Talk links the music business, economy

White House chief economist makes case for connection

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WASHINGTON -- It is exceedingly rare for a White House chief economist to give a speech on rock 'n' roll. But Alan Krueger did just that at the Rock and Roll Hall of Fame in Cleveland. His talk there was a terrific window into how the music business explains the forces shaping our economic fortunes.

"We are increasingly becoming a 'winner-take-all economy,' a phenomenon that the music industry has long experienced," says Krueger, chairman of the White House Council of Economic Advisers. "Over recent decades, technological change, globalization, and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented -- and it is often hard to tell the difference --have been doing better and better, while the vast majority has struggled to keep up."

So, how does this show up in the music industry? More and more of the revenue from concerts, Krueger shows, is going to bands at the tippy-top of the scale of popularity. Since 1982, the top 1 percent of performers have gone from earning 26 percent of concert revenue to 56 percent.

But how does technology drive that? A century ago, Krueger says, a performer could only reach as many people as his vocal range and travel schedule allowed. Now, high-quality recordings can be distributed to billions with the flip of a switch.

The result: Everybody has access to the very best music, or at least the music that most precisely suits their tastes. The megastars who create that music are wildly popular and can make a fortune. But it means things are pretty hard out there for a mid-tier band trying to build a loyal fan base.

That's too bad if you're an aspiring musician. But might it at least mean that consumers are getting music that brings them the most joy? The music industry is a meritocracy where the best songs and artists rise to the top, right?

Not so much. Luck plays a shocking role in which songs and artists become hugely successful, Krueger shows. He points to research by sociologists Matt Salganik and Duncan Watts. Participants in their study listened to songs and downloaded those they liked. But the researchers played a little trick on them: Some of the participants saw an actual ranking of the most-downloaded songs. Others saw a random ranking.

Turns out, the very appearance that something was popular drove more people to download a song. In other words, our perceptions of popularity shape what music we enjoy.

"In addition to talent, arbitrary factors can lead to success or failure, like whether another band happens to release a more popular song than your band at the same time," Krueger said. "The difference between a Sugar Man, a Dylan and a Post Break Tragedy depends a lot more on luck than is commonly acknowledged."