Author: Curt Doolittle

January 6th, 2010

Throughout history, innovative groups have formed an alliance with ‘The Man’. Bankers have done it forever. In fact, bankers don’t exist where they DON”T ally with ‘The Man’. Capitalists allied with ‘The Man’. They concentrated wealth, by borrowing from bankers to develop ships, machinery, manufacturing, and other increased forms of production. They became ‘The Man’. Entrepreneurs allied with bankers, capitalists and ‘the man’ to distribute goods to the common man, for the first time in history, at such low costs that almost everyone could afford to have more than one pair of clothes for the first time. They became ‘The Man’. Advertisers helped market these goods to consumers, and for 150 years, they helped convert society from religious and nationalistic, to a society of consumers, and urban and suburban tribes. With the advent of technology, Advertising agencies became ‘The Man’. Creatives, who were generally hired craftsmen serving the nobility in most of history, flocked to the movies and advertising, and and allied with ‘The man’. And the demand – the boom – in demand for creatives, allowed the entry of more and more people into the creative industry, albiet, with the acknowledgment that the number of really good creatives, as well as the number of really good academics, or really good high-art artists, seems to remain constant. Like the tech boom, that made room in technology for lots of people who were not that good at it, there was a creative boom. Creatives, allied with ‘The Man’ to take advantage of the increase in available capital that allowed them to experiment with other people’s money.

Now what’s important here is understanding what makes you ‘The Man’. Being ‘The Man’ means that you have control over resources. Kings, thugs, and brigands controlled passes, trade routes, and taxation. Bankers controlled access to money. Capitalists controlled access to production. Entrepreneurs controlled access to goods. Agencies controlled access to media.

The tech boom deflated in just over a year, because it was fueled by speculative capital. The agency boom deflated along with the population that concentrated capital. concentrated production. Concentrated distribution. concentrated media. It deflated at the same rate the demographics deflated, and at the rate the mythos deflated that was held by that population.

There is no concentrated population now. That’s the important message. It’s not a moral message. It’s simply a

There is no concentrated common-aspiration, like the american dream. Instead we have tribes with little status identities.

There is no concentrated access to media now. Instead we have more media than we have content that people desire. We have a shortage of mythic content to feed identities and tribes with to replace traditional, and postwar, and consumer, and american dream mythologies.

There isn’t any concentrated culture any longer. There isn’t any concentrated trade route any longer. There is no ‘Man’ to ally with. There is no general consumer mythos to exploit. And the disappearing boom

There isn’t the problem of getting attention for a product, using a frame of reference like a mythos, so much as the problem of understanding some tribe’s mythos and figuring out how to insert your frame of reference into their mythos.

A long time ago, there were castles on passes. Because the government was formed by brigands charging taxes, or protection racket fees, for people to take goods and services through a geography to reach markets. There are no media-channel protection rackets any longer. Just markets. There is no tax to levy on reaching those markets, that will fund ‘The Man’. The Agency Man.

We have no ‘The Man’ any longer. We have only these small tribes of consumers who have rejected The Man, in all his forms, because he doesn’t need him. He doesn’t need The Man. and he doesn’t need the stories that Creatives have written to serve The Man, to enter into, and he doesn’t want them either. He has his stories. He has his suite of tribal myths. He sees them as his property. He sees them as his identity. And he acts as if these myths are his identity and property. And by acting as if they are real, he makes these abstractions real things. He sees society through the lens of his identity and his myths, and judges his success at finding his place in society by using them – he has nothing else to go by. He obtains his status from using those myths, not from myths created by agencies and creatives on behalf of ‘The Man’.

The Man concentrated people for us. That’s what The Man has always done. We made popular messages for distribution on The Man’s distribution channels. We served ‘The Man’.

Our job is not to ally with The Man, and claim it’s our talent that made a difference rather than his control over passes and people because of it. Our job is to build relationships between brands and tribes. To find out who is passionate and motivate them to create status symbols from our products if possible. If that is not possible, then to create lower status reasons for social interactions. And if that is not possible the to create simple utility.

Advertising, is, and will always be, part of this process. But advertising is no longer the process of concentration people and their purchasing power using available myths and demographics. It is the process of separation and service of identities. Advertising can’t easily inspire any longer on it’s own. It isn’t intimate or meaningful enough. It can legitimize a message. It can tie messages together. It can create awareness, but not change consumer behavior, unless you apply an awful lot of money to the problem.

While vast consumer brands appealing to the low end of the market, will always need to create myths of consumer homogeneity, those myths are limited in their ability to compel consumers to aspiration rather than to the ideas of suffrage, or sarcasm or nihilism. These are negative identities. And a brand who crates homogenity is like a politician who advocates fear: it works in the short term, but it doesn’t make people love you and stick with you. And it doesn’t make them respect or trust you.

Aspirational brands must create niche appeal, with increasingly tribal identities, in order to seem sincere, and in order to make the consumer feel passionate enough to appeal to a brand whose marginal difference in utility is extremely limited if not entirely aesthetic.

Yes, those large retailers will control distribution, because of the capital that they concentrate with the use of debt – debt that they may have a hard time getting ahold of now. But brands must exist within those retail identity myths. And the retailer, like a government, will allow only so much difference between one brand and another – they don’t want intra class conflicts. So they are a resister to excellence.

But our clients, and our brands need to understand that there is no concentration of identity or mythos, or channel which we can exploit.

Creatives no longer can ally with the man. They have to ally with the consumer, and use the man for the consumer’s benefit.

In a world where there is no concentration, no homogeneity, we have succeeded in building the consumer society. There is no real scarcity. We are not afraid of running out of rice and beans, or laundry detergent for that matter. We are only afraid of being lost in society because we cannot judge our status in it – our success or failure in it, our mating ritual in it, without identities and myths that help us do so.

The consumer is The Man.

from: www.puretheoryofmarketing.com

On Carpe Diem there is a posting that references a series of articles on the state of women in the employment figures. Primarily as a result of the disappearance of risk capital, which led to a disappearance of risky, high reward careers, which will not come back (possibly ever) unless risk tolerance returns.

It’s no secret to anyone in Silicon Valley that math, science and technology fields remain dominated by men, despite some progress by women in recent years. Women make up 46% of the American workforce but hold just 25% of the jobs in engineering, technology and science, according to the National Science Foundation. To Sally K. Ride, a former astronaut, that persistent gender gap is a national crisis that will prove to be deeply detrimental to America’s global competitiveness.

Or this one

Why are there so many women veterinarians? In part because educated women are drawn to professions that are providing flexibility to combine work and careers, Harvard University economist Claudia Goldin said in a lecture at the American Economic Association in Atlanta. The increase of women in various professions since 1970 has been spectacular. But why do highly educated women enter some professions and fields more than others? “Women are 77% of all newly minted veterinarians, but they were a trivial fraction 30 years ago,” she noted.

