Harry Potter and the Mystery of Inequality

by on April 23, 2007 at 7:38 am in Books, Economics | Permalink

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.

Slocum April 23, 2007 at 8:16 am

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.

theCoach April 23, 2007 at 8:41 am

Sounds like the solution to inequality is to remove IP laws. Perhaps instead of Rowling we would have had Shakespeare or Homer.

mike April 23, 2007 at 9:04 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.

drtaxsacto April 23, 2007 at 9:26 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.

K. Williams April 23, 2007 at 10:06 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.

Don April 23, 2007 at 10:28 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.

Tom Maguire April 23, 2007 at 12:17 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.

Dave Petterson April 23, 2007 at 12:29 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.

Huggy April 23, 2007 at 1:01 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.

knackeredhack April 23, 2007 at 2:06 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.

save_the_rustbelt April 23, 2007 at 3:09 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.

triticale April 23, 2007 at 3:23 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.

Chip April 23, 2007 at 4:03 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?

alphie April 23, 2007 at 4:34 pm

Actually, talent is the explanation for Rowling’s monetary success.

Stick to economics, economists.

Timothy April 23, 2007 at 5:46 pm

You’ve got it backwards. Equality for the consumer is the ability to choose whatever everyone else can choose. When nearly everyone happens to choose J.K Rowling, don’t cry about the inequality among writers. Equality among consumers is responsible for that inequality, and that equality alone creates the potential for writer to make a billion. Without equality among consumers, Harry Potter’s scale of success would never happen, and writers would all be equal in their misery, and all consumers would not have access to all books, making them unequal to each other.

It may be talent that sells books and movies, but it’s the modern system of commerce that allows one to make a billion by selling a copy to every living being. So if you like the free market, what about the free market on steroids?

Alex Tabarrok April 23, 2007 at 8:40 pm

Barkley,

I agree that “the rising Gini coefficient has…to do with CEO compensation packages having increased as multiple of that of the average worker.” But I think exactly that process has happened with writing as well which is why I said:

“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.”

I think exactly the same causes are responsible for both inequality among writers and workers – not a rising tide lifting all boats but the leveraging of intellect etc.

Alex

David Wright April 23, 2007 at 11:07 pm

Barkley likes to emphasize the role of those villainous CEOs because he wants to turn the issue into a morality play. (And I’m sure, since he is onto all those CEOs who steal investors money without producing comeasurate returns, that he has pulled his retirement money out of the stock market and put it in a savinings account, where it will earn higher returns by funding the ventures of more hard-working folk.)

But the rising Gini coefficient is not due to the exploding pay of those villainous CEOs. The CEO of every fortune 1000 company could get an extra $1M bonus ($1B total) and, if everyone else’s income stayed the same, the Gini coefficient would not measurably budge! What is driving the rising Gini coefficient is the extent to which the wages of higher-educated workers are pulling away from the unskilled. (100M college-educated workers earning an extra $10K each is $1T total, a much bigger effect.) So go for it, Barkley, and attack those profligate college graduates for driving our society over the brink of iniquitous ruin!

If you believe that CEOs (or star authors) are making so much more than everyone else because their marginal products are so much higher than everyone else’s, then CEO (or star author) pay is a useful illustration of the phenomonon driving up the Gini coefficient, because it reveals that pheonomenon in its most concentrated form. But if you believe, like Barkley, that CEOs are making so much more than everyone else just because they are successfully rent-seeking crooks, then the issue of CEO pay is just a red herring, so far as explaining the rising Gini coefficient goes. If you want to lower the Gini coefficient, you have to address the issue of the rising wage gap between the large mass of college-educated workers and the large mass of the unskilled.

Barkley Rosser April 24, 2007 at 9:45 am

Alex,

I am a lot more willing to buy “leveraging of the intellect” with Rowling and star authors than I am with CEOs. Yes, I confess to thinking that a lot of them are essentially crooks.

