There is something to be said about the state of advertising.
Increasingly it seems you must go to the almighty Google or Meta in order to launch any business.
We're looking to expand into a new business line and have out grown our pharmacy capacity.
The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).
We can build 10 robotic pharmacies (~10 staff per 4000 fills daily, each) for the price of just the advertising.
Increasingly we wonder why America doesn't build more and here is why. You are going to give all your revenue to two platforms. Unless you operate in a business line with 50% margin you are screwed.
I don't know what the solution is, but its clear that the platforms are figuring out how much margin everyone has and slowly eroding it. Somewhere between 8-15% of the cost of all products we purchase is advertising spend.
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)...
> 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?
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?
> Suppose you're on an island where the economy only produces coconuts.
This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power.
In the real world, distribution effects dramatically affect the functioning of the economy, because workers are also consumers and owners of capital are siphoning off the purchasing power of their customers. Productivity isn’t the question in the modern economy - we’re already massively overproducing just about everything - our problem is both our wealth and production allocations are borderline suicidal.
>This is why nobody takes economists seriously. What you lose in simplifying down to this model is literally everything. The coconut economy has zero predictive power.
A simplified model is needed otherwise rigorous analysis becomes impossible, and people make handwavy arguments about how paying workers more means they can spend more, which means factories, and it's a perpetual growth machine!
>we’re already massively overproducing just about everything
No we're not. If we weren't, we shouldn't have seen the massive inflation near the end of covid. The supply disruptions hit almost immediately, but it wasn't until the stimmy checks hit that inflation went up.
>our problem is both our wealth and production allocations are borderline suicidal.
If you read my previous comments more carefully, you'd note that I'm not arguing against better wages for workers as a whole, only that contrary to what some people claim, they don't pay for themselves.
> A simplified model is needed otherwise rigorous analysis becomes impossible, and people make handwavy arguments about how paying workers more means they can spend more, which means factories, and it's a perpetual growth machine!
I'm no economist but you can't live on an island that only produces coconuts, because the people on that island would quickly start producing other stuff, breaking your premise.
This is like saying cash is useless because amoeba haven't evolved a cash economy.
> A simplified model is needed otherwise rigorous analysis becomes impossible
If your tools aren’t capable of rigorous analysis of a model that retains enough detail to capture the salient features of the thing they’re trying to model, they’re not the tools for the job.
What's the "salient feature" that's missing? From all the other replies it sounds like people are still relying on the handwavy argument that "pay workers more -> workers spend more -> you can pay workers more -> repeat", but can't articulate where the actual growth is coming from. If this is true, the communism would have beaten capitalism, because they would be able to exploit this better than any capitalist system, but obviously that didn't happen.
Overall this feels like troll physics[1]. Yes, the idea that having a magnet pull you forward, which itself is pushed forward by you moving forward sounds superficially plausible as well, but it doesn't pencil out in reality. The only difference is that "the economy" is complex enough it's non-trivial to disprove, and people can handwave away any objections.
Multiple products. Multiple employers. A currency distinct from a consumable product.
A simplified model could be useful, but yours goes too far.
It doesn't take into account effects like that by paying more you can attract more, and more productive workers. Or that it puts pressure on other employers to increase wages.
> but can't articulate where the actual growth is coming from
I am not an economist, but I think one situation where this works is where you are competing for workers with other employers that have high margins, and pay their workers relatively little. In that case one of two things happens. Either other employers also increase wages, leading to their workers also having more money, which they can spend on your product, or they don't compete on wages, and you can outcompete them in getting the best workers.
The key is that total productivity doesn't necessarily improve, but wealth distribution becomes more equitable.
As it sits, all of the members of your coconut economy are going to be dead of malnutrition or exposure in relatively short order, so maybe address that and then we can work our way up to the flaws in the economic theory that drove the greatest wealth expansion and boom in consumer spending the world has ever seen.
The salient feature is that people consume a higher percentage of their wages than investors do of their wealth. Redistributing some profits to wages means that money gets spent, inducing demand. This also has a higher multiplier effect than profits, because consumer spending can move through the economy multiple times in a measurement period.
> No we're not. If we weren't, we shouldn't have seen the massive inflation near the end of covid. The supply disruptions hit almost immediately, but it wasn't until the stimmy checks hit that inflation went up.
What? The first Covid stimulus checks were April 2020. 271 billion in 2020 here per here: https://www.pgpf.org/article/what-to-know-about-all-three-ro.... 135B of the second round by Mar 2021. The third started about then. Inflation - and consumer activity in most areas - was low because nobody was going anywhere still, but at least we did a fair job of avoiding mass unemployment and homelessness.
