Superstars

Alex Tabbarok tries to explain inequality in terms of globalization- and technology-driven superstar effects, citing JK Rowling's billion dollar earnings as an example. He notes that a Homer or a Shakespeare could only sell their wares to relatively tiny audiences -- maybe 50 at a time in Homer's case or 3,000 for Shakespeare:

Tolkien's words were leveraged further. Tolkien could sell to hundreds of thousands even millions of buyers in a year - more than have ever seen a Shakespeare play in 400 years - by selling books. And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)

Rowling has the leverage of the book but also the movie, the video game, and the toy. And globalization, both economic and cultural, means that Rowling's words, images, and products are translated, transmitted and transported everywhere - this is the real magic of Ha-li Bo-te.

To me, there's no question that this kind of thing is going on. International superstars across fields now have a global customer base that allows the very most popoular -- most popular writers, musicians, baskteball players, hedge fund managers, lawyers, oncologists, etc. -- to earn windfalls far beyond the dreams of mortals. And insofar as this is a large part of the inequality story, it does tend to undercut highly moralized objections to the right being so darn rich. Rowling isn't doing anything wrong to get so rich. But on the other hand, insofar as this story is right, it also seems to me that the primary pragmatic worries one might have about pro-equality measures likewise tend to melt away. If the very best in a range of fields are just bound to reap enormous windfall earnings under current technological conditions then it seems unlikely that tax measures aimed at limiting the size of those windfalls would significantly deter anyone from doing their work. One doubts Rowling set about down this path because she thought it stood any reasonable chance of making her a billionaire.

Comments

Yes, it's true. But that same effect also allows superstars to do more good (when they choose to). Here's a great story about Bulls forward Luol Deng which mentions his efforts in Darfur, for example: http://www.suntimes.com/sports/mariotti/353744,CST-SPT-jay23.article

This type of thing would be impossible without the globalization of celebrity.

Posted by IP Guy | April 23, 2007 8:41 AM

How do lawyers reap windfall profits in this model? Just bigger cases? I really want to know!

Posted by minderbender | April 23, 2007 8:51 AM

Good point. Then there's that other effect: given that people genetically underestimate long odds, lots of people will flock to those big-international-winner occupations, hoping to make the big score, and failing at it, when they could have done something more useful in a non-winner-take-all field.

Posted by Jim M | April 23, 2007 9:03 AM

Wow. It's your man Nozick's Wilt Chamberlin story all over again. Does anyone at all feel like making the moral case for inequality?

Posted by Brian | April 23, 2007 9:07 AM

JK Rowling didn't do anything immoral to earn her billion, and I'm glad she has it. But the other side of this coin is that Shakespeare didn't do anything immoral to *not* receive his billion. So while the moral case against inequality might be somewhat softened, the moral case for progressive taxation actually seems strengthened: if the wealth of great authors is a function of the society they find themselves in, then Rowling "owes" more to society than Shakespeare did.

Posted by Consumatopia | April 23, 2007 9:09 AM

Lawyers and oncologists aren't great examples. Globalization does some international patients to top oncologists, but their work is typically done in person, and relatively few foreigners have the money to fly in to Memorial Sloan Kettering or M.D. Anderson for months of treatment. If anything, globalization is putting downward pressure on medical revenues as third world countries with first-rate physicians (e.g., India) are drawing in First Worlders for treatment (medical tourism).

With respect to lawyers, globalization hasn't changed the reality that different countries have different legal systems and regulatory requirements. A great British lawyer can't walk into New York and start practicing law. One could, I presume, hire him as a consultant, but how much value would he be able to add? The only way I can think of globalization enhancing attorneys' profits might be if American trial lawyers are able to expand some of their work overseas, for example, by suing a multinational utility company for overcharging each customer by one penny per month -- the kind of cases they do here, where if you're in the class you get 50 cents and the lawyers get an 8-figure fee. Of course, to do that they'd need to work with local attorneys in each country and those countries' laws would need to be amenable to frivolous lawsuits. Then they'd need to be able to make the case to a panel of judges in most countries, rather than, say, a jury in Mississippi.

Posted by Fred | April 23, 2007 9:09 AM

Consumatopia:

JK Rowling has provided entertainment to millions and employment to thousands (of film and publishing workers, etc.) as a result of her work. Why should she pay a higher percentage of her income in taxes than you? Even if she paid the same rate, she'd pay millions of times what you pay. Isn't that enough? You say she "owes" society; does she, who has contributed greatly to society, owe more than you? It seems more like society owes her.

I don't think I'll ever understand the fetish of progressively more confiscatory taxation.

