The Open-Minded Myth

 

One lesson that I have finally learned in my long life is to question whether an opinion that I have is mistaken and, equally importantly, have facts surrounding the issue changed? Another way to look at it is to keep what is known as an open mind.

 

As I look back, I realize that very few people whom I knew, worked with or for or sold to were truly open-minded. Those who began a meeting with “I have an open mind about what you are proposing” were almost always really saying, “don’t confuse me with facts, my mind is made up.”

 

If the topic is a minor one or in an area with no big downside or emotional wallop, many of us can be quite open-minded. In other, more substantive areas, closed minds reign way too much.

 

In the media world, things have changed remarkably over the last 40 years. Getting people to test cable TV as it broke out as an advertising medium was an uphill slog. That was nothing compared to selling people on very modest digital tests over the last 20 years. The “facts” or media landscape had changed but people clung to their beliefs even though their business franchise seemed to be eroding.

 

On a personal note, looking clearly at facts has shifted some of my political beliefs somewhat toward the center. As a young man, I identified very clearly as a libertarian. I had a live and let live approach toward others but felt that when government got involved in many issues things got pretty screwed up. That is still largely true but, as a marketer, I was always observing demographic shifts. As the US and the western world has gotten older, I see the need for maintaining a strong social safety net. Each month some 71 million people in the US will receive Social Security or disability checks. By 2033, projections are that the Social Security “trust fund” will run dry and benefits under the existing structure will need to be cut by 24%. Most of you reading this post could deal with that, but a strong majority of the 71 million receiving checks could not. It would be a body blow to them and reduce some to horrible poverty. So, while I still believe in personal responsibility and for lawmakers to stop spending so much, something needs to be done (and soon) to protect the elderly. Facts changed my opinion once I saw how my simplistic prior view was mistaken.

 

The great economist John Maynard Keynes was a great example of someone who kept an open mind. In charge of King’s College investments after World War I, he began investing based on business cycle forecasts. He was nearly personally wiped out in the British calamities of the early 1920’s. The great man regrouped, dodged some of the 1929 crash and took a new approach. A man recognized by many as the greatest expert on macroeconomics at the time, abandoned that sophisticated thinking and invested in large, strong companies with good management. He said it was good to not try to be too clever.**  When then Lord Keynes died a multi-millionaire in 1946 (a million went pretty far then), his King’s College fund had also grown exponentially as well. He once said, “When my information changes, I alter my conclusions. What do you do, sir?***

 

My path to being open-minded is still a work in progress. May I ask that you join me?

 

 

**Notice how similar this is to the practices of Berkshire Hathaway’s wildly successful Warren Buffett and Charlie Munger. Charlie has said that he never considers macroeconomic variables in making an investment.

***For a different spin on Keynes, read Media Realism, 2/11/2011—“Would Keynes Still Be a Keynesian?”

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

My Favorite Governmental Department

 

From the time that I was about 19 years old, I have been a rather enthusiastic believer in the free market system. So, it might surprise long time readers of this blog to see me entitle a post, “My Favorite Governmental Department.” I generally like a light cloak of regulation in many areas.

 

What I am I writing about? The Congressional Budget Office. Sound as exciting as watching paint dry? Bear with me a few moments and read on. It has a very interesting history.

 

In the later days of the Nixon presidency Congress was concerned about the White House overreaching a bit into things on Capitol Hill. So, they wanted a new agency that would provide objective advice based on data about the impact on the federal budget on various policy proposals. With Nixon gone in August, 1974, The Congressional Budget Office (CBO) was established. Its first head was a dedicated and straight arrow pro named Alice Rivlin. Her resume later included being a deputy at the Federal Reserve, president of the American Economics Association, and Director of the Office of Management and Budget.

 

Under her leadership and that of her successors, the CBO became perhaps the most respected and influential institution in the DC swamp. Independent statistical agencies such as the CBO are important and need to be protected. They realize that much of their job is providing simple arithmetic which most politicians of both major stripes do not always want to accept.

 

Things went okay under Jerry Ford but Jimmy Carter did not approve when Rivlin & Co. did not accept the president’s plan for improving energy efficiency. Speaker Tip O”Neill, Speaker of the House, said the CBO ”was not helping.” My fellow Boston College alum did not get it. The goal and value of the CBO was to be impartial and Rivlin made sure that it was.