Then inflation started accelerating during the economy's broader reopening in April 2021 (2.6 -> 4.2 percent from March). It didn't peak until near the end of 2022. Those stimulus checks were LONG gone by then for most people, since a huge portion of the country lives paycheck to paycheck, and the stimulus checks weren't available to people making more than 80-100k (single or avg-per-person in a married couple), which is the higher-income demographic that would have the disposable income to really drive inflation across the board by a "let's buy stuff we wouldn't otherwise" splashy purchase.
Instead, inflation was driven by people getting back out and doing/buying all the shit that had all been scaled down. The first stimulus checks didn't drive it because people weren't purchasing as broadly yet, and were still more in panic mode. Textbook bullwhip effect; at steady state we produced more than enough and never saw shortages, then in Covid demand types and volumes shifted enough to cause shortages of certain things and surpluses of far more other "non-quarantine consumer" things, so production changed, and then when things started to go back to normal ALL those things got hit again. I don't know if I'd agree that we're "massively" overproducing everything now that we're not in a quarantine scenario again, but the consistency of supply of most normal things suggests a lot of excess capacity in the system to absorb normal fluctuations in a way that nobody ever has to think about where their next roll of toilet paper is coming from again.
This is how we had a major boom in middle-class wealth int he US post WW2.
If you are only selling coconuts, a single raw material, yes, you will run into supply constraints such that prices go up. But that isn't how economics works. Your zero-sum economics example is only applicable in short-term scenarios: over the longer term, new industries develop to solve persistent problems that people are willing to pay to solve.
Money solves the problems of the people that have the problems. If the problem is 'we need to eat', producers will diversify into new food sources to meet the demand, solving the problem, and capturing the money of the people who have that problem.
There is an enormous space of problems people have which cannot be solved due to lack of access to money. Increasing costs in childcare, elder care, and education are good examples.
>This is how we had a major boom in middle-class wealth int he US post WW2.
The fact that Europe got bombed no doubt helped too, same with the elites being concerned that communism was on the rise and giving workers a better deal in an effort to stave that off.
>Your zero-sum economics example is only applicable in short-term scenarios: over the longer term, new industries develop to solve persistent problems that people are willing to pay to solve.
>Money solves the problems of the people that have the problems. If the problem is 'we need to eat', producers will diversify into new food sources to meet the demand, solving the problem, and capturing the money of the people who have that problem.
I'm not how you got the impression that I thought the economy had to be zero sum. I even specifically mentioned the possibility of more stuff to go around if productivity goes up. That's the problem with your "new industries develop" argument. Unless productivity goes up too, there will only be different stuff, not more stuff overall.
>There is an enormous space of problems people have which cannot be solved due to lack of access to money. Increasing costs in childcare, elder care, and education are good examples.
All of those are service industries that are resistant to scaling, and as a result productivity growth have been abysmal. Giving people more money to spend on those things just means productive capacity is removed from the economy elsewhere. Going back to the coconut economy example, it would certainly be nice if workers could have a maid to do the cleaning or a chef to do the cooking, but you still need people do the cleaning or cooking. At the end of the day you're just shuffling people around, not growing more coconuts.
It smells of the "if we go break the windows and sink the yachts of all the billionaires, it'll create a lot more jobs!" logic that the top-0.1%-of-earners doesn't seem to endorse...
>This is how we had a major boom in middle-class wealth int he US post WW2.
>The fact that Europe got bombed no doubt helped too
Europe also had a massive boom in middle-class wealth post WW2. I don't understand how this myth continues to live on, when the evidence against it is total.
> The fact that Europe got bombed no doubt helped too, same with the elites being concerned that communism was on the rise and giving workers a better deal in an effort to stave that off.
Workers got a better deal because the US intentionally passed massive top-end marginal tax rates pre-WWII with the goal of leading to less income-hoarding (or at least more charitable giving etc) at the top-of-the-top.
If the economy is 100% coconuts — all supply is coconuts, all demand is coconuts — then coconuts are all. Business owners sell coconuts in exchange for coconuts in order to acquire more coconuts. Employees are paid in coconuts which they trade for more coconuts. Paying workers more coconuts gives them more of what they want, which is coconuts, that they turn around and spend on coconuts.
That's exactly the problem. At the end of the day, unless you increase production of "stuff" (or coconuts), there isn't going to be magically more "stuff" (or coconuts) to go around just because people are shuffling "stuff" (or coconuts) around.
Not for coconuts, but in the real world, most products have economies of scale. If one rich guy has 99% of the money, the entire economy will be structured to serve his needs and yet nothing he buys will reach economies of scale. He just doesn't care to have that many Rolexes. So production methods will be fairly inefficient.
But if everyone has a bit of money, stuff can get mass produced, which actually makes for much greater total welfare, because the production methods are just a lot more efficient.
Nobody will increase production of stuff if all the money is increasingly concentrated into a shrinking percentage of people who have far more than they can spend on stuff.
That's how you get high asset inflation and "K-shaped" stuff as the rich increasingly look for any value-storage vehicle to "invest" in, since they can't get a return on producing stuff to sell to the people with less money...
