“Employers Say Jobs Plan Won’t Lead to Hiring” announces the NY Times and we all know why: businesses won’t start hiring until people start buying. We need a stimulus that stimulates demand. In the past, that’s usually meant spending on programs that put cash directly in consumers’ pockets in the form of tax rebates or stimulus grants. Given the current political spotlight on debt, however, this doesn’t seem to be in the cards.
Some might assume it’s impossible to do much to stimulate demand while unemployment is high and wages are stagnant. But consider the words of Federal Reserve Chairman Ben Bernanke: “Even taking into account the many financial pressures that they face, households seem exceptionally cautious.” Bernanke’s assessment is reportedly based on analysis of economic models that look at historical patterns, and that research is saying that lack of demand isn’t just a consequence of high unemployment, stagnant wages, or housing woes…there are also psychological factors holding back consumer spending, inhibiting demand, and trapping us in a downward spiral. Apparently, even the 5 percent of Americans with the highest incomes – which currently account for 37 percent of all consumer purchases according to Moody’s Analytics – are spending less than they could to rekindle growth, spooked by things like wild swings in the stock market and bellicose political dialog in the U.S. and Europe.
Fortunately, there’s a proven method of generating consumer demand by addressing psychological factors. I speak of advertising, which businesses have used for decades (centuries really) to persuade reluctant consumers to spend, even unwisely, on goods and services. Of course, like consumers, businesses don’t like to spend on discretionary items like advertising if they lack confidence in the results because of the economy. They need some stimulus to help convince them. Hence my proposal: a tax break on advertising – media buying to be specific. Make all media spending by businesses fully tax deductible for six months. This will allow business to increase advertising output without increasing budgets, generating jobs almost immediately in the media and related sectors. More importantly, it will persuade those consumers who could afford to spend more to do so – on cars, travel, real-estate, clothing, luxury goods – putting their sinking dollars to good use while bootstrapping the virtuous cycle of hiring and spending.
Consider the benefits. First, as a stimulus, it’s targeted directly at the demand problem, putting it into the hands of domestic private-sector professionals in the advertising business to solve. Second, it’s relatively cheap. Media spending in the U.S. was about $131 billion in 2010 according to Kantar Media, so foregoing tax receipts on six months’ worth would probably cost the government less than $50 billion, in contrast with the $447 billion the President has proposed to spend mainly on payroll tax cuts. Third, it would generate returns almost immediately, in contrast to programs such as infrastructure and education. And fourth, there are federally sanctioned measurement regimes in place, certified by the Congressionally authorized Media Ratings Council (MRC) which accredits independent methodologies that can be used to control fraud. (In fact, Nielsen just received MRC accreditation for its new Online Campaign Ratings for digital advertising campaigns which should also make advertisers more comfortable investing in online media while helping America build on its lead in digital innovation.)
I know what you’re thinking. The upcoming election year is the first presidential race since the Supreme Court overturned spending limitations and opened the floodgates on political advertising in its landmark Citizens United decision of 2010, so our media universe will already be saturated with as many ads as the public could possibly endure – most of them likely to reinforce themes contrary to economic optimism. That could be a problem. On the other hand, perhaps it will make us more receptive to positive messages from brands, which may seem like a breath of fresh air in contrast to the high-decibel debate that’s bringing us down and keeping us from shopping. In any case, even with the political advertising windfall, our media business could still use the help. How about it, Washington?
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