 

The genial Ronald Reagan who succeeded Carter also had issues with the CBO. In 1981, Reagan’s first year, the CBO projected that the budget deficits over the next several years would be far higher than the White House projected (sound familiar?). Reagan dubbed the CBO numbers as “phony.”

 

Is the CBO perfect? Of course not. What I respect is that they do not appear to make politically expedient errors in their calculations. Most of the time they focus on the gap between spending and tax revenue going out a few years. To my cynical eye on governmental projections, they strike me as unbiased.

 

There are other groups in DC that provide statistics. At the top of the list is the Census Bureau, the Federal Reserve, the Bureau of Economic Analysis, and the Department of Agriculture. All have some fine people on board.

 

Politicians do not like these purveyors of official statistics. When running for president in 2016, Donald Trump talked about how weak the US economy was. Officially the unemployment rate was pegged at about 5%. Trump said in speeches that it was 35%. I found that laugh out loud funny as in the Great Depression of the 1930’s unemployment peaked in 1933 at around 25%.

 

The absurdity gets better. When Trump took office in 2017, the official unemployment rate continued to ratchet down. His then spokesmen, Sean Spicer, said without winking, “I talked to the president prior to this, and he said to quote him very clearly. They may have been phony in the past, but they are very real now.”**  Clearly, he was manipulating data for his own purposes.

 

We need some grownups such as the statisticians at the CBO and other departments to give the politicians and the public a dose of reality. The media does not address this as clearly as they should.

 

As the fight over the debt ceiling goes on as I write, I wonder how many in congress have truly wrapped their heads around what $31 Trillion means and what the debt will be a decade from now.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

**Source, The Atlantic, March 2017

 

 

Be Curious

 

Several years ago, I was on a panel at a conference and a question came up for all of us. It was “what advice would you give a young person starting their first job?”

 

As we went around the horn, people said things to the effect as learn all cutting edge computer skills, find a good mentor or two, work harder than your colleagues, and always keep your resume updated.

 

When they at last came to me, I said that I do not like to give advice as it reeks of telling others how to live but I followed with, if pressed, I would simply say, “Be Curious.”

 

This got a few smiles from the attendees but, as I think back, it may well be the best advice that I have ever given to anyone.

 

Think about it for a moment. So many people seem to amble through life rarely asking why. Others are so superficial it is frightening. Many times, I was asked to brief someone for a meeting. The request would go something like “Make me smart on this topic. I have five minutes.”

 

I would try to be succinct but was always stunned at the request. Also, people working on a piece of business would not be willing to read a FORBES, FORTUNE or BUSINESS WEEK article about a company that was a direct competitor to their client. One person told me, “You are not my direct boss, and I am not giving up a half hour of my weekend to read that. I do enough here.” Pathetically, the direct boss did not encourage his team to read the article, but I had my team read it and we discussed it at length over a lunchtime pizza.  Everyone left knowing their client a bit better and what challenges it faced.

 

I understand that I am more curious about some topics than most. If it is something that I am very interested in such as markets, economic thought, certain areas of history, or foreign lifestyles I am all over it and read all that I can about it.

 

The issue is that curiosity is very valuable. I find that asking questions or reading about a topic in detail opens my mind up to different points of view. I rarely will argue directly with someone about politics or the economy but do probe a bit. 

 

As I get older I understand that dwelling on the past goes little good, I have to live in the present and always use the here and now to plan for the future.

 

Finally, do not confuse real curiosity with nosiness. When people start a sentence with: Tell me, I am curious about …. my antennae go up and I generally dodge giving an answer.

 

So, my unsolicited advice is keep asking why and dig a bit. Be curious!

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

My Problem with American Politics

 

Over the last year, I have received several requests from MR readers asking, “What is Wrong with American Politics?”. Interestingly, some 40% of the queries came from people outside the U.S.

 

My usual answer has been that MR is not focused on politics, so I dodged the question. Lately, it keeps popping up fairly frequently so I will give my opinion that, while not unique, may be different than your current perception.

 

A knee jerk reaction that many give is that money is what is wrong with our system. The day after someone is elected to the US House of Representatives, they start making calls the next day to raise funds for their re-election which is now less than two years away. Okay, that is definitely part of the issue.

