Sunday, May 1, 2011

Baseball and the madness of greed

There were many villains in the financial meltdown of 2008, and millions around the world continue to suffer from the crisis.  But I say financiers behaved “naturally” in response to a force from outside of the financial industry (one of the villains) and from outside of government (another of the villains). 

That force is baseball: or more to the point, baseball salaries.  I have made this point as a joke in the past, but it turns our Malcolm Gladwell made the same point on Fareed Zakaria's show this morning.  His point was that in the '50s CEOs and corporate lawyers  and baseball stars didn't make much money because capital, the money men, had the power and they set the wages.  The top achievers earned more than the others, but the  differential was not enormous.  

But, all of that changed as the economy grew so dramatically from the '60s forward.  Suddenly there was plenty of capital to go around, and the top producers, the "talent", started to see themselves as indispensable with plenty of money men out there bid for their talents.  So, the power relationship shifted from capital dominating compensation to talent demanding capital. 

A few years pass, and baseball shifted from Mickey Mantle making $100,000 a year (a lot of money back then, but not astronomical) to modern salaries in baseball. You can see the same in salaries for the top  movie stars and music stars - they become mega-wealthy.

So, the point is, as long as A-Rod makes $33,000,000 per year, how can any self respecting mega-important titan of the financial industry, especially one who lives in New York, settle for anything less?  So, we had the financial industry set up compensation systems for themselves that gave them super-star compensation.  And, since these guys felt so important and so smart, they felt totally justified in those levels of income.  And, so did the rest of us out of deference to them, thinking that they were getting their wealth by being very smart at running the financial world.  

But a funny thing happened.  The financial world fell apart, and we started reading articles and books about these financial titans and we discovered that they had basically put together a system that siphoned billions of dollars from the middle classes and stuck it into their yachts, planes, and mansions, and trophy wives.  They weren't smart masters of the financial world, they were greedy charlatans creating legal ways to bilk the masses of their life savings.

I think the world is out of balance, and I think we will know that the world is back in balance when the top baseball player is paid about 20 to 30 times an average middle class salary in America – say about $2,000,000 tops.  That’s really a lot of money – in a world that is not addicted to hyperactive, egomaniacal spending and consuming – and it’s really enough for a superstar with a career that spans only about fifteen to twenty years.  Who says restaurants are supposed to charge $1000 for a night out? Or that homes should cost $20,000,000? Or that private grade schools should cost $30,000 per child?  When did all of this happen and why do we think it is OK? 

I say it all started when baseball superstars started making multi-millions.  End the madness. 

Get back Jo-Jo.