Thursday, December 2, 2010

Inequality on the Diamond

At the time that we are about to preserve the tax cuts for the very rich, a New York Times article shine a nice light on the extent of inequality.

"At its high point, six decades ago, DiMaggio's salary came to $100,000. That was a lot of money in 1950, equivalent to about $900,000 today. DiMaggio earned about 30 times the median family income back then. Mr. Jeter, however, earns roughly 300 times as much as today's median family income -- assuming that the family has any income at all. With unemployment stubbornly stuck at 9 percent -- plus, many people are watching this battle of the millionaires with very cold noses pressed against the window."

Haberman, Clyde. 2010. "Fewer Millions for Jeter? Say It Ain't So!" New York Times (30 November): p. A 23.


NY Expat said...

It's strange to me that you would use Jeter to make this point: The thrust of the article is just the next in an endless series of how organized workers have it so much better than before, so they should just STFU and take what they're given.

I understand that for a baseball player, the scale is greater, but unlike hedge fund managers we (and Jeter and the Yankees) have a much more accurate idea of how much revenue Jeter generated for his team. It's not tax cuts that explain Jeter's salary, it's his extremely rare ability combined with Marvin Miller's insistence that player's get paid for what they are actually worth, not what some owner of capital deigns to toss their way.

Malcolm Gladwell wrote in The New Yorker in October about different systems of negotiation, and used MLB to demonstrate how a system went from Authoritarian (i.e., feudal) to Competitive (don't remember the term he used, but everything was negotiated). I'd be curious about your take on it. He also ended the article with a wistful look back at a time when ballplayers didn't understand what they were worth to a team, and were so happily exploited that they would ask for salary cuts in a down year.

Jack said...

Jeter, like all other sports stars, is an entertainer. Nothiing more nor less than that and that is what accounts for his outsized earnings as a baseball playing entertainer. As soon as the Yankees have 50% attendance and lowered TV receipts you'll see Jeter's, and every other player's salaries go down. It has as much to do with a player's ability to draw the crowd as his ability to play the game. Jeter and his co-workers contribute to the economy by instigating fans to spend money.
On the other hand a hedge fund manager only skims off the top after performing no significant service to the economy.

michael perelman said...

The Wall Street Journal says that Jeter shows that CEO's are underpaid.

Jenkins, Holman. "Jeternomics and the CEO." (1 December).

I submitted my post to suggest how the norms of inequality are changing; not to criticize Jeter or other athletes. The point is that one obvious result of such wage spreads is a repression of wages of working class people.

NY Expat said...

But doesn't holding up Jeter imply that the change in baseball salaries is part of this larger trend? They really are separate trends: The same powers that supress regular worker's rights would love to do the same to MLB. In fact, it took a future Supreme Court justice to stop them from doing just that in the spring of 1995.

Jack said...

I suppose that athlete/entertainer incomes can influence even CEO incomes by creating a public sense of what is acceptable. The question then becomes, are both groups earning their outsized incomes through a pay for performance measure? Certainly the former group is measured by what they sell to the public. CEOs are another story due to the difficulty of measuring their performance with so many alternative factors atr work in regards to corporate success and profitability. It is interesting to think of the pay for performance issue when applied to workers. It's the inverse of the CEO pay plan wherein if the profits rise high so too the CEO income. For workers it is more along the lines that if the measure isn't achieved some form of retribution is levied rather than soem form of bonus pay.

Brenda Rosser said...

More on inequality in the United States:

“….One in four of those between 18 and 29 have moved back in with their parents….”

Bill Moyers speech at Boston University on October 29, 2010, as a part of the Howard Zinn Lecture Series.

+ Emmanual Saez: “The top 1% incomes captured half of the overall economic growth over the period 1993-2007", and, between 2002 and 2007, "the top 1% captured two thirds of income growth.” 10,000 people get 30% of the income.

Horror of real math By The Mogambo Guru

The [US] Census is measuring poverty based on costs of living metrics established back in 1955 -- 55 years ago. They ignore many key factors, such as the increased costs of medical care, child care, education, transportation, and many other basic costs of living. They also don’t factor geographically based costs of living. For example, try finding a place to live in New York that costs the same as a place in Florida....the Census does not calculate a person’s assets and liabilities. Considering the massive debts most Americans are carrying, this would make the poverty rate explode. .."

That 'Official' Poverty Rate? It's Much Worse than You Think
September 23, 2010 |

The major consequence of this alarming situation (also in many other nations) is that “Austerity itself is eroding tax revenues. Countries are chasing their own tail.”

IMF admits that the West is stuck in near depression
By Ambrose Evans-Pritchard, 03 Oct 2010

trucker said...

There us a proper way to think about the difference between "economic rent" and "producer surplus". The neoclassical definition of "economic rent" attempts to hide this difference. In my own alleged mind I believe that "producer surplus" is distributed to a producer based on the value of that which (s)he produces. Economic rent, on the other hand, is totally unearned and captured by dent of political position. The baseball star is the most frequent "example" of what the neoeconomic neoclassicals call Paretian rent. Interestingly, Pareto never professed a definition of rent. But in the neoclassical lying pig version a baseball star who's only option to baseball is busing tables at Burger King has rent income of the difference between his baseball salary and the salary of a person busing tables at Burger King.

Contrast this with a land owner that receives money for allowing a farmer to use his land. The recipient of the funds does nothing to earn the funds and taxing this income heavily has no effect on the farming operation. That is "economic rent".

It turns out that for tax purposes, either of these excess distributions can be heavily taxed without adversely affecting production. The baseball star will not start busing tables because he is being heavily taxed and the land owner will not keep the land off the market because of the tax. In either case we are looking at excess income way above and beyond what is necessary to retain the productive factor (the land or the person) in its present occupation.

I don't like what the neoclassicals do with "Paretian rent". But I confess that for tax purposes, the distinction between "economic rent" and "producer surplus" is minor. It seems to me that individual ordinary income above a million a year can be taxed very heavily to promote the general welfare without harmful effects on the real economy.