 

Here is how I see it. Let me start by raising a name that is all but forgotten in US politics except for some real political junkies. Les Aspin was an 11-term congressman from Wisconsin and long-time chairman of the House Armed Services committee.  A Democrat, he had a PHD in economics from MIT and long was a burr in the saddle of many Pentagon bigwigs. He once famously said in a committee hearing that he wanted to know what we got for the trillions that we have spent in defense over the years.

 

Aspen left the house to become Bill Clinton’s first Secretary of Defense. To run the Pentagon well, you need to be a superb administrator and that does not appear to have been Aspin’s strong suit. He was eased out of the cabinet and, sadly, passed away a few years later at only 56.

 

 

 

My favorite Les Aspin quote is as follows: “If you give Congress a chance to vote on both sides of an issue, they will always do it.” He was not talking about voting twice during a roll call. What he was saying was that as a member of Congress, you serve two masters to get re-elected. The first is appease your constituents who vote you in to office. The second, which does not always get enough play in the media, is your campaign donors. They may have different agendas, but the crafty and cynical lifetime politicians often serve both.

 

Here is a wonderful example of this but an obscure story. Ever hear of Senator Ted Kaufman from Delaware? I would doubt it. A friend of mine from my Boston College days could always name all 100 members of the US Senate. I am sure that he remembers Ted.

 

Kaufman was named to the US Senate after Joe Biden was elected Vice President in 2008. He only served through 2010 and never got the political “disease”. As was true of many of us, Kaufman was disgusted by the shenanigans of many in the financial sector leading up to the Great Recession of 2007-2009. So, he tried to do something about it. Kaufman co-sponsored a bill dubbed FERA which was the Financial Enforcement Recovery Act. This bill authorized $165 million to target white collar crime. It breezed through both houses of Congress. I saw him in a TV interview, and he was thrilled.

 

Well, I got some political education here. While Congress had authorized $165 to chase down white-collar crime, eventually they appropriated just $30 million in the final budget. He could not whip up more support as members did not want to lose Wall Street contributions. It was then that I learned that there is huge difference between an authorization and an appropriation in the US Congress.

 

So, this was a clear example that Aspin’s seemingly cynical comment about voting on both sides of an issue can come to life. I am certain that either on the stump in fall 2010 or in debates, creeps in both parties proudly mentioned how they voted for the Financial Enforcement Recovery Act. Yet the money from Wall Street continued to flow in their campaign coffers.

 

The problem, then, is that money runs things and members of congress seem laser-focused on re-election rather than improving things. An option to help this issue that I have embraced in recent years is term limits. If people know that their time in Washington is limited, they might be more apt to do the right thing.

 

To close, I may surprise some of you who know me well by quoting consumer advocate and political gadfly Ralph Nader. When running for president in 2000, I saw Mr. Nader state the following in an interview that I believe was on C-Span: "We do not have a Democratic party or a Republican party in the U.S. What we have is an incumbent party.”

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

 

 

 

 

Artifical Intelligence and Advertising

 

These days it seems that every day I get a “gloom and doom” e-mail from someone saying how both robotics and Artificial Intelligence (AI) will transform our lives and kill millions of jobs within the next few years. Other messages come to me touting a certain new issue that will break through and tap in big-time to the trillions of dollars soon to be made in AI.

 

Do not get me wrong. I firmly believe that both robotics and AI will have significant and profound effects on our economic landscape. My issue is how fast they will develop and go completely mainstream.

 

Keep a few things in mind:

 

1)   About 40+ percent of new jobs are created by small business. It will be a while for a shop with 25 or fewer people to afford the high functioning robots that major manufacturers employ. Some coffee shops are testing robotic baristas, but it will be some time before such things are widespread.

2)   AI is definitely making inroads in our society. I would think that driverless trucks would be the first major job killer to hit the US economy. So, it would not be wise to be a 30-year-old long haul trucker and expect 30 more years of active service. Short haul delivery such as UPS or Amazon may also be affected but thousands of small businesses will keep their truck drivers for at least a decade. Uber and Lyft will likely go the driverless route once consumers get over initial skepticism. I would get in a test driverless Uber today and take my chances but not with my grandkids.

3)   AI, in many situations, will allow companies to trim significant costs, particularly personnel and benefits, which will have great appeal to both management and shareholders.