How about a more obvious answer: In a free society, people freely pursue their careers of preference. Isn’t that the purpose of a market? To provide for people’s wants and preferences? Women prefer to empathize with all kinds of animals (human and otherwise) the way men prefer to empathize with tools and abstractions. Women have a higher preference for empathic interactions. Men have a higher preference for tools, abstractions and physical experiences. A predominantly female field (and there is good data for this) becomes a negative status symbol for men. If a field becomes predominantly feminine, ambitious men avoid it. Visible excellence , which is a status symbol for men, is a function of time and specialization. What is hard to understand about this set of fairly obvious circumstances? That once women are no longer prohibited from the workplace, that they will dominate the fields of their preference rather than distribute evenly across careers? Men dominate the physical, risky, combative, material, and abstract roles. Because they prefer to, because it increases their status. On the other hand, if we managed by some feat to make dressmaking a masculine status symbol they’d dominate that too. Men certainly dominate the restaurant industry, despite cooking being the dominant specialty of women since the dawn of time. Empathy is not valuable in objective testing, which is what most technical jobs require. This is NOT true of customer service in technology, consulting with technology, or sales of technology, or administration of technology. It is true ONLY of the craft of technology design, development and experimentation. Empathy is a function of understanding people’s views. Science is the process of objectivtly ignoring those views. These are two ends of a spectrum. Women accuse men of seeing women as objects. but it’s not that they see women as objects, they see the world as objects, because they are tool and object makers. If women did not have empathy, or the ability to ‘experience’ other people’s emotions, they could not empathize with children it would be impossible for them to be mothers, or to cooperate in groups to raise children, who must learn over very long periods, how to articulate by verbal means, their wants and needs. If men did not empathize with tools, or ‘experience’ tools they would not be able to craft them or sit forever waiting for the one moment in which they must focus all mind and body on thirty seconds of danger. WHile it is possible to train humans to do almost anything, that is not the question free people ask. It is, how to satisfy their wants and preferences. And CETERIS PARIBUS, women, given the opportunity to excel, will do so in fields where they gain most enjoyment – where the empathy of life experience , which to which they are more ‘sensitive’, just as men would most often prefer to empathize with tools and abstractions, to which they are more ‘sensitive’. Doing otherwise is simply illogical. Why would someone pursue his or her weaker perceptions and preferences unless it was of very material benefit to them? Furthermore, and this is the important question, why should society subsidize women and penalize men, for the fulfillment of women’s’ preferences at the expense of men’s preferences? That’s the real political question here. GIven equal opportunity, if we each choose these things and men choose one set of careers and women another, and if women have a preference for child rearing and men do not, then why should men be penalized, to support child rearing, when the problem that the world faces is overpopulation, not pollution, not global warming, not scarcity of resources, but overpopulation. There is an ocean of data on this, which is why these silly little surveys about women in technology are ridiculous. Of course women are a minority in technology, because they prefer to be a minority in technology. Giving women equal legal status, equal political status, and investing in them equally so that they have equal access to THEIR OPPORTUNITIES OF PREFERENCE, all are means by which we ensure that women are not politically, or economically discriminated against. However, it is not an ambition of political equality to engineer equal PREFERENCES among men and women. That would simply be some form of slavery. Society may have an optimum that we can consistently pursue, but Men and women are unequal. We are unequal in our preferences, and unequal in our abilities, at least at the margins. We are unequal in our rate of development and unequal in our rate of maturation, and unequal in our verbal and spatial reasoning. We are unequal in the physical activity we need. We are unequal in our social development, in that girls learn to care about society by testing and developing expressions of empathy and empathic dominance, and boys to care about society by testing and developing the expression of the physical world, and physical and political dominance. We are unequal in our intelligence distribution, with men over-represented at the margins. While we are equal in productivity in the majority of the work force, because the majority of the work force is clerical and administrative. We are unequal in our ability at the margins of the work force where ability is ether physical or extraordinarily abstract and specialized. We will not build a society that is durable post the American Empire by assuming that political and opportunity equality should result in career-distribution equality, because career development is a preference among free people. Men and women are not equal in their preferences, and they are very different in meaningful ways. Even small differences like the difference in male and female daily word budgets, or how we relax or experience stress, or how we empathize with people or objects, will simply show up in the distribution. Fixing a problem of oppression is one thing. Utopianism, Platonism, and social engineering are simply a different form of oppression. If you want to look at data, then lets get away from this positivism, and back to some causal analysis. There is plenty of data out there. Not the least of which is that no matter how we engineer society, the mating ritual will prevail. And in that mating ritual, women want certain things and men do, and that dance will never change, ever, absent the application of chemistry during the natal process. Again, there is an ocean of data supporting this. A not insignificant portion of men would prefer to hunt and fish all day, and build things. Another not insignificant portion of men would prefer to hang out on street corners and drink or make tea, or something simple. Another not insignificant portion of men would rather fight, rape, murder and steal, than do an ordinary job if they could get away with it. Plenty of others would be perfectly happy to spend their lives in military service if it tolerated collateral damage. Not all, but many men live painfully dull lives instead simply to participate in the status and mating rituals. If you change that process, you will not get the utopia that you dream of. Especially if it’s in a heterogenous empire like ours. You will get the Mediterranean, or eastern european, which is that men simply check out of society, and practice corruption, and interpersonal dominance, because they feel society is against their interests. Our men are doing it right now with video games and prescription drugs. The redistribution of western technology, and western calculative technologies in particular (what we call capitalism), which have been our institutional advantage against other cultures, is eroding that western historical advantage and redistributing production, and and skills worldwide. Capitalism slows birth rates and creates aging populations. Aging populations are less productive, have less military power, and are less capable of maintaining trade routes. Therefore less capable of maintaining a justice system, and less capable of maintaining a dominant currency, and less capable of maintaining social programs that are debt financed. Aside from debt, social insurance programs have been designed not to be funded by saving, but by having the younger generations (which will be smaller, and more likely immigrant, and often from different classes and races who will eventually want political power) pay for the services of the older, rather than having the older lend saved money to the younger, as we have done for all of human history. The role changes that we see, the distribution of jobs, are all temporary functions of the conversion of world society from agrarian cooperative, to urban capitalist. They are minor temporary variations in the ebb and flow of that process of calculative urbanization, and population peak followed by population decline. They do not necessarily represent a trend toward an egalitarian utopia. If you want to know if men and women are equally productive in the work place then, except at the margins, in similar jobs, they are so. If you want to make sure that women have the same rights as men, that is only sensible. And current legislation would demonstrate tat they have MORE legal rights than do men, just as minorities have special rights against the dominant culture. To the point where, at least, economically, it appears that women now “Marry The State”, and use that state apparatus to extort money from men, replacing the interpersonal violence of man against woman, with the political violence of the state against men. Men are beginning to understand this. All men have a limited advantage over women, because they do not have to bear children or rear them. SOME men have an advantage because it appears that men can more easily specialize and dominate a field than can the same number of women. MOST men have a disadvantage over MOST women, in that they must specialize in some skill inorder to have value in the mating ritual, and that their social status, and access to mates, as well as their possible male alliances, is determined by that specialization. At some point, lazy statisticians and social science amateurs would do better to study ALL the data and then make determinations, rather than think that some subset of simple ‘vulgar’ statistics are sufficiently informative that they may draw conclusions from them: otherwise it’s not using the scientific method. It’s not even the error of positivism. It’s ignorance and idealism.

From an article in the NY Times. A Way To Share In The Nation’s Growth Robert Schiller, who I greatly admire, recommends one step toward Capitalism v3.0. Why? Because investment in the productivity of a nation does not privatize wins and socialize losses, as does debt. It is gambling, but gambling by people who know what they’re doing, rather than simply impoverishing citizens for government’s incompetence. I have worked on this particular theory quite extensively, and it appears that the worldwide impact would be positive and durable. The argument against it, is that it makes governments accountable. And the entire purpose of government seems, at least from the historical record, to be one of avoiding political accountability at all costs. Which is precisely why we need this particular solution.

Shiller: Sell Shares in the U.S., Not Just Its Debt Thursday, 31 Dec 2009 09:09 AM Article Font Size By: Julie Crawshaw Yale economics professor Robert Shiller says a new kind of government security is needed, one based on equity instead of debt. “Corporations raise money by issuing both debt and equity, the latter giving investors an implicit share in future profits,” Shiller writes in The New York Times. “Governments should do something like this, too, and not just rely on debt,” he says. “We would sell shares in America instead of just debt of the American government.” Shiller even suggests a name for the new security, which would be based on Gross Domestic Product: a “trill,” because it would represent one-trillionth of annual GDP. Though GDP numbers still are subject to periodic revisions, “the basic problem has been largely solved,” Shiller says. “Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economies stimulated and protected from the threat of a truly serious recession.” If substantial markets could be established for them, Shiller notes, trills would be a major new source of government funding, issued with the full faith and credit of the respective governments — which means investors could trust that governments would pay out shares as promised, or buy back the trills at market prices. “What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” Bill Gross, co-CIO of Pimco, told The New York Times. “It’s capitalism, I guess, but it’s not to be applauded.” © Newsmax. All rights reserved.

