Tuesday, April 24, 2007

Harry Potter and the Mystery of Inequality

From Alex Tabarrok on Marginal Revolution:

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.

Along the same line of reasoning, I would suggest that there there would be significant and increasing income inequality over time if you looked at these ratios today vs. 10, 20 or 50 years ago:

1. Average professional athlete's salary vs. the average wage for the person working in the box office in the stadium, or the average wage of someone selling peanuts or beer in the stadium.

2. Average salary of professional athletes vs. the average wage for the housekeeping staff where they stay when travelling on the road, or the average wage of the flight attendants on the athletes' flights.

3. Average salary of a top movie star and the average wage for the person working for the caterer on the movie set or the average wage of the light crew.

4. The average salary of a top TV star like Letterman or Oprah and the average wage of the ushers working for the show.

As Alex concludes, 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.

Conclusion: Increasing income inequality does not necessarily mean that the average writer, or the average worker (ticket taker, peanut salesman, light crew, caterer) is doing worse off. Most of the handwringing about rising income inequality seems to be based on the fixed-pie fallacy - that one party can gain only at the expense of another. The fact that J.K. Rowling is a billionaire doesn't come at the expense of other writers.


At 4/24/2007 10:32 AM, Anonymous Walt G. said...

Most of the people I know are not doing as well as just a few years ago. In the past,they squeaked by on a small wage, pension, and health care insurance. Most of them are now squeaking by on a small wage with no health insurance and no pension. Most of them are not college graduates either, so I guess some people might say it's their own fault. Not me, though. I just want them to get back on their feet so they can pay me back. All my motives are not altruistic.

At 4/24/2007 1:07 PM, Anonymous Victor said...

I must say, that over the past 5 years of my career, I have been making significant increases in my base salary. That being said, the amount I take home each week has not kept up. I am losing ground due to health insurance. I am healthy, and my family is healthy. The appointments we make for the yearly physical to have the doctor say "Your in great shape" cost me thousands of dollars per year. The sad part is that a family can't afford not to have that insurance.

I know that I could abandon my insurance, and use the public insurance to go to the emergency room once a month to cure my cough.

My income decline is due to an expense that I do not need to use. I am afraid that by the time I need this insurance, I won't be able to afford the premiums. When that time comes, my fellow taxpayers will cover my medical cost for me.

I see the point being made that top get getting the money does not affect me. The issue to me is that the required $4,000 worth of medical premiums takes 2% of my boss’s $200,000 per year income. The same insurance takes up 16% of my $25,000 per year income.

At 4/24/2007 3:03 PM, Anonymous Walt G. said...

My best friend from high school died two years ago because he would not go to the doctor for a sore throat. It turned out that he had esophageal cancer. He had health insurance previously, but had to let it go because he could not pay his heat bills, so he was using self-treatment. It depends on your religious beliefs. Maybe he is better off today, but I guess I am not that religious. The sad part was that the hospital bills for his last three weeks of his life were over $100,000. I wonder who paid for that.

Blow your horn as you go by Wyatt Earp Records on Corunna Road and say good-bye to Doug. I always do.

At 4/24/2007 6:56 PM, Anonymous Victor said...

I guess you are making the point that I wanted to say... I can't afford the insurance increases. At this time, I don't benefit from any of these increases. I do benefit from the electricity and gas that I use.

The next point I would like to suggest... Should people directly pay for more of the cost of treatment? I know that my premium goes to my co-worker that is bringing his 2-year-old to the doctor every week. He does not feel the financial pain of un-neccessary doctor's visits.

At 4/25/2007 7:01 AM, Anonymous Walt G. said...

Nobody wants to tackle one of the biggest problems because everyone is going to die and we don’t want to think about it. Politicians could not get elected talking about what has to happen, and it will take political action to solve. Money for health care is finite no matter who funds it. So, costs have to be cut once spending limits have been reached. However, you can’t cut costs without attacking the biggest costs. If you need to cut 5% of your total budget you have to cut your largest expenditures. Say, your 60 and 70% items and not your 10 or 20% items. That’s for two reasons 1) that’s where the money is at, and 2) there is nothing left worth keeping if you cut 5% out of a 10 or 20% budget item. You might as well eliminate the program.

Since most of our health care costs come at the end of our lives (I forget the exact figures, but it was above 50%), costs have to be cut there. So, heroic end-of-life measures have to be eliminated to contain costs and fund health care for the healthy. Not a pleasing thought: Is it? I would not want to be the one telling a family granny needs to be put down because she is old and prolonging her miserable life for a few more weeks or months would cost a half-million dollars or more that could be usefully spent to help many others to live long and productive lives (and perpetuate the health care fund). Money can only be spent once and funding is limited. Economics = study of limited resources. Does anyone else have ideas?


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