Wasn't the idea to give people more money (i.e. higher wages) so they could buy more cars/coconuts/etc? That's different than just directly "paying" them in the goods.
So in your simplified coconut economy, you'd at least have to keep two distinct kinds of entities, the goods to be paid and the payment. You sort of replaced both with coconuts and concluded the resulting system wouldn't work.
Higher wages means workers and businesses have to be more effective. So more goods and services are produced and available. It's not a zero-sum game.
"But workers are already as effective as they can be"
Great, in that case you have the margins to pay higher wages.
A high wage / high cost society is great for workers and for businesses which actually do real work and produce real goods and services. It's not great for everybody else. Ie those who don't work, and businesses who doesn't make a high contribution.
Let's say you skewed income distribution a bit more like 1950s US, when high marginal tax rates resulted in more equal distribution of revenue through mechanisms like deductions or simply not taking that extra bump from 3 to 4 million. Now the upper 1% has lower income, but they were already mostly not-limited in purchasing power by their income. The upper 5-10% gets more. They go out to eat more, etc, etc.
We tried that experiment after passing "soak the rich" taxes in the early 20th century, and it seemed to work out pretty well for economic growth and living standards. But then we moved back towards "let there be oligarchs with immense wealth" instead. One of the claims was that the "investments" from allowing the powerful to keep most of the revenue streams for themselves would foster enough development to make it more than worthwhile, but instead... the broad base of consumer spending power has tanked, so businesses to supply the masses haven't found spending power to justify new investment/development outside of ad-powered ones participating in an arms race for the constricting consumer spending power that remains (or those industries benefiting from wildly subsidized-in-weird-ways spending like healthcare/pharma). And so it has also inflated asset classes across the board as there aren't enough startup ideas to eat up all the investments because of the general decline in spending power. Which hurts spending power further. (IMO the ability to capture higher and higher amounts of corporate profits as personal income also correlates to the massive financialization, outsourcing, and other short-term number-juicing moves we've seen.)
We can point to a lot of problems that have occurred from taking revenue shares away from the average worker, so it shouldn't be rocket science to think that returning a greater share of revenue to workers would return some purchasing power and guide the economy back towards development and growth instead of zero-sum asset bubbles.
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.
The Covid stimulus that prevented a huge wave of unemployment in more industries beyond travel and hospitality while inflation remained quite low for the calendar year following March 2020?
Or are you blaming the 2020-and-2021 stimulus for the 2021-through-2023 bullwhip-effect predictable-yet-not-mitigated inflation as things re-opened and demand returned for stuff we'd ramped down supply chains for? While chasing stupid obviously-not-permanent-change trends like Peloton stock instead?
Look at how much of the country lives paycheck-to-paycheck, and the income limits of the stimulus checks - how can you connect those people getting immediate money in 2020 or early 2021 to inflation at the end of 2022?
I didn't even get Covid stimulus checks and yet I also spent way more in 2021 and 2022 and 2023 on a lot of categories of goods than I did in 2020. Cause I went outside and did things more.
> 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.
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
>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.
A luxury car manufacturer could tip the scale of someone buying their product vs someone else’s product via an arbitrarily small wage increase.
The degree to which this is generalizable is of course a different story, but it’s at least theoretically possible for a small wage bump to be a net gain for the company.
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.
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)...
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
> 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
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.
>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.)
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.
> 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.
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?
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!)
> The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).
The reason the advertising budget is such a high number and a recurring charge is that effective advertising returns an ROI on each dollar spent.
If the software budget was increased 10X to $20 million, would the company get 10X as many customers? No.
What about the facility? If you 10X the facility budget to $30 million would you get 10X as many customers? No.
However, advertising is a customer acquisition activity. Every dollar you spend on advertising provides additional customers. This is saturable, but the ceiling is very high. Much higher than spending on software or facilities.
The reason your ad budget isn’t so high isn’t because Google and Meta invented the discoverability and distribution problems or basic economics. It’s because it has been determined that acquiring new customers via advertising has a high ROI and therefore it’s a smart move to pour as much money as possible into customer acquisition.
If every $1 you spend on advertising produces $2 in customer LTV then your company should be maximizing ad spend until evidence of saturation starts appearing.
This commonly frustrates engineers who think it’s a wasted investment. The question is: Compared to what? If you could have the same number of customers and same amount of revenue without advertising then you should do that! However, you can’t. This isn’t a licensing fee that’s being paid. It’s putting money into a machine that returns more dollars back than you put into it.
> I doubt the ROI would be so high if organic results stood any chance.
This is just the same fallacy. In what world are people going to organically share ads for this company on their Facebook feeds? Who is going to Google the company name before they know about it?
Every business needs to proactively acquire customers.
Distribution and CAC are top of mind values for any growth business. It has been this way long before Google and Meta existed. Digital advertising actually makes it cheaper and easier than ever to acquire customers at scale.
