Comment by csense
21 days 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...
> 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.
>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.
>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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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.
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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.
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.
If you're a market leader it might make sense to use your influence to try pushing the whole market against the per-firm incentive gradient to a better equilibrium. Factors that help:
- You're an early player using new technology so you have profits to spare
- You're in a capital intensive business so salaries are a relatively small portion of your expenses
- You have a celebrity CEO so investors give them more of a "pass" for visionary ideas that go against conventional wisdom
I'm not an expert on the history of the US auto industry but my gut feeling is that all of these applied to Henry Ford's Ford.
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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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.
Why do you argue against paying people more when we are stuck in a society that increasingly fucks over workers with blithe logic and one-sided presentations of data?
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.
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.
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.
> the real cause of nobody being able to afford anything is rent extractors.
Employers/Owners are essentially rent extractors to workers. Its even worse IMO. They buy some of your time to do stuff for them. They also lend you the tools and materials to do your job. And they own whatever you produce. If you are selling your one hour for 100 bucks to produce ten linen coats worth 100 bucks each, you get a 100, everything else - minus costs of materials and your 100 the employer gets to keep as free rent.
Yes, because the employer just happened to be the first one to find the fully built and equipped coat factory and he declared himself the boss. He in no way shape or form had to risk his capital to set up a successful business, so he should be living from scraps
Well, this is not was OP said ;-)
Am I seeing a fellow georgist in the wild? That's great!
I do agree that these monopolies are rent seeking and we should probably do something about it
> 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)...
This reminds me of this too https://www.youtube.com/watch?v=uvHwyrem24M (CEO who gave all his employees minimum $70,000 paycheck thriving six years later)
Everyone bet that they would fold but they are doing stronger than ever. People took voluntary pay cuts when the company was under pressure and they even gifted their CEO their favourite car out of their own geneorsity!
I always smile when I watch this video. (the company's gravity payments)
> The class conflict shouldn't be between workers and employers
I feel like the problem's becoming that the employers are themselves rent seekers (so think working at google,facebook,twitter) or the VC companies which want to build more Google's and facebooks and twitters but not companies like the one that I mentioned in the video
Stronger unions would help bring wages up.
That is an interesting chicken and egg problem. A strong union requires members who can demonstrate that prolonged work stoppages are a credible threat. If the employer thinks everyone will be starving and begging to come back after a week, the union has no power.
In other words, in order for a union to become strong, wages already need to be up to allow the workers to be able amass considerable savings to get them through the months and years when they aren't working. So higher wages have to come first. But to complicate matters, once workers have that, they often start to feel like they don't need a union.
The one time when unions did become strong, workers were so desperate for safer working conditions that potentially being thrown out on the street and left to starve was seen as a better option than being crushed by a machine. But the law now ensures that workers are just comfortable enough to prevent an uprising like that again.
I dont think you have to go georgist for that take, adam smith’s whole “free market” originally meant “free from economic rent”
>In a different world where there are higher wages, more people would have more spending power.
I don't think that's true, not for random goods. Rent scales with disposable income. If most people make more money, then rent becomes more expensive. Rent essentially vacuums up all the excess money people have available. (Rent = housing in this case)
Why would people want to live in these more expensive places rather than somewhere cheaper? It's because that's where all the (well-paying) jobs are.
When you see Americans complaining about how poor they are you might reasonably ask: okay, but how do people on $poorCountry get by when their income is 5-10x less? It's not like food, clothing, electronics, and other goods are 5-10x cheaper there. But what is much cheaper is housing. (You'll even find cheap housing in rich countries, it'll just be in areas with no jobs.)
Food and clothing are often 5-10x cheaper in those countries compared to what people pay in America.
> 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).
My problem with buying stuff is that by the age of 40 I had already attained everything that I ever needed or wanted except for a occasional replacement.
Personally, I don't need more products, but there are many services I would pay for if they existed. But, apparently companies don't seem to care about providing services. Why? Is it because they don't scale?
What kinds of services would you pay for that don’t already exist?
In general, it's difficult to find services that are high-quality and high-trust.
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.
A Marxist can certainly also be a Georgist, it's a matter between who should we eliminate first: the capitalists or the rent-seekers. Maybe we should eliminate the latter first in order to be able to properly tackle the former: the real class conflict between the proletariat and the bourgeois!
But you can also go a bit more extreme (and less orthodox) and say that classical capitalism has already come to an end, and in the current neoliberal era most of the purported "capitalists" are actually just rent-seekers (platform based companies which run either on ads or monthly payments) - you don't sell commodities anymore and instead just access to services. Maybe these are just a symptom of The Tendency of the Rate of Profit to Fall - where the value of labor itself has fallen so much that there is no way for any capitalist production to continue generating acceptable profits unless you do any rent-seeking behavior. In that sense, you can certainly be both a Georgist and a Marxist since you still believe in the TRPF and the inherent contradictions of capitalism (though quite an unorthodox one!)