"Swiftonomics": When Taylor Swift or Beyoncé make a difference to GDP

In what is perhaps her best-known song "Run the World", US superstar Beyoncé sings about how strong women are, how independent and self-determined.

"Swiftonomics": When Taylor Swift or Beyoncé make a difference to GDP

In what is perhaps her best-known song "Run the World", US superstar Beyoncé sings about how strong women are, how independent and self-determined. Women rule the world, says the pop singer. And as far as she is concerned, she is by no means grossly wrong. Beyoncé, or bourgeois Beyoncé Giselle Knowles-Carter, is currently moving entire economies with her mega concerts. Their tour start in Stockholm alone ensured that the Swedish inflation rate fell by only 0.2 percentage points instead of 0.4 in May.

Beyoncé isn't the only example of how pop stars have recently wowed the economist scene. In the US, economists are primarily looking at Taylor Swift, whose US tour alone could have triggered consumer spending estimated at $4.6 billion - more than the economic output of 35 of the 50 US states. On average, visitors spend $1,300 on tickets, hotels and restaurants – and that despite rampant inflation. Economists are therefore already talking about "Swiftonomics". Individual stars move entire national economies.

In Germany, too, Taylor Swift could soon move GDP. In the coming year, the US singer will perform seven concerts in Germany. And we are already seeing developments similar to those in the USA: high hotel prices, astronomical ticket prices on the secondary market and the first fully booked restaurants – a year in advance.

So is Germany threatened with the same development as Sweden? Is inflation rising because Taylor Swift is coming to the country? Economist Felix Herrmann has a clear answer: "Clearly: no," says the chief economist at asset manager Aramea. The situation in Sweden and Germany cannot be compared at all. "Sweden is much smaller than Germany. Any events like Beyoncé's tour start would not be measurable in our numbers."

In any case, the topic is being made a little bigger than it is, says Herrmann. The "Swiftonomics" are actually so-called "displacement spending" - a temporal and regional accumulation of consumer spending. People would therefore bring their consumption forward if they paid several hundred euros for tickets, hotels and restaurants. They would spend less for the rest of the year. An effect on the inflation rate is therefore at best temporary and would only produce a base effect. In practical terms, this means that inflation in Sweden next May should be exactly the Beyoncé effect of 0.2 percentage points lower on an annual basis.

In order for structurally weak regions such as the Ruhr area – three Swift concerts will take place in Gelsenkirchen – to benefit in the long term, investments would have to be made locally. If Gelsenkircheners spend their income on consumption themselves, which is the rule, then nothing is gained. Ultimately, this would only be a regional accumulation of consumer spending - which is then missing elsewhere. This also applies to foreign visitors, whose consumer spending influences the German foreign trade balance. In return, consumer spending would then fail in their home country. Ultimately, this is a zero-sum game from a global perspective.

"This temporal and regional shifting of economic effects is not something that you as an economist look at and say: oh, something very special is happening here," says Hermman. "It's a nice party theme at best."

What he and other economists would look at, however, are the effects surrounding the events. For example, if a location manages to attract well-known artists on a permanent basis – or if a football club is promoted to the Bundesliga and has to enlarge its stadium, investments are necessary. New hotels are being built, roads and train stations are being built and jobs are being created. All of this leads to more productivity in a region and ultimately to an increasing growth path. "In the long term, you don't increase growth through consumption, but through investments," says Hermann.

The fact that concerts by Beyoncé or Taylor Swift achieve such significant sales for GDP is also due to an effect that economists call “funflation”. Many people struggle with rising inflation and falling real wages. At the same time, a year and a half after the worst corona restrictions, they are still sitting on savings from that time. However, they do not want to spend this on groceries or rent, but on things that they missed during this time - such as concerts or travel. On the secondary market, Beyoncé tickets cost up to $30,000, and buyers were still found. Organizers have long since noticed that customers are more willing to pay and have therefore increased the prices. But because the sales volume remains stable at the same time, they achieve higher sales.

Aramea economist Herrmann considers this effect to be real, but also temporary. "The excesses accumulate over time until the excess savings are used up." The study situation here is very interesting. Ultimately, the savings simply switch hands for a long time, until they eventually end up with the richest 1 percent of the population. "They can't do much with the last thousand euros and put the money aside." Then the funflation also ends.

This article first appeared on Capital.de.