22/05/2012 13:26 BST | Updated 21/07/2012 06:12 BST

Why Creative People Don't Get Rich

In rising middle-class neighbourhoods of London, an author-journalist friend notices a pronounced dwindling of 'creative' types among parents comparing his older son's class to that of his young daughter.

In rising middle-class neighbourhoods of London, an author-journalist friend notices a pronounced dwindling of 'creative' types among parents comparing his older son's class to that of his young daughter. Bankers, fund managers and lawyers seem to have crowded out journalists, academics and artists from Clapham to Muswell Hill. Is this just middle-class navel-gazing or is there something more serious taking place?

The long-term increase in inequality between the university-educated and the rest, especially in the Anglo-Saxon world, is rightly seen as a pressing concern. Economists cite 'skill-biased' technological change. The computer has automated repetitive clerical skills and manufacturing jobs require fewer hands. The net result is more demand for sophisticated thinking, which favours the cognitive elite while deskilling clerical and manual workers. This is a familiar story, and one that accords with our unexamined instinct that rewards continually move in the direction of brains over brawn.

Is this correct? If so, how do we explain the fact that in the United States, between 1970 and 1997, the lowest tenth of college graduates saw their income drop 29% while the top tenth earned 28% more. Among high school graduates, George Neumann and Beth Ingram also reveal that the bottom tenth experienced a drop of only 5% in these three decades while the top decile gained a mere 5% more. This points to a widening chasm in earnings opening up between the left- and right-brained, and between the optimally-educated and overeducated.

Why? History tells us that different eras reward different skills. As a caveman, you need brute strength and cunning. At court, charisma and social skills. Prior to the industrial revolution, power was the key to controlling wealth so courtly skills still counted. Even capitalism was often mercantilist: the British East India Company used its guns as much as its bookkeeping to monopolise markets and resources. With secure property rights and the rise of the modern state, disciplined, rational capital accumulation took over. Thymotic man gave way to Nietzsche's dull, bourgeois Last Man and Scrooge outshone Napoleon. Since the 1960s, the era of heavy industry has been superseded by an information society in which theoretical knowledge, cognitive skills and symbolic manipulation are prized. But is it really the case that knowledge is power in today's digital economy?

Where this story goes off the rails is in its presumption that everything moves in a linear direction towards more information and greater creativity. When mass production using unskilled workers displaced craft-dependent manufacturing, fine skills were lost and brawn replaced brains. Today, it is increasingly evident that 'creative' types at the highest end of the informational spectrum are the craft workers of today, flattened by the decline of the welfare state and the internet revolution.

Richard Florida's oft-cited Rise of the Creative Class (2002) makes the case that innovative professionals spawn economic growth in 'creative cities' like San Francisco or Boston. These cities tend to be diverse in ethnic and lifestyle terms, thus a city's 'gay index' or 'bohemian index' score is held to predict higher per capita income. However, Dr. Florida's own figures reveal that his avant-garde, the 'super-creative core' actually earn significantly less than their more practical, less dynamic managers. Other work shows that the gay and bohemian indices are not significant predictors of cities' average income when other factors are taken into account. This should have raised the alarm that there are limits to the financial benefits of critical thinking.

Economists now possess data which allows them to dissect occupations according to the specific skills they require. This permits a more fine-grained distinction between forms of human capital and takes us beyond the simplistic world of high school versus university education. The picture that emerges is fascinating. According to Todd Gabe of the University of Maine, the occupations ranking highest on the creativity index - physicists, actors, artists, writers - are far from being the best remunerated. In addition, holding a creative job in an industry populated by lots of other creative people markedly depresses your earnings. The best situation is to be a creative person in a field well-stocked with uncreative people. In other words, actors and writers are lucky to earn a living wage while the few creative minds in the taxicab industry pocket high salaries.

This reflects the relatively new trend of growing wage disparities within the knowledge class that Newman and Ingram highlight. Only talent that can be captured by the market can earn large wage premiums and this means that STEM (Science, Technology, Engineering, Math) skills pay more. The fact that recent Engineering graduates at Gabe's university earned $25,000 more than Liberal Arts graduates speaks to this phenomenon.

This extends to the level of entire cities. After controlling for general education level, Ryan Wallace shows that only specific talents can be exchanged for cash. Places with high concentrations of math skills are the wealthiest. Those with an oversupply of professors, teachers, librarians, writers and research scientists are significantly poorer, all else being equal. Once again, the lesson seems to be that creativity and knowledge pay, but only up to a point. Beyond a certain threshold, they become costly luxuries. You can be wealthy or creative, but not both.