4)   One area where I think that AI will have significant and perhaps profound impact is in the advertising industry, particularly in the creative development process. Generative Artificial Intelligence, which most of you have been following closely should be a game changer in the field where many of us have toiled. This You Tube bit from a very recent CNBC segment is a wonderful introduction:

 

https://www.youtube.com/watch?v=yKWQMOqYV-k

 

 

      Finally, be VERY careful about investing in this New Age space. There are hundreds of new issues emerging and self-proclaimed market savants are touting start-up companies that are “sure” to make you rich. This reminds me of the late 1999-early 2000 cavalry charge of new internet companies. Some had no sales but raised many millions in venture capital. A few were seen on the 2000 Super Bowl and disappeared quickly.

 

     Call me old and out of touch but I am willing to bet that only a handful of the new entries will survive the coming crunch. Also, the big guns such as Amazon, Google, Apple, Microsoft, Meta and one or two others are investing huge amounts into these new technologies. If a few new players emerge with breakthrough applications, they will likely be bought by one or two of the existing giants who have the deepest pockets in business history.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

Risk

 

Life is a risky proposition. No one knows what the future holds. People who never take any real risks tend, in my opinion, to lead breathtakingly boring lives. If you never go anywhere, do not meet new people or are not open to new ideas and experiences you are not only cheating yourself but not living up to your potential.

 

Over the years in both business and life, I have had to take risks both large and small. Perhaps I weighed them more carefully than many, less than others.

 

Here is my take on risk:

 

Business folklore is full of stories about wild entrepreneurs who were very lucky. H.L. Hunt, the early billionaire oil baron, was said to have won his first few petroleum leases in a poker game. Others were said to have put charges on their credit card to the max, a few days before a major order came through. One well known player a few years back, allegedly won a bundle at a casino and dragged his fledgling company out of imminent bankruptcy. These make for great stories but, I would wager, are likely half-truths at best.

 

I learned VERY early in the media business that selecting the proper allocation of advertising vehicles was not so simple. Clients and colleagues would tell me that “you cannot go wrong with television.” They did not seem to understand that, at the time, some 72% of primetime programs were cancelled in the first season. To succeed, you needed to pick a mix of established programs and only take a flyer on a few new programs. I hit a 500-foot home run with “Murphy Brown” in the 1990’s but was way off by avoiding “The Big Bang Theory” early in this century.

 

When digital took off some years back, simply saying the word Facebook insured client commitment. It did not work out for many along with a host of online alternatives. Big Data let the major players follow customers and reach them effectively and well. Marketing risk declined as implementing big brother options accelerated.

 

Most movies lose money—big time. I almost laugh out loud when I see the number of Executive Producers listed in the credits for Netflix, Amazon Prime, or Apple TV films and programs. I also see a similar thing at the actual movie theaters. These “Executive Producers” are largely not big-time players in Tinseltown. They are often hedge fund types or money managers who have cash to burn and have “gone Hollywood.” It will end badly for some as they realize that the Wall Street casino has better odds than the motion picture industry.

 

Most businesses fail, as I have often written, and restaurants have the highest mortality rate of all categories. Yet, each year many thousands take the plunge and bet the ranch on their concept.

 

Over time, I have observed a similarity between successful gamblers (usually poker players) and investors. Both know when to quit. Some of the shrewdest investors whom I have ever encountered cut their losses quickly. If a stock they buy drops 20%, they get out immediately. Yes, it may and sometimes does bounce back, but they “take their medicine” and absorb the small loss and move on to something else.

 

The best gamblers usually have a similar discipline. They have a pre-set limit to their losses. The sharpies do not double down when behind. They realize that each deal is an independent event, and a hot streak is not a real thing. As Kenny Rogers once sung, they “know when to walk away and know when to run.”

 

The media does a poor job of profiling entrepreneurs in my mind. Sir Richard Branson is always portrayed as a swashbuckling risk-taker who loses a lot but is also very lucky. If you follow him at all closely, you find that his philosophy is and I quote, “It is only by being bold that you get anywhere. If you are a risk-taker, then the art is to protect the downside.” When he started as a teenager, he took some huge chances. Now, his risks are far more calculated.

 

Successful people take risks, but they also hedge their bets. Hedging is, in financial terms, is more than keeping one’s options open. It is lessening risk. One gives up potential gains if you are right but cutting losses if things go awry. So, it increases your chances of getting your goal of getting what you want but lowers the chances of getting more. Some people do this via options (puts and calls) in securities markets or via insurance in other venues.

