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The BBC is good for household debt


5:08 pm - October 2nd 2009

by Chris Dillow    


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The financial crisis suggests there’s a strong argument for the BBC remaining state-owned and not carrying adverts.
Yes, this claim looks bald. But the reasoning’s simple.

Let’s start from the assumption (which might be questionable) that high levels of personal debt were a contributory factor to the recession, and/or that a desire to pay down this debt might hold back the recovery.

The question then arises: why is debt so high?

TV advertising, that‘s one reason. A new paper by Matthew Baker and Lisa George establish this very cleverly. They exploited the fact that TV’s spread across the US in the 1950s was uneven, with some areas getting it earlier than others. They show that, in those areas where TV reception arrived earlier, households were more likely to take on debt.

In other words, TV – and TV advertising – contributes to household borrowing.

This is because adverts don’t just raise demand for one good relative to another. They raise demand for goods generally relative to leisure. And because we can’t increase our labour supply quickly, this demand for goods leads to increased borrowing.

In this sense, commercial TV is one cause of high debt. So the existence of a licence fee-funded BBC is a bulwark against households becoming over-indebted. It’s a force for economic stability.

Except for one thing. Baker and George also show that areas which got commercial TV earlier also saw men (though not women) be more likely to get jobs. This is because the same adverts that caused people to borrow more also caused them to get jobs to pay off the debt.

Whether this mechanism is sufficiently strong to offset the incentive to stay at home caused by Holly Willoughby being on daytime TV is, however, doubtful.

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About the author
Chris Dillow is a regular contributor and former City economist, now an economics writer. He is also the author of The End of Politics: New Labour and the Folly of Managerialism. Also at: Stumbling and Mumbling
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Story Filed Under: Blog ,Economy ,Media

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Reader comments


1. Shatterface

Maybe they just got into debt buying TV’s?

If you correlate HD TV ownership against household debt you’ll probably find a similar pattern.

Why – because adverts in HD are more effective than SD adverts?

How about computers? Better ban them, just to be on the safe side…

Surely the logical train of thought would be to ban pop-up adverts and spam e-mail, not banning computers.

So whilst personal debt was rising, obviously we we would have seen a boom time for ITV, as advertisers and consumer goods companies fell over themselves to buy air time on ITV in order to keep the personal debt bubble going. Indeed post crash they would have been trying even harder to compete to shore up the debt mountain.

And indeed we look at ITV’s record over the last several years and we find….oh.

Since on-line advertising has passed TV advertising for the first time recently, perhaps you would propose nationalising all online content funded by an on-line licence? the rise of internet shopping must after all be the next great threat to civilisation.

@ Shatterface. It’s not just that trivial effect. The paper says: “television access is associated with a greater tendency to purchase and incur debt for new cars.” And debt continued to grow in the years after access to TV.

6. Shatterface

‘@ Shatterface. It’s not just that trivial effect. The paper says: “television access is associated with a greater tendency to purchase and incur debt for new cars.” And debt continued to grow in the years after access to TV.’

Have you heard of the word ‘epiphenomena’? Even if you could convince me there was a correlation between TV advertising and personal debt, that’s not proof of a causal relationship.


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