Jeremy Lin & Superstar Economics

Kenneth Rogoff Project Syndicate March 2, 2012

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CAMBRIDGE "“ The biggest news around Cambridge in recent weeks has been Jeremy Lin, the Harvard economics graduate who has shocked the National Basketball Association by rising overnight from "nowhere" to become a genuine star, leading a losing New York Knicks team to an unlikely string of victories.

Lin's success is delicious, partly because it contradicts so many cultural prejudices about Asian-American athletes. Flabbergasted experts who overlooked Lin have been saying things like "he just didn't look the part." Lin's obvious integrity and graciousness has won him fans outside the sport as well. The whole world has taken note, with Lin being featured on the cover of Sports Illustrated for two consecutive issues. The NBA, which has been trying to build brand recognition and interest in China, is thrilled.

I confess to being a huge Lin fan. Indeed, my teenage son has been idolizing Lin's skills and work ethic ever since Lin starred on the Harvard team. But, as an economist observing the public's seething anger over the "one percenters," or individuals with exceptionally high incomes, I also see a different, overlooked facet of the story.

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.

Economists have long studied the economics of superstars in fields where a company can lever enormously the decisions of a small number of individuals, making them valuable in a way that someone who can, say, chop down trees like the legendary Paul Bunyan, is not. But the political economy of what levels of income differences countries will tolerate remains uncharted territory.

Of course, there is a certain logic to the public's disdain for superstar compensation outside of professional sports and entertainment. This is especially the case in some areas of finance that are essentially zero-sum games, in which one person's gain is another's loss. There are other areas, such as technology, in which someone like Apple's late founder, Steve Jobs, arguably delivers real innovation and quality, rather than just employing lawyers and lobbyists to maintain a monopoly position.

As a basketball fan, I would not describe the sport as a zero-sum game, even though one team wins and one team loses. The best players have huge creative flair. But so do some "street ball" players who excel in slam-dunk theatrics; perhaps because they are not tall enough to compete, they make almost nothing.

Do fans tolerate outsize sports incomes because players are role models? Many certainly are, but not all high-paid sports celebrities are exemplary citizens. Michael Vick, a star quarterback in the US National Football League, served time in prison for running a vicious dog-fighting operation, and arrests of players on charges ranging from illegal possession of drugs and weapons to domestic battery have been a regular occurrence.

And, back on the field or court, serious infractions occur all the time. Think of Zinedine Zidane's infamous head butt in the 2006 football World Cup. In the NBA itself, a star player, Ron Artest, was suspended for the remainder of the 2004 season after going into the stands and brawling with heckling fans during a game. (Artest has now changed his name to Metta World Peace, perhaps in response.)

Moreover, sports teams surely lobby governments as aggressively as any big business. Professional sport is a legislated monopoly in most countries, with top teams extracting free stadiums and other privileges from host cities. Indeed, Lin's story, it should be remembered, grew out of a huge labor dispute between the NBA's billionaire owners and its millionaire players over division of the league's nearly $4 billion in annual revenues "“ more than many countries' national income.

As the late University of Chicago economist Sherwin Rosen postulated, globalization and changing communication technologies have increasingly made the economics of superstars important in a variety of fields. That is certainly true in sports and entertainment, but it is also the case in business and finance.

I wish Lin a long and successful career as a superstar, though he will have already had a huge cultural impact even if his success proves meteoric. One can hope that, as Asian-Americans continue to break barriers in other arenas "“ they remain under-represented among corporate CEOs, for example "“ these rising superstars will be greeted with similar acclaim.

If the public is not happy about high superstar incomes, the obvious remedy is to improve the tax system, including for powerful sports-team owners, many of whom benefit from huge tax breaks in their day jobs. Who knows? With a more level playing field, superstars outside sports and entertainment might find themselves a bit better appreciated.

Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF.

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Username Password New registration Forgotten password mahoney 04:47 02 Mar 12

"Moreover, sports teams surely lobby governments as aggressively as any big business."

