Tiger Woods Makes How Much??

“I can’t believe that America pays athletes and movie stars so much!”

The presumption in this statement is that “America” is some single entity that has decided it values athletes more than police or teachers and that if only “America” changed its mind, this could somehow be “fixed.” However the reality is that in economics, having an available substitute usually drives prices down. For example, despite the importance of Police Officer Smith’s job, he is far easier to replace than Michael Jordan. The same can be said for teachers, nurses, firemen and even soldiers. In most cases, there is no shortage of applicants possessing the necessary skills to fill these important roles.

The movie-star effect is also a product of mass media. There are two ways to get rich: bring a million dollars’ worth of value to one person, or bring a dollar’s worth of value to millions of people. When an actor’s effectiveness was limited to the number of people you could fit in a single theater, their economic position was similarly poorer. Once they were able to bring their performance to millions of people through movie reels, their value and wealth increased dramatically.

So, why are athletes paid so much? Because you, me and millions of other people are willing to pay a few dollars for their performance, and that adds up. But when someone complains about their salaries, what are they suggesting? Are they willing to launch a campaign to convince millions of people to stop paying to watch sporting events? Or are they suggesting that by fiat, dictate or some other law we should place a cap on how much we value those individuals?

I’m often torn on whether people who make such statements are simply ignorant of basic economics or truly desire to wield power over others to bring into existence their own world view. I’d prefer to think it’s the former.

The House Noone Built

The apologists for the President are now coming out of the woodwork regarding his "You didn't build that" quip, saying he just meant everyone has gotten a little help from friends and family to get where they are. Obviously, framed this way, it is very difficult to argue with such a blanket and relatively vanilla observation. Of course, to believe that you have to ignore not only what he said, but also the context in which he said it. Frankly, he said that if you have a successful business, it's not because of your own effort or attributes, but because government programs and infrastructure made it all possible.

The problem with this line of thinking is that government is overhead. It's a cost center, not a profit center. As James Madison said, "If men were angels, no government would be necessary" and we could reduce this cost to zero. However, that's not the case. We need a certain minimum level of government in order to create an environment conducive to economic growth (as illustrated by the Armey Curve).

Allow me to illustrate. A manufacturing company has an HR department, to handle the various needs involved in managing their people. If the company wanted to increase its productivity, it would not double the staffing in its HR department. If anything, they would look for ways to cut the HR budget to the minimum necessary to still have a well-managed workforce.

If a farmer wants to grow wheat, he needs fertile soil to create the right environment for growth. But at some point he actually needs to sow and water and harvest. Beyond a certain point, more soil doesn't help.

If I open a business in a shopping complex, can the landlord claim that I didn't build my business? Can he claim that if it wasn't for him, I wouldn't have a business? Can he lay claim to a percentage of my profits above and beyond whatever rent I've agreed to pay him? Can the business next door to mine claim a percentage of my profits because his rent helps pay for the entire building? The landlord may have created the conditions, but without my efforts it would just be an empty building. Unfortunately, today's political climate has made that a very common sight.

So, although we may derive benefits from government infrastructure, it doesn't produce growth by itself and actually crowds out alternative investments . Although other people have paid for it, we've paid for it too in the same taxes and fees that everyone else has. What no one else has shared is the risk I've taken, the hard work and perseverance I've applied, or the vision and the will to build. For two hundred years we've been the freest nation in the world and as a result have experienced the greatest boom of economic growth and technological innovation. Politicians didn't build that; the People did.