Economic Lessons From ‘Mad Men’
Edward L. Glaeser is an economics professor at Harvard.
Widely popular television shows, like “Mad Men,” must appeal to a broad range of tastes. Some watch AMC’s historical drama to enjoy the snazzy fashions of a dressier day. Others enjoy the irony of professional persuaders with pathetic personal lives pushing Popsicles with pictures of domestic perfection.
For me, the appeal of “Mad Men” is its urban economics — the panorama it provides of an information intensive industry in a dense city.
The series opened with its central character, the ad man Donald Draper, trying desperately to come up with a new campaign for Lucky Strikes. He sits in a smoke-filled bar, and asks a waiter why he smokes, and if “I could never get you to try another brand, say, my Luckies.” There couldn’t be a clearer example of someone using urban proximity to get ideas.
That season closes with Draper giving a presentation to the gentlemen from Kodak on how to sell its fancy new technology. He recites the wisdom he learned from “an old pro copywriter,” a Greek named Teddy, about the power of nostalgia. Draper closes the sale by telling them that their machine is “not called the wheel; it’s called the carousel.” Draper’s talent was clearly built with his ability to internalize the information around him.
Advertising is an ideas business.
Its practitioners must constantly produce new images and words that persuade buyers to smoke Lucky Strikes or drink Heineken or use Clearasil. Idea-intensive industries have long tended to locate disproportionately in the cores of urban areas, where — as in New York — the same closeness that once moved garments onto rail cars now speeds the flow of ideas.
The intellectual advantages of proximity keep industries like advertising, publishing and finance — which offer the highest returns to those with the most information — in dense urban cores. Matthew Kahn and I found that the industries that employ the most college graduates, and are presumably the most idea-intensive, are more than twice as likely to locate in an urban center than less well-educated sectors.
The economists Vernon Henderson and Mohammad Arzaghi have recently published an elegant paper called “Networking off Madison Avenue,” which can be read as a primer on the economics behind “Mad Men.”
Much has changed since the early 1960s, but advertising remains highly concentrated in New York. The island of Manhattan is home to 24 percent of the industry’s nationwide receipts. Despite the highly visible advertising giants, the industry is actually remarkably dispersed in small firms. The average advertising establishment has 11 employees, and 55 percent of the sector’s sales go to single-unit firms.
When we see industries that are dispersed in small firms, but concentrated in a single city, there is a pretty good chance that these firms are connected to one another in an urban network.
Professors Arzaghi and Henderson examine the benefits of locating near other advertising firms and conclude that such agglomeration economies are “very large but they dissipate very quickly with distance for advertisers and are gone by 750 meters.” They interpret these results as supporting the hypothesis that “information sharing and information diffusion” are “critical to an agency’s success.”
In “Mad Men,” there is relatively little information-sharing across agencies, but there is still plenty of learning.
The series’s characters learn from each other, their clients and seemingly everyone else in their lives. Draper’s marriage may not be happy, but it does seem to give him advertising ideas. Draper appears as a fully formed advertising talent in the first season, and we can only imagine where he got his skills. We are just given hints, like the story about his Greek mentor.
Peggy Olsen is the character whose evolution on the show illustrates how New York City can be a forge of human capital.
Olsen arrives in the first season as a relatively clueless product of Miss Deaver’s Secretarial School. Her eyes couldn’t be wider and she is a sponge for the information delivered by Draper and others. At first, she picks up the ways of the office from the worldly office manager Joan Holloway. Soon, she’s learning from older copywriters about how to sell a vibrating weight loss device with sexual innuendo. By the second season, she’s tapping into the same veins of nostalgia — in her case for Popsicles — that Draper mined to sell the Kodak Carousel. Her rise reflects her openness to the information constantly being emitted around her.
The far rockier ascent of Peter Campbell is likewise hampered by his tendency to overrate his own innate ability and underestimate what he can learn from others. But even he occasionally succeeds using borrowed knowledge. During his firms’ merger, he is told about the wisdom of remaining neutral, and Campbell promptly walks into Draper’s office and straddles the fence by giving him a key bit of information that Campbell had himself learned from his supposed ally.
Certainly, “Mad Men” is not a perfect description of the advertising industry. And I’m still a little miffed about the line in an early episode that Peter Campbell’s great-great grandfather farmed with Isaac Roosevelt. As every New York schoolchild should know, Isaac Roosevelt, the patriarch of F.D.R.’s line, was a sugar refiner, an early pioneer in the industry that would be Manhattan’s mightiest during the early 19th century.
But far more importantly, the show’s big message about the fast flow of information in the crowded corridors of Madison Avenue is completely correct. That message reminds us about why cities remain so vital in our era of ideas.
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