Does Advertising Kill Us?

Introduction
Advertising may be a factor in the decay of our society, but it can be what saves us. In this essay I will explore the positive and negative effects advertising has on individuals and society as a whole. Then I will explore how economists have traditionally viewed advertising. As well as how behavioral economists add insight not only to how advertising is effective, but also into consumer behavior. I will go onto discuss if it is truly advertising that is the evil or the rampant consumerism in America. I conclude with a suggestion on how advertising and media as a whole can be leveraged to address this critical problem.

What is advertising?
In its most general sense, advertising is the act of convincing people to buy things. The goal of advertising is to increase the sale of goods. There are many types of advertising that go way beyond this primary goal. For instance, the government frequently runs advertising campaigns to discourage or encourage certain behaviors such as to wear seatbelts, stop smoking or promote patriotism. 

The Good, The Bad and The Ugly
Advertising gets a bad rap but there are also a ton of benefits of advertising to consumers and society as a whole. In this section, I will briefly explain some of the benefits and costs of advertising to society.

Advertising increases consumer knowledge. Consumers use advertising to become informed about the products that are out there. They also use advertisements to decide where to buy products. For example, if a consumer wants to buy a sweater and has no particular brand preference they may look to see what stores have a sale on sweaters.

Advertising reduces the cost of media. Whether you are flipping through a magazine, reading a headline in your favorite newspaper or scrolling through Facebook, you are bound to see at least one advertisement. What is important to understand is that these advertisers make the media you are consuming possible. This is most obvious when you look at Facebook. There are 1.5 billion active monthly users of Facebook and over 4.67 billion pieces of content shared daily. To handle this level of activity, they need to maintain over 60,000 servers. This means there is a huge cost to providing this service. But, while Facebook is a free service provided to basically anybody; it also provides a lot of benefits to the public. On a personal note, Facebook allows me to easily stay in contact and up-to-date with family members scattered all over the world.However, it is not a public good. Facebook is not a government organization. Nor is it a non-profit organization. Facebook is a for profit business. The only way that Facebook can make money, while providing this service is to have advertisements. This holds true for most media types. In order to keep the cost low, it is crucial for the media to have sell advertisements to businesses.

Further, advertising actually reduces the cost of products. It goes without saying that advertising increases demand. In simple economics terms, the increased demand shifts the demand curve. Which signals producers to produce more. Thereby decreasing overall prices. Additionally, advertising creates healthy competition between producers, which also drives prices down.

Advertising also increases employment. This one is a no-brainer. With more stuff being produced, shipped, bought and sold; there is a greater demand for employees. Increased employment is great for the economy as a whole. In the advertising industry alone, Americans earned $1.9 Trillion in 2014.  

Advertising is great for economic development. In 2014, the ad industry alone accounted for 19% of the US GDP. Additionally, it stimulated $5.8 trillion in sales, accounting for another 20% of US GDP. As advertising becomes increasingly international, it increases economic development through international relations and export power.  

Following through all of these benefits, it becomes clearly evident that advertising creates a higher standard of living. From increasing consumer knowledge and buying power to lowering the general cost of things, creating jobs and increasing economic development, it has led to increasing the standard of living. Winston Churchill said it best, “advertising nourishes the consuming power of men and creates wants for a better standard of living.”

Even though advertising provides a lot of good for society, it is important to look at the negative effects it has on society as well. Some of the allegations against advertising is that it promotes greed and consumerism, advertisers are lying to customers through puffery and that it promotes censorship.

Economics of Advertising
Neoclassical economists approach advertising as not only ineffective, but completely unnecessary. According to neoclassical economics, the consumer always behaves rationally, has full knowledge of the product or service they are purchasing and weighs all of the options before making a rational purchase decision. Because the so-called homo economicus always weighs their options to optimize utility, advertising cannot sway or alter the purchasing behavior.

On the other side of the coin, Behavioral Economics doesn’t assume rationality in decision making. In fact, behavioral economists take into account human emotion, lack of intertemporal decision making, the ability for buyers to make mistakes and how incentives sway consumers. Behavioral economics helps to understand that imagery, certain colors and incentives in advertising will affect and contribute to the decision making process of consumers. Further, behavioral economics helps to understand why consumers buy expensive things that they cannot afford. The idea of status symbols and “Keeping up with the Joneses” reeks havoc on personal finances and society as a whole.