Sounds like ads will just get replaced with covert word of mouth enticements. Want to get people to know about your product? Send free samples to influencers. Maybe even fly them out to CES and put them in nice hotels so they can experience your product announcements/demos. All of this is "unpaid", of course.
Assuming the influencers pay taxes, this doesn’t seem like something that can’t be addressed - we should be requiring influencers to prominently disclose incentives that could result in conflicts of interest.
I would prefer a world that returned to the older '30 second blip (for the only) sponsor of the program' ad, which also seemed to be of the limited form: Here's Product X, it does Y, which makes your life better because Z. Informative, dry, stated by an announcer in a calm and not demanding way.
A lot of people enter the company or product name into the browser's search field and reach their intended target through an ad at the top of the results. If they proceed to purchase something, does this count as a conversion? I think it does. Unlike traditional advertising, this didn't influence the customer's decision to buy at all.
I'm concerned that companies spend their advertising budget on these redirects because those have the best metrics, instead of actually making the brand and its products more known.
> Every dollar you spend on advertising provides additional customers.
If you’re just taking these customers from competitors, the marginal utility can be pretty low.
e.g. If you consider a world where there are no ads for cars, people aren’t going to meaningfully lose out of the utility they get from cars, carmakers simply avoid the prisoner’s dilemma of having to advertise as much as the next manufacturer.
The world isn't zero sum, advertising grows the pie for all involved. One of the best examples would be the iphone when it was released. Even in your example category of cars Tesla and later Rivian/Lucid/BYD marketing was a game changer for electric vehicles.
Very few ads are for products where exact 1:1 competitors exist (though it's nonzero, maybe something like a commingled Amazon Basics widget).
My point is that advertising can grow the pie, but it doesn't necessarily do so, and even if advertising is net pie-growing, it can still shrink the pie in specific markets.
For a more on-the-nose example than the arms race between car manufacturers, consider cigarette ads. If the ads simply convert smokers between brands, then it's basically zero sum minus the cost of the ads. If the ads convert non-smokers, then the ads are of significant negative utility taking their externalities into account.
> Very few ads are for products where exact 1:1 competitors exist
Sure, but also, I'd contend that few purchases are made based on ads informing consumers of meaningful differences between products. The products could be 1:1 duplicates, and the ads could be identical.
e.g. I just turned off my ad-blocker and fired up YouTube, the first four ads I see:
1. An ad for a multivitamin. Zero mention of any differentiating feature from a generic multivitamin.
2. An ad for a grocery delivery service. Zero mention of any differentiating features from any other food delivery service. (This one was a bit wild to me - this is actually service I already know and use, I'd never seen advertising for them, and this ad didn't mention any of the reasons anyone would choose to use them.)
3. An ad for some predatory-looking debt-relief service. Maybe not predatory, but no information about why that debt-relief service would be better than any other debt relief service.
4. An ad for a jeans company. I actually had to google this one to figure out what it was even an ad for, the ad just featured shots of people hiking in mountains and dunking into icy lakes without any mention of clothing.
The problem is that it's a zero-sum game for a large part. People are hopefully not going to buy more medecine because of pharmacy ads. So the excessive spend on ads is driving up costs for everybody, and causing insane profits for a handful of companies.
I have no solution to offer though. Just thinking out loud... what effects would a limit on advertisement budgets relative to total expenditures have? That would force companies to spend their money mostly on actually creating value for the customer, instead of just selling the hell out of a mediocre offering.. ?
I had this exact epiphany when I ran a side business selling niche widgets. Every dollar I spent on Facebook ads returned me $5 in revenue (at 40% margin) and it wasn't obvious how much I could spend before that stopped being true.
What big picture? Can you elaborate, or just snide drive-by criticisms?
I mean I understand that a lot of people in this comment section wish ads didn’t exist and that everyone just automatically knew about relevant products and services without ads, but it all reads like utopian fantasy stuff.
I guess a lot of people feel that if they didn’t have the ability to know about all relevant products and services, the quality of their lives wouldn’t suffer.
I'm baffled that so many people think advertising is a recent invention.
Do you genuinely believe there were economies anything like the modern luxuries we enjoy that also didn't have advertising? That advertising was an add-on that appeared at a later date?
We have plenty of archaeological evidence of advertising in ancient civilizations.
I didn't mean to imply it was a recent invention. However, the almost total centralization of advertising in a few companies on the internet IS new. Their parasitism and malevolent monopolistic omnipotence is pretty obvious to anyone who runs any kind of business with an internet presence. This severely inflates advertising costs and transfers profit that should be going to businesses who actually add value to companies that simply exploit their control of the platforms. Competition being introduced into this space, which at this point is only possible via government force, would make advertising cheaper and bring more exposure to companies and their products, which I fail to see as anything but a good thing for the economy.
