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Harry Potter and the Mystery of Inequality
J.K. Rowling is the first author in the history of the world to earn a billion dollars. I do not disparage Rowling when I say that talent is not the explanation for her monetary success. Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening's entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn't have to be at the theater to earn. Shakespeare's words were leveraged.
Tolkien's words were leveraged further. By selling books 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. 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.
Rowling's success brings with it inequality. Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component. Thus, greater leverage brings greater inequality. The average writer's income hasn't gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires. The top pulls away from the median.
The same forces that have generated greater inequality in writing - the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization - are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.
Posted by Alex Tabarrok on April 23, 2007 at 07:38 AM in Books, Economics | Permalink
Comments
The same story, with a few changed words, could be written about Bill Gates or Larry Page. Both are very talented, and yet there have been many others who are equally so and have produced products that were as good or nearly as good or arguably better, but:
"Time is limited and people want to use the software others are using so software has a winner-take all component."
Talent is the buy-in-price of the lottery ticket. Rowling is clearly very talented, but that is not what separates her and her income from hundreds/thousands who are comparably talented but labor in poorly paid obscurity (which, of course, is where Rowling was and might easily have remained despite her talent). Talent is required but a monstrously great stroke of luck (or a series of them) was the truly essential ingredient in Rowling's Harry Potter empire.
Posted by: Slocum at Apr 23, 2007 8:16:35 AM
This rings true but it has some interesting implications with regard to policy. On one hand it suggests that to the extent income inequality has grown it is not because of changes in tax policy, on the other hand it implies that great fortunes tend to be, essentially, gambling winnings. Now the people who pursue these fortunes are obviously willing to work even if they make much less. Because for each person that makes a fortune there are many more similarly talented people who toil in obscurity for little reward.
This may suggest that people who are capable of making huge sums of money are less likely to be less productive if the fruits of that production are taxed.
Posted by: Michael Foody at Apr 23, 2007 8:32:49 AM
Sounds like the solution to inequality is to remove IP laws. Perhaps instead of Rowling we would have had Shakespeare or Homer.
Posted by: theCoach at Apr 23, 2007 8:41:00 AM
Why do you say mystery?
It's a mystery only if your thinking is trapped in the proportionality fallacy of price:value relationships. (That's use value, not exchange value.)
Differentiated markets don't reward suppliers in rough proportion to their contributions. The business goes to the players whose final increment in benefit-cost (net differential value) is positive. For many buyers of kids' books, that was J.K. Rowling.
Full value:full price has nothing to do with it.
Proportionality? Neanderthal economics.
Posted by: Dick Harmer at Apr 23, 2007 8:52:34 AM
Good post, but the imperative casting of the last line was a clunker: Thus, if you really want to understand inequality today you must first understand Harry Potter.
As you say, "the same forces ... are at work throughout the economy." Or, as commenter Slocum writes, "The same story, with a few changed words, could be written about Bill Gates or Larry Page."
There are many roads that lead to an understanding of inequality, only one of which runs through Harry Potter.
Posted by: mike at Apr 23, 2007 9:04:34 AM
How about Stephen King, he must have made if not a billion, then pretty darn close to one? Considering the massive amount of books/movie deals he has made?
Posted by: Peter at Apr 23, 2007 9:06:48 AM
Or you might consider looking at a book called the Black Swan (Nassim Nicholas Taleb) which makes an elegant argument about why greater inequalities exist and why more random events seem to occur. I picked up the book last week and think Taleb may be on to something.
Posted by: drtaxsacto at Apr 23, 2007 9:26:11 AM
Could someone explain how Rowling got contracts that made her so much money?
I assume that first-time authors are forced, by their lack of market position and negotiating skill, to sign away all their work (including options on future work) at very bad terms, if they want a major publisher to take their book.
I find it hard to believe that Rowling, with no negotiating experience, could do any better as she tried to publish _The Philosopher's Stone_.
Posted by: Arthur DaRosso at Apr 23, 2007 9:46:12 AM
"I assume that first-time authors are forced, by their lack of market position and negotiating skill, to sign away all their work (including options on future work) at very bad terms, if they want a major publisher to take their book."
No, this just isn't the case. Publishing contracts for the vast majority of authors are pretty standard in terms of royalties (although the size of the advance obviously varies dramatically). Even first-time authors almost certainly have agents, and the "lack of market position" is balanced by the competition among publishers. And publishers only rarely want to sign a multi-book deal with a first-time author, since it contractually obliges them to pay for books that they haven't seen and that they have no idea whether the public will like.
Posted by: K. Williams at Apr 23, 2007 10:06:53 AM
> Sounds like the solution to inequality is to remove IP laws.
Hmmm...are J.K. Rowlings, Bill Gates, Steve Jobs, etc. all just beneficiaries of rent seeking?
Posted by: Christopher Monnier at Apr 23, 2007 10:25:09 AM
"Hmmm...are J.K. Rowlings, Bill Gates, Steve Jobs, etc. all just beneficiaries of rent seeking?"
Ex post, of course they are, as is every band trying to sell CD's. Ex ante, it's not quite so clear.
Posted by: Don at Apr 23, 2007 10:28:06 AM
Nice post.
Sherwin Rosen, The Economics of Superstars.
Rosen did a scholarly piece, but also a lay piece, in The Public Interest, if I remember rightly.
Posted by: Daniel Klein at Apr 23, 2007 12:14:59 PM
This may suggest that people who are capable of making huge sums of money are less likely to be less productive if the fruits of that production are taxed.
Even if that were true, my suspicion is that this idea will get lost in the translation into policy - folks may remember Clinton's "millionaire tax" from 1992 - some people thought he meant to tax incomes over a million per year, but by the time legislations was written "millionaires" were people earning over roughly $200,000 per year - still a lot of money, but not exactly a Donald Trump lifestyle.
