Time to Rage

I read quite possibly the dumbest op-ed of 2012 yesterday in the Wall Street Journal. To be blunt, I found it intellectually lazy, completely off-topic, and full of ludicrous arguments that make no sense.

The title of the op-ed was “Air Jordan and the 1%,” and the subject matter was about income inequality in the U.S. 

As you can tell, I have some rather strong views on the subject so I’ve pasted the article below with my commentary on what the author, Mr. Schoenfeld, either missed or ignored.

Let’s get started (my responses are in bold).

What does Michael Jordan tell us about income inequality in the United States?

The introduction is pretty decent - it got me hooked right away. I love Michael Jordan and I think income inequality is a huge issue. Although, my gut instinct is that the obvious answer to this question is absolutely nothing.

The U.S. has greater income inequality than nearly all other developed nations, and the former basketball star earned far more in most years than the typical American earns in a lifetime. So is our system unfair and stacked against the middle class?

There is no connection between U.S. income inequality and the salary of sports stars. This paragraph (and the rest of this article) is a “straw man” argument - the author never directly talks about the heart of the income inequality issue (which I’ll get in to below). Instead, he focuses on a series of catchy, but irrelevant, arguments that have no relevance in the income inequality discussion in order to try and disprove the serious consequences of income inequality.

No rational person compares the salary of the best NBA player the world has ever seen to the salary of a typical American. Not many people are arguing that the two should be comparable. 

The author is trying to make income inequality seem like a non-issue by comparing it to something completely irrelevant.

First, some historical perspective.

Excellent. Let’s see what enlightening facts Mr. Schoenfeld can find to bolster his argument.

“From the time of Pericles until the end of the 18th century in London—2,300 years,” notes Harvard Prof. Lawrence Summers, “standards of living on Earth increased perhaps 100%.” In the U.S. since 1790, by contrast, real per capita gross domestic product has increased nearly 4,000%. Quality of life, in other words, increased 40 times more in 220 years of American history than it had globally over two millennia. In 2012, a typical American in the bottom fifth of the income distribution has a far higher quality of life—and life expectancy—than the average member of the top 1% in 1790.

Awesome. I don’t disagree with any of these facts. But everything the author just wrote is completely irrelevant to a discussion of income inequality. The GDP statistic sounds impressive but GDP is not a measure of income. 

Income inequality is the unequal distribution of household or individual income across the various participants in an economy - it is not measured by quality of life, life expectancy or GDP. While important and worthy of serious discussion, these topics that Mr. Schoenfeld focuses on are completely separate from income inequality.

A true analysis of income inequality should focus on the disparity in income between different participants in the economy (i.e. workers vs CEO, poor vs. middle class vs. 1%, different ethnicities, men vs. women, etc.).

Critics today often point to the 1950s as the last years before American society became so divided between haves and have-nots. At the end of that decade, America’s “Gini coefficient”—the most common measure of income inequality, running from 0 (least unequal) to 1 (most unequal)—was 0.37. Today it is 0.45.

Thanks for providing some context around what this statistic means. An increase from 0.37 to 0.45 might not seem impressive, but that’s because Mr. Schoenfeld neglects to tell us that this places the U.S. 93rd in the world in “income inequality.” That places the U.S. behind India, China, and even Iran.

So, yeah…we’re doing great, huh? Nothing to see here…no possible way that income inequality might be an important issue, right?

But in 1959, more than 20% of families fell below the poverty line. In 2010 that figure was just over 13%. Real per capita GDP today is 270% higher than it was in 1959. A family in the bottom fifth of the income distribution today makes the same amount in real terms as a family earning the median income in 1950. So inequality might have increased, but so too—dramatically—has quality of life.

Even over the last two decades, while real income has essentially stagnated for the bottom fifth of earners, basic conveniences have become far more affordable. In 1992, only 20% of American families below the poverty line had a dishwasher—50% had air conditioning and 60% owned a microwave. When the Census Bureau last surveyed these figures in 2005, those figures were 37%, 79% and 91%, respectively. Critics who minimize the importance of these conveniences likely have never had to do without them.

Again, so what (in terms of income inequality)? Just because quality of life has improved somewhat doesn’t mean that we don’t have an income inequality problem (sorry for the double negative).

How about focusing on the fact that social mobility is at an all-time low, which means that is much harder to break into a “higher” class than ever before.

Or how about any stat on CEO pay vs. employee pay, maybe something like the fact that from 1978 to 2011, CEO pay increased 726.7%, the S&P 500 increased 349.1%, and worker pay increased a whopping 5.7%? Or that CEOs make over 231x more than employees in 2011, up dramatically from 20x more in 1965?

Obviously a CEO deserves to make significantly more than the average worker, but this disparate growth in compensation is a crucial, topical issue that is never addressed in the op-ed. Even if Mr. Schoenfeld disagrees with my views on CEO vs. employee pay, he clearly should have brought the topic up in his discussion of income inequality. But no, he was too busy trying to make far-fetched analogies to Michael Jordan. Let’s take a look.

And that brings us to Michael Jordan, who starred for the Chicago Bulls from 1984 to 1998. In 1986, the Bulls’ median player salary was $300,000. The team’s lowest-paid player made $135,000, and its highest-paid player made $806,000. The team’s Gini coefficient was 0.36. But Jordan’s superstardom increased the team’s popularity and revenues, and by 1998 salaries looked different. The median income was $2.3 million, the lowest was $500,000, and the highest (Jordan’s) was $33 million. The Gini coefficient had nearly doubled, to 0.67.