Possibly? There have been advertisements for at least 2500 years. It's very likely that as long as there has been an economy as such, there have been business owners promoting themselves.
Right, but the unprecedented control of the public discourse on the internet by just a couple megacorps PREVENTS businesses from promoting themselves, unless they pay through the nose for the privilege. This destroys small competitors by design and leads to more and more monopolization of every industry, which is an absolute nightmare scenario for everyone involved in the economy but a tiny handful of people.
Yeah they probably had fewer advertisements back in the good old days, but they also had a much smaller economy, producing a whole lot less than we produce today. [1]
And you might not like everything about the world today, but living in a vibrant economy where people create wealth by building new businesses has led to more comfortable lives for the large majority of humanity.
All these hyperscalers do is control the internet and suck money from companies that actually add value via that control. I can name on one hand the amount of successful products GOOGLE has natively launched (without acquisition). This predatory behavior has the opposite effect on the economy you're claiming here.
Is there RoI for this advertising spend or isn't there? If there is, what are we talking about here? If there isn't, then why would people spend on something not giving a positive RoI?
We're talking about it because quantifiable variables aren't the only aspects of reality that matter. If a company does something profitable but it makes everyone but them worse off, there's an argument they shouldn't be allowed to do it.
This is very correct, the only thing I as an engineer care about is that we rigorously optimize our spend to get the best possible CAC (Customer Acquisition Cost)
It’s an incredibly hard problem and has many variables, that’s why the platforms charge what they do, they allow you to work with these variables in a somewhat approachable way.
That misses the point though. Google and Meta have designed systems which capture nearly the entire surplus. In a non-monopolistic environment you'd expect somebody to be willing to step in at a bit less than Google's rates and offer the same outcomes.
The parent comment did a sneaky thing and gave the advertising budget then pivoted into rants about Google and Meta. They never actually said “All of this money goes to Google and Meta”. It was just expected that on HN everyone would assume as much because that’s what everyone is familiar with.
In the pharmaceutical industry, I can guarantee their advertising funnel is much wider than two social media platforms. Think about all the places you see pharmaceutical ads: TV, billboards, even ads on buses, that sketchy doctor’s office full of company swag. That $40 million is not going all to Google and Meta even if the GP comment tried to imply it was.
> In the pharmaceutical industry, I can guarantee their advertising funnel is much wider than two social media platforms. Think about all the places you see pharmaceutical ads: TV, billboards, even ads on buses, that sketchy doctor’s office full of company swag. That $40 million is not going all to Google and Meta even if the GP comment tried to imply it was.
Having worked adjacent to ads... yes, there is more than social media ads. But the amount of everything not social media has massively shrunk!
Local newspapers are effectively dead except for local businesses (and even these are reducing their spend - especially the food delivery services fully rely on Uber, Just Eat etc) and so is radio, and even TV has been hit hard. You got newspapers and broadcast stations getting hit left and right, sliding into bankruptcy and/or being bought up by larger companies for pennies on the dollar. The fact that all across the Western world government/citizen funded public broadcasts are under attack makes it even worse, the diversity of media and, most importantly, the amount of people holding government accountable is collapsing as we speak [1].
Globally, Google, Amazon and Meta suck up over half of the global ad spend and it's not going to look better [2].
They have all the control and no competition. The time for breaking these companies up or hamstringing them at least a little bit is many years past due.
The problem is that monopolies are extremely profitable and are as "American as apple pie," despite the prevailing healthy competition myth that goes alongside it.
We could just start to enforce the laws as they're written.
If I was to follow a stranger as closely as an entitty like Facebook or Google does and compiled a dossier on that stranger in many countries that would be considered stalking and would be illegal.
Incorporating and doing the same thing to society en masse doesn't somehow make it legal despite it somehow makes people disinclined to prosecute.
I think people are disinclined to prosecute because the odds are stacked against them.
I'm thinking of an analogy, and I've mentioned this before in other threads. The concept of statutory damages, as I'm thinking of it, is that a certain level of damages are automatically awarded. For instance this is used for figuring out damages when songs are copied illegally. It eliminates the need to construct a unique legal theory and case for each and every instance. In this case it benefits the record companies, which is of course controversial, but something like it could also benefit consumers.
If a company is found to possess your data, they automatically pay you X dollars, enough to make it a deterrent. You sign up with a law form that specializes in these cases, and they get a share of the damages.
You can still derive a lot of info without having possession of the data through the use of PETs. There's a reason why companies like Google and Tik Tok make heavy use of PETs for their advertising products.
I don't think there's a connection there. If I'm not trying to buy a GPU at the moment, the situation re: GPU vendors being unable to reach me is unchanged whether they are one or many.
I suspect it's gonna be clickbaity stuff, gambling apps, distractions and addictions... stuff we can afford to let suffer. If you're actually solving a problem that your audience has, they'll be trying to find you, you don't have to find them. There's a minimum amount of marketing necessary to be findable, but beyond that it's at best a waste of time and at worst a catalyst for other problems that we'd rather avoid.