When governments no longer can justify violence, they resort to fraud. Debt at this level is either ignorance, stupidity, the replacement of wisdom with ‘hope’ which is a secular version of trust a divinity, or simple outright fraud. And it is not a question of political parties. The left destroys through it’s kind of policy debt, and the right though it’s kind of monetary debt. The only difference is that the right’s method can be corrected through a recession, depression, price adjustments and fiscal collapse. The left’s will require a bloody revolution, and destruction of the civilization itself. Between those two ‘bads’, perhaps, the ‘bad’ of the left is worse, but it is only marginally worse. It would simply be better for all of us if government could not commit fraud on such a scale, ever, under any circumstances. To prevent policial fraud we need methods and processes that are measurable, and to measurable they need to be calculable. Calculability is an extension of perception, and an extension that is necessary because our innate human perception is unable to make judgements without the aids that calculation provides for us. (Numbers represent consistent immutable categories.) Accountability requires calculability. Capitalism 3.0 creates political accountability through plain old fashion calculability. Curt

Lawrence, Thank you for your work in the public discourse. Your moderate pragmatism is often both interesting to read, and wise. However, a post today entitled “Whos Talking About Sheeps Clothing“, bothered me, not so much for what you said about it, but for the assumptions that are made by you and the others of the posts you reference. My response is, like all those I write, a far broader treatment than you (or anyone else) may consider is warranted. However, while Socrates stated that the first purpose in any debate is to define one’s terms, it has become apparent over the centuries, that we must also define our method, define the population that we mean to affect, and the time frame of the outcome we desire. The world is more complicated than the syllogism alone assumes, because the indices by which we measure preferred outcomes are different. This difference in methods and in set of indices may be, or at least appears to be, the difference between social classes, and the difference between political parties. The political and economic discourse is full of blame-casting today. It attributes malice to individuals who instead have different goals and who lack the knowledge to make better decisions, and lack a breadth of understanding by which to compare their values and solutions to that of others. No one wakes up in the morning and decides to be evil. Even a determination of selfishness is difficult to construct for either the subject or the external observer. While in your posting on American Decline, you’ve (the collective you) included three diatribes against the private capitalist structure, and it’s incentives, you’ve failed to posit an alternative solution, and the mechanism by which such a solution is ‘knowable’ by it’s participants. It asks the reader to assume he is wise enough to regulate such a thing. And the reader, mired as he is in the stream of mythical history, all too easily ascents to the assumption. To start with a little perspective, one of the reasons the board system works in europe is because each country is much smaller, less diverse, less economically diverse, and each country is more simple in it’s strategic needs (by far), and because the ancient class system is still in place in europe and the class relationships between the government and the executive leaderships share similar values and ambitions – something that has been removed from american private and political culture. (although not south american). The class influence may seem a small one, but it maintains a mythos that limits market behavior – including compensation. We had these limits here in the US, both in executive compensation, and in law and limits on fees. But they disappeared with the meritocratic american-dream-lottery, that helped fill the continent with people. And even this mythos for the common man held up well into the early twentieth century, when the accumulated impact from the post civil war era’s transformation of te federal government and it’s increased powers allowed people in the upper classes could use government to close the ranks, as well as leverage the government to create temporary or politically advantageous semi-monopolies. We have no similar behavioral constraint. In fact we developed very different institutionalized behaviors both in public and private sector governance. And while the three postings cast these CEO’s as wolves, rather than another breed of sheep, it is perhaps, in this context of institutions, more likely that they are sheep. Recommending regulatory solutions to this problem of cultural institutions and incentives is certainly one way of approaching the problem. Unfortunately regulation doesn’t alter the underlying behavior, and in this case, would simply reinforce the underlying set of assumptions that cause us to have the problem of exaggerated incentives. Furthermore, regulatory philosophy in this case, which you also clearly categorize as punishment, demonstrate a lack of understanding of why these incentives exist. So proposed regulatory solutions that do not alter the underlying causes are band aids that do not fix the problem only redirect it and reinforce it. And the solutions recommended seem to rely upon ‘common sensibility’ and suggest no method of measurement other than ‘common sense’, or that common sense that is determined by regulators. To define a solution, in any field, not just this one, means posting an epistemology that makes it possible for participants to know the criteria for success, and the incentives for encouraging success. Appealing to regulatory oracles is not one of them. We don’t need to resort to an unpleasant branch of philosophy, we can simply say we need a method of accounting that makes good judgement possible. Furthermore, it’s an error in social science (verus physical science) to pick a small scope of experments and apply them to the broader spectrum of social and political problems. While the scientific method is useful for this kind of analytical deconstruction, because it is a process of discovery, the social sciences are resistant to that method, but instead, require that we include all possible data and synthesize solutions by iterative refinement. Even Aristotle knew this, and when he wrote the Politics, and surveyed all the constitutions of hellas before he drew idealistic conclusions. To solve a problem like ‘American Decline’, requires we look at the scope of all possible causes for American Decline, and then identify patterns of similarity between them. It is not all that difficult to do that if you go back just two hundred years. We are not short of reasons. There are plenty of them. It is at this point in the discussion the politician says “but I need to act now, to do something”, and the economist says “we aren’t trying to solve that problem” and the entrepreneur says “but we can at least fix this one problem”. To which we must respond, that none of them understands what problem they are fixing, and in their division of knowledge microcosm they, somewhat humorously, believe that they have sufficient knowledge to make useful decisions about a topic of human contemplation that is defined by it’s incomprehensibility: the market itself. But to consider such a scope and perform that comparison, requires you separate what it is possible for people to know at any point in time, from what they did know, from what they did not know, that people later did know. (If that isnt’ confusing enough on it’s own.) Otherwise you will make the same error in historical analysis that you are making in the three postings you reference above — none of which postulates a solution other than common sense application of information that can only be derived from knowledge gained in retrospect, making it valueless and a childish vanity of the people that propose it. We have had a series of waves of ‘scientific’ falsehoods over the past century and a half. And studying where we failed in those falshoods tells us more about how we can succeed, than do an analysis of our percieved successes. Tis again, is an application of the principle of falsification. And we have failed mightily: managed economy socialism, DSEM economics, democracy, monetarism, phlogiston theory, and countless others. If you perform that extended analysis, you will find the answer. You may not like it. But you will find the answer, because it is there, as plain as day. And then you can read, in volume, book after book filled with the people who after the 1870’s price-recession, after the 1914 european civil war, after the 1920’s immigration boom, after the 1930’s depression, and as members of FDR’s administration, all warned us that we would accomplish exactly what we have done – distorted our information system. Since credit is a distortion, that distortion of our information system can be useful *IF*, credit is granted for things that can be tested: things about which we know enough to issue publicly backed credit against. And that’s the issue right there: the limit of what we can know. The interesting thing about credit, is that if you give a loan, and attach a price you are not attaching a price like that of the oranges in the market, but attaching the estimate of the person doing the pricing versus the estimate of the consumer (who is much more ignorant), and the estimate of any regulator (who is more ignorant) and the estimate of the buyer of the debt instrument (even more ignorant), and giving profit to the originator. In other words real-property value estimates are not the independent prices that we attribute to temporally exchanged products. Furthermore, predictions of all forms rely on historical categories of measurement that are open to radical change. Furthermore, the greater the amount of prediction (credit) issued, the greater the distortion of the predictive value because of the greater distortion of the category being predicted. (Which was not included in the XXX formula that purported to forecast risk. An error that is unimaginable to some of us. ) But because of social insurance schemes like bankruptcy and deposit insurance and unemployment, such risks are an act of privatizing wins, and socializing all the losses. Credit issuance and debt instruments are not ‘free trade’ – a term which assumes that a good (like a commodity) is in both price and utility self-evident. *Property values are an artifact of the person making the masurement, not of the market itself.