Comment by csense
11 hours ago
Advertising spend being too high is a symptom of a supply glut. Too many products in the marketplace, not enough consumers to buy them.
In a different world where there are higher wages, more people would have more spending power. Then companies wouldn't have to spend as many dollars on advertising, which they could split between higher wages, higher margins and lower prices.
Alas, the short-term single-firm directional incentive for company decision makers in that world leads to marginal prioritization of higher margins. The loss of wages leads to loss of consumer spending power but it's spread across the economy. But every firm has the same incentive so they all do the same thing, and the good thing gets ruined.
This line of thinking leads to a Georgist-ish conclusion: The class conflict shouldn't be between workers and employers. They should be allies; the real cause of nobody being able to afford anything is rent extractors. (Writing in the 1800's, George [1] was most concerned about land rents; but the advertising monopoly of Google / Meta may be another form of extractive rent with similar characteristics.)
Maybe Henry Ford was on to something when he shocked the world by paying his employees enough to afford the product they were making (more than doubling many workers' wages)...
[1] https://www.astralcodexten.com/p/your-book-review-progress-a...
>Maybe Henry Ford was on to something when he shocked the world by paying his employees enough to afford the product they were making (more than doubling many workers' wages)...
That's a nice story to tell, but the economics never works out if you do the math. Whatever extra wages you pay, you only get a fraction of that back in increased sales. How much percent of a worker's income do you think is spent on a car? As a rough measure we can use the BLS's CPI weights for "new and used vehicles", which comes in at 7.4%, with an extra 1.4% if you include maintenance and parts. By that alone "paying his employees enough to afford the product they were making" is going to be a losing proposition, because Ford can only hope to get 8.8% of whatever they paid in wages back as revenue. And all of this is ignoring the fact that you can't pay extra wages out of revenue, only profit, so you can only hope to recoup a fraction of that 8.8%.
thats an overly simplistic way to look at it. Of course you can never get more money from your employees' purchases than you give them, that makes no sense. The point is using your market power as a large employer to raise market salaries. People will not want to work for your competitors or other sectors if they pay half what you do. So when you rise, naturally other salaries will rise too. And those other workers will also be buying cars.
Whether that makes sense economically is a difficult problem to quantify, especially over any fixed timeframe. I would guess not, at least if your brand isnt insanely strong (on the level of half or more people with enough money would buy it)
It's a collective action problem. If everyone pays higher wages, there's a greater supply of money for buying stuff / solving problems (assuming the higher wages aren't eaten by rents). No individual form recoups all of the higher wages they pay their workers, obviously, but there's a larger market for the goods of everyone has more money.
Is there? Covid stimulus would say there isn't. Granted a company raising wages doesn't print money out of air like the Fed but the amount of goods doesn't change, the cost of the goods adjusts to the monetary supply. You now pay more for the same.
>If everyone pays higher wages, there's a greater supply of money for buying stuff / solving problems (assuming the higher wages aren't eaten by rents). No individual form recoups all of the higher wages they pay their workers, obviously, but there's a larger market for the goods of everyone has more money.
Does this actually work? Suppose you're on an island where the economy only produces coconuts. How does giving workers more coconuts make the economy grow, such that there's more coconuts to go around overall? Unless the workers were absolutely famished, giving them more coconuts isn't going to increase productivity. You might argue this model isn't representative of the real world, but that's approximately how the economy works. It can produce a certain amount of "stuff" (ie. coconuts), of which some portion can be given to workers, and the remainder can be given to the kings/elites/capitalists/whatever. Unless you improve productivity, there isn't going to be magically more stuff to go around.
Giving each worker a car can plausibly increase their productivity (less time spent commuting?) but the effect is small, and unlikely to be recouped by car companies. The situation looks even worse in the current economy. If everyone's paychecks were 10% bigger, what marginal item do you think it'll be spent on? A bigger car? A new iPhone or big screen TV? How would any of those increase productivity?
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> the economics never works out if you do the math
The economics work out pretty well if you are the only game in town where your employees can purchase what you have marketed to be the next big thing and status symbol that everyone must have.
Obviously this would never work with a single employer. But I think the point is moreso that if every employer, in an altruistic sense, decided to pay their employees enough to afford more purchasing power, the entire market would grow faster
Your logic is flawed. 8.8% of total wages vs 0% of some lesser number isn’t 8.8% of the difference.