I don't think it's outright corruption so much as quid quo pro. Think about PRISM and other such things. US tech companies operate globally, hoover up a vast amount of personal information, and pass it all right along to the US intelligence agencies.
So the more intrusive and vast these companies become, the more the US intelligence apparatus gains from it. Polls consistently there's extremely high levels of concern about what companies are doing what people's information, and we have a million 'real life' privacy laws. The complete absence of anything meaningful on the digital front, from either party, is highly conspicuous.
This is a very reasonable take. No idea why this has been downvoted, besides possible the hordes of (ex-)big tech employees here who just can't come to terms with their (ex-)employers being about as ethical as those they like to think of as beneath them.
It's wiser to judge the parties by actions rather than rhetoric. From both parties there has been complete absence of meaningful action on the issue, even though both have regularly cycled through complete control of government with majorities in the house and senate while also holding the presidency.
The Bell system was broken up primarily for being the largest telephony operator while also being the largest seller of telephones. Microsoft, prior to PRISM and modern weirdness, initially lost an antitrust case over bundling Internet Explorer with Windows that could have led to their breakup.
Modern stuff has gone so absurdly far beyond these, with anticompetitive behavior essentially being the core of their entire businesses, that you'd think we're living under a completely new legal system. We are not, take Alphabet or Meta back to AT&T's era, and they'd be broken up on summary judgement.
In order to sell anything, people need to know about it. Google and Meta provide a way to make this possible. If they didn't exist, you wouldn't somehow have a more affordable way to get people to know about your product. However frustrating the current situation is, it is still more accessible than needing access to the airwaves or print media to try to sell anything new.
> In order to sell anything, people need to know about it. Google and Meta provide a way to make this possible. If they didn't exist, you wouldn't somehow have a more affordable way to get people to know about your product. However frustrating the current situation is, it is still more accessible than needing access to the airwaves or print media to try to sell anything new.
The places people can find out about your product are controlled by a very small number of companies. And those companies not only own those spaces, they also own the means of advertising on those spaces. So if you have a product you want to advertise, you're not paying to distribute your message broadly to consumers, you're paying a toll to a gatekeeper that stands between you and your potential customers.
but that’s not really true. You’re not paying, you’re bidding. You are competing against thousands of other advertisers for eyeballs. If you are the only advertiser targeting a group of people, you will spend almost nothing to advertise. If you are targeting a group of people that everyone targets (e.g: rich people in their 30s) you will pay through the nose.
Facebook, Google etc. are the most “fair” forms of advertising. We can dislike advertising, their influence, product etc. but when you compare them to almost every other type of advertising, they’re the best for advertisers.
The reason they generate so much revenue is because they are so accessible and because they are so easy to account for. The reason LTV and CAC are so widely understood by businesses today is because of what Google, Facebook etc. offer.
No financial market would be able to run the way Google and Facebook run their ad markets. They are the supplier, the exchange, and the broker all at the same time. This is not a competitive market. It's a captured one where the supplier effectively gets to set their price, and the exchange and the broker incentivize and advise you to trade at that price.
Google has famously and repeatedly rigged this bidding system in anti-competitive ways and has had to pay billions in fines because of it (which I am sure were less than the amount they profited from)
That's generally my thought as well, I am not implying you don't need to advertise. I just believe the industry has more or less reverted to an even worse version of what we had before (TV & Radio ads). At least before, there was ~100 networks you could sell to, now there's basically 10 if you include major networks. Of course you don't actually launch new products with TV ads, so it is more or less 2 platforms.
The problem is that most businesses used to be local. This naturally limited competition and gave your business a chance, even if it sucked. Nowadays the competition is global.
People don't really care to address that most of the mom and pop businesses that went out of business because Walmart/Amazon weren't offering better products or services. They got their products through the same retail suppliers, just at higher costs and the variety of choices was much lower. They also had much less generous return policies.
There's a personal touch that people opine for but I think that's rose colored glasses. I remember some local retailers where I liked the owners but more often they weren't anything special and sometimes they were downright unpleasant.
The thing I like about Amazon is that I can get my shopping done quickly at home then I can go socialize with people I choose to.
This is just an example if retail but I think it applies to most industries that people think have been decimated by big companies displacing local companies. The whole attitude reminds me a lot of the whole "Make America Great Again" idea. Opininig for a past that never really existed.
> People don't really care to address that most of the mom and pop businesses that went out of business because Walmart/Amazon weren't offering better products or services.
In a local mom and pop store, the mom and pop owned the store and were invested in the community, Their money was spent back in the same place it came from. They had a personal stake in their reputation and knew the customers, and the customers knew them. This is how a community operates. You are thinking about it as a dry 'products and services' offering, when it is much more than that. You don't live to buy products and services, you live to do other things, and a community fosters that part of your life. The 'spending money to get things you need or want' part is to facilitate the rest of your life, not the other way around.