* Instead of being a free market concept, it is the same process of loan sharking, which privatizes wins and socializes losses. To repair this complex scheme requires only that the originator be unable to sell the loan, or at least, he must hold X% of it, and his losses come out first. That is a solution. This is not an abstract regulation based on common sense, it is an acknowlegement of the liability that we require of all market commodities: that they are what they reprepreent to be. Ethic requires that in asymmetry of information the advantage goes to the ignorant, even if it is not to his beneift. There may be other solutions but that is a solution because it is calculable and it is calculable because the category we are measuring (the originator’s estimate) is attached to it’s conclusion (how the loan performs) and provides incentives (the originator profits or loses), and is *possible*, (the originator and the borrower can make some sort of estimate that far in the future.) We can apply the same logic of privatizing wins and socializing losses to vast numbers of speculative industries where there is not a division of labor, and the necessary division of knowledge, and therefore necessary ignorance, and a pricing system that helps people communicate, but instead there is asymmetry of information. However, there is only asymmetry of information when it is possible to know what a commodity (a debt instrument) purports to be selling. It is not asymmetry of information if the difference is unknowable — It’s either gambling or fraud. In particular, the use of probabilism is not applicable to debt objects en masse because en masse, the category of original prediction is distorted. We have seen this proven out of late in the credit crisis – although for some of us, the idea was absurd from the very beginning. The quantitative information included with a debt instrument is insufficient (and may always be so) to categorize the instrument as something that is traded rather than something that is gambled upon. I am one of the people that believe that older generation traders simply hired the younger generation of computer literate traders to build and use databases in full knowledge of what it was that they were doing. And the younger traders and computer scientists were poorly educated enough to fail to undersand the consequences of their assumptions. Eitehr that or they were paid to ignore it, or insufficiently talented to understand that the knowledge that they derived from the complex data expired as an advantage once use of it achieved a critical mass, adding additional distortion to the market’s information system. If we regulate something, lets start with regulating gambling, and understand that a CEO is operating a table in a casino. He must work within that environment that the state has created, since thse capital markets cannot exist without state sponsorship. Of course, doing such a thing as conducting an inventory of all the possible reasons for American Decline requires a fairly broad scope of knowledge. But then, the problem you are commenting on requires a broad scope of knowledge. And commending on a problem with political import, without that broad scope of knowledge, well, isnt that just another form of privatizing wins and socializing losses? 🙂 I jest. But freedom of speech is, unbeknownst to it’s advocates, a subsidized political activity. And it is of questionable value. We are not sure that in the presence of enough information to make political decisions (information which we admit we don’t have) that free speech is anything other than one class of people attempting to justify theft by way of government from another class of people through some form of deception or misrepresentation. And it is the lack of this broad scope of knowledge, just as much as it is silly personal political, class, status, and metaphysical biases, that prevents people in this debate from coming to agreement on how to fix the problem. Each little fragment of society postulates it’s little problem and solution combination, but lacks the skill and knowledge and perhaps time to see the similarity between offered solutions from different fields. For example, of the thirty-six-odd civilizations that have died in history, all appear to have died for the same reason. Of course, someone like Jarred Diamond attempts to blame this on environmental causes, without asking how people became so numerous, and what system allowed them to exploit their environment, without stopping from over-consuming it. (Some people are out gunned, germed, and steeled, but a lot of them are so because they don’t adopt guns and steels so to speak.) We know the answer, just as we know the answer for how to stop overfishing the seas. We just don’t implement it. We can manage what we can calculate as long as we divide up the effort of calculating to match the division of knowledge needed to perform the calculation. The societies died from failing to develop an epistemic means of organizing society and managing it’s resources. they lacked sufficient property, money, credit and accounting to transitoin from farm economies to urban economies. Religion is a very simple tool. Taxes and laws are very simple tools. They expire in utility at farily low population density. After that density, credit is the only tool that we have invented that works, because it can be managed by the market, not by governors, and applies UNEQUALLY to people who, ina divisinon of labor (unlike slaves and farmers) are in fact, very different in their abilities. Capitalism is an ‘ism’ if it is a mystical form of belief that you rely upon when making incalculable decisions. And as such no different from any other ‘ism’, such as relying on an assumed collective benefit when making incalculable decisions. Capitalism as a set of institutions that provide both incentives and the technologies by which our individual meager minds can calculate possible uses of the material world, and compare complex, multi-part, multi-state, multi-option, possibilities, in a vast division of knowledge and labor. The vast majority of decisions are unclear to both individuals and groups. We use myths to help us make tie-breaking decisions as individuals and groups. Where we do not have sufficient myths we use biases. Where we do not have sufficient biases we use ‘ism’s. But the vast majority of our decisions, are only ‘decisions’ because they force us to choose between things about which we have inadequate knowledge. Our myths and biases are how we make most decisions. They have to be. We don’t have enough information otherwise. Time preference is one of our most commonly visible biases. In fact, the difference between classes may entirely be one of time preference. And the weakness in our political system, is that we must, of necessity, under the ruse of democracy, where highly politically interested minorities rule over politically disinterested majorities, where political participation is at a higher cost to the business person than it is to the populist advocate, rely upon myths, ism’s, and biases, because we lack the calculable means by which to make any other form of decision. I’ll say that again. “We lack the information.” Or do we? It appears to me that we have the means, but that we lack the general knowledge to apply them to the policial spectrum, simply because doing so, while truthful, and allowing people to achieve their goals of both calculable capitalism and calculable redistribution, will disempower the political class by doing so, and rightly, and correctly, demonstrate the weakness of our form of government in the process, which is, (because we have destroyed our traditional myths) our only current social mythos. And it appears, that it is a no more legitimate myth, in retrospect, as was our religious mythos. The greeks were somewhat lucky. Between the fall of Mycenaean civilization and the rise of hellenic civilization they lost writing for five hundred years. And in doing so invented a new mythos out of need. We still live part of that mythos today. We were in the process of creating a new mythos with Romanticism. We killed it with Scientism – which is important to separate from Rationalism. But we lacked the understanding of the limits of science. We lacked a solution to Hume’s Problem. We currently can see that it has something to do with fractal mathematics applied to the learning and forgetting curves of individuals at different ages with different social and economic classes and different bodies of knowledge, and those individuals are affected by the volume of that stimulation compared to it’s rate of retention and forgetting. But we do not have a way to forecast it, simply because it is so vastly more complicated than the mechanics of the physical world, and the fairly linear mathematics of finite categories that allow us to forecast in it. Scientism, which is a mythos, has failed both in economics and in the Managerial State. It is an insufficient social science. It has failed because we lack the calculative technologies to bridge the managerial state (in time and across generations, with declining populations) with the theocratic, myth-using, political state. And this is not simply because the democratic egalitarian state relies upon the myth of equality, but that’s no small part of it. We need to create a new binding mythos, and we also need to implement the technologies that we already possess. And what’s frustrating is that we do already possess them: tagged causal accounting, accounting that separates profit and loss from operatons from political compliance and debt, taxes that levied against profits from credit but not from operational service to consumers, credit that moves downward creating a more consumer-serving society, and less credit concentrating upward creating politically competitive nations, or at least two classes of credit and companies so that consumers are served and the state remains competitive. And finally a government that profits from interest earned by it and the people it represents, not taxes inflicted which distort consumer and business behavior creating vast loss, anger, class warfare, and confusion. Because these technologies were invented by libertarians, who are, almost to a man, anti-redistribution, I suspect that they will not be implemented. However, it is possible to implement them and to include, a rational form of redistribution. And it is possible because libertarians tried desperately to solve the problem of epistemology in the social sciences. It appears that they have done so. But implementing those solutions would vastly decrease the class warfare, and make politicians accountable for their actions. And the vested political interests will not tolerate this. Libertarians were wrong on free trade. They did not understand the problem of human capital, since when they were writing, they saw ‘labor’ as relatively unskilled resources, when in fact, as Germany has shown by building it’s society to create great skilled labor, it’s just the opposite. Libertarians were wrong, in thinking that the world could form a division of labor by country. While that is a convenient way of thinking, it fails to answer the problem of having every country need to find work for all it’s citizens, rather than just those who best suit the national place in the division of labor. Libertarians were wrong on creating a moralistic, and metaphysical sense of reasoning in order to justify their privatization of wins, and socialization of losses. Private capital is, and always was a myth. People pay for social order by forgoing opportunities for theft and violence. They pay into the social wishing well. Private capital was needed, but there are limits to it, because there are limits to the consequences of it’s use. But they were NOT wrong on incentives and calculation. Because they openly acknowledge the problem of a division of knowledge, labor, and of ignorance in time. They openly acknowledge the corruption of any power structure, and any government, and any bureaucracy. They do not seek to justify democracy, or democratic decision making, and instead acknowlede it’s fallings. It is entirely possible to give people health care, job cushioning, and for the rest of us to pay for the incompetent minority to stay home so that we get decent service at a train station. ASsuming we put rabid controls on immigration. And possibly on births. But it is not possible unless it is knowable, and that is to say ‘calculable’. And it is not possible to implement calculable solutions with current accounting and tax regulations, nor with a political and intellectual class that would be largely disenfranchised in the process, because they, like priests before them, would largely become of little value if we were not absent the information that they, by regulation or lack of it, and credit or lack of it, themselves cause. American decline is caused by the myth of American ascendancy. We put in place a commercial state, an extension of English Mercantilism, which took over the colonialization efforts from england, and made them local, and then profited from filling the continent with human beings. It took a particular set of political principles to accomplish that task. But that task is complete. We used the profits from it to take over the British empire. We used the time we had after the fall of the European empire to push profits down into the laboring and post war consumer classes. We used television and advertising