One thing that falls out of my solution is that it would greatly reduce the marginal gains for many existing brands.
Right now, say a cereal company spends 40% of revenue on advertising. The tax on advertising is 100% (as an example). This changes the effectiveness of each marginal dollar spent. It might be that each marginal dollar above spending, saying, 15% of revenue on advertising does not produce a worthwhile marginal gain.
Due to the tax, it means the new situation is that the cereal company now spends 30% of revenue on avertising, 15% of which is taxed. This sounds bad (the cereal company has only 1/3 the ads being purchased), but this new rule applies to EVERYONE.
In a world where all companies can only spew out 1/3 the total number of ads, there are only 1/3 the ads competing for consumer attention. In practice, this may in fact mean that revenues remain constant, because you’ve lowered the “noise floor” of the entire environment.
That’s the theory. The smart money would be for the government to conduct an experiment. Try a small tax on advertising, or place a large tax in a single U.S. state.
Without making too extended an argument out of it, companies would simply absorb the tax, pass it along as part of their costs, and advertise pretty much the same amount and the same way they always had.
What you’re overlooking here is that the consumer market is not zero sum; manufacturers almost always have room to absorb some higher costs and pass many of them along to the end buyer. So the tax would not be a brake on the manufacturer; it would be one more cost increase for consumers.
I think you are greatly overrating the impact of such punitive taxes. Everyone bitches about them, but in the end, they just shut up and pay… even if it’s $12 a pack for cigarettes in NYC.
That doesn’t follow any basic law of supply and demand. I’m sorry, but you need to elaborate. You mention doing legitimate professional work in a related field : you must understand basic economics.
Look. Companies can measure, roughly, the benefits of advertising. Any company that fails to do so eventually goes broke. So if a company spends $1 on ads, if the company doesn’t get at least enough money back in increased sales to cover that $1, the advertising is a net loss.
My solution makes that $1 cost $2 with the tax.
If a company is barely profitable (many corporations are), and they choose to reduce their profits to below zero this quarter to spend money on more ads, unless there is a positive gain from the ad blitz they will go broke.
I’m not sure I can give you any answer you’ll accept, at any length; you seem to be dialing in from a highly idealized universe and unwilling to concede that rigid rules do not apply. Economics is at best a soft science, which allows itself the luxury of defining its own precepts and rules, many of which simply don’t work in a lot of real world situations.
If you aren’t aware that such added costs, taxes and penalties are routinely folded into increased product costs, then your understanding of economics does not include the real world. By your rules, people in NYC would have stopped smoking a decade ago. Instead they pay something like $7.00 a pack in taxes and keep on puffin’.
Arguing your point on processed food makes it even weaker; the food manufacturers routinely cope with cost increases, competition price cuts and market fickleness, and have a vast range of weapons to keep and take back market share. If taxes drive the cost of a box of cereal up $1, sales will not suffer proportionately. (It’s happened; people just pay the higher price as they do with ciggies.)
They don’t reduce it to zero, and my proposed change wouldn’t reduce ads to zero either, it would simply make the equilibrium level much lower.
In the case of a box of cornflakes, you are basically trying to say that no matter how high the tax on advertising goes, people will be willing to pay $10 or $20 for that box of name brand cereal rather than $2 for the generic store brand.
So no, I don’t accept your premise, because it’s wrong. I acknowledge the real world is much more complicated…but complexity does not change basic fundamental rules.
In the long, long run, a company that fails to bring in more money than it spends will go broke and cease to operate. My proposed rule change causes companies that spend huge sums on advertising to be in this situation. Please explain where I am wrong with your superior knowledge.
(Maybe when you want to frame the discussion somewhere in the real world, between absolutely rigid economic rules and absurdio extensions, we can pick up again.)
I’m guessing you’re a second-year biz or econ student, BTW.
Just wanted to bump this thread, as I think it has some interesting aspects to continue discussing.
Habeed and Honesty, you might think I am more opposed to your ideas than I am. We are actually very much in the same corner and regard the problem in much the same way. Where we differ is in the practical solution. If there were a button here on my desk that I could push and permanently eliminate “advertising” on the planet, I’d push it without a second thought - and I am very fully aware of the consequences of doing so.
But no such button exists. There isn’t one wired to legislation or taxation powers that would work, no matter how finely you try to reason it using limited terms. It would be like trying to outlaw thinking about sex, or taxing breathing - mostly because it’s ineradicably tied up with our notions of free speech, and by the time you finished dissecting it out and imposing limitations you’d have irreparably damaged our cultural matrix.
But: yup, advertising sucks, and does incalculable harm, even though it’s only a facet of the problem and not the problem itself. So back up to that point and think it through again: what’s the way to render advertising powerless, or at least not the negative force as which you see it?
The way to render it powerless is to create a source of unbiased, truthful information that people trust. Over time, people who use this information source will gain an advantage over people who do not, and more and more people will use it.
Amazon’s “customer reviews”, as well as more formal systems like Consumer Reports help quite a bit. They cut through the noise with more honest, clearer signals.
However, we wouldn’t live in a world inundated with ads and bad information if these systems worked to their full potential…
Also, the other problem is that people, at a low level, really are not very rational. Those beer ads with the scantily clad women continue to work on us, even if we can easily find out clear and accurate information on the effect of alcoholic beverages.
Ultimately, that’s what this debate boils down to. I’m saying that from the perspective of a government, there are choices that can be made that will improve things overall for the average person. Even with the inefficiency added by bureaucracy, it’s a net positive gain.
Yes it is. The Constitution doesn’t specifically ban speech whose purpose is to convince people to buy what you’re selling. Until it does, it can’t be treated like any other speech. And since you also have free speech, you’re free to criticize it all you want.
I think you’re correct in all but your conclusion (as I have thought all along). There isn’t much we can do with governmental force here; it would be much the same as the “limited wars” we’ve engaged in… the battle never ends but never accomplishes much, either.
I’ll put a few cards on the table here.
I’d agree that people are not very rational in this regard, but that a good part of that irrationality has been imposed through a half-century or more of behavioral engineering. That this careful, highly scientific (entirely data-driven) and determined process is dismissed by a good number of its subjects is an intentional result.
The way to reach through this indoctrination and irrationality is not “providing an alternate info source,” per se… it’s education. Counter-prop. Counter psych warfare, if you want to get dramatic. Just putting the information out there for some “rational” subset to read won’t accomplish squat, because in the end there are a lot fewer individuals who are rational about this than the aggregate population believes. The force has to come from education, social pressure and organized behavioral counter-conditioning. Neither a wiki of advertising bullshit or the gummint can accomplish that (although both might have roles to play).
Finally, consider this a good long moment before trying to move on: **Advertising **is *not *the problem. It’s not the enemy. It’s not even inherently wrong. In a word sure to be misunderstood here, *the enemy is *marketing. Advertising is only one tool of marketing and in some ways one of its least important. It’s the razzle-dazzle facet, the distraction as much as the message, and it is *intended *to be the target of opposition and public anger. To expend time, effort, anger and ammo on this chaff is both to waste all those resources and behave exactly as marketers want you to.
So don’t expend all that passion and insight on the distraction, the way the AdBusters crowd has been doing for 25 useless years. See through the patter to the real problem, which is much larger than beer ads, and frame the solution in terms of the real enemy: those who use a vast array of tools, techniques and resources to sell us things at any cost. The battle is against the entire panoply of marketing, from Madison Avenue firms to GM divisions to the corner grocery store.