Why Phil Mickelson Should Keep Every Penny of His $9 Million Win
“No technological improvement can be put to work if the capital required has not previously been accumulated by saving.” - Ludwig von Mises
As is well-known now, Phil Mickelson beat Tiger Woods on the 22nd hole at Las Vegas’s Shadow Creek golf course last week. His $9 million prize for besting his former enemy and forever rival has predictably raised a lot of eyebrows for it being $9 million. Superlatives naturally surround such a number, along with a lot of negative commentary.
Some of the negative talk about the lucrative prize offered the winner a path to beautifying the bad optics that allegedly attach themselves to the financially successful. As a piece in London’s Daily Telegraph obnoxiously put it, a “wise way out” for the winner would be a charitable one whereby the $9 million would be “given to good causes.” Translated: Mickelson can cleanse himself of being good enough at golf to rate participation in a $9 million match if he gives his winnings away.
Mickelson should not budge, and should instead proudly hold onto every penny of his winnings. What would plainly increase his already ample wealth would by extension redound to us all. The golf great should not let the ankle-biters in the media shame him into doing what would be illogical.
Mickelson shouldn’t give the $9 million to “good causes” firstly because he probably lacks any real skill when it comes to giving. Think about it. We all bring to the table different areas of expertise. While Mickelson is surely brilliant on a golf course, it’s unlikely that any professional baseball or football team would install him as a GM with control of free agent acquisitions, draft picks, and salary negotiations. It’s also unlikely that Mickelson’s golf genius would translate to the CEO suite at Amazon or Apple. Just the same, Jeff Bezos would likely look lost if he suddenly took over as Mickelson’s swing coach.
Again, everyone brings different smarts to the commercial world. It’s called specialization, and it’s one of the capitalist economy’s greatest attributes. The more that the individuals who comprise what we call an “economy” are able to specialize as a consequence of free trade, the more that they’re able to prosper.
So while specialization’s role as a crucial driver of prosperity is accepted wisdom without regard to ideology, the logic is almost totally forgotten once specialized individuals become very rich. They’re then pressured into giving away their millions and billions as though skill in the CEO suite, in the internet economy, or on the golf course has anything to do with understanding charity. As a result, trillions are being given away; much of it sub-optimally.
On the other hand, imagine if Mickelson keeps the fruits of his specialization. Assuming he very conservatively puts the millions in the bank, banks can’t sit on funds they’ve paid for. If Mickelson banks his windfall, the latter will quickly find its way into an economy populated by individuals endlessly searching for liquidity. What Mickelson keeps will represent better opportunity for individuals and businesses in pursuit of capital goods along with human capital.
Even better, imagine if Mickelson more aggressively invests those millions into a prosaic S&P 500 or Nasdaq 100 index fund. Or imagine if he asks his surely well connected financial advisors to invest his millions across a number of equity funds. If so, his wealth will find its way to today’s best and brightest companies. Businesses are reliant on savings and investment without which there is no progress. Without investment there quite simply aren’t companies and jobs. Would any reader say with a straight face that charity trumps actual job opportunity when it comes to lifting people out of difficult circumstances?
After that, it cannot be stressed enough that $9 million in Mickelson’s hands is completely different from $9 million in the hands of 38th ranked professional golfer Eddie Pepperell (“This is everything golf shouldn’t be doing now.”), and surely different from $9 million in the hands of yours truly. Simply put, Mickelson has the means to lose the $9 million without blinking. Indeed, while he stressed pre-match that the lucrative prize was necessary to create an “uncomfortable environment” for both himself and Woods, it’s a near certainty that Mickelson’s lifestyle in no way required winning the $9 million in order to maintain it.
In short, Mickelson likely had and has no consumptive needs that will be taken care of by the extra millions. Even better, he likely doesn’t need the $9 million to shore up his already ample savings and investments. People like him are incredibly important to economic progress. They can once again lose millions on intrepid investments without the losses having any kind of significant impact on them. This matters because economic progress is ultimately driven by surprise.
While Mickelson’s millions would surely boost economic growth if invested in an S&P index comprising today’s companies, his substantial wealth could really and truly power economic growth if invested in the companies of tomorrow. The problem is that the companies of tomorrow that will surely amaze us are high risk. What’s promising usually is. More specifically, a great deal of company failure will precede the emergence of a few that are wondrously transformative.
Crucial here is that tomorrow’s brilliant companies are likely unknown to most of us, and it’s safe to say that their eventual success will surprise even the most skilled of investors. Apple was a surprise. So was ESPN. So were Google, Facebook and Amazon. So once was GE and the lightbulb. All of these companies and their advances made it thanks to there being rich people capable of losing money on risky investments.
Presently Phil Mickelson is being pressured by sports journalists with limited knowledge of basic economics to once again give his money to “good causes.” They’re confused. There’s no better cause than progress when it comes to bringing the brilliance of the future into the present with great rapidity. Mickelson has the means with his millions to do just that, but only if he invests the fruits of his own genius rather than doing what the chattering classes say is “right,” but that’s plainly wrong.