to market to these newly created suburbanite consumers. We built corporate structures (and corporate myths) to assist in this conversion of farmers to suburban and urban consumers. In a vast competition for which class would win control over this new world order, the lower classes fought for political control via socialism, and the merchant classes via commercialism, libertarianism and Republicanism and free trade. Both argued for free trade. And the old Noble social order, which had lost it’s willingness and perhaps the ability and wealth by which to enact violence in order to preserve their order, simply either abandoned political participation, or resorted to some form of scholastic argumentation, completely at odds with the popular, and more energetic and well funded movements. They, like many civilizations before them, handed over power to the merchant classes, and the merchants, dependent upon trade and profit, not an ability to project the very violence that is needed, rather mandatory, to create private property that allows merchants to exist, fell the the mercy of the vast number of common men, and their level of understanding and time preference. In America, we have a political structure that has a purpose. It has had a purpose since it’s inception. We have a political structure and now a corporate structure for selling off a continent to immigrants and using the profits to build an empire. That empire has vast human value becasue it exported property rights, accounting, and corporate investment technologies by using military technologies and cultural institutions. That empire also exported meritocracy, but it exported meritocracy simply because meritocracy was it’s competitive advantage over less advanced civilizations. We no longer have a continent to sell off. We no longer have extraordinary profits to use to extend our empire. We did not protect our intellectual assets. We no longer have an advantage in human capital. We did not protect our militaristic value system of self sacrifice and meritocracy. Nor did we protect our lower classes by insuring that they were both competitively skilled and disciplined. So we no longer have our very expensively capitalized mythos, that took centuries to construct. We made the mistake of getting fat dumb and happy. You can blame a lot of this on the democratic socialist movement. (Which is the underlying and yet unanswered problem.) You can blame it on the culture of empire driven by the need to federalize (create an empire) over the local states, and then using that method to take over from england. (which is what happened). You can blame it on the general Suffrage and enfranchisement and feminist movements (which is where quite a bit of the incentive against capitalization and discipline is due). You can blame a lot of this on the commercial and libertarian movements. You can blame it on economic and cultural disruption created by the advance steam, fossil fuel, and electrical power, and it’s productivity increases. You can blame it on the destabilization of opening a new continent, and the price and democragphic impact it had on european culture, who now does not see its job as keeping the east at bay. You can blame it on the ignorance of the average american, who in a democratic society either must be educated to know better, or removed from his political power. And in particular you can blame it on the takeover of the academic establishment by members of the liberal order who have actively undermined education as a tool of controlling the educational theocracy as a means of conducting class warfare, and of women’s dominance of lower education and their knowing and willing destruction of masculine values of dominance, competition, excellence and self sacrifice in favor of empathy, inclusion, non-disruption and equality. Some people give extraordinary credit for destruction to the jewish immigrants who created a lot of both the libertarian-monetarist, legal-relativism, and communist-socialist thought. But this ignores the lack effort by the Christian europeans who simply gave up and checked-out of the political order entirely since the late 1800’s, and who, albiet at the point of a gun in the sixties, changed the teaching of history from an artistic science that favored capitalization, individualism, duty and sacrifice to a political collectivism that favors consumption, redistribution, hedonism, and pleasure. You can blame it on the right who attempted, deceptively, or with fear tactics to use a democratic political process to maintain a social order of liberty, when friends of liberty have always been the minority, because only the minority desire a meritocratic world to live in. You can blame them mostly for failing to create a market for schools instead of having state run education. This woud, above all things, created class based schools, and forced lower classes to compete upward. There is plenty of blame to go around. These are not trivial problems. American decline is not a matter that will be solved by executive compensation, or any of a dozen other silly little ideas that rely on the comon sense, ( ‘mythology’) of individuals, because each person makes as many decisions a day as he takes steps. Most of these decisions must be made with inadequate information in short time. People rely upon myths that can be generalized and habituated in order to make decisions. Without them these myths and biases they cannot make any. Certain of these myths are very important: credit, justice, the relative purchasing power of money, as well as not to profit from artificial ignorance (ethics), not to profit because of hidden costs (morality), and not to profit despite the fact that we can get away with things (fog of law, fog of bureaucracy, prohibition on just violence). Instead, American decline will be solved, if at all, by institutions that give people the tools to make good decisions regardless of their place or class or role or job in society. And the replacement of our current faulty mythos on both ends of the spectrum with one more appropriate for our new and permanent circumstances. But to make that argument rational requires data, not moral argument. And that data will eventually, one way or another, come from what we currently consider accounting data, but accounting data that is not categorically ‘laundered’ – in other words, where cause is maintained throughout the cumulative chain where the data is used. ANd in particular, where it is never ‘pooled’. Because pooling accounting data is laundering money. Taxes in particular tend to be the grandest form of money laundering. Societies die from internal causes because they lack the general will to adapt to new circumstances, and it’s elites lack the political will to make the change, and lacks sufficient elites in the radical public, conservative militaristic, and pragmatic commercial specializations to drive that change. Instead we are often saddled with those who are resistant to doing so largely because they are too comfortable in their current circumstance. Getting fresh talent into the elite structures in all societies is the primary objective of any social order. Because they implement change. But the secondary purpose is to maintain a mythos that forces the society to capitalize sufficiently to maintain it’s competitive advantage. And third, we must maintain sufficient incentives so that we can compete en mass against other nations who are doing the same. Consumption is not capitalization whether it takes the form of consumerism or redistribution. They are both forms of spending, not capitalizing. France is perhaps the most prominent country that is spending it’s vast history for temporary democratic political power. They are forcing us via the united nations to do much of the same. Our problem is the same as it has always been for man: given increases in a division of labor and knowledge that allow us to increase populations and further increase the division of knowledge and labor, what institutions do we need to develop to allow our resource management, forecasting and measurement to be conducted in our new, faster, more populous circumstances. Common sense isn’t the answer. Regulation is a form of common sense, because regulations are created and written within the current mythos. Laws as we make them are institutionalizing a state of affairs that constantly becomes out dated. Laws, very often, institutionalize the public’s silly ideas. Good laws emerge from codifying business practice. Regulation and laws are not tools for doing, they are tools for punishment. Law is a set of prohibitions not recommendations. And even if it were not, we cannot know what to recommend other than to innovate. Credit is a form of inducement. It is the opposite of law because it is both positive, a recommendation (but not a command) an incentive, and applies to individuals, not to all men. Credit is a much better practice than law. Unfortunately, we do not see credit with the same power as law, despite the fact that we live, not in a law society, but in a credit society. The social order is maintained by credit not by law. Any immigrant will tell you that american citizenship is a matter of debt participation, and that carrot is more effective than is the stick of law for which the common people have no knowledge and nothing but justifiable, well earned contempt. Unfortunately both our accounting and our law, are constructed for a time of multi-month long shipping cycles. But we live in a world where run rate is determined by weeks, and profits and losses are better calculated by the day. Production cycles by company are not how we calculate investments or determine asset values, and in particular, not how we tax. But production cycles are the only calendar that any organization should operate by. What we can know what to recommend is the institutions of calculation that allow us to cooperate, coordinate and communicate in vast numbers in real time. THe purpose of government then, is to assist in the accumulation of capital needed to solve problems where the incentive to take risk cannot possible to form by nature, largely because of it’s size. That is what governments have been doing since the dawn of civilization: concentrating capital that cannot be concentrated otherwise because the mareket does what we cannot understand, it does not well do what we DO understand. The purpose of government is not to formulate and institutionalize common sense, which is only sensible for some very limited period of time. We have a lot of change to swallow, and unfortunately it is beyond the scope of our elites. That’s how a civilization dies. It is to use credit to manage society as individuals who are unequal, not law to manage it as a unity of equals, which it is not. Law is for slave owners and peasants who are equal in their victimhood. Credit is for citizens who are unequal in their ability to serve each other. We are, as a civilization, trying to solve the WRONG problem. It is not how to run a better government with laws, it is how to lave very few laws, and run a government of credit and interest, and to create institutions that allow us to compare and calculate our actions and measure our results from citizen to bureaucrat. If you want to start somewhere. THat’s where you start. Not by perpetuating the falsehood of executive compensation, which, while ridiculous, is no more ridiculous than the pay we accord to members of sports teams, movie actors, entertainers, and others who give us what we want. Our nation is full of those who tilt at windmills and call themselves wise for having vanquished a slow moving vane. Its past time for windmills of Law, Socialism, Democracy and Monetarism. Curt Doolittle Note To Self: Pareto class 1 Residues – collective property – Priests and Public Intellectuals – the clerical class – speech and fraud Pareto class 2 Residues – concentrated property – Soldiers and Nobles – the military and craftsman class – action and violence Pareto class 3 Residues – diverse property – Merchants and Bankers – the trade, manufacturing and shopkeeper class – trade and honesty