Posted by Fred | April 23, 2007 9:14 AM

Fred, the question isn't how much she should pay, but how much she should keep. And there's no question that she should keep many orders of magnitude more than a worthless nobody like me gets. Everyone agrees to that. But why does she get to keep so much more than Shakespeare did? Because she was born into a different society than Shakespeare was born in. Thus, the additional wealth she makes is in some sense thanks to society.

There are two causes of wealth here. You have to have great talent like Shakespeare and Rowling, and you have to be born in to a wealth-conducive environment like Rowling and Consumatopia. Only those with both attributes make a billion bucks. Yes, the talent deserves it's fair share of credit. But so does the environment.

Posted by Consumatopia | April 23, 2007 9:25 AM

I dunno- I think Rowling's books, whatever their literary merits, were a one in a million success story and appealed to a whole bunch of people who wouldn't have brought children's books or possibly books at all. I don't think she say, squeezed other writers out of the market because of her success, or moved the publishing industry so that it was only interested in producing Harry Potter books (the relevant comparison here is George Lucas and Star Wars.) Some adults felt less embarrassed to pick up stuff labeled as "Children's fiction" afterwords, like the Lemony Snicket books, or Philip Pullman's "His Dark Materials." However, it doesn't seem to have pushed away other fiction - Philip Roth and Ian McEwan, to pull two names out of the sorting hat wrote best-selling novels during the Harry Potter boom.

Here's a different angle. Rowling was on welfare when she wrote the first book. And after the success of Harry Potter, she's poured a huge amount of of money into the both the British economy and to the British tax coffers. Given that she probably wouldn't have been able to write the books if she hadn't had the financial support of state benefits, how much does her success alone pay for the British social support system?

Posted by Davey | April 23, 2007 9:27 AM

Tyler seems to forget his economics training with surprising frequency: the globalization processes responsible for billionaire superstars has little to do with technology - its fundamentally about intellectual property. If Rowling (and her publisher) could not rely on an internationally enforceable system of intellectual property rights, her income would be a good deal lower. Rowling's wealth is a product of protectionist policies, not free trade or technology.

A system of support for creative artists that does not depend on current forms of intellectual property protection (such as that Dean Baker has proposed) would still allow Rowling to live an extraordinarily comfortable life, but would sharply limit the windfall gains to her and her publisher. A system of real free trade in creative products would not increase inequality to anything like the degree we see with our system today.

By the way Fred, Rowling is a socialist. She thinks she should be taxed at a much higher rate than people with lower incomes.

Posted by Rich C | April 23, 2007 9:33 AM

To jump on the intellectual property train, maybe the relevant comparison to Rowlingisn't Shakespeare or Homer, but Jerry Siegel and Joe Schuster, the creators of Superman. They created work in a created That's earned billions for a number of companies, most recently Warner Brothers, but Siegel and Schuster didn't share in the windfall, and had to sue and apply public pressure to get even a pittance out of the copyright owners.

Posted by Davey | April 23, 2007 9:46 AM

"By the way Fred, Rowling is a socialist. She thinks she should be taxed at a much higher rate than people with lower incomes."

No one's stopping Rowling from paying whatever she wants to whomever she wants; I'm just saying she shouldn't be forced to pay a far-higher percentage of her taxes than less-productive, less-successful folks. In any case, I would be really surprised if Rowling wasn't trying to minimize her taxes in practice. Do you think she is filing out the British equivalent of the 1040 EZ? I doubt it.

Posted by Fred | April 23, 2007 9:47 AM

Money has a diminishing marginal utility. If you can't see the injustice inherent in assessing the same tax rate to a billionaire on one hand and a person who makes just enough gross income to survive on the other hand, I don't know how anyone will be able to help you understand.

Posted by JP | April 23, 2007 9:52 AM

Oops that ended up a word jumble- let's try again:

Extending Rich's point about intellectual property, maybe the relevant comparison to Rowling isn't Shakespeare or Homer but Jerry Siegel and Joe Schuster, the creators of Superman. They created work that's earned billions in the global market for a number of companies, most recently Warner Brothers, but Siegel and Schuster didn't share in the windfall, and had to sue and apply public pressure to get even a pittance out of companies that were benefitting greatly from their work.

On the other hand, if Shakespeare had the ability to enforce current intellectual property laws on his works, and keep them eternally for his descendants the way the Disney company does, how many productions would there be of his plays every year? How much control would they have over reinterpretations of his work or more avant-garde productions? Would Tom Stoppard's Rosencrantz and Guildenstern are dead be possible?

Posted by Davey | April 23, 2007 9:55 AM

> Rowling isn't doing anything wrong to
> get so rich.

