re:the rest of the equation that I thought you were ignoring

Posted on: June 30, 2024 at 22:26:20 CT

One of the recurring themes in the book I alluded to, Henry Hazlitt's book, Economics in One Lesson, was that people often looked at one effect from an action, but did not see or else ignored other results that would offset, negate, or in some cases dwarf the effect(s) they foresaw.

In this case, your argument seems to be along the lines of, they're paying Brady huge bucks for his contract. To make a profit, they will increase their prices for advertising and for consumers to purchase access via the cable companies. These higher prices are de facto inflation. Perhaps you would go further in saying that this would spur increases elsewhere?

Of course, if Brady's presence brought in a lot more viewers and advertisers were paying a rate based upon # of viewers, theoretically the network wouldn't have to raise their rates at all, nor even the price for access and could still turn a profit, or at least break even.

If that were the case, however, would you agree that the huge contract would have no effect on price inflation? The network would just be paying fair value for the value he added to their bottom line, no? If that is not true, please expound upon why you think that would be so.

But if he wasn't bringing in enough new viewers for that to happen, and they didn't raise advertising rates per viewer and they didn't charge consumers more for access to their channel they would just lose money to the extent that he didn't provide as much value as they had estimated. Would you agree that the network losing money for a poor business decision is also not inflationary with respect to the inflation rate in the economy?

If both of the above premises are true, then that would leave us with the case where they in fact did raise their prices, either for the cost to advertisers per viewer or the cost to the viewers to have access to the channel or both of the aforementioned.

Is this where you believe inflation would come from? The cost of advertising went up, and/or the cost of viewership went up... viola inflation? --> their greed *caused* inflation. They raised prices to make more profit or make up for their bad business decision.

If so I think you are missing some important factors related to raising prices/viewer for advertising or raising prices for access.

There are several possibilities regarding the effects of raising either or both of those prices.

Regarding raising advertising prices per viewer.

I doubt that advertisers care whether or not the viewers are there because of Brady or because of some other reason. They are just paying for the eyeballs watching their advertising. If prices per viewer go up they are more likely to choose a competitor's venue that charges less per viewer. Their sales are going to be based upon who saw and bought their product, not on who the announcer is. Again, the networks, like any other business are going to set prices based upon supply and demand. They can't just decide to raise prices because they're greedy and want more money. There is a price point that maximizes their profits and that is what they are going to aim for. They are not going to suddenly lose their business acumen and decide... hey, we need more money to pay this stupidly high salary, so let's just raise the price point higher than what the actuaries tell us would actually bring in the most revenue.

The effect you ignored in this instance is that raising advertising prices/viewer just because they hired Brady would reduce the number of advertisers and would cost them money rather than bring in more... so that will probably not happen. As noted above, if they just brought in more viewers and advertisers paid more because more people were watching, that would not be inflationary in any way, manner or form.

Regarding raising prices for viewership

I think you were also ignoring the effect of raising prices on the number of subscribers. The higher they raise prices, the fewer people who will be willing to pay those prices. The supply & demand curves at different price points are a standard in Econ 101, of course. Once again, the owners will try and set prices to maximize profits. If Brady is a big draw perhaps that price point will be a little higher, but once again they can't just decide to raise prices based upon how much they pay Brady & divide that up among how many viewers there are. Some would not renew their cable contract. That is happening with more and more frequency, btw.

But even to the extent that they do in fact raise prices, that has no effect on the inflation rate. You are looking at the price of one commodity, but not the overall picture. Another part of the equation you are ignoring is that people generally have a fixed amount of disposable income. If they are paying more for their cable package, they are going to probably be cutting back at some point on other expenditures. Lower sales on other expenditures will have a tendency to lower prices in other areas... again back to those supply and demand curves. If demand for the products and services people cut back on goes down, so will prices.

The net effect on inflation is zero. People will spend more money in one area... BUT they will then spend less in other areas. The money in circulation will be the same.