> They also had much less generous return policies.
Why is this an issue? People who consistently rely on generous return policies are either buying shoddy goods or abusing it at the cost of everyone else. Figure out what you want before you buy it and then it won't be a problem.
Walmart employs a bunch of people in their stores and their profit margins (the money that leaves the community) are slim. That money is more than likely offset by their ability to offer lower prices than mom and pop places. Mom and pop places go out of business because they can't compete with economies of scale.
If Walmart was really extracting so much money from the communities they operate in, those communities would wither and the Walmart would eventually collapse as well. Walmarts rarely close.
> Why is this an issue?
Because customers prefer better service over worse service.
You're flipping the script on this criticism. Walmart offers better service (returns) and your saying it doesn't matter. Usually people argue that The mom and pop places offer better service but can't compete on price.
In the previous comment I was about to say it but then stopped myself: the same thing happened to human relations. Competition isn't local, it's global. In dating you aren't competing against the rest of your village, you're literally competing against the whole planet, because the cute girl you see at the office can get a Tinder match from a guy in Australia and there's nothing you can do about it. Similar thing happened to friends - why would you be friends with your neighbor if instead you can be friends with a guy who lives one hour away one way but he's more fun.
Obviously, it's great to be on the winning side and bad on the losing side. If you're rich and charming then globalization has zero downsides for you. If you're not, well, welcome to capitalism.
There are lots of ways to find out about products. We don't need Google or Meta to do look at a review site or ask a friend or search a directory or to solicit offers.
Adverising isn't there to push ideas into people who didn't need to know about it. Many industries would be better off without advertising (see e.g. cigarettes) because it ends up in an arms race.
If google and meta didn't exist, it is possible that the advertising market could be more competitive, so the amount companies would need to spend would be lower.
There is no competition in the ad space, so those companies can continue to just parasite their way to record earnings by stealing every other businesses profits. They create almost nothing of actual value, they are just heads of an ecosystem they totally control. Parasitism as a business model.
This is kind of broken logic. You’re not required to advertise. If you want to scale your business into millions in revenue, then you’ll likely need to advertise. The best ROI is generally google/meta, but you have countless other options. You can buy ads directly from most websites, it just doesn’t scale.
If you are considering human society as a whole, it is a disastrously poor use of resources. But if you are an arms merchant (or dominant advertising platform), it is fabulously profitable.
For it to be a poor use of resources, you have to have some goal you are optimizing against.
And I think you'll come to find that the assumed goal in your head is not one that's widely shared across what people in society actually want.
Okay, maybe the digital ad is a waste of resources. But is it any more of a waste than the gender reveal confetti that it was advertising? How about even the idea of a gender reveal party.
What about an enamel pokemon fridge magnet?
After a very low bar (for 2026), human essentials are taken care of and people mostly want luxury/leisure consumer goods for entertainment.
The best ROI is google/meta if you're an expert and have unlimited time to dedicate to making and running ad campaigns. For the rest of us there's much better tools that give us better ROI than if we did it on our own.
The solution is to prevent the privatization and wealth accumulation that flows from control of infrastructural technology platforms. Netscape, google, computer os, machine learning were all public or university research projects until the first movers (andreeson, brin/page, Ellison, gates) stole them, gatekept and IPed them, and then exploited wide user base to accumulate absurd amounts of wealth for just themselves. These people either didn't create anything at all or made very slight variations before deploying them. They were smart in seeing the trends before they happened, but should they really be entitled to 50% of a countries wealth just because they were lucky enough to be first? Especially now that we see how they behave once they get that control?
There is no reason at all why the US govt. can't control this better, they just refuse to do so.
Just to verify--as I truly do have a contempt for big tech oligopoly that extract rent from everyone to do anything at all, but am just unsure this specific problem is a ramification of such--are you sure you would not have had a large advertising budget pre-Google, or even pre-Internet? You used to pay to pay for limited space in newspapers and limited time on TV/radio stations, which also had high theoretical per-unit margins, or for a massive pile of physical mailers and door hangers, along with the cost of the delivery.
To the extent to which our current situation costs more, I'd think it might merely be because of increased worldwide competition: it used to be that the people trying to advertise to any specific random community were also likely local, and probably had a legit attempt at a business model... only, now, the rise of online companies funded by speculative venture capital means that an attempt to advertise a restaurant to people who live in a 10 mile radius must compete against a company that raised $400m to sell an online engagement platform that cares not one iota who uses it as long as the conversion cost is cheap, bidding up ads everywhere.