Surely, you didn't bother to look up any facts to back up this point. I don't see any sports leagues or teams anywhere near the top of this list: http://influenceexplorer.com/industries

Financial "superstars" are experts at extracting wealth from the real economy. Those who actually serve the purported purpose of finance - allocating capital to productive use - make a fraction of the money made by "superstars" who actively game the system by buying elections and buying Congressional influence between elections, and then take outsized taxpayer-subsidized "heads I win, tails you lose" bets. Those are your "financial superstars".

To compare them with athletes who succeed while playing by the rules is absurd.

jimrose 04:59 02 Mar 12

The falacy with this analogy (also appearing in Fotune magazine a while back) is that a sports team is limited to the number of players, a corporation is not. I would be glad to play against your team of 5 players earning 1 million dollars ($1M) each with my team of 10 earning 100 thousand dollars ($500K) each. For example, the executive earning $10M could be replaced by 100 employees earning $100K each. Who will be more productive and is there a corporate governence structure that will facilitate it? The current corporate structure with its superstar mentality is a detriment to real growth and innovation in many corporations.

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andynez 07:20 02 Mar 12

In addition to other comments below I think it would also be important to mention that large financial companies are seen as being backed by the government and bailed out by tax payers while sports teams are typically not. Although the public does often help pay for stadiums. There are other differences such as the fact that player perform in the open for everybody (who pays) to watch and enjoy while businesses usually operate behind closed doors without the public being aware of what individuals do to deserve such rewards (unless there is a product everyone enjoys i.e. apple). So overall not a great comparison between the two. Interesting thoughts though.

Falainothiras 07:39 02 Mar 12

To add to the above comments, you are forgetting about ethics and correlation of your two "superstar" categories to labour.

Concerning ethics, finance is demonized (both fairly and unfairly) because it IS common knowledge that the superstars in finance aka the people that make the top, say, 100 are making their earnings by shady bussinesses and underhanded deals. And don't mess this with what is lawful and what is not. The law as we all know is not made to serve the masses which elect the legislating body. Political corruption is inherent in finance business which is intergal to the well being of the majority of the population whereas it is non-existent in sports (Political corruption that is)

Concerning correlation of the two "superstar" categories to labour, keep in mind that middle to lower incomes have a higher respect for people that gain their incomes through manual labour than from mental labour. The sports "superstars" earn their money mostly through hard manual labour (even if it is entertainment) where the finance "superstars" earn their money through mental labour; no manual labour at all. This could be a factor but it could be articulated best by a Psychologist.

P.S. Please tell your mods to ban ouyifeng11's IP. For God's sake, he's spamming every article with links.

AUTHOR INFO Kenneth Rogoff Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF. MOST READ MOST RECOMMENDED MOST COMMENTED Grit is Good Howard Davies Capturing the ECB Joseph E. Stiglitz From Argentina to Athens? Mohamed A. El-Erian Too Big to Jail Simon Johnson A World Bank for a New World Jeffrey D. Sachs A New World Architecture George Soros The Risky Rich Nouriel Roubini To Cure the Economy Joseph E. Stiglitz America's Political Class Struggle Jeffrey D. Sachs Did the Poor Cause the Crisis? Simon Johnson Capital Shrugged Mark Spitznagel The Iranian Nuclear Threat Goes Global Itamar Rabinovich Free Trade Ad Nauseam Jagdish Bhagwati Can Europe Be Saved? Alfred Gusenbauer The Public and Its Problems Raghuram Rajan Take a link for this article: <a href="http://www.project-syndicate.org/commentary/rogoff90/English">Jeremy Lin and the Political Economy of Superstars</a> ADVERTISEMENT PROJECT SYNDICATE

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"Moreover, sports teams surely lobby governments as aggressively as any big business."

Surely, you didn't bother to look up any facts to back up this point. I don't see any sports leagues or teams anywhere near the top of this list: http://influenceexplorer.com/industries

To compare them with athletes who succeed while playing by the rules is absurd.

To add to the above comments, you are forgetting about ethics and correlation of your two "superstar" categories to labour.

P.S. Please tell your mods to ban ouyifeng11's IP. For God's sake, he's spamming every article with links.

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Jeremy Lin & Superstar Economics

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