Honda at the SXSW

At the SXSW meeting, two researchers, Bina and Marci, talked about a large study they had done for Honda. The goal: compare how well TV commercials worked on prospective buyers vs. Honda’s own experts.

To test this, they assembled two panels: regular people who were shopping for cars, and executives from Honda dealerships.
The test subjects all watched an hour of TV comedy shows including both Honda and other commercials, just like you would at home... except attached to machines measuring brain activity, eye movement, and so on. This let the researchers see exactly what part of the TV screen drew their eyes and which specific words caught their attention.
The results surprised everyone.
The words and images Honda executives liked had almost zero correlation to those that attracted potential customers. These “experts” homed in on what they knew: the car’s features and financing terms. Consumers, on the other hand, made much more emotional connections.

Sustainability

The Pilgrims, before leaving Plymouth England, signed a seven-year contract on July 1, 1620,  stipulating that the Pilgrims were to pool, for common benefit, “all profits and benefits that are got by trade, traffic, trucking, working, fishing, or any other means of any person or persons…” It further noted “that at the end of the seven years, the capital and profits, viz. the houses, lands, goods and chattels, be equally divided betwixt the Adventurers and Planters…” During this time the colonists were to “have their meat, drink, apparel, and all provisions out of the common stock and goods of the said colony.” To each according to his need. It sounds like a prescription written from a Pharaoh's dream, and it was. Lean years ensued. They did not make it to the lean seven. In the first two years the result was shortages and starvation. About half the colonists died. The group's Governor, William Bradford, wrote of the scarcity of food “no supply was heard of, neither knew they when they might expect any.” (from his book, Plymouth Plantation)

The socialist experiment Bradford added, “was found to breed much confusion and discontent and retard much employment that would have been to the benefit and comfort. For the young men, that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense….” In did more than make strong men lazy. In another book written by the same author, History of Plymouth Plantation, Bradford spoke of another problem because of the government created famine—thievery. Even in this Christian community, “much was stolen both by night and day….”
And, as they say, the rest is history.

So, at the very founding of the nation and 200 years before the bloody-minded Marx, a remarkable social-economic experiment was founded, nurtured and discarded. Yet is seems we are fated to redo these experiments until we can make the experimenters happy. These demands, usually from tenured and barely working abstractionists, demand we relive these awful periods as if every society were subject to a constant Meckel-Serres social-economic   recapitulation. In the NYT this week is an editorial actually calling for a dismissal of Capitalism--as if it were a creed and not the consequence of one--and the substitution of "Sustainability."

This sounds like, and is, global warming in drag but it has an oblique thrust as well. Sustainability as a concept is not new and is championed by some good and admirable thinkers--Abbey and Wendell Berry come to mind--but there is a subtle mental shortcut necessary: Surplus must be curbed. Sustainability's enemy is excess, as in "wretched." But sustainability also is close to subsistence; it is production without wealth. Or trade. Nothing is less like us. I know this brings up the dreaded "naturalistic fallacy" objection--why do we have to be limited by how we have behaved before--but there are some realities here. The question is always what is basic and what is culturally layered on and slough-able. But I think growth, expansion, improvement and the participation in the interactive social structure is as much of what we are as is altruism.

And so we again try to teach the wolf to knit.

Wind Factories

“I once believed in the Sierra Club, until the CLUB ( an insular bunch of activists who aren’t looking at the entire picture but only at their own agendas) started fully supporting [windpower] …. Everything the environmentalists (including myself for 20 years) have worked so hard to protect, is now being destroyed or in jeopardy. Wind factories are industrial projects.”
- Jen Gilbert

This public letter of resignation from the Sierra Club is worth an extra moment. Her complaint is over the support of the Sierra Club for wind turbines, understandably called called "cuisinarts" by their opponents. There is more than the loss of protection for birds the writer is lamenting; she objects to the nature of the industry, its mechanics and capital structure. The turbines are not just dangerous to birds, they are an esthetic and philosophical challenge. They might replace coal fired plants which is essential to her, but these turbines, which use no carbon and produce no CO2, are an  inadequate revolution. Indeed this is a technological and capitalistic affront to her completely unrelated to energy and that is a deal-breaker, worse than her perceived warming.

World Competition on the Consumer Side

There is a belief that television and the internet have created a new awareness across the globe. 6 billion people will want the life they see that 1 billion people already have.

This will cause unrest and dissatisfaction but will also cause financial pressure. It is estimated that in the next ten years 1 billion people will have the ability to enter the consumer market with the financial resources to compete with the established 1 billion. That's a lot of new paddles in the life-style auction. Theoretically there should be tremendous upward pressure on prices. And the absurd notion of declaring by governmental fiat more expensive products as desirable for communities, like energy, will become more absurd.

Liquidity Trap and the Paradox of Thrift

We are caught between these two views:

1. Economic activity is a function of production and consumption. But debt has risen perilously so anyone making a profit in these times will not expand their business or take on new workers. This has led to a "liquidity trap" where any new cash goes not for production or consumption but rather to pay down debt. Therefore the only option is to stimulate the consumption side by giving noninvestors money to spend. Therefore we should tax those who have money but will not spend it and give it to those who have no money and will spend what they are given. This will stimulate production and lead to growth.

2. Economic activity is a function of production and consumption. But the government's interference in the economy has led to flooding the country with money thus threatening inflation, constraining investment with micromanaging regulations and shunting money from areas of production to areas of ideological preference. This has led to a "liquidity trap" where available money does not go in to investment but fearfully stays in cash. Therefore the only option is to stimulate production by decreasing the size and scope of government, decrease their regulations and taxes and allow the private sector to develop. This will stimulate production and lead to growth.

So there is a lot of money available that going either to pay debt or to the mattress. The solution of one group is to add more money to potential consumers so there is a group to produce for and the other group is to decrease taxes and regulations so businesses can appear, grow, expand, etc. so that the working base grows and can increase consumption.

There is a charming coffee house logic to all of this. Both sides seem sensible. Both seem concerned and sympathetic. Both sides despise each other so fortunately we can eliminate brotherly love as a deciding factor here. But despite the protests of both sides, these two alternatives are not benign choices for the benefit of "the consumer" or "the worker" or "the businessman." Someone will also be damaged by the increase or the contraction of government money. Let's also look at the other consequence of their respective unprovable dogmas.

Who will suffer the most and is it deserved?

GDP as Bling

GDP is consumer spending, plus government outlays, plus gross investments, plus exports, minus imports. With the exception of exports, GDP measures spending.

But GDP does not distinguish between spending on good project vs. bad projects, between spending that results in production vs consumption, between debt financed and savings financed spending. There certainly must be differences.

Say the Pittsburgh Pirates, as an entity, have a budget of 45 million dollars and they are going to spend 7 million dollars on a power hitting first baseman. Is spending that money for Pujols the same as it would be for Overbay? Would things be the same if you borrowed money from next year to buy Pujols? Either way buying Pujols is a good deal for the team, in no way is buying Overbay a good deal. And going into debt to buy Pujols is still a good deal.

The problem here is that GDP is a poor marker, an inaccurate stat. It measures--except for exports--consumption, not production. It substitutes consumption for wealth.

That is a trailer park error.