(One place that does seem to me to be uniquely the fault of these modern tech companies, though, is that if a newspaper published a scam ad, whether or not they had legal culpability, I think they and their surrounding community did at least strongly feel that they had some level of moral culpability. In the current tech environment, people seem to want to believe Meta/Google should be allowed to indiscriminately publish ads from bad actors, so you now must also compete to bid for limited attention with obvious-to-most-but-not-all scams and grifts that make money out of nothing but bullshit and are thereby willing to again bid up prices anywhere and everywhere.)
Meta, TikTok and social media create the cultural celebration of thinness that makes it possible for you to sell 25mg semaglutide tablets to everyone. In my opinion, they deserve more than 50% of your margin: you didn’t invent the drug, the FDA is basically letting you break the exclusivity policy for no particularly good reason, and you didn’t create the audience.
Have you actually accounted for all the services you’re receiving from the government? Road construction and maintenance, schools, availability of clean water, safe aviation, trustworthy financial markets, public universities, funding for research that improves your health and happiness, and so on? I don’t think you can even really put a price on most of those, because they simply could not exist without a centralized system funded by taxes.
You have no idea how much you've gotten for each $1 of tax you paid, as you've never spent enough time trying to properly quantify it, to the extent that's even possible.
Money is fungible, but there are various government expenditures that generate positive returns, either in direct revenue (e.g. tax collection enforcement) or knock-off economic benefits (e.g. libraries) some proportion of your taxes go to these services where you are effectively getting more back than what you’ve paid for these services.
(Economically, governments should spend more on such services until the marginal returns are no longer positive, but tend not to for political reasons.)
if the gvt worked - they would've done something about that illegal monopoly
but you already know
that monopoly is costing the country & holding it back in terms of 1. intellectual capacity (all the smart kids going into ads) 2. monetary 3. industrialization as you outlined 4. energy 5. lack of synergies
This is misuse of language. Rent seeking is anti-competitive by definition. The current system, as far as it encourages and rewards rent seeking, is anti-capitalist.
Like most words, capitalism has multiple definitions. Among the popular ones, the one that is about capital doesn't concern itself with markets, only capital, so you are quite right that any kind of market goes. It could even be centrally planned! But another popular definition is about the "invisible hand". Rent seeking is absolutely considered to be at odds with the "invisible hand". This is most likely what the parent is talking about.
And no doubt there are a bunch of other definitions that aren't so popular, so the parent commenter could even be using one of those. It might even be his own pet definition that he just made up on the spot right now. The author always gets to choose what a word means, so if something seems off "It isn't" isn't a logical retort. You first need to clarify what the author intended the word to mean.
> And no doubt there are a bunch of other definitions that aren't so popular, so the parent commenter could even be using one of those. It might even be his own pet definition that he just made up on the spot right now.
This is an absolutely insane take if you want to be taken seriously in a conversation. Making up definitions on the spot and "getting to choose what a word means" is deliberately acting in bad faith.
Rule #1 of logical debate is to agree on definitions, otherwise you're just yelling past each other.
> Making up definitions on the spot and "getting to choose what a word means" is deliberately acting in bad faith.
Not quite. Not taking the time to understand what someone means when they use a word is acting in bad faith. Using a word as you understand it, even if that does not match how others understand it, before the word is contextually defined cannot be in bad faith. Nobody can read minds. It is impossible for one to predict how the reader thinks the word is defined. You can only work with what you know. Fundamentally, the onus must be on the reader to ensure that they have full knowledge of the author's intent.
> Rule #1 of logical debate is to agree on definitions
Agreed. The bad faith actor with the username antisthenes that I replied to earlier failed to do that, putting in absolutely no effort to find the necessary common ground. He assumed the definition and then came up with a ridiculous comment built up around that false assumption. Hence why I called him out on his bullshit.
Getting into a position where you can tilt the playing field exclusively in your benefit is 100% the logical outcome of for-profit companies in capitalism.
It’s so transparently and frequently stated outright, that building companies geared around achieving that has become the norm: it is the fundamental business-model of _every_ _single_ unicorn startup, or the company that buys them. Launch, squeeze out competitors by relying on VC money, capture the market, and become the sole dominant force in that market and use your position to then pull up the ladder behind you and cement your position. Uber and Facebook are prime examples of this.
If monopolies are "non capitalistic", then why has every capitalist economy in history had such a tendency towards creating large monopolies? The same cab certainly not be said any those economies producing, say, worker control of the means of production.
.png){kind=link}
Increasingly it seems you must go to the almighty Google or Meta in order to launch any business.
We're looking to expand into a new business line and have out grown our pharmacy capacity.
The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).
We can build 10 robotic pharmacies (~10 staff per 4000 fills daily, each) for the price of just the advertising.
Increasingly we wonder why America doesn't build more and here is why. You are going to give all your revenue to two platforms. Unless you operate in a business line with 50% margin you are screwed.
I don't know what the solution is, but its clear that the platforms are figuring out how much margin everyone has and slowly eroding it. Somewhere between 8-15% of the cost of all products we purchase is advertising spend.