Is Taylor Swift underpaid?

Like almost every other nation, Sweden has been experiencing high inflation recently. Consumer prices have risen 9.7 percent over the past year, reflecting large spending to support households during the pandemic, covid-related disruptions of supply chains, Russia’s invasion of Ukraine, and Beyoncé.

Seriously. Beyoncé kicked off her latest world tour in Sweden last month, and it has been widely argued that a huge influx of visitors attending her first two concerts caused a major if temporary surge in hotel and restaurant prices, big enough to have a noticeable effect on Swedish inflation overall.

I haven’t seen similar reports for the other huge concert tour now underway, but I wouldn’t be surprised if Taylor Swift concerts are producing hotel and restaurant booms in the cities in which she performs. Live music is big business.

But why? And how has it changed over the long run?

I know there are more important issues out there. But let’s take a break, mostly because I find thinking about the economics of music fun, and also because the concert business offers some interesting lessons about the sometimes perverse role technology can play in determining incomes.

Swift makes a lot of money. Being a congenital cynic, I’d like to attribute her fame to marketing hype, but the truth is that she’s a highly talented songwriter and musician with remarkable stage presence. Even if you aren’t a fan, you have to admit she’s the real deal.

Still, there are many talented artists. Why do a few earn so much? There’s a standard economic theory about that, laid out in a famous paper by economist Sherwin Rosen, “The Economics of Superstars.” Rosen argued that modern technology meant that the potential reach of performers was much larger than it had been when live performance was the only way to entertain an audience, so that a musician (or, his example, a comedian) who was, or was perceived to be, even a bit better than his or her rivals could earn large sums by performing on mass media, selling records, and so on.

But on the surface, that’s not what’s happening with Swift or Beyoncé. They’re making huge sums not mainly from record or streaming royalties but from concerts—which is normal.

But there are live performances and then there are live performances; ticket sales for each of Swift’s concerts are expected to be $11 million to $12 million. What technology explains that?

The answer is that cutting-edge technology known as the microphone, which makes it possible for an artist to play live to tens of thousands of people. To be more precise, the enabling technology is microphones plus more advanced contemporary sound systems that make it possible for fans at stadium and arena concerts to actually hear the musicians (and for the musicians to hear themselves); these systems hadn’t yet been developed when the Beatles gave their famous Shea Stadium concert, which was largely inaudible over the screams.

Hugely lucrative tours by music superstars aren’t a new development. They go back at least to the 1850s, when Jenny Lind, the “Swedish nightingale,” toured America under the auspices of none other than P.T. Barnum. Lind did 95 concerts, with cumulative ticket sales of more than $700,000, or more than $7,000 per concert.

That may not sound like much, and Lind received considerably less than that—P.T. Barnum took a large cut. (Swift, a very good businessperson—is reportedly receiving more than the revenue from ticket sales, because promoters expect to sell a lot of merchandise.) But consumer prices in the early 1850s were about 1/40th what they are now, so in real terms Lind’s ticket take wasn’t as trivial as it might seem.

The amount people are willing to spend to attend a big cultural event presumably depends on how much they can afford, and America, even adjusted for inflation, is a vastly richer country now than it was 170 years ago. In dollar terms, per capita gross domestic product is currently about 600 times as high as it was circa 1850. If we adjust by per capita income, each of Lind’s concerts took in the equivalent of around $4.5 million today.

Swift’s concerts are taking in more than twice that. But why not more? After all, Lind performed in concert halls that had to be small enough so that people could hear an unamplified (if trained) human voice; Swift is filling stadiums that hold 50,000 or more people.

The real question is why Swift isn’t making even more money.

One answer might be that the sheer size of the venues means that Swift’s tickets aren’t as scarce a good as Lind tickets were in the day, although offsetting this point is the fact that the U.S. population today is a lot bigger than it was in 1850.

Another and better answer is that live concerts play a more limited role now than they did 170 years ago. Back then they were the only way to hear music, or at least professionally performed music. Nowadays music, including videos of live performances, is universally available.

In any case, aside from her music, Swift is giving us food for thought—a reminder both that the effects of technological progress can be more complex than you think, and that the technologies that matter most may also not be the ones you think.