Non-advertising funded media models and the effect of GDP?

I was writing something today for something else when I had the obvious thought that the relationship between the media and consumer spending is a self-perpetuating machine. The media rely on advertising dollars to grow big. The more advertiser dollars they have the bigger they become. And the more advertiser dollars the media receive, the more advertising and consumer messages they propel into culture. The more the advertising there is, the more we consume. The more we consume the more money the manufacturer gives to the media company to advertise and so on.

SO what would happen in a world of non-advertiser funded media models. The same money-multiplier effect would not come into play, and there will be a massive reduction in ‘traditional’ advertising. Less advertising = less consumer spend. If consumer spend makes up approximately 65% of Gross Domestic Product (GDP) then the less consumer spend = a slowing down of GDP.

I’m not sure what the answer is, as I don’t really have a question. Just a lose thought that I wanted to put out there.

The Consumer Sentiment Index: A National Treasure?

Here is something really interesting. The latest figures for Consumer Sentiment, the Westpac and Melbourne University Consumer Sentiment Index came out last month. Any guess what the results were? Bloody terribly, in fact consumer sentiment is just about the worst its ever been in Australia. Consumer sentiment is this countries ‘official’ index for consumer confidence. Consumer confidence being how optimistic or pessimistic people are feeling about the economic future of Australia.

The index is measured across 5 factors:

1. Do people think economic conditions will get better or worse in the next 12 months

2. Do people think Economic conditions will get better or worse in the next 5 years,

3. How are their family finances a year ago compared to today

4. How are their family finances going to look over the next 12 months compared to today,

5. Is it a good or bad time to buy major household items.

So what’s the result? Well the July figures show a drop from a rate of 101.2 (the figures are benchmarked at 100.0) to 92.8. 92.8 represents the lowest level of confidence since the eye of the GFC, it’s one of the lowest levels on record, and the over 8% drop is one of the highest ever drops on the Consumer Sentiment Index CSI). Surely, this is terrible news?

The CSI reminds me of sir Francis Galton’s observations at a country fair, clearly outlined in CCC book ‘The Wisdom of Crowds’. The crowd was asked to estimate the weight of a bull. The average of the crowd was closer to the correct weight than any single guess, including expert butchers and ‘cow folk’ in the crowd. What he discovered was ‘The Wisdom of Crowds’ was smarter than any one of us, including the experts. If you’ve seen ‘The Inside job’, a movie about the Global Financial Crisis, you’ll be incredibly sceptical on ever relying on an economists opinion ever again. The movie made a damming case against the impartiality of economists, claiming most of the senior ones were in the pockets of big business, and government. Their ‘predictions’ were often tainted with their conflicting interests.

The Consumer Sentiment index, much like the Australian Bureau of Statistics is a national treasure, a way of delving into the hearts and minds of the collective conscious and understand how we are thinking.

In this case, baton down the hatches as the second half of the year looks dodgy.