Losses Are Losses Regardless Of Size: Tiger Woods, Losses and Celebrity Endorsements

December 29th, 2009 § 0 Comments

Over on The Sports Economist, I found a posting about a UC Davis Press Release on the Tiger Woods scandal and the losses incurred by companies that had sponsored him.

And Felix Salmon editorializes that the number is an example of specious academic research (in other words, like most academic research that has popular appeal, it’s nonsense.) I’m not a big fan of Felix for historical reasons, but his criticism is spot on.

Now, how am I going to spin this as another example of a strategic marketing error that is the fault of executive management?

It’s easy. Because what makes the estimated $12B (or 1b, or whatever number of millions) in losses from the Tiger Woods scandal more interesting, is that celebrity endorsements have very little positive impact on brands, and advertising agencies have known this for decades.

Celebrity sponsorships improve the public’s awareness of the celebrity outside of his or her own field. But that awareness does not translate to the products themselves. In general, Tiger made more people (especially minorities) interested in golf. But he did not necessarily advance the revenue of the “non-golf” brands he was associated with. (I do not have data on Tiger, I’m using comparisons of past celebrities – although I would honestly love to be proven wrong on this).

For example, some of the models and actresses do fairly well with brand development, and have impact on the brand, but they manufacture that value – they don’t bring it to the table. Wilford Brimley’s commercials for grape nuts were a positive example, but he created that value as a character actor, rather than brought it to the table in the form of external legitimacy.

So given the data on losses to shareholder value from the Tiger Woods scandal, it at least appears to confirm what most of us already know: celebrities increase awareness of the celebrity, but have little or no impact on the bottom line, but celebrity exposure once engaged in a brand, has a serious downside that is logarithmically more negative than any possible gain can warrant risking.

And if you pick a reasonably attractive high performance high stress male athlete that marries a woman clearly outside his social class, and who travels extensively among fans (especially homogamous status-seeking females) that you helped create through increasing his exposure, you are simply asking for trouble. You get the same problem if you bring in a young female olympic medalist from a small town, and give her unfettered access to the media – she will speak honestly, and pragmatically, from her heart, and that is not the job of politicians or brand representatives whose job it is, is to perpetuate myths. (Yes, that’s a politicians duty: to perpetuate a myth, because political decisions in large groups are decided according to mythos.)

Now, part of the problem is his own agency’s fault. They positioned the poor guy as a saint. Nike never does this kind of thing that I’m aware of. THey leave room for human frailty. If you don’t you just create a vehicle for necessary failure. They did. He stepped in it. It cost a lot of money – specious self promoting academic research or not.

Celebrities cannot legitimize brands by bringing external legitimacy to them. Characters that symbolize brands, rendered by talented actors bring acting talent to the process of creating brand value. (Mr Whipple – played by Dick Wilson, Wilford Brimley – for Grape Nuts, and Catherine Zeta Jones for T-Mobile, for example, all created brand value.)

In other words, blame the CEO and CMO, and agency for the lost $X-Billion, because it wasn’t Tiger’s fault for being Tiger, it was their fault for using a celebrity as a means of promotin when celebrities have near-zero positive impact on the business.

Advertising should not be comprehensible to executive management. Sales data that is the result of advertising should be comprehensible to executive management. But that’s not how it works. A very smart guy, Larry Ellison, CEO of Oracle personally knows the agency and who is representing his company. And while I, he id due his how personal criticisms at times, as a CEO he should be respected for his depth and flexibility and accountability – he demands accountability and is involved in how his company is marketed.

So it’s CEO’s and CMO’s that lost billions by manufacturing a celebrity that they can talk about with their friends, when the data is clearly that celebrities have very little positive impact on brands, and very high negative impact on brands, and they were betting on the chastity of a guy (probably with a lot of legal nonsense that assumes far more of a human animal that is possible) who has about zero chance of holding to those achievements – not because of a character flaw, but because any person under duress for a long enough period will seek human comforts and rationalize them.

We worry about CEO corruption as if it’s an intentional malice rather than the foibles of being a human being in the midst of disconnected, fragmentary, and often erroneous data, in a rapidly changing market, under considerable time pressure, with credit money distorting all financial data worldwide, when CEO’s appear to be, at least from the data, some of the most ethical people in the world – especially given that they must fight the daily battle of tax, banking, investment, regulatory, journalism and political leader’s desire to attribute predictive value to temporal noise in data as if it is a trend, without resorting to calling the leadership of each of these categories ignorant fools, or giving away their current strategy. That’s a task that makes a centrist politician’s duties look tame by comparison. Yet we do not hold CEO’s accountable for malinvestment that was made despite being clearly contrary to all existing evidence.

Except for Nike, who is in this kind of business with full knowledge of the consequences, (and employs some of the smartest people in marketing today) and EA, which of course, is directly profiting from Tiger’s name, (and is an exceptionally well run organization with deep knowledge of it’s customers) and Golf Digest who again profits directly from his participation and legitimacy in expanding the sport of golf, we should blame the CMO’s of the companies that invested in Tiger Woods. (Accenture, Amex, ATT, Gatorade, TLC, Gillette ) because it’s their decision to invest in a risky strategy (most likely because it’s easy to get through the bureaucracy) instead of developing a character or characters that represents their brand. (Geiko, and Progressive insurance are the current popular winners.)