 

To me, President Eisenhower put it well when he was a World War II general. He wrote, “Plans are worthless, but planning is everything.” Ike understood risk better than most of us. You need to plan and hedge your bets and have downside protection.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

 

 

 

 

Economic Man and Advertising

 

In 1836, the brilliant political theorist and sort of economist John Stuart Mill introduced a character to the world of thought known as Homo Economicus or Economic Man.

 

There were, in my view, three basic tenets to the idea:

 

1)  Many people are ideal decision makers who make perfectly rational economic decisions.

2)  Consumers have perfect access to information.

3)  People, especially in business, pursue their goals consistently and are largely self-interested.

 

 

When I was first introduced to this as an economics major, I had to shake my head in wonder. It seemed as everyone whom I knew (and including myself) often made irrational purchases. Another joke to me was the idea of perfect access to information. Today, we have the internet, consumer reviews of all kinds and can engage in a comparative analysis of competing brands. Back then, you talked to a few people but often were flying blind. I remember terrible angst trying to buy a used car as a 20-year-old. And, of course, often you knew you were spending more than you should to impress someone (invariably a young woman). 

 

The third leg of the stool, being self-absorbed and focused on profit to the exclusion of all else in business was certainly true (sadly) for some people.

 

After a few weeks of struggle with my thinking, I approached one of my economic professors and great mentors and gingerly made the case for Homo Economicus being absurd.

 

The great man broke into a soft smile and said he agreed with much of what I was saying. However, he said that the seemingly unrealistic assumptions regarding Homo Economicus seemed to work more often than not when putting together forecasting models.

 

I went to graduate school and Economic Man never came up nor did it for my first 10 years in advertising. Just before my time, Rosser Reeves of Ted Bates had succeeded with very factual or even a bit dry creative executions most famously for Anacin (The tagline was “Anacin means fast pain relief”).

 

A creative revolution emerged in the 1960’s led by Doyle Dane Bernbach where humor and cleverness came front and center along with selling dreams.

 

In 1979, Daniel Kahneman and Amos Tversky essentially founded a new field, Behaviorial Economics. They challenged the long-held views of Economic Man and focused on risk aversion and demonstrated that human beings do not always act rationally. The concepts snowballed and were joined by others especially in the field of Consumer Behavior and Psychology.

 

In 2001, Kahnemann was awarded the Nobel Memorial Prize in Economics.** This caused more than a little stir as Kahnemann was a research psychologist who freely admitted that he had never taken an economics course!

 

Clearly, consumers do not have perfect knowledge and they do not behave rationally all the time. One area that has grown exponentially given wealth inequality around the world is that of luxury products, often referred to as Veblen goods (Thorsten Veblen was a fiery late 19^th-early 20^th century economist who attacked the noveau-riche with an acid wit best exemplified in his book, THE THEORY OF THE LEISURE CLASS).

 

Veblen goods are those that seem to defy the law of supply and demand. Rolex watches, Rolls Royces, Louis Vuitton luggage, and designer clothes seem to see sales growth as their prices rise. Bernard Arnault, the chairman of luxury conglomerate LVMH, has been the wealthiest man in the world at times during last few years. People often buy these products for status or to highlight their wealth.  Some cannot reasonably afford them but purchase them to send a message to others. Veblen goods do not stop there. A hot hair stylist or caterer in a locality also fall into that category.

 

So, we seem to be entering a new era. As Amazon reviews and other sources allow us to comparison shop far easier than ever and with conventional advertising facing a slow but steady extinction, selling dreams may fade a great deal. Social media and viral efforts will break through, but the world is changing. So, even though our knowledge is increasing, or at least available, irrational behavior still lives.

 

Homo Economicus (Economic Man) was suspicious to me over 50 years ago and is even more so now. Long live Behaviorial Economics!

 

**A note of clarification so I do not get angry e-mails from some purists out there. Technically, there is no Nobel Prize in Economics. In 1968, The Sveriges Riksbank (Bank of Sweden) approached the Nobel committee and asked if they could give a prize in Economics made in memory of Alfred Nobel. They agreed and were gracious enough to allow the economic prize winner(s) to receive the award at the same time as those in the sciences and be addressed as Nobel Laureates. It is the only social science in the Nobel stable.

 

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.