In Paul Krugman’s rave review of Capital in the Twenty-First Century by Thomas Piketty, he brings up one issue where the the book is weak. Inequality in America is still more about wages than capital. Now, this is changing and within a couple of generations, we will be as ossified an oligarchy as anywhere—probably more. But right now, conservatives can plausibly argue that income inequality in America is all about really brilliant people getting rich because they add so much to our economy.
This is the so-called superstar theory of income inequality. Both Piketty and Krugman dismiss it, noting that entertainers and such are a very small part of the super rich. But I don’t think that flies because conservatives would just claim that CEOs and hedge fund managers are also superstars. And in their cases (as Krugman noted), it is much harder to say what their true value is. So let’s take a look at movie stars and assume whatever we say about them is at least as true of corporate CEOs.
Johnny Depp is one of the biggest stars in the world. If he is in a movie, it will open. It might still suck and make no money, but Depp’s star power means that it will at least get a viewing—a chance at the box office, even if the studio is trying to kill it for other reasons. That is worth a great deal to producers. But the question I keep coming back to is this: what is its marginal value?
If Johnny Depp had never been born, or had gone into plumbing instead, would the movie business be fundamentally different? Would fewer films get made? Would profits be lower? I think the answer to all of these questions is, “No.” I think that Depp is a very talented and charismatic actor. But there are lots of talented and charismatic actors who are barely getting by—who might be doing a whole let better if they were as well connected as he is. So the question is not, “How valuable is Johnny Depp?” It is, “How much more valuable is Johnny Depp than the actor who would replace him?”
Unfortunately, it is impossible to have a direct comparison. We can’t run the universe over again without Johnny Depp and see how things turn out. But we do know that what makes a star is ineffable. We only need to look at Danny DeVito or Sylvester Stallone or Arnold Schwarzenegger. So why would we think that Johnny Depp is worth a thousand times more than his character actor co-stars? I don’t think that we can. The same thing is easily as true of CEOs.
We have another problem: we allow our economy to be driven by technology. Johnny Depp is as rich as he is because of the invention of motion pictures and television. Had he lived two hundred years ago, he would have had to work harder for less because he would have been on the stage. Film technology is no longer patented. Its existence is in the public domain. But we forget that and allow its existence to distort the market. Conservatives are always on about how perfect the market is, but how can that be when the value of a product (for example, a performance) can be so different based upon the medium?
If we are going to allow such winner-take-all markets, we need to do something to level the playing field. It has long been the case that we have far too many people going into theater and music. But winner-take-all markets are increasingly the norm in all fields. And that just isn’t the way forward. It would bring about a stagnant economy with little innovation. What would be the point of innovation? Most people would be struggling just to get by and the rest wouldn’t have to do anything to get by.
Eventually, this all leads to the oligarchy that Piketty predicts. And at the moment, I don’t see any way out of it. The free market doctrine is too easy to understand and compelling in its simplicity. Talking about the marginal value of a worker is complex. What’s more, humans are very hopeful creatures. Everyone seems to think that good times are just over the horizon. We are all just one deal away, one job away, one interview away. We have all drunk the Horatio Alger Kool-Aid and we have a positive attitude about the world and the future. And it will be our downfall.
I have nothing against Johnny Depp. I picked him to talk about precisely because I like him.
If anyone knows anything about the economics I’ve touched on here, please let me know because I’m flailing, trying to understand it.