My prediction - if Dems (I presume) embrace the notion that JK Rowling would work for less, they will decide that, since she would be happy with a mere $200 million, they will raise taxes on everyone earning more than $200,000.
Or ask about the estate tax - since Ms. Rowling would be happy with $200 million, let's tax all estates over $5 million.
That is roughly half the reason these tax policy debates tend to degenerate.
Posted by: Tom Maguire at Apr 23, 2007 12:17:45 PM
Does anyone but me think the second paragraph written by Michael Foody
at 8:30 this morning is completely inconsistent with the first paragraph he
wrote?
Posted by: spencer at Apr 23, 2007 12:18:11 PM
Of course she did write a series of books which the whole family could read. It had good winning over evil a little bit of magic and a lot of courage and moral guidelines.
None of the others you mention fit in that catagory. I read Tolkien when I was at school but it was a hell of a read. I enjoyed them but I've never read them again. Sometimes I wonder if he had written more than he did if I would ever have read another one. Stephen King or one of his aliases. I've read a couple but prefer the films. Homer, Shakespeare, even if they wrote a new book today only a select few would spend money on them.
Rowlings wrote a good story and was rewarded. Maybe luck was involved but overall it was her imagination that created the world and made us enjoy it.
Posted by: Dave Petterson at Apr 23, 2007 12:29:17 PM
"The Economics of Superstars" (lay version) is available at
http://www.geocities.com/valencia_aaup/The_Economics_of_Superstars.html
And yes, spencer, Foody's paragraph one thinks Foody's paragraph two is nuts.
Posted by: kharris at Apr 23, 2007 12:45:24 PM
You should read the Harry Potter books to understand resonance. Rowling has taken standard tools and created a seven year epic that resonates. She has played my emotions from high note to low and back again.
Posted by: Huggy at Apr 23, 2007 1:01:23 PM
Dave Petterson: "Homer,
Shakespeare, even if they wrote a new book today only a select few
would spend money on them."
That's nuts! Shakespeare's plays still routinely turn into successful movies, across a gulf of centuries. Has any other human being ever created popular writings that endured equally well as entertainments? If Shakespeare could return from the grave to health and spend a few years acculturating to modern society (and learning idiomatic 21st century English), he would be the richest screenwriter in Hollywood in no time.
Posted by: James at Apr 23, 2007 1:54:19 PM
Taleb identifies J K Rowling/Harry Potter as a publishing Black Swan. Google, Microsoft, iPods, the computer in general are Black Swan phenomena in the technology space. They may be slow in gestation/development/scaling. But their impact is huge and ostensibly positive. Risk seekers want, whether authors, artists or entrepreneurs, to try to create them and benefit from this scaling. There is a population who have the skill and ideas, but for whom the moment of scaling passes them by. They don't get rich.
But this does not defend another source of potential inequality, of which I sense Taleb is severely critical, where managers take hidden risks to earn a disproportionate rent for themselves, act as if they are in fact behaving conservatively, but then lose investors'/savers' money because they have become ultimately exposed to negative Black Swans, which are sudden, but leave the executive victim relatively unscathed. I think he is saying these people are frauds and not uncommon in finance and business. One of their defining characteristics is a propensity to wear neckties.
Posted by: knackeredhack at Apr 23, 2007 2:06:28 PM
This is the best blog post title ever. If I were a professor who studied inequality I would not hesitate for a second to name my class this.
Man, that's be the best class ever.
Posted by: Alec at Apr 23, 2007 2:55:10 PM
Trying to apply this to the overall economy fails because the subset of people who make a living writing fiction is very, very tiny.
Also, Rowling's initial effort was laregely a solo project, with more people involved in the follow ons.
Bill Gates or Bill Ford could not develop or build a single project without legions involved from the beginning.
Poor analogy.
Posted by: save_the_rustbelt at Apr 23, 2007 3:09:34 PM
Charles Dickens was extravagantly wealthy. I wonder if his wealth, adjusted for inflation, was comparable to Rowlings' wealth.
Posted by: Chris at Apr 23, 2007 3:21:31 PM
Actually, Bill Gates himself coded the initial version of the product (4K Altair Basic on punchtape) which launched Microsoft. I have been told that he still reviews source code being written by the legions now involved.
As for Rowling's inequality with other authors, it should be noted that the Harry Potter phenomenon has been a rising tide across the fantasy market.
Posted by: triticale at Apr 23, 2007 3:23:16 PM
spencer, I had the same thought.
The mere possibility of becoming a Bill Gates or J.K. Rowling motivates the toilers. Think expected value.
Posted by: Noah Yetter at Apr 23, 2007 3:40:59 PM
The Harry Potter series is so incredible.
I waited to read these stories until I had children and then, it... started. I read the first and second book. I, then, had to commit to read the remaining books. What joy this series brings.
Harry Potter is the "Star Wars" for a generation. The book provokes discussion and passion. As a young boy, I remember my buddies talking about whether Darth Vader really was Lukes father or did he lie. The young people (8-22 years) were having the same conversations but about Harry. The older people (from me to Grandma) were there for the ride because we still view the world with wonder (youthful outlook).
Rowling is so wealthly because the entry level is low ($6.99 a paperback. I bought my Book 6 hardback at Meyer's for $6.99 ($10 off coupon if I bought $50 worth of groceries), the story matures with the books, and the story is "traditional" (good vs bad). Mutliply the books sold by "X" and we get a big number.
Rowling said if she wrote another series, she would not write under "J.K. Rowling" due to the pressure to live up to the Harry Potter series. Can she be successful without Harry? With her success, does she have the desire to write again?
Posted by: Chip at Apr 23, 2007 4:03:10 PM