I have no problem with Rowling getting rich (or Larry Ellison for that matter). I have no problem with Rowling leaving $20 million or so to each of her children. It is the multi-generational, self-perpetuating $200 million+ fortunes, and the creation of an entire political-financial system designed to cater to those fortunes and their trustees, that is destroying our civil society.

Cranky

Posted by Cranky Observer | April 23, 2007 9:56 AM

Well, Fred, Rowling is saying that she should be forced to pay a far-higher percentage of her taxes than less-productive, less-successful folks. That's pretty much what being a socialist means. And there's nothing contradictory about her believing that those rules should exist and her obeying those rules in as advantageous a way as possible. That's the dialectic we here on Earth like to call "civilization."

Posted by Bob | April 23, 2007 10:01 AM

Fred, Rowling's tax returns aren't public, so we could speculate all day on what shelters she does and doesn't use. She does continue to reside in England, rather than declare citizenship in a country with a lower tax burden, like the Rolling Stones did.

And as I pointed out upthread, she is a beneficiary of the welfare state. Writing a book takes a huge time commitment, and had she been forced to seek work, she probably wouldn't have written the book in the first place. Do you think the architects of welfare reform in America would approve of a single mother who spent her days in coffee shops rather than seeking honest labor?

Posted by Davey | April 23, 2007 10:08 AM

Where did the Stones move to? I've never heard this story.

Posted by JP | April 23, 2007 10:12 AM

I recall keynes in the general theory advocating that artists and the like should be taxed the bejesus out of since they love what they do and would continue to do it anyway. The practical problem with this of course is that tax codes make no distinction between those whose efforts would remain uninfluenced by a higher tax burden and those whose efforts would be affected.

Even in the case of someone like rowling it is impossible to know how such a burden would influence her output. Id agree that she'd still write if her tax burden was higher than it is currently but i'm not so sure upon seeing that she could retain a sizeable amount more in a different country for instance that she wouldnt relocate.

Posted by pimp hand strikes! | April 23, 2007 10:17 AM

This is a bad argument. When MY writes, "it seems unlikely that tax measures aimed at limiting the size of those windfalls would significantly deter anyone from doing their work." He does not have any evidence to back up that claim, except for the anecdotal case of J.K. Rowling.

I don't think that there is a very good instrumental argument for having progressive taxation (although there is a good moral argument for progressive taxation). MY says that it will not affect how much people will work, but all the evidence shows the opposite, that all taxes will have an impact on productivity.

If we're to advocate higher taxes, we should do so on moral grounds. A more honest approach would be to say that, yes, there will be a loss of productivity, but, with proper spending, we will gain other things that we value (e.g., low inequality, equality of opportunity, universal health care, etc.). To say that increasing tax cuts will not "deter anyone from doing their work," even superstars, is dishonest. It will, but the benefits will outweigh the losses in productivity.

Posted by golddog | April 23, 2007 10:17 AM

Honestly, when you get to the level of superstar artists like Rowling, all you have is anecdotal evidence- there isn't enough data to do a meaningful survey. So far as I know, no one has put forward the notion that J.D. Salinger hasn't published anything in 50 years is because the government would tax him too heavily. Ditto Harper Lee. There's a fair bit of speculation as to why Truman Capote published little of value (and practically nothing at all) after In Cold Blood. If there's a libertarian analysis of it, I'd love to see it. My personal suspicion is that Capote probably would have benefited from having 100% of his income taxed for a while (not that I'm advocating this as a general economic policy).

On the other hand, would Pynchon produce more regular work if he couldn't depend on his residuals from Gravity's Rainbow, or just crappier work more regularly?

Posted by Davey | April 23, 2007 10:38 AM

Reminds me of the half-serious remark that British writers, who received grants through the government Arts Council, were not nearly as good as Eastern Bloc writers, who were often banned or imprisoned. The solution: dissolve the Arts Council and use the budget to fund a small but efficient secret police force, which would be devoted to persecuting Harold Pinter and his peers.

This proposal is appealling for all sorts of reasons.

Posted by ajay | April 23, 2007 10:45 AM

I'm just saying she shouldn't be forced to pay a far-higher percentage of her taxes than less-productive, less-successful folks.

And dollars to doughnuts, you would have been telling her to stop spending your money and start scrubbing floors or waiting tables instead of working on that dumb book.

Shows how much you know.

i'm not so sure upon seeing that she could retain a sizeable amount more in a different country for instance that she wouldnt relocate.

And yet she chooses to live in Scotland, a country with a more redistributive fiscal policy than the English (as dictated by the Scots in Westminster).

