Bloomberg has an article about the economic impact of stars like Taylor Swift and Shohei Ohtani:
Go, Taylor Swift. The economic power of baseball star Shohei Ohtani is bringing big winners, and losers, to Japan’s corporate world.
How should we think about “economic influence”? It is not an easy question to answer, as there are several issues to be resolved. Here I will consider five methods, but the list will be very long:
1. Economic impact is the income spent on the artist’s concerts or performances, including personal tickets, TV rights, merchandise, etc. That may be considered a perfect estimate.
2. The net economic impact is almost zero, because if people didn’t spend their money on Taylor Swift tickets, they would spend it on other forms of entertainment.
3. Celebrities are a form of Keynesian stimulus, which encourages society to increase its consumption rate and decrease its saving rate. This increases aggregate demand, which has a multiplier effect.
4. The central bank offsets any increase in aggregate demand with hard money, keeping inflation close to 2%.
5. If the concert takes place in a foreign country, then the economic impact on local people is the difference between the ticket price and the maximum willingness to pay. If Taylor Swift fans pay $100 for tickets that they would have been willing to buy for $150, the concert creates $50 in consumer surplus from that purchase.
The fifth way is how I think about economic impact. The main purpose of economic activity is not to create jobs, generate demand, income, or profit. The main objective is to create goods and services that provide value. Jobs, income, profits, etc., are a means to an end.
If Taylor Swift’s concert had been in the US, I would have done the math differently. Most of the $100 ticket price would go to the concert’s American producers, mainly Ms. Swift herself, but also her executive staff. Then consider how the income of this group of workers would compare to their next best alternative. It seems that Swift’s next best option for pop stardom will bring in far less money than she earns from her concerts.
Although I believe that the Keynesian “stimulus” argument about pop stars is wrong, I suspect that we actually underestimate the economic value of pop superstars. When my daughter was little, I read seven Harry Potter books to her. I would guess that the books cost about $25 each (I can’t remember), and JK Rowlings got a fraction of that amount. But the value of that experience was great, and indeed that series of books loomed large in the imagination of many young people. I can’t even imagine how much he would pay me to recreate those years of his life without the Harry Potter books.
Older students may not care about the quality of stars like Taylor Swift, Beyoncé, Shohei Ohtani, etc. who are important role models for many young people, at a particularly important time in their lives. If I am right, these cultural symbols may generate economic value that far exceeds even the seemingly large income.
So yes, a huge economic impact. But it’s not about the dollars spent; it’s about a greater willingness to pay.
PS. The same argument applies to the inventors of important products such as a new weight loss drug. The Danish company that developed the drug makes a lot of money, but only a fraction of its total value to society.
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