Saturday, September 18, 2004

Understanding Ads Will Make You More Attractive

I love advertising. Sure, it’s annoying but it’s far better than putting a coin in the television every time you want to watch a show. Plus, they act as bathroom breaks and fridge runs. But much to my dismay, some people don’t like them. I was having a conversation with a friend of mine today about the role of advertising and it occurred to me how much disdain I have for loud, poorly-developed arguments, especially ones about marketing.

My friend, a rhetoric major, insists that advertising is evil and makes people buy things. I argue that’s not possible. He cited, as evidence, that he knows “bunches of people” that live beyond their means. They buy $300 Nike shoes (forget the fact that Nike shoes are in the $100 area) while they are on food stamps. I argue that they buy those shoes because they are on food stamps—they save so much money on food because the government pays for it. Therefore, they buy other stuff they want.

Apparently, I’m wrong. I was told that these people cannot afford these shoes. But that’s clearly incorrect—they have them, don’t they?

My friend insists that lower income groups lack the knowledge to know that advertisements exaggerate. I told him that if I was a member of that group, I would find that endlessly offensive. He says that’s unfortunate, but it’s true.

Now like all arguments based on rhetoric rather than reason, there is some truth to it. People in this country live way beyond their means—most Americans have credit card debt. But these people can consolidate their loans, return items, tighten their budget and do countless other things to overcome their financial difficulties. To say there are people in this country so stupid that they wouldn’t be able to learn and adapt in such a fundamental way is to say that these people have IQs of eggplants. It’s not only insulting, it’s just not true.

If the poor similarly drove themselves deeper into poverty without adapting, they would have died out a long time ago.

For more information on why advertising is actually really great, read my previous post on the subject.

5 comments:

Illy said...

"People in this country live way beyond their means—most Americans have credit card debt. But these people can consolidate their loans, return items, tighten their budget and do countless other things to overcome their financial difficulties."
Not only can Americans manage their credit card debt without much trouble, but credit card debt is a source of economic growth. Hernando De Soto's "The Mystery of Capital", which I am loving and telling everyone about, is an excellent expose on how the ability to turn one's assets into capital (such as being able to obtain loans and have credit) is at the root of Western prosperity.

Anonymous said...

Illy,

You wrote:

"Not only can Americans manage their credit card debt without much trouble, but credit card debt is a source of economic growth. Hernando De Soto's "The Mystery of Capital", which I am loving and telling everyone about, is an excellent expose on how the ability to turn one's assets into capital (such as being able to obtain loans and have credit) is at the root of Western prosperity."

While it is true that credit is an important part of economic growth, there is something that you didn't mention. Perhaps people can pay off their debt easily (I'm not so sure about that), but the fact that people are deciding to consume at a higher rate in the present than they have in the past means that they are saving less. If they are saving less, then less funds are available for future production. So while they may be able to enjoy high consumption in the present, because they are saving less, they will not be able to keep up that rate of consumption because the decreased saving implies less production for future consumption. This is the phenemenon known as "capital consumption." In this case, capital consumption is the result of credit expansion, i.e. "cheap credit," being created by the central banks, which lowers interests rates and thus makes debt a much easier burden to bear. A significant portion of the funds that consumers are spending were not amassed by private savers, but rather, the funds were created by government fiat.

Sorry if this is poorly phrased, you can check out Frank Shostak's writings on the subject over at mises.org. They are much better written, plus some of them are loaded with statistics.

Matt Bower

Chris said...

Well, quite frankly I don't care for advertising. Though not for the same "oh, woe for the po' folks" reasons as David's friend. I can't stand the stupid and banal quality of modern advertising. Yuck! I would gladly pay a premium to skip advertising and I have considered saving up the money to buy myself a Tivo. This is also why I greatly appreciate the fine programs on HBO which actually provide 60 minutes of a show in the 60 minute slot, instead of the 44 minutes of actual programming that is available on the networks.

On a related note however, I have often contemplated the idea of a network that is solely devoted to advertising. Essentially it would a 24 commercial network (in the same vein as FoxNews and CNN, except commercials instead of news.) I certainly think there must be as much a market for this as there is for 24 hour news programming. Consider how many people tune into the Super Bowl each year just to watch the commercials. With an entire network devoted to advertising, the minute rate for advertising would be much cheaper than on other networks and this would allow a company to devote more of it's PR budget to the quality of the advertisement instead of to the price charged for advertising itself. Not a bad idea, if I do say so myself. Anyone interested?

David said...

Matt, to a certain extent you are right, but I doubt that the government is really saving us through the central bank. You said,

"If they are saving less, then less funds are available for future production."

Cetibus paribus, you are right. But we don't live in a cetibut paribus world. The real strength comes from international investers who are putting their money in our economy in droves. The capital flow of the ocuntry is about $55.8 billion. This money doesn't dissappear; it goes to companies who put it in saving accounts for later spending.

The problem is the government's fiddling with the interest rate which actually depresses the amount of money that could go into banks. If interest rates were left alone, they would rise...more people and firms would put money in the bank and fewer people would take out loans for consumption.

membower said...

David,

"...to a certain extent you are right, but I doubt that the government is really saving us through the central bank."

I hope I didn't come off as trying to argue that the government is saving us through the central bank. My point was that the government causes adverse economic effects, but I probably wasn't clear enough.

"You said,

'If they are saving less, then less funds are available for future production.'

Cetibus paribus, you are right. But we don't live in a cetibut paribus world. The real strength comes from international investers who are putting their money in our economy in droves. The capital flow of the ocuntry is about $55.8 billion. This money doesn't dissappear; it goes to companies who put it in saving accounts for later spending."

You're absolutely right. But we can't assume that those thrifty asians (the ones sitting on piles and piles of dollars) will finance our lifestyle forever, can we?

"The problem is the government's fiddling with the interest rate which actually depresses the amount of money that could go into banks. If interest rates were left alone, they would rise...more people and firms would put money in the bank and fewer people would take out loans for consumption."

Right on! That was what I was trying to say, but your counterfactual example is much clearer.