Advancing a Free Society

Why inequality is a red herring

Monday, September 13, 2010

Inequality is a red herring. Or maybe a poisonous herring. It is the symptom, not a disease, and misunderstanding it leads to bad medicine. Here is Alex Tabarrok on what he and others call Winner-Take-All economics:

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.)

Continue reading Russ Roberts at Café Hayek