Tiger’s downfall was a foregone conclusion, and certainly, in the trade, the topic of a barstool raffle on his time-to-failure. He’s a human being, and no matter how many layers of paper indemnification we wrap a human in, he is still a human living in a world of other humans.

But while the contract clauses can stop you from paying out your sponsorship fees, and some well spent money will help consumers forget the negative association with your brand, it cannot so easily recover lost shareholder value, despite the fickle memories of investors. Billions are BFN’s to lose. And they are lost by executives who buy into celebrity endorsements instead of building brand value around characters that they actually own, and in particular, fictional characters that can’t get caught in infidelity in hotel rooms with waitresses.

from: www.puretheoryofmarketing.com (offline)

A tactic used by the vocal left is the threat of violence, or revolt if their needs are not met. The tactic of revolt is ancient. This modern version of revolt is a product of The Myth Of The General Strike. (I am referring to Burnham’s treatment) The contemporary version is the Economic Armageddon and Political Upheaval of the classes. The opposing argument is the libertarian argument for private property, and private capitalism, and the Randian version of Atlas shrugging. Both of these are myths of the general strike. The argument, or myth in any of it’s versions, is disingenuous. Workers will eventually relent, be replaced, or the businesses close. Entrepreneurs will be replaced by others. It is the state who would suffer it’s loss of legitimacy in the event of failure. But a new group would take over in government, and life would go on. An analysis of history tells us that it is much easier for the minority with wealth to pay another minority to violently oppress the peasantry, and to obtain their compliance going forward with commercial incentives and rewards, than it is for a peasantry to organize a movement of a general strike. In fact, the government conducts all general strikes, because without government suport and threats of government violence on business people, they would largely be irrelevant. When a ruling class loses it’s will for violence, the society loses it’s binding mythology. It simply opens it’s ranks for a different group to take over the ruling class, and redefine the existing network-map of property rights, and the dispensation of them. However, provided that the ranks of the elite are open to absorb those ambitous people from all classes, and the elite retain sufficient willingness to use violence, the myth of the revolt is specious. Because people simply need leaders in order to revolt. Before an elite allows itself to be displaced, it commits fraud. They verbally ally themselves with ‘the people’. All societies determine the scope of private and group property differently. There are limits to the scope of private property. Property is necessary because of the limits of people’s knowledge in time. However, there are points at which certain forms of private property deny service to consumers, (such as misuse of intellectual property rights) and therefore it is theft from consumers. Why? Because consumers forgo the opportunity for violence, and in doing so pay for the cost of creating that private property. So denying the market a good in order to increase prices and profits is a theft of the costs paid by consumers to create the opportunity for private property. So the limits to private property come from artificial scarcity (denying a good to market), whereas reinforcement of private property comes from the There are limits to the scope of public property, because there are limits to the amount of knowledge that can exist in any person’s mind, and limits to decision making among groups of individuals, and distortionary effects (basically, perceived risk reduction, limited by the amount of knowledge of the largest population able to exercise it’s will) and the rapidity of timely action, and because of the limits of timely action, limitations on the opportunity cost for the group. ie: increases in private property are an opportunity cost reduction for a group. The purpose of the union movement is to allow the populists to use threats against the capitalists, without fear that the capitalists can respond in kind, and thereby allow government to profit from intermediation, thereby forming an alliance between the unions and the state, regulated only by the long term (and therefore easily imperceptible) impact of their intervention on tax revenues. Violence should not be eliminated from our discourse. It is a ruse. Starting with a principle of non violence is and always shall be a ruse. The fact is, that ALL movements that presume non-violence are attempts at theft of the cost needed to create private property. Costs are the only means of honest political dialog. Both direct costs and opportunity costs. The Principle of Non-violence is fraud. Plain and simple. Period.

I am going to redefine Opportunity Cost from the difference between one choice and another, to include the opportunity of expending violence. Because that is the FIRST cost that they pay in every transaction. I’m going to redefine Time preference from the silly Austrian implication that all purchasing decisions are made primarily by price, to the acknowledgement that all prices are in fact habits, and that decisions are made primarily by the culmination of OTHER factors, (and logically must be since prices are rarely different in any meaningful way) such that Time Preference is the aggregate approach to either consumption or capitalization. Such that a high time preference in the classical sense means consumption, and therefore is a short time preference, and that low time preference in the classical sense means capitalization, and therefore is a long time preference. A subtle difference, but the difference is meaningful: people do not care about prices between one object and another as much as they care about the other properties. In a universe of aesthetic rather than material differences, Prices simply allow people to categorize similar choices together so that they can apply other preferences, social biases, and subsidies. Because unlike the idea types to derive from marginalism’s attempt to make possible quantification, people actually ACT in the way I describe, even though that way is resistant to modeling.

December 13th, 2009 

Different agencies specialize in different services such as media, direct, digital, PR, or Creative, because the risk tolerance, organizational model, financial model, and in particular the model for concentrating or distributing rewards needed to provide incentives to employees, is different in agencies that function in each channel, and that the efficiency gained by unified account management, is counterbalanced by the impediments imposed on risk, organizational, financial, and incentive models – effectively creating a division of labor that is more competitive, effective, and efficient, than monolithic organizations can be.

For example, for all our emphasis on creativity, few people in agencies have creative responsibilities. As Ogilvy stated, the majority of jobs in a media organization are clerical, and only marginally related to marketing. My view is similar: the vast majority of jobs in a digital agency are technical, and have little to do with marketing.

Furthermore, the vast majority of delivery management jobs in a media agency consist of traffic management – communication, while the vast majority of jobs in a digital agency are project management – risk mitigation. In a media agency, delivery management is concerned with customer service, and fast iteration. In a digital agency, risk mitigation, defect free code, and on-time delivery are the primary preoccupations of delivery management. The kind of people who are traffic managers are terrible project managers and visa versa. Yet they are pivotal role within each type of business.

The accidental side effect of this difference in internal processes and preferences is that digital agencies are often less likely to ‘game’ the client. For example, we have a much higher customer loyalty score than any other agency in our field, and we believe it is for three reasons: we aren’t greedy about nickels and dimes, we are very selective about clients, and we understand that delivery is what a customer is buying from us. And if there is a trend that will continue in this industry, I suggest it will be this trend toward trusting a digital agency because it’s internal processes foster that kind of trust, and they will do so because delivery success is materially demonstrable in a field where delivery success has largely been subjective. Small things in large numbers, over time, create vast differences. These differences will grow increasingly important over time.

For all our emphasis on creativity, it is not scarce and the difference between agencies is not marginal: it is not sufficiently different to be meaningful to the client. The resistance to experimentation and risk on the part of clients more than counteracts the creativity within the industry, even if that opportunity for creativity from anarchic personalities is what draws them to the field. However, the organizational biases needed to deliver creativity, marginal or not, within each particular channel of media, direct, pr, brand, or digital, is, at least over time, cumulatively marginal across channels, and the quality of execution is marginal across agencies within a channel.

For these reasons, agencies will continue to specialize. And the client will continue to select the appropriate tool from the suite of specialists to accomplish his or her objective. The problem facing the industry is the creative lottery: we sell ideas but bill for and make profits from, execution. Creativity is a loss-leader. Clients often understand this, and award the production work to agencies who present good ideas. However, many clients do not, and either buy creative from one company and production from others, or they steal creative through the pitch process, and award production to someone else. Thankfully, the market tends to end careers of these people. But that doesn’t change the fact that it’s private sector corruption.

For this state of affairs to change would require a collapse of advertising leading to the the consolidation of businesses, or a radical new technology that disrupted all existing agency models. What we are seeing instead, is a moderate consolidation of media businesses as capital is directed to digital businesses that have higher production costs, but lower distribution costs.

