Basketball vs Wall Street

Ken Rogoff with some smart thoughts:

What amazes me is the public’s blasé acceptance of the salaries of sports stars, compared to its low regard for superstars in business and finance. Half of all NBA players’ annual salaries exceed $2 million, more than five times the threshold for the top 1% of household incomes in the United States. Because long-time superstars like Kobe Bryant earn upwards of $25 million a year, the average annual NBA salary is more than $5 million. Indeed, Lin’s salary, at $800,000, is the NBA’s “minimum wage” for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10 million, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

via Greg Mankiw.

▪ Monday March 5, 2012

  • shawn

    It’s because athletes earn their pay in the closest thing to a pure meritocracy that we have. They do their job in front of thousands of people, and if they don’t perform, they don’t get paid. There’s a lot of money available in these big sports, and the athletes continually work hard to earn their share in front of everyone.

    Compare that to something like finance, which gives off a huge vibe of “it’s who you know, not what you know”, where stuff happens behind closed doors (or increasingly on computer servers beyond the view of almost everyone), and is massively complicated by direct (and likely corrupt) interaction with politics.

    We often see situations where by all reasonable measures, a CEO has a terrible tenure at a company, and then they leave and some other big corporation picks them up and offers them a ridiculous contract. In sports, if your can’t play anymore, everyone knows it, and you’re pretty much done.

    Athletics just appear way more transparent, more fair, and in a lot of ways more honest. Note, however, that the sports world isn’t completely immune. The owners/management is generally looked upon in a way much more similar to how finance/business guys are. Likely because their day to day operations are much more opaque to fans.

  • shawn

    It’s because athletes earn their pay in the closest thing to a pure meritocracy that we have. They do their job in front of thousands of people, and if they don’t perform, they don’t get paid. There’s a lot of money available in these big sports, and the athletes continually work hard to earn their share in front of everyone.

    Compare that to something like finance, which gives off a huge vibe of “it’s who you know, not what you know”, where stuff happens behind closed doors (or increasingly on computer servers beyond the view of almost everyone), and is massively complicated by direct (and likely corrupt) interaction with politics.

    We often see situations where by all reasonable measures, a CEO has a terrible tenure at a company, and then they leave and some other big corporation picks them up and offers them a ridiculous contract. In sports, if your can’t play anymore, everyone knows it, and you’re pretty much done.

    Athletics just appear way more transparent, more fair, and in a lot of ways more honest. Note, however, that the sports world isn’t completely immune. The owners/management is generally looked upon in a way much more similar to how finance/business guys are. Likely because their day to day operations are much more opaque to fans.