ECONLOG POST
Feb 24 2024
By David Henderson, Feb 24 2024
Contrary to what I used to believe before I researched this article, 19th-century French novelist Honoré de Balzac did not say, “Behind every great fortune lies a great crime.” Yet he is often thought to have said it and certainly a fair number of people, especially on the left, seem to believe it. Indeed, although my father, a public school teacher, never said it explicitly, he seemed to attribute even small fortunes to some kind of crime. He was suspicious of businessmen who earned just 20 percent more than he did. I picked up some of his views on this. Thank goodness I studied economics.
I thought of all this when watching this year’s Super Bowl. I had bet on a friend’s Facebook site that we would see Taylor Swift eleven times. Midway through the fourth quarter, I lost track at eight because the game was so exciting. But the presence of Taylor Swift got me thinking about what I had thought Balzac had said and about what French economist Thomas Piketty came close to saying. Although Piketty references Balzac many times in his magnum opus, Capital in the Twenty-First Century, Piketty comes closer than Balzac to casting aspersions on people who get rich. So the question I want to address, and then widen to other successful people, is “Did Taylor Swift become a billionaire illegitimately?”
These are the opening 2 paragraphs of David R. Henderson, “Piketty Vs. Taylor Swift,” Defining Ideas, February 22, 2024.
And:
The Swifties, as they are often called, are intensely devoted fans of Taylor Swift from around the world. Although the typical Swiftie is a young girl, I sometimes run into middle-aged, and even older, men and women who are intense fans. When they consider buying one of her products, they almost certainly do what consumers of other products do: compare the price they must pay to the value they get. A little economics is helpful here. The fact that millions of fans pay those prices means that they value the products more than what they must pay. They get, in economics jargon, consumer surplus, defined as the value they place on a product minus the price they pay.
And finally:
In a free economy, and even in a somewhat-free economy like that of the United States, a large percent of wealthy people’s wealth is gained in mutually agreeable voluntary exchange. Moreover, even though innovators often get very wealthy, most of the value they create is captured by consumers. It is unwise, therefore, to punish wealthy innovators with special taxes on their wealth. The novelists that Thomas Piketty quotes were good novelists. But they are hardly a guide to understanding how wealth is created and how it grows. Nor is Piketty’s book, with its proposed heavy taxes on wealth, a good guide to tax policy.
Read the whole thing.
“French novelist Honoré de Balzac did not say, “Behind every great fortune lies a great crime.””
Thanks for checking that fact!
Even if he did write it, one should not take fictional accounts as related in novels as evidence of historical or economic facts. One should also not take what a *fictional character* says in a work of fiction as representative of the author’s views.
As one great author wrote:
“Literature is invention. Fiction is fiction. To call a story a true story is an insult to both art and truth. Every great writer is a great deceiver, but so is that arch-cheat Nature.”
You are apparently aware of this recent WSJ piece; however, if not, it does provide additional information on this “back story”:
https://www.wsj.com/articles/bushwa-about-balzac-wealth-capitalism-crime-quote-fortune-7e6ba4ac
re: the “superstar effect” (aka “the winner-take-all effect”)
In a 1981 paper published in the American Economics Review, the economist Sherwin Rosen worked through the mathematics that explains why superstars, like Pavarotti, reap so many more rewards than peers who are only slightly less talented. He called the phenomenon, “The Superstar Effect.”
Though the details of Rosen’s formulas are complex, the intuition is simple: imagine a million opera fans who each have $10 to spend on an opera album. They’re trying to decide whether to buy an album by Florez or Pavarotti. Rosen’s theory predicts that the bulk of the consumers will purchase the Pavarotti album, thinking, roughly: “although both singers are great, Pavarotti is the best, and if I can only get one album I might as well get the best one available.” The result is that the vast majority of the $10 million goes to Pavarotti, even though his talent advantage over Florez is small.
source: The Superstar Effect: being the best, even slightly, triggers huge advantages
This from an econlib article by Isadore Johnson:
The superstar effect is when an individual gets a disproportionate share of the gains from what seems like small differences in ability. In the digital age, more of the economy has converted to winner-take-all situations because the marginal costs of producing an additional unit of a good are small, and the fixed cost associated with getting started is high. If two products cost the same, but one is better, people are almost always going to choose the superior product. Since there is not a clear limit to the supply of the superior product, only the best services are frequented, and wealth is distributed disproportionately to the especially talented.
source: CEOs and Superstars
So while an increase in inequality is to be expected because of the superstar effect, it’s a good thing because it frees up labor. In the case of Taylor Swift, those less-talented singers can go off and do something else for society, and we all become richer in the process.
I remember when Sherwin was working on that. It’s a good point.
Your last sentence doesn’t follow, though. The superstar effect explains why a superstar gets a large percent of the revenue. It does not predict that those who are not superstars will quit product in the same industry. Many of them will stay and make less money. Sometimes this less money is a lot.
