Bloomberg has an article discussing the economic impact of superstars like Taylor Swift and Shohei Ohtani:
Step aside, Taylor Swift. The economic power of baseball star Shohei Ohtani is bringing some big winners, but also some losers, to Japan’s business world.
How should we think about ‘economic impact’? It’s not an easy question to answer because there are a number of issues that need to be resolved. Here I will consider five approaches, but the list will be far from exhaustive:
1. The economic impact is the revenue spent on the artist’s concerts or games, including personal tickets, TV rights, merchandise, etc. That can be considered a rough measure.
2. The net economic impact is roughly zero because if people weren’t spending their money on Taylor Swift tickets, they would be spending it on some other form of entertainment.
3. Popular superstars are a kind of Keynesian stimulus, encouraging the public to boost consumption and lower the savings rate. This stimulates aggregate demand, which has a multiplier effect.
4. The central bank offsets any increase in aggregate demand with tighter money to keep inflation near 2%.
5. If the concert takes place abroad, the economic impact on the local population is the difference between the ticket price and the maximum willingness to pay. If Taylor Swift fans pay $100 for tickets they would have bought for $150, the concert creates $50 in consumer surplus for that purchase.
The fifth approach is my favorite way to think about economic impact. The ultimate goal of economic activity is not to create jobs, generate demand, revenue or profit. The ultimate goal is to create goods and services that deliver 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 calculation differently. Much of the $100 ticket price would go to the concert’s American producers, most notably Ms. Swift herself, but also to her large support staff. You might then think about how the income this group of workers earns would compare to their next best alternative. It seems likely that Swift’s best option for becoming a pop star would be significantly less revenue than what she earns from her concerts.
While I believe the Keynesian “stimulus” argument regarding pop stars is flawed, I suspect we are actually underestimating the economic value of major pop icons. When my daughter was younger, I read the seven Harry Potter books to her. I estimate the books cost about $25 each (I don’t remember), and JK Rowlings only received a fraction of that amount. But the value of that experience was enormous, and indeed that series of books loomed large in the imagination of many young people. I can’t even imagine how much you would have to pay me to relive those years of her life without the Harry Potter books.
Older readers may overlook the extent to which stars like Taylor Swift, Beyoncé, Shohei Ohtani, etc. are important role models for many young people at a particularly important time in their lives. If I’m right, these cultural icons may well produce economic value that far exceeds even their apparently enormous incomes.
So yes, a huge economic impact. But it’s not about the dollars actually spent; it is about maximum willingness to pay.
P.S. The same argument applies to inventors of important products such as the new slimming drug. The Danish company that developed the drug makes a lot of money, but probably only a small part of its total value to society.