We have to learn to see the rise of television and the big agency, as a temporary distortion of the state of affairs. It glamorized our business. It generated wealth. But it was a bubble, and not a trend. Our agencies, our employees, and our industry publications, operate under the assumption that they are competing to participate in a bubble that no longer exists. The future is an increasing division of labor across channels, and agencies that specialize in channels, none of which are particularly dominant over the others.

Likewise, it will be difficult to produce another round of holding companies for agencies in the near term because we are unlikely to concentrate any semblance of the amount of capital produced by the rise of television.

This lack of any ability to concentrate capital and dominance in a channel, plus the long term decline in the availability of credit, as governments lose their ability to redistribute wealth using monetary policy, plus the general completion of the demographic movement of generations of people from farm and labor occupations with basic needs for consumer goods that allowed them to achieve status improvement from the possession of goods, upon which the growth of consumer products, and consumer product advertising on media depended, and upon which the current concept of brand instead of product properties depends, to suburban and urban clerical occupations that instead need to acquire increasingly differential goods to obtain the same status within small tribal networks with more granular identities than that of past mass market consumers, will mean a more competitive landscape for agencies, but an ongoing retention of our current structure as a division of labor in the process of delivering products and services to market – barring some financial or technical innovation that is as disruptive as was television.

From: www.puretheoryofmarketing.com (offline)

December 12th, 2009 § 0 Comments

We see opportunities for all categories of agencies. Large traditional agencies will continue to dominate the world of the large multi-national, brand portfolio–based clients because they are the only ones who can scale to the needs of those clients in the production of large volume, broad reach traditional media like broadcast and print.

Small agencies will thrive because they are the outlets of anarchistic creative talent. Small agencies also represent where the most specialization will occur. For every new technology, new media, and new channel, it will be the small specialized agencies that will blaze the trail for the rest to follow because they are the least risk averse and are not motivated by the same business drivers as their larger counterparts. These specialized agencies will be able to displace other agencies whose institutional mindsets, business organization, and cost structure reduce their ability to deliver creative value and niche expertise.

The greatest opportunity over the next five years will be in the midsize agencies like Ascentium though. The most successful of these will evolve out of the current digital agency world, although they will be complemented by the best of the midsize agency typified by Crispin Porter + Bogusky. These agencies will excel because of three distinct advantages: they will be freed of the financial handicaps placed on both the large and the small agencies, they will be able to build their reputations around demonstrated leadership in their particular area of specialization, and they will be able to execute their ideas based on deep technology skills.

Independent midsize agencies are not saddled with the high overhead, executive compensation, holding company taxes, and other built-in financial impediments that make large agencies more risk averse and less able to deliver services cost effectively. And midsize agencies hold a distinct advantage over small shops whose restricted access to capital can limit their ability to grow, scale, and, more importantly, attract top talent (especially business-oriented management).

While expertise in communicating using digital and emerging media is what is most often associated with the recent generation of high-growth, successful agencies, it is really their specialized expertise that makes them successful. Take Crispin Porter + Bogusky, for example. Whether it is their work for VW, Burger King, or Best Buy, they repeatedly demonstrate adeptness at connecting with a defined audience (young males, 18-34). In the same way, clients flock to Ideo whose tagline proclaims that they “create impact through design.” And we at Ascentium are very proud of our work with clients like Microsoft and T-Mobile, bringing their brand experiences to life for unequalled customer satisfaction and measurable results.

Deep experience, expertise, and thought leadership in technology are what wins us business and what every successful agency will need to achieve success in the coming years. Traditional agencies will find this hard to excel at because of their focus on delivering volume creative across vast, though not complex, distribution media. And it requires a sophistication of delivery resources that go well beyond what small agencies can muster. So, in the end, technology expertise will belong primarily to midsize firms that we associate with what have become known as digital agencies.

Technology is not a “nice to have” or a gimmick; it is the means for delivering meaningful customer experiences, with rich content, relevant to each micro segment of the audience through an inexpensive distribution channel with higher production costs.

We have had four generations now where the cost of distribution into major media has been artificially constricted by a highly distributed media selling to large numbers of similar consumers through a narrow distribution channel. This circumstance occurred in parallel with limited differences in the properties of major consumer products. We now live in a world of extraordinary diversity of choice, tribal micro communities, and complex dissimilar associations. It’s a world where people take the time to look for their information and find advertising entertaining or curiosity invoking but not necessarily actionable.

The information that consumers seek out on digital media, and the structure of that information and the trust they put in it, will increasingly require technology and media customized for that technology—where the brand imagery is simplistic and constant, but the content varies dramatically from channel to channel. In the past, we spent more money on distribution and less on creative. Over time, this trend will continue to reverse itself, requiring that we spend more on creative and less on distribution. Agencies that can implement diverse technologies and campaigns will continue to capture increasing amounts of the same revenue from clients.

December 13th, 2009 § 2 Comments

Aside from scale, the production work performed by most large agencies, is similar enough to be meaningless. Larger agencies must sell creative, and deliver and capitalize production.

To some degree this is true of Digital Advertising agencies, venus Digital Marketing agencies. (A digital advertising agency produces ads. Ads that attempt to get the consumer’s attention. This is simply a traditional business model extended to another publication platform. Digital Marketing agencies produce content. By definition, all of it is long-form advertising. If it’s really good, it entertains a consumer who is seeking it.

While we would like to say that we do, by and large, sell creative, clients buy us for execution. And that’s helpful to us, because Digital Marketing agencies can directly capitalize technology services: we can make money with JUST the technology component. Companies buy us for our execution ability. We can charge for our execution ability. And we can do so because it is frankly, more scarce than the production capability of ad building and distributing. (Note: in our business, we have a separate office that handles Digital Ads. It’s a specialty.

This difference in capitalization means that a Digital Marketing Agency can serve a larger number of accounts at lower risk, because they can afford to be hired, and to compete, purely on execution, as well as on ideas. It is, by nature, more ‘comfortable’ for a Digital Marketing Agency to participate as a peer in a large account, because we can compete on execution, because execution is simply HARD.

Technology is a wonderful deliverable, because the quality of delivery is objective.

Technology organizations must deal with risk mitigation.

Differentiation between deliverables is rarely subtle. It is the scarcity of content in the short form ad, and the impulsive emotional result that it must evoke at a very low cost in money and attention, and the subjective ‘approval’ that must be given by the client for that ad, that makes the iterative production cycle risky to the traditional agency. The Digital Marketing agency has less of this kind of risk. It has execution risk. Execution requires, usually, a learning curve, coding and testing. In fact, the problem for technologists in Digital Marketing agencies is HARDER than it is for consultants in traditional technology consulting models because the need to work with leading edge technologies increases risk dramatically.

Writing code for Facebook for example, is an odd interface to program, although the universal authentication model that it embraces is so powerful for clients that it compensates for the difficulty in using it. Making a rich internet experience on Flash or Silverlight while making sure your content is visible to search engines is painful at times, not because of coding complexity, but of keeping unlinked bits of information in sync. Certain platforms (Disney’s) are extremely rich and complex. Others (Best Buy) must handle a great deal of volume and almost entirely utilitarian. Others (Amazon Stores) are incredibly powerful, but rich and complex and not for the inexperienced technologist.

For these reasons, firms like ours can have “A, B, C, and D relationships”. AOR, Digital AOR, Digital Partner, and Point Solution Provider. We do not need to be an AOR to make money in an account. We only need to be AOR if the cost of selling into the account requires that we capitalize on a creative investment. The traditional agency can only support a client if they can capture enough work to pay for the creative cost of maintaining marginally competitive talent on the account.

For this reason, it certainly appears, that small creative agencies who are thought leaders have a long runway, DIgital agencies are just getting their feet on the ground and are at lower risk, and traditional agencies are in for a long haul of partial displacement, and holding companies are well suited, as long as they are not overly leveraged, to continue their dominance, because there does not appear to be a means of coordinating enough capital to displace them or give rise to another competitor – like most things. Wealth concentration is largely a matter of timing.

From: www.puretheoryofmarketing.com (offline)