David Wright,

Your point is well taken. But there is the part of this that you are leaving out. Why have the real incomes of the less well-educated been declining, which is part of the moving away? I am still perfectly willing to turn that into a morality play. Charles Dickens did.

none,

Well, as a matter of fact there is all kinds of evidence that higher degrees of income inequality do have direct and negative effects on society in many ways from the willingness of people to pay taxes, to health, to crime, and on and on, although I will grant that some of thes have been debated, especially the one on health. The one on taxes is rapidly becoming a truism, but I will confess to being the first person (with two coauthors) to establish empirically in a paper in 2000 in the Journal of Comparative Economics a relationship between income inequality and the share of GDP that is in the underground economy, which means not being openly reported to have taxes paid on it. This was originally shown for the case of the transition economies, but has since been shown to hold internationally (see my website for papers on this topic, easily gotten by googling my last name).

I note that this is quite the opposite of what conventional views were arguing previously, although the link to income distribution was never made directly. Thus, my old prof Ed Feige (a student of Milton Friedman’s at Chicago) at Wisconsin long argued that Sweden was “shooting itself in the foot” with its high tax rates and large-scale welfare state because, obviously from garden variety neoclassical micro labor ecnomics, those programs would push people to go into the underground economy to avoid paying taxes, and we all know that those programs in those Nordic countries were associated with the their high levels of income equality.

There was only one problem with this theoretically appealing argument. It was wrong empirically. In fact those Nordic states have some of the lowest rates of underground economies around, as well as some of the least corrupt and most transparent economies around. One finds large underground economies in countries with large income inequalities, with their associated social alientation, lack of social capital, places like Russia and Brazil and Nigeria.

Tim April 24, 2007 at 10:22 pm

So authors have a winner take all component just like many other things we, as consumers, purchase. So you really can relate Rowling to just about any other person who started cornering a market and taking advantage of it. It just proves that Rowling is not just a good author, but a also a smart business woman. She would have to be to be able to manage Harry Potter as, not only a book, but also a movie, video game, and toy.

enigma_foundry April 25, 2007 at 4:41 pm

The comments on the ‘Harry Potter’ phenomenom I see are divided between those who see this degree of inequality as a problem, and those who don’t.

I do see this growing inequality as a problem, but not by any means the only problem.

So, First, I’ll adress the inequality problem. This problem can probably be overcome by tweaking, rather than doing away with copyright laws. Recall that copyright was expressly designed “to promote the progress of science and the useful arts” not only as a means to enrich the creators. Let us remember, too, that copyright is a special case exception to the general rule of freedom of speech, and that therefore in any freedom based perspective, copyright must be seen as a necessary evil, a compromise, limiting freedom of speech but providing incentive. The facts of the Harry Potter example suggest that copyright law, as it presently exists, is doing too good a job of enriching creators, and should therefore be changed. There are many ways to change it, for example limits on copyright term time, or even limiting the amount of cpoyright income that could be obtained, or from taxing copyright income differently.

From my perspective, the other bad things about the ‘Harry Potter’ example that many commentators seem to ignore include the shallowness and poverty of the writing and the widespread distribution of such a poorly written work. These problems are connected clearly to the first problem. In fact, nearly all policy changes that would address the first problem will also address the second.

Jenna April 27, 2007 at 5:31 pm

Income inequality should not be a issue. People tend to complain about those
who make more than they do. In reality though a person has to be willing
to work hard in order to gain the money that they wish to obtain. Today
people are so concerned with money but they are not willing to do the
work. I think that people who have money deserve it becuase somewhere
along that line someone had to work hard enough to get that money in
their back accounts. Also today people are not to good about saving
their money. Some people are just more smart with their money and how
they obtain. That is all there is to say about this subject.

