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LeBron James gets paid . . .
Too much, too little or about right?
A recent essay by Peter Coy in the New York Times bears the title “The Economic Case for Taxing Star Athletes.” The author notes that resentment has characterized reactions to high salaries for superstars in various fields for decades. He quotes the first line of a 1983 article on the subject: “Who in recent years has not felt his gorge rise upon learning the staggeringly high salary of a shortstop, a movie star, an opera singer?” Superstar salaries have soared since then, intensifying the animus.
Coy floats the idea of a special tax on superstar salaries. Citing work by economists dating back to Adam Smith, Coy employs the term “rent,” which has a meaning in economic theory different from a fee paid for an apartment or office. Rent, to economists, is the part of a price in excess of what a competitive market would allow. Monopolists, for example, obtain rents by virtue of their monopolies.
Rents not only reveal malfunctions in markets; they serve as incentive to make the markets malfunction. Some economists have proposed taxes on rents, to eliminate the malign incentive. Other people, by no means economists only, advocate rent taxes on moral grounds. The recipients of rents are typically wealthy individuals and firms, who presumably have money to spare. The fact that the rents aren’t fairly won in competition makes them an even more tempting target for their critics.
One of Peter Coy’s economist informants, Stefan Szymanski, considers the salaries to sports superstars to consist largely of rent. On its face this claim seems ludicrous. No field is more competitive than professional sports. Yet Szymanski sees athletic talent as affording a natural monopoly. The best players in basketball, soccer, golf and other sports certainly work at improving their talents, but much of what allows them to command their high pay is the luck of the genetic draw. This unearned part of their income is legitimately subject to recapture by society in the form of higher taxes on their outsized incomes. Szymanski would like to see a return to the 1950s maximum rates of 90 percent or more.
Many others have made the case for higher income taxes on the wealthy. But the argument based on special talent being, in effect, a social good, is unusual. Which is fortunate, because it is both unworkable and pernicious.
It’s unworkable in that judging accurately how much of LeBron James’s skill at basketball comes from inborn talent and how much from his labor in developing that talent is impossible. It’s pernicious in that it grants to government—which is to say, to some government official—the right to make the judgment. Worse, it treats private individuals and their talents as public property. One doesn’t want to sound alarmist, but this attitude is the defining characteristic of totalitarian regimes.
Fortunately, there’s an alternative to a superstar surtax. People who object to the earnings of James or Lionel Messi or Justin Herbert can simply stop contributing to those earnings. They can boycott their games and the products they endorse. They can encourage others to join the boycotts. The persuasiveness of their arguments will be reflected in the success of the boycotts. If they are really persuasive, the stars might join them and boycott themselves, or at least donate their pay to charity.
This thought experiment doesn’t have to go very far before it reveals a basic truth behind the compensation of superstars. As a rule, they earn every penny they receive. They’re in the entertainment business, and the moment they cease to entertain, they stop getting paid. To be sure, some sign long-term contracts, but these essentially defer compensation they might have received up front. Retired stars like Tiger Woods and Roger Federer still rake in endorsements, but this is because they continue to attract customers to the brands they endorse—or so the marketing departments of those brands think.
Do the stars deserve those high salaries, in a moral sense? Does one person deserve a happy temperament while others are doomed to gloom? Do I deserve the love of a true partner while you don’t?
These are questions for philosophers and theologians, not economists. And certainly not bureaucrats or politicians.