Posted by pseudonymous in nc | April 23, 2007 10:48 AM

> Where did the Stones move to? I've never
> heard this story.

Back in the 1960s most of the big English music and movie stars changed their citizenship to lower-tax nations, the top rate in England at the time being something like 95%. That is why Sean Connery can't actually run for President of Scotland when they finally declare independence.

Cranky

Posted by Cranky Observer | April 23, 2007 11:20 AM

If one see's the phrase 'winner takes all' markets, this is exactly what they are talking about. The desirablility of Rowling books is affected by the fact that 'everyone I know has read them' and this is part of what makes the books desireable. Ditto for Microsoft Windows. This is called 'networking effects'.

This effect mostly comes from copyright laws. If one were to rewrite copyright laws so instead of them being 'time dependent' and basically running forever as they do now and encompassing an infinite number of copies, they were a right to a certain number of copies within a fixed time period, that would get the job that presumably needs to be done far better than using the blunderbuss of doing it through the tax system.

It's like 'getting rid of Big Pharma's profits'. If you think that Big Pharma makes too much money, getting rid of patents, a legally created monopoly, or shortening the life of them is a far better way than creating some big purchasing bureaucracy.

What to do about people who'd rather watch a pro basketball game on TV rather than go down to the local high school's gym is a bit more difficult to deal with though.

Posted by j mct | April 23, 2007 11:26 AM

Regardless of whether Rowling benefited from the welfare state, she and everyone else, especially the rich, benefit from the state and society in general. Even if we had a minarchist state, the larger size of the economy and the guarantees of law and property enable people to get rich in ways that they couldn't get rich in prior eras. We shouldn't see a zero-sum game between government and the private sector--even if the government is bigger, people still have more room to maneuver because the economy is so much larger.

Posted by Consumatopia | April 23, 2007 11:29 AM

Consumatopia - I don't disagree that Rowling owes something to society. But society also owes something to Rowling. In my opinion, those two debts simply cancel out, except when society does most of the heavy lifting.

For example, individuals shouldn't receive great riches by "taking" something produced via government money and then creating a monopolistic market for it. It happens, and it is wrong, but it isn't that common.

Back to the case at point, this issue isn't really about Rowling. She probably would have written the book whether or not she thought it would be a best-seller. However, I suspect that her publisher might have been reluctant to publish a book if they were worried about the profits being taxed at too-high a level. In that situation, the publisher might not have been willing to take the risk to publish her books in the first place.

Oh, and just because you believe that someone receives less marginal utility from dollar #2 doesn't give you the moral right to take it away from them. Flat Tax after the first $40k, for the win!

Posted by jb | April 23, 2007 11:54 AM

AWWRRRGHHH! I hate that fucking word "leverage." It has a specific meaning in finance (investment made with borrowed funds), but that's not how anyone uses it, and it's certainly not how it's being used here. Tabarrok is using it to cover ideas like "larger scale," "technology," and "weeabbblurgh" simultaneously. Throwing it into the middle of a sentence that way makes it impossible to understand what he's arguing. It's meaningless garbage-talk.

Posted by Antid Oto | April 23, 2007 12:52 PM

"Consumatopia - I don't disagree that Rowling owes something to society. But society also owes something to Rowling. In my opinion, those two debts simply cancel out, except when society does most of the heavy lifting."

Ah, jb stumbles into a trap. This is were it gets really easy to make the progressive case. So you think Rowling has contributed more to society than society contributed to her? Well aside from the fact that Rowling owes her entire wealth to the well fare state in England... Where would Rowling be without society? Dead in a cave somewhere? I think she's older than 40, so probably. And where would society be without her? Kids would read slightly less entertaining books. But its even easier than that. Because Rowling would have written her books if it would have made her just a millionaire instead of a billionaire. So we lose nothing if we propose an alternative society where we tax the rich at a higher rate in this example.

"Oh, and just because you believe that someone receives less marginal utility from dollar #2 doesn't give you the moral right to take it away from them. Flat Tax after the first $40k, for the win!"

It depends on what you think the basis of morality is. I'm not taking money from anyone. I'm taxing them for the use of society. And your argument contradicts itself within a sentence. You've proposed a progessive tax code, just one with two categories.

The more you examine the issue, the more you realize its not actually possible to evaluate these things on the basis of, well how would things be if they were different? And decide who owes accordingly. What is the alternative? There is no magical baseline. That is why Rawls proposes that we structure the society to have the structure that we think it ought to have. And to institute whatever economic policy required to attain it. Genius, I know.