In fact, in 2014 the Wall Street article published an article stating that Adults under 35 have a marginal propensity to save of -2%. Which means that American households are dissaving and accumulating personal debt. Dissaving is when we spend more than we make. American households’ personal saving rate has been declining since the early 1980’s and is remarkably low when compared to other industrialized countries. A country’s saving rate and its economic growth are closely related. With our national saving rate lower than it should be, we are not growing as rapidly as we could be.

The American dominant consumerism ideology has led to a huge savings deficit. Today, Americans owe more than $16 Trillion in total personal debt. The majority of this is mortgage debt, followed by student loan debt and credit card debt. The highest expenditure in the advertising industry comes from automotive industry, followed by pharmaceuticals, department store and wireless telephone services. Mortgage lenders, realtors and colleges have a relatively low advertising expenditure.

Measures of Well-being
Turning from the grim topic of Americans’ looming debt and consumerism ideology to well-being; this section will explain well-being in relation to the economy and how it is measured.

Well-being in its simplest form is the state of being happy and content. Well-being looks at the physical and mental health of individuals in a nation, as well as their economic circumstances. The well-being of a nation is important for many reasons. The most prominent is for public health. Happy people tend to be healthier and more productive. Therefore, policy makers often take into account how policies affect the general well-being of the population.

Well-being is a subjective term and is hard to measure. There are many ways that well-being is measured, including indices such as the Happy Planet Index. The Happy Planet Index is a relatively new measure of well-being that focuses on sustainability. The goal of the index is to not only measure well-being of today, but of the future. They use a simple equation:

Happy Planet Index = (Experienced well-being x Life expectancy)/Ecological Footprint

Of the 151 countries the Happy Planet Index calculated, the United States of America ranked 105 in happiness. This is mainly due to having an average life expectancy and experienced well-being against a high ecological footprint. Our high ecological footprint is due to the high consumption rate of Americans. It is not hard to realize that this is due to rampant consumerism.

Discussion
The question I posed in the beginning of this essay is, “does advertising kill us?” Based on my research and many years of experience in the advertising industry, I firmly believe that it isn’t advertising that is killing us or hurting our planet. It is actually the consumerism pandemic that is killing us and increasing our ecological footprint, thereby hurting the planet and future generations.

But one may ask if advertising is causing the rampant consumerism. It would be hard to say that advertising doesn’t contribute to people buying more and more stuff. However, I don’t feel that it is the only, or even the most prominent, cause of the problem. In fact, according to my research the biggest expenditure by Americans is not even on consumer goods. It is on education and housing. Conversely, advertising dollars spent on these items are not as large as on consumer goods and vehicles.

Consumerism is said to have started at the close of World War II. Jobs were plentiful and products had not been due to rationing during the war. When the war ended, people had extra money to spend and so they wanted to spend it. Producers responded by increasing production of consumer goods. Advertising responded as a way to inform the public and beat the competitors.

Recommendations
I believe that if we take a page from behavioral economics, advertising can save us. My research shows that while advertising does contribute to our consumer culture, it isn’t the main cause. Consumerism is. Today, consumerism is out of hand. People are spending more money than they make. They want what they can’t afford. They are taking out loans, racking up credit card and going wildly into debt to “Keep up with the Joneses.”

According to behavioral economics, consumers want the social status that others have. If we just purchase that new car, expensive watch, name-brand clothes and huge house, everyone will respect us. This is a highly emotional approach to consumption. Status can trigger a wide range of emotions from love and hate to bitterness and jealousy. Advertising does contribute to this.

However, it can also contribute to changing our culture and ideologies for the better. My recommendations are for the government to take an upper hand in this and run anti-consumerism advertising campaigns. These highly emotional commercials would highlight savings, as opposed to spending, as status symbols.

Further, while the US government currently offers tax credits for retirement savings accounts, there are many more tax incentives for spending money. For example, taxpayers receive incentives for buying homes, cars and health care. If saving money was equally incentivized, Americans would increase their savings.

Lastly, I firmly believe that education is an important factor in consumerism. Increasing the financial literacy of the general public would help American citizens to make informed decisions on how to allocate their money towards needs, wants and savings.  Educating children at a young age on how to budget money, economic decision making and other matters of personal finance would ultimately lead to less consumption, less debt, substantial economic growth, lessening the ecological footprint and increase in overall well-being.