It may seem obvious that Taylor Swift ‘affected the economy’ during her two-year Eras world tour (Hannah Miao, ‘Billions on cocktails and friendship bracelets: how Taylor Swift put pressure on the economy,” Wall Street JournalDecember 8, 2024). But that is not the case. For example, the claim cannot be assessed by simply counting how much money her fans paid on tickets, trips, outfits, etc. to attend her concerts.
Start with the question that Ms Miao asks at the end of her report, but does not respond to:
There is debate among economists and analysts about how to measure Swift’s economic impact. Does her concert merely divert money that her fans would have spent elsewhere, or does it generate new activity?
What her fans paid, they would have spent on something else: other shows or types of entertainment, vacations, household appliances or furniture, etc. (In the US, a ticket for an Eras concert was over $2,000 and sometimes much more.) The money could also have been saved, with funds that would have gone to finance investments somewhere in the economy. The objection that spending related to Swift’s concerts causes “ripple effects” is voodoo economics: spending elsewhere would also cause “ripple effects,” if the phrase has any meaning.
A more methodologically defensible estimate of Taylor Swift’s contribution to the economy would be their contribution to GDP. GDP is by definition the total production of the final products at market prices, which is equal to the total value added or, alternatively, the sum of all incomes. To avoid double counting, for example of the value of the wheat and flour in the bread they have to make, only the end products for consumers are included. What’s important to understand is that the resources used to produce Swift’s concerts (the use of concert halls, the equipment, performers, sound engineers, other personnel, etc., plus of course the singer’s time) would have been used differently to produce something. different in the economy.
But to assess the contribution of Taylor Swift (and her co-producers) to ‘the economy’, even a measure in terms of GDP is very imperfect. Its real contribution is the net benefits achieved by consumers. ‘Consumer surplus’ is the technical term for this concept. It measures in dollars what consumers gained from something they purchased, over and above what they paid for it. The consumers who attended an Eras concert must have been convinced that it provided the highest consumer surplus they could achieve with their money.
In addition to the terrible statistical problems that such measurements pose, there is a more fundamental problem: any dollar value of GDP or consumer surplus is not sufficient to measure the “utility” of consumers. By utility, modern economic theory refers to a measure of how a consumer ranks various configurations of goods and situations in terms of his (or her, of course) own preferences. More money to buy more goods and services will ceteris paribusincrease one’s utility (en mutatis mutandis for less money), but money is not the only factor in satisfaction or happiness. Furthermore, one dollar may provide more utility to some individuals than to other individuals.
One way to introduce utility directly into economic analysis is a model that shows how individuals arrive at their “contract curves” by exchanging with each other. (Students of economics will see an Edgeworth-Bowley box diagram of general equilibrium appear in their minds.) Most gains in utility come from exchange and trade: you work to produce cars, for example, or write articles to buy a chair at a Taylor Swift concert; it’s like you traded your car or your stuff with Ms. Swift and her organizers for their services.
Preferences and utility are subjective. They reside in the mind of every individual. However much we can infer that each party to an exchange derives utility from it (otherwise he would have rejected the exchange), it is impossible, even conceptually, to aggregate the utility of individuals to measure its net aggregate increase or decrease. Economists speak of the impossibility of interpersonal utility comparisons. ‘The economy’ is a group of individuals interacting with each other to maximize their respective utilities, not a bundle of physical objects. We cannot hope to calculate whether the resources devoted to the Eras concerts would have been more or less useful if allocated differently. We cannot hope to calculate a “net utility figure” that would tell us the extent to which Taylor Swift has made a net contribution to the economy compared to the alternatives.
The impossibility of producing a precise number does not matter, because the same analytical tradition that leads to that conclusion also demonstrates a more general and useful proposal: an economic regime of free markets offers each individual (an arbitrarily chosen individual, says Hayek) the greatest opportunity for each to maximize his utility through his acts of free exchange. Since some consumers choose to attend Taylor Swift’s concerts rather than do or buy anything else, and bid up the price of tickets to ensure they get them (unlike those who choose to scalp their tickets), we can be sure that: to the extent that the economy is free, the outcome is economically efficient.