just to get this stuff to work (and there were precious few customers/users).

But even as the downloads sped up and the connect-time costs dropped, the industry held onto that approach, instead of coming to grips with the fundamentally different dynamics of a new communications medium. What had made sense in the early days over time became a crippling set of blinders. The spirit of experimentation that the Examiner set out with in 1981 dried up, replaced by an industry-wide allergy to fundamental change.

“Let’s use the new technology,” editors and executives would say, “but let’s not let the technology change our profession or our industry.” They largely succeeded in resisting change. Now it’s catching up with them.

More on this stuff from Jeff Jarvis (who was there at the Examiner in the early ’80s, before me) and Susan Mernit.

Jack Shafer seems to be locked into the same mental cul-de-sac as David Carr when it comes to the future of news consumption. In his Slate column responding to what he calls Carr’s “excellent” challenge to invent the “iTunes for news,” Shafer argues that publishers should invent their own standard and bypass potential Apple-like aggregators (the role Amazon has taken for its Kindle reader):

Just as the iPhone and other smartphones obliterated the PDA category, mobile PCs and smartphones used as electronic readers could render the Kindle obsolete overnight if publishers joined forces to create technical standard for over-the-air delivery of books and publications.

That’s my bold in the quote, because that phrase encapsulates the error in Shafer’s thinking. It is the same error that electronic publishers made in the early ’90s when they thought they could “repurpose” existing media on shiny CD-ROMs. It’s the same error that the early experimenters in motion pictures made when they pointed their cameras at the stage to record plays.

The future of news does not lie in “over-the-air delivery of books” and existing publications (newspapers, magazines). Books, newspapers and magazines work quite beautifully on paper. But they cannot be transposed into digital form as is. That’s why all the kludge-y attempts to provide a newspaper look-and-feel on screen (including one by the New York Times that Shafer inexplicably adores) are such disastrous failures, and will never become widely used products.

It is hugely unlikely that news and information as presently delivered in newspapers and magazines will be consumed as newspapers (or magazines) simply repackaged for download onto some device. Why? Because there already is a “technical standard” for “over-the-air delivery” of such news and information: it’s called the Web. And if netbooks become popular devices for consuming such news and information, as Shafer credibly argues, users will use them freely to assemble their news and information from the Web. If newspapers try to sequester their content into pay-only downloads, people will simply ignore their products. (Books are a somewhat different can of worms, but I’ll leave that for another post.)

Yet that is what Shafer is urging them to do. In his dreamworld, the newspaper and magazine publishers will secede from the Web and start charging users to read their products on netbook PCs via some proprietary interface. I’m not making this up:

By eschewing the Web browser, the Times Reader also sent the same message the nonbrowser interface for the iTunes sends: This isn’t the Web, dude. This isn’t free. You’re going to have to pay.

In 2009, it’s simply ludicrous to imagine that any such scheme could prosper. (The iTunes comparison doesn’t hold because music is a fundamentally different product from news and information.) But if you are clinging to the pipe-dream that news publishers can maintain their old profit margins, you have to convince yourself that this sort of approach could work. It’s a shame to think that some news companies will squander their dwindling resources on such desperation moves, when what they ought to be doing is accepting reality.

In reality, the old business model is disintegrating, and the public and the journalism profession need the business to figure out how to fund in-depth reporting and investigative journalism in the new digital world. The more energy the news industry wastes trying to repackage the dead old form in new, ill-fitting digital clothes, the fewer resources it will have to tackle the real challenge.

David Carr is looking for a new business model for news, and says it needs an iTunes. Part of what he wants is to charge for the articles, and, you know, good luck with that. (Times Select, RIP.) But part of what he wants is simply the elusive new online revenue stream that will pay for the newsroom.

Well, it already exists. It’s called Google text ads. It’s ad revenue tailored specifically for the Web environment. It works, and it’s already bringing considerable sums in to many Web sites. It lets little guys and big guys play on the same field.

The problem is, it doesn’t bring in as much cash as newspapers want, or have traditionally expected. And of course, from the music companies’ perspective, neither does iTunes.

The news industry knows how to make money online, just like everybody else. It just doesn’t know how to make as much money as it used to offline. Carr’s piece is strangely silent on this obvious observation. For someone who is trying to think out loud about this situation, he is displaying a peculiar blind spot.

Unfortunately, as a result, his musing simply prolongs the day of reckoning for the industry. He continues to hold out hope for some elusive profit-generating magic formula, instead of helping the business face the reality of a new world in which there’s simply far less money to be made.

UPDATE: Jeff Jarvis’s comment: “The real fallacy in Carr’s delusion is that a news story or an opinion, like a song, is unique—that you can’t get it somewhere else and so you have to buy the original.”

I see that the Washington Post’s new publisher, Katharine Weymouth, says the following in a memo: “We must focus better on what the consumer indicates they want, and be less quick to emphasize only what we think is important.”

These are words that most journalists have conditioned themselves to grimace at. To the old-school reporter, “listen to the customer” is assumed to be code for one of the following: (a) cave to the politician; (b) coddle the advertiser; (c) pander to the ignorant; or (d) give credence to the crazies. Customer research is for the marketing guys on the other side of the wall; here in the newsroom, we chart our own course, and we must stuff our ears and tie ourselves to the mast any time our ship passes close enough to readers for us to hear what they’re saying. Otherwise, we might betray our values.

To those of you in businesses outside of professional journalism, where listening to the customer is simple common sense, I realize that this sounds nuts. But it’s true. Here is a very amusing statement of it from one of the most successful journalists of our time:

At the Post I learned how to cruise the newsroom from the master, Michael Specter, who is now the Moscow correspondent for the New York Times… Michael also taught me how to deal with angry and rude readers, which is a major occupational hazard in the newspaper world. I used to get all flustered and apologetic and depressed when people called up to yell at me. But Michael would just listen for about 10 seconds, roll his eyes, and say: “You seem to have forgotten one thing. I DON’T WORK FOR YOU!” Michael is my idol.

This is Malcolm Gladwell, writing in 1996 in Slate. He is recording what a surprising number of journalists believe: They do not work for their readers. This is a fine thing to say, until the person they do work for turns out to be a profit-hungry capitalist less interested in the values of journalism than in boosting shareholder value (or, today, avoiding bankruptcy). At that moment, suddenly, the journalist becomes a convert to the notion of Serving the Reader. Only the commitment is an abstract one; it is made to The Reader, not to specific readers, and so defining its specific meaning remains in the journalist’s hands.

I am writing harshly here because a profession that I love is falling apart. Once upon a time I, too, would have heard a line like “we must focus better on the consumer” and rolled my eyes. Today? I wish the Post luck in figuring out who those consumers are, what they want, and how to get it to them.