If hypothetically you are paying 99x a year and bumping that to 100x means someone buys an 8.8x product that could be a win.
>If hypothetically you are paying 99x a year and bumping that to 100x means someone buys an 8.8x product that could be a win.
What type of company would this work for? Cars are so ingrained in our society that it's doubtful the marginal Ford (or Tesla) factory worker is going to be buying a $50k car just because they paid better wages.
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Ok, so if he still makes a profit, so what? There are numerous other advantages to a happy and well-compensated workforce, even completely ignoring the societal benefits beyond just the company.
The idea is to use that as a marketing ploy on all sides.
On one side, paying high wages is marketing on the employment market - enticing people to work at Ford's rather than somewhere else.
Then, you got the government side. A factory providing a town with a lot of high quality employment leads to a lot of purchasing power from the employees and thus to a growing city. Wolfsburg in Germany, the best example, literally was founded by/for Volkswagen. Being respected by local politics for that growth, in turn, leads politicians and city management to... be lenient in enforcing regulations impeding the business. The best example here is Tesla in Brandenburg near Berlin. With any other company in any other place in Germany, they would get hammered with fines. Tesla in turn set up shop in a destitute area, so politicians bent over backwards and looked aside despite numerous violations and transgressions.
And finally, you got the customer side. The story of a quality product, made by well-paid domestic workers, was as powerful a story as it still is today, at least in affluent circles.
The microeconomics of that decision are poor for the company, but the macroeconomics are great. But the macro angle has been reduced to "Fed interest rate" in America.
> In a different world where there are higher wages, more people would have more spending power. Then companies wouldn't have to spend as many dollars on advertising, which they could split between higher wages, higher margins and lower prices.
Interesting hypothesis. I looked it up in Wilkinson and Pickett, The Spirit Level.
The authors provide cross-sectional data across 23 rich nations, showing a strong positive correlation (r~=0.70) between income inequality (Gini coefficient) and advertising expenditure as a percentage of GDP.
They attribute it to increased status competition & anxiety in more unequal societies, leading to pressure to consume more.
>The authors provide cross-sectional data across 23 rich nations, showing a strong positive correlation (r~=0.70) between income inequality (Gini coefficient) and advertising expenditure as a percentage of GDP.
Why only rich nations? Many of the most unequal countries are also poor (or at least, not rich), so why do they get a pass?
https://en.wikipedia.org/wiki/File:Gini_Coefficient_of_Wealt...
https://en.wikipedia.org/wiki/File:World_Bank_Inequality_202...
Take a few quantitative courses (ie statistics). Roughly speaking, you usually want to compare similar-ish groups. It's like if you want to examine the effects of diet on a human body, you can't just mix old and young haphazardly. Advertising spend in Somalia probably works very different than advertising spend in Norway.
I'm just going to add a recommendation for the book 'Technofeudalism' by Yanis Varoufakis. The short version is that the current cloud economy is similar to serfs working under a feudal lord.
> The class conflict shouldn't be between workers and employers.
Then why don't employers, the ones with essentially all the power here, tend to choose actions that go against the interests of the working class? Simple: regardless of what you think "should" happen, a study of history tells us what actually tends to happen in reality, and that tendency is towards class war between the ruling and exploited classes.
Anyways, in what way is "ownership" not rent-extracting in general? If you own shares of a stock and you get paid a dividend, that is rent plain and simple. All the arguments you can make against that being the case -- eg that you deserve a premium for parking your capital in a risky asset -- apply to advertising conglomerates and even literally renting out land too, so either they're all renting or none are.
Because employers don't tend to make choices about the "interests of the working class", they make choices about what benefits them specifically in the moment or near future. You need to get some sort of alignment on their interests and the interests of the working class to create change, whether that's via government intervention or otherwise.
And I hear you on ownership. It's "just" figuring out how to make that change.
>... so either they're all renting or none are.
The article in the parent comment specifically spells out why renting out land is different than say, "renting" out a car factory (or any other productive asset).
Stronger unions would help bring wages up.
I dont think you have to go georgist for that take, adam smith’s whole “free market” originally meant “free from economic rent”
I don't think that's how it works. These companies have all the visibility control and make you invisible by default unless you pay them. It has very little to do with quality, demand, or any of the rest.
I'm not familiar with Georgism, but employers and rent extractors (e.g. the majority stock owners) seem to be one and the same pretty often, at least in the US.