David: “It does not predict that those who are not superstars will quit product in the same industry. Many of them will stay and make less money. Sometimes this less money is a lot.”
Tom Brady signed a two year contract for $50 million with Tampa Bay. $25 mil per. His backup Blaine Gabbert, a former first round draft pick, made $2.5 mil holding a clip board.
Nice.
That analysis doesn’t work nearly as well as it used to. Musical acts now earn most of the their money from touring, not album sales, and tickets prices for ‘lesser acts’ are cheaper. A fan of live music could see a dozen or more excellent musical performances for the cost of a single Taylor Swift ticket. And many do. So the ‘I might as well get the best for my $10’ idea really doesn’t apply.
Nor do I believe that the idea of small differences in quality/talent in such domains are really meaningful or measurable. People don’t become ‘Swifties’ because they’ve independently determined that Taylor Swift offers the highest quality in singing, guitar-playing, dancing, and sequined body-suit wearing. They become ‘Swifties’ to join the club and to be swept up in the mania. Sometimes the objects of the over-the-top adoration turn out actually to be great (Franz Liszt, the Beatles) and sometimes they’re quickly forgotten (New Kids on the Block and countless other ‘boy bands’). The intense peak of popularity is really not a reliable sign of the greatest levels of talent.
These professions are often compared to lotteries where a significant amount of talent and hard work is required to ‘buy a ticket’, but the chances of winning (‘the big break’) are only loosely correlated with overall talent and effort. The reason not to tax away the proceeds from the lucky winners is that our culture is immeasurably enriched by all of the people who produce so much consumer surplus while working toward the big break that may never come.
Many progressive cities, now in trouble, have some very creative “wealth” taxes. San Francisco has an “Overpaid Executive Tax”, among others. Over-taxation is one of the reasons that commercial property in downtown is “Toxic” and taking a beating. The market is readjusting by engaging in Wealth Destruction. One example, the sale of 350 California in downtown, once valued at $300M recently sold for $68M. The pay of the mayor and city staff needs to undergo a similar re-evaluation.
I wholeheartedly agree that the desire for a more equitable distribution of consumption should not (and I think really IS not) based on either envy or a belief that high consumption levels result from anti-social behavior. Nevertheless, resources for redistribution have to come from somewhere and in the case of the US resources to close our growth-draining, dollar overvaluing fiscal deficits have to come from somewhere. And _I_ think they should come in part from a progressive consumption tax in addition to the VAT that replaces the wage tax.
Let’s not forget that the attendees of the event will produce a mountain of garbage litter both inside and outside of the venue. Usually some amount of traffic and usually require a regiment of police/fire/EMT.
I think Swift is playing in Atlanta at Mercedes Benz stadium and staying in Atlanta for a month pre-pandemic I was subjected to a 20% occupancy tax to help subsidize Arthur Blank’s pursuit of happiness and perhaps indirectly those of Taylor Swift/other performers and members of the Atlanta Falcons.
I do find it unseemly these superstars somehow seem to be capable of drawing public subsidy to some degree.
You write:
Let’s not forget that the attendees of the event will produce a mountain of garbage litter both inside and outside of the venue.
Yes. The problem is the garbage outside the venue. The garbage inside is internalized, literally.
You write:
Usually some amount of traffic and usually require a regiment of police/fire/EMT.
True. And are you saying that the concert people don’t pay for this? My understanding is that they usually do, although my understanding may be deficient.
You write:
I think Swift is playing in Atlanta at Mercedes Benz stadium and staying in Atlanta for a month pre-pandemic I was subjected to a 20% occupancy tax to help subsidize Arthur Blank’s pursuit of happiness and perhaps indirectly those of Taylor Swift/other performers and members of the Atlanta Falcons.
I assume that you meant to have a period after the first “Atlanta.” Otherwise, I don’t understand your comment. I’m guessing that Taylor Swift didn’t stay in Atlanta for a month. I agree that the subsidies to subsidy-suckers like Arthur Blank suck, as pretty much any sports economist can affirm. Are you saying that she shouldn’t perform in that stadium and that, if she refused to, the subsidy would fall?
Sorry, I stayed there for just over a month’s time and I was subjected to the 20% occupancy tax at a hotel which for that length of time amounted to over $500.00 …
I look forward to a vigorous discussion of how copyright and trademark law (government creations) enrich Taylor Swift.
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Feb 24 2024
The problem with monetary hawks is that they are always looking for an excuse for tighter money. Doves have the opposite problem, a bias toward easier money. Recent events provide a good example.I see lots of doves now talking as if getting inflation back to 2% should be viewed as the ideal. But that’s wrong; we have a…
Feb 24 2024
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Feb 24 2024
Contrary to what I used to believe before I researched this article, 19th-century French novelist Honoré de Balzac did not say, “Behind every great fortune lies a great crime.” Yet he is often thought to have said it and certainly a fair number of people, especially on the left, seem to believe it. Indeed,…
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