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December 21, 2006

Advertising, Ethics, and Market Mechanisms

This is from the category - Things that make you go Hmmmm.

For those who are not likely to hang on through a discussion of economic theory, even though it's very brief, let me say at the outset that I'll eventually get around to discussing the topic of "Girls Gone Wild" and this recent news report... $50 million says that'll hold your attention.

Adam Smith, the famed economist, put forth a theory of economics which contributed significantly to the foundation of our very own capitalist society, and therefore to free and capitalist societies around the world today.

Smith's theory had two opposing forces, self interest and competition. Together these two forces created an "invisible hand" whereby "the private interests and passions of men" are moved in the direction which is "most agreeable to the interest of the whole society". The interworkings of this invisible hand are the market forces that keep all activities in balance and the economy functioning optimally.

Self interest to Smith was a force that drove people to take actions that society is willing to pay for. To balance this and prevent a society of ruthless profiteers, Smith presented competition. If a business charges too much, others will enter the field and charge less. If a business doesn't pay adequate wages, another will.

But sometimes we see what appears to be evidence that the "invisible hand" of capitalism doesn't work. Some would say that's why we need laws and policemen and jails. But what happens when the market mechanisms and the legal system, together, don't appear to have worked?

When I read this recent story titled 'Girls Gone Wild' founder gets off easy, I wondered what mechanism has allowed him to amass such a fortune and walk away with it, even after the legal system has had its chance at playing backup to the market mechanisms. He has made over $50 million in profit even after he pays his fine.

Let me state this differently: Society has rewarded him with $50 million (and counting) to make and sell videos of drunk girls showing displaying certain behavior and body parts. Here's what the judge told the owner of Girls Gone Wild, Steve Francis:

"It does not take a very brave man to go out and corner a girl in the middle of spring break who had four drinks"

This is certainly true. You don't need a Stanford MBA to figure out how to make money selling videos of drunk girls acting crazy. And you aren't going to get any Lifetime Achievement Awards.

Without passing a value judgment, how do we interpret this situation in the context of capitalism and the idea that "the private interests and passions of men" are moved in the direction which is "most agreeable to the interest of the whole society"?

Could it be that there wasn't enough competition, that counter-balancing element Smith proposed? With such a profitable business, where were the rest of the morally flexible business people who were supposed to rush into competition with Girls Gone Wild to get a piece of that $50 million bounty?

If that rush had happened, would there have been a swift reaction by parents and other guardians of our society's youthful women?

Hmmm

Posted by Brett Astor at 02:29 PM | Permalink