Is the Taylor Swift ERAs tour in the UK inflationary?
Tyler Cowen links to an article suggesting that Taylor Swift’s upcoming concerts in London may boost inflation and delay an interest rate cut by the Bank of England.
I am not a macroeconomist, but color my skeptical.
For one thing, a short blip in the demand for hotel rooms in London will likely increase room rates, but this increase really will be temporary – it will reverse as soon as Swift leaves town.
More significantly, spending on the ERAs tour is a shift in domestic spending from domestically produced goods to imports, and this should actually dampen price pressure (that is, it’s deflationary). Taking money from middle- and upper-class English people and putting it in the pocket of Taylor Swift will reduce spending and price inflation in the UK. In fact, assuming that the ERAs tour has a high profit margin (a lot of the ticket dollars end up in Swift’s bank account) and that Swift has a much lower marginal propensity to consume than her fans (presumably, close to 0), the ERAs tour should be deflationary everywhere, even in the United States where it is not an import, no?
I guess a temporary price blip could lead the BoE to hold off on a rate cut, if the blip is large enough to influence aggregate pricing statistics and the governors (or whatever they are called) who set rates are unable to back this out.
Seems far-fetched to me. Am I missing something?
Eric:
If I may (and I will anyway) Taylor is an amazing young lady who has filled a gap left empty by such singers as Elvis. Similar innovation in presentation and in singing. Elvis seemingly migrated from gospel and country to rock. Never gave up the former.
Taylor left country for pop when she made an informal comment at the ACM awards. Entirely successful there and moved on to a much larger venue. Money driven or just a much larger venue where she would have greater creativity.
Did I mention creativity? Maybe this is not a topic on economics; but, her every planned move results in the greater economic activity. Enough such, the Bank of England may not decrease its interest rate. Now that is influence . . .
Bill has it correct. For people who are credit-constrained (“living ‘paycheck to paycheck'”), it’s a temporary shift of any discretionary income from dining out to Entertainment, which is the part you’re seeing. We can quibble whether that might be deflationary–depends very much on how the market basket is constituted–or neutral, but would generally agree that it won’t move the needle significantly (guessing small positive effect that doesn’t make it to significant digits; YMMV).
For those who are rather more solvent–and therefore don’t generally spend a large(r) portion of their income–it’s secondary-market tickets, hotels, parking, concessions, paraphenalia/merchandise, etc. Even if you assume only 30% of the attendees fit into that cohort, we’re talking about 27,000 people <em>per Wembley show</em> spending an extra (SWAG, partially based on previous secondary-market sales and how much my 22-year-old spent at two shows last Memorial Day) 300 quid per person. So about 8.1MM per show of extra spending.
Assume a multiplier lower than I would (say, 1.1-1.25 instead of 1.5) and you’re adding 35-40MM of activity to the UK economy. If any of those estimates are low–and I would suggest all three of them are likely to be, while certainly none are high–and you’re soon talking about real money.
Note that the above is VENUE ALONE, not counting hotels, transport, etc. I would be surprised if it isn’t somewhere closer to 200MM quid overall as a LOW estimate. Sooner of later, you’re talking about real money, or at least enough to Cause The Pause.
Ken:
Thank you. Still waiting for that phone call from Powell to discuss Supply Chain and Pricing.