Zmajrpi June 2, 2007 at 12:14 pm
Nbkvqos June 2, 2007 at 10:11 pm

izaguf July 22, 2007 at 5:22 pm

I find this thread interesting… However, I do not think that Rowling’s success is resulting in GREATER inequality than already exists (although I would agree that it is part of a trend). Economically, the amount of income she generated is a product (symptom?) of the capitalist system. It is the system that spawns inequality. Rowling is just a beneficiary of that system.

Re: Ellie’s reference to article stating that Harry Potter has hurt the book industry children’s literature sales (and thus the amount children read) is based on inaccurate correlations. the book industry selling less children’s books because of Harry Potter, because parents can’t afford to buy too many books, and as a consequence children are reading less is NOT an accurate correlations. (think of economic downturn, availability of school and public and school libraries, used books, AND the fact that probably more adults are reading the series than children). Also, it’s ridiculous that a book series that has come out with seven books over 10 years with various price configurations ($35 for a new hardcopy, $7 for a paper back) is causing families not to buy other books. So over 10 years that means that middle and upper class families are breaking the bank buying the books new with an average spending of $24.00 a year? Especially since it is the higher income bracket families that are buying books new books for their children in the first place. Alternatively, while the children’s and adult book sales have declined TEEN book sales (ages 12-18) have risen in the United States have risen 23 percent between 1999 and 2005 (http://www.msnbc.msn.com/id/19035151). (And of course all these articles about books sales brings up an important point from the Harry Potter books–you can’t trust the media not to put their own spin on things).

In terms of inequality with regards to more people reading her books than others–good literature touches not only universal values and experiences (family, the need to belonging, death, vengeance, the evil of power) but also to current social and political issues (genocide, racisim, equal rights, untrustworthy governments, media as a form of propaganda, REVOLUTION). Her books are also unapologetically champion consumerism and the value in “cool products” like the firebolt and other consumer products created in Rowling’s word. While consumerism/conspicuous consumption is not a value that I share, it is an element of the world she creates that allows people to identify with and understand the Harry Potter world. All these things make this book so enjoyable.

Also I disagree that there is something wrong with a book having a large share of the market or that there is a problem with people all reading the same book because their friends are reading it. A culture is based on shared experiences. While I agree it’s important that there is a range of literature available to read, it is not an inherently bad thing that the harry potter series is taking up a large chunk of the current books sales. There is something to be said for using shared literary experience such as Harry Potter as an avenue for discussing important topics and issues in the world that touch us all. Indeed the Harry Potter books and their success are the basis for THIS THREAD. I do not think that the success of Harry Potter is based solely on it’s marketing–if so there would be many other would be novels that would have also been as successful (I’m thinking here of Eragon and The Golden Compass).

I am wondering if the people critiquing the success of the book here have actually read the series?

I was reluctant to read this series because of it’s popularity when it came out. However, after watching the first movie with a friend, I became intrigued in the series and quickly read the first four books. I was then hooked. I am a great reader and while I read many books every year, there are few books that really touched me and captured my imagination as the Harry Potter books have done. There are so many layers to this book–political, cultural, religious, mythological that it can be read and discussed from many different angles and levels. I am also thrilled that children exposed to the Harry Potter books are also reading very potent critiques of racism, genocide, and buying into the government rhetoric and propaganda.

There other sci-fi children’s series compared to Harry Potter. I was told by some employees of a leftist bookstore (who were making fun of Harry Potter readers) that the Pullman series, The Golden Compass, was better and deeper than the Harry Potter series. After reading the Pullman series I wonder if they had actually read the Harry Potter series? The Pullman series was very good and interesting in that the evil to be conquered in the world is God (I wonder how they will discuss that in the mainstream movie?). However, the Pullman series in no way was as complex as the Harry Potter series and is not as accessible (meaning that not everyone will have a component or character in the book that they can identify with).

shopping tiffany June 9, 2009 at 12:41 pm

Charles Dickens was extravagantly wealthy. I wonder if his wealth, adjusted for inflation, was comparable to Rowlings’ wealth

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