Posted by mpowell | April 23, 2007 12:53 PM

Cannot really say I comprehensively understand Rawls, not having read him, but I hear Rawls is all about making a case for redistribution, not for society needing money for providing exclusively 'public' goods. In that case it's society after the fact taking back some of the money it's members all gave to Rowling out of their own free wills as it were and redistributing it to back to themselves. Methinks Rawls does not apply.

I guess I'm not a genius.

Posted by j mct | April 23, 2007 2:01 PM

The fact that some people are getting very rich isn't the primary problem with inequality. The big problem is twofold: 1) what isn't happening to everyone else: despite increases in productivity, wages have stagnated for most workers, with accompanying increases in costs leading to a declining standard of living and an increased risk of financial ruin. 2) The social safety net, which needs to be strengthened in an era of increased risk and stagnating wages, has instead been shredded. Meanwhile, the tax rate on the very rich has declined, exacerbating both the degree of inequality and the shredding of the safety net. The obvious solutions are to 1) raise taxes on the rich, in order to raise money to improve the safety net, and 2) strengthen unions, so workers have more clout to demand their fair share of productivity increases. Of course these 2 steps are precisely what the modern Republican party is designed to prevent.

Posted by beckya57 | April 23, 2007 2:19 PM

I don't disagree that Rowling owes something to society. But society also owes something to Rowling. In my opinion, those two debts simply cancel out, except when society does most of the heavy lifting.

mpowell's comments are pretty good. I especially like the comparison to dying in a cave. If we were to offer Rowling a choice between Robinson Crusoe like existence on a desert isle or living in a modern economy with progressive taxation that would allow her to keep most but not all of the profits of her exchanges, I can't imagine her refusing such an offer.

Moreover, other than through progressive taxation it isn't clear how Rowling repays her debt to society. Yes, some people like her books and pay her accordingly. But there's still people who *don't* like her books who still pay taxes for the police and legal systems that allow such an exchange to take place. (Not to mention the literacy that expands her customer base.)

For example, individuals shouldn't receive great riches by "taking" something produced via government money and then creating a monopolistic market for it.

Oh, and just because you believe that someone receives less marginal utility from dollar #2 doesn't give you the moral right to take it away from them.

Well, if you're a utilitarian it does. If you're a Rawlsian you don't even need that--you just need to show that redistribution improves things for the worst off. Ultimately, property is just a social creation--a society agreeing to give someone exclusive access to a resource--and that implies that society has a great deal of discretion in the terms under which that property is held. Most human beings have a vague sense that the rules of the economy should be written to suit some sort of compromise between utility, equality, autonomy and merit. Diminishing marginal returns are relevant to the kind of compromise we would want between those things.

Posted by Consumatopia | April 23, 2007 3:16 PM

Not being overly ideological allows a person to see the obvious. I'm with Matt.

Seriously, does anyone think JKR wouldn't have written H.P. books 4-7 is she's wasn't making millions? Honest economists acknowledge folks are not only motivated by cash.

Anybody making over $10 million/year isn't working for the money anymore. They're already making as much as they could spend. Actors make indie movies, players take salary cuts to play on a team with a shot at a championship, entrepreneur CEOs sell their companies to Warren Buffet at a discount so they can keep control of their firm, etc. Cash incentives obviously matter -- take note of how poorly teachers are paid in many areas.

Posted by chris | April 23, 2007 3:42 PM

Back in the 1960s most of the big English music and movie stars changed their citizenship to lower-tax nations

Not actually true. They've changed their residence, but the small print of residence for tax purposes is handled differently in the UK than in the US, where citizenship entails filing with the IRS no matter if you've never set foot in the country. So while Ozzy Osbourne maintains his pad outside London, his accountant essentlally sets the number of days he spends in the UK. (Another reason why world tours are useful for rock stars: they can be crafted to maximise the benefits of residency and non-residency for tax purposes.)

Posted by pseudonymous in nc | April 23, 2007 9:54 PM

The real problem is rent seeking by CEOs and their ilk who have risen up the ladder by playing bureaucratic politics and who have little real knowledge about how to run their companies except to seek further rents. A recent example is the CEO of Sallie Mae, who has engineered a merger with two other banks competing in the student loan market. He gets 120 million dollars and the customers, facing monopoly, will see higher interest rates and more difficult access to colleges. Forgive me, I don't see the contribution to society (and given the fate of most mergers, the shareholders). I see this type of character as very different from the J.K. Rowlings, and even the Bill Gates and Steve Jobs. The Treasury could take 90% of that take and if discourages such activity, so much the better.

Posted by Rick Kane | April 24, 2007 12:26 PM