Jordan’s salary of $33 million consumed over half the payroll, but everyone was better off. The median player in 1998 made more than seven times what the median player made in 1986, while the income of the lowest-paid player in 1998 quadrupled that of his 1986 peer.

There is so much wrong with this argument.

A basketball team has at most 15 players. This is not a relevant sample size.

Also, there is a salary cap in the NBA, which means that there is not a free market for labor. This is inconsistent with the way our general labor system works in the U.S. - yet another reason this whole “sports team” line of argument is idiotic and completely irrelevant for 99.9% of Americans. 

Jordan’s superstardom had nothing directly to do with salary increases for his teammates - that was due to annual increases in the salary cap. In fact, Jordan’s outsized salary (which I would argue he deserved), actually hurt some of his teammates. For example, in 1998, Scottie Pippen made less than $3 million per year. He is one of the 50 greatest players of all-time, was still in his prime in 1998 (albeit near the end of it), and yet he was dramatically underpaid relative to his peers for the majority of his career.

This whole sports analogy makes no sense no matter how Mr. Schoenfeld tries to spin it.

Detractors would suggest that this situation is anomalous to sports, that many of today’s wealthy inherited their money or acquired it without adding commensurate value to society. But consider another basketball player, Rashard Lewis of the Washington Wizards.

Haha. This should be good. Rashard Lewis’s contract is one of the biggest jokes in NBA history. Contracts like his are a big reason why the NBA lockout happened last year.

Lewis was the second-highest paid player in the National Basketball Association in 2012, making $22.1 million—even though he appeared in fewer than half of his team’s games and performed poorly when he did. Is it fair that Lewis was compensated so handsomely?

Hell no. Rashard Lewis’s contract has commonly been referred to as “… the worst max deal ever. It’s the worst sports contract in history” by noted NBA author/fanatic/junkie Bill Simmons.

I mean, check out this excerpt from a Grantland article last year: 

Lewis is a gauge for how you view the lockout. Right or wrong, he is the poster player for the league’s doomed economic model — a decent and grossly overpaid player. “Talk to the owner. He gave me the deal,” Lewis recently told theWashington Post’s Michael Lee. “When it comes to contracts, the players aren’t sitting there negotiating that contract. I’m sitting at home and my agent calls me, saying, ‘I got a max on the table.’ I’m not going to sit there and say, ‘Naw, that’s too much. Go out there and negotiate $20 or $30 [million] less.’

This is exactly the defense of most CEOs. As long as Boards are willing to give extravagant compensation packages, CEOs aren’t going to say no.

More pertinently, if his team could repossess a portion of his salary and redistribute it more “fairly” to deserving players following the season, would it benefit the franchise?

Hell yes it would. That way you wouldn’t overpay an average player an extra $10-$15 million per year.

Perhaps it would in the short term, as the team could reward players and temporarily strengthen morale. But top players would be disincentivized to play for the team in the future, knowing that such repossession could also happen to them. And without an objective measure of overall player performance, the team could one day decide that even a high-performing player was overcompensated and therefore should see some of his proceeds redistributed to his teammates. The team would quickly become uncompetitive.

Oh, so you’re talking about “clawing back” money from players (and by extension the 1%). While tempting, I agree there are a host of issues with trying to claw back money from players or executives and this is not a prudent or feasible action to take. 

But you’re admitting that Lewis (and by extension, some of the 1%) are overpaid and not worthy of their contracts. Isn’t the logical step TO STOP PAYING THEM SO MUCH IN THEIR NEXT CONTRACT. The NBA solves this by not giving overpaid players a massive contract when they are free agents.

Let’s set aside the flaws in Mr. Schoenfeld’s analysis of the motivation of a basketball team because there are too many and I’m getting tired. (Okay, I couldn’t resist, here’s one - the real reason the team would be uncompetitive is that they overpaid for an average player. If they had better allocated their resources they would be able to acquire more talent to win)  

Certainly there are reasons for concern if lower-income Americans aren’t able to save or acquire sufficient capital to pursue innovative ideas, or to see their children attend decent schools. They will suffer, and the country will lose out on significant intellectual capital and growth opportunities. But this should not be confused with inequality.

It’s a little late in the op-ed to start showing a heart, isn’t it? But even here, Mr. Schoenfeld comes across as way out of touch. I doubt that most lower-income Americans are primarily concerned about “acquiring sufficient capital to pursue innovative ideas”. Instead, they have to worry about buying groceries, paying rent, going to the doctor, etc.

Investing in the next Facebook probably isn’t on the top of their concerns.

Equality is not a good in itself and shouldn’t be analyzed in a vacuum. If we remember that, perhaps a century from now low-income Americans will pity the living standards of today’s 1%.

I sincerely doubt that. 

I totally agree that equality shouldn’t be analyzed in a vacuum. But it also deserves to be analyzed fairly with rational arguments, and I just didn’t see evidence of that in this op-ed.

Mr. Schoenfeld is a recent graduate of Harvard Law School.

Congratulations. Seriously, I don’t mean to disparage Mr. Schoenfeld personally in any way. I don’t know the guy, and graduating from Harvard Law is an impressive achievement. 

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It just pisses me off that something this intellectually lazy and dumb appeared as an op-ed in one of the most respected papers in the world. Millions of people were potentially exposed to this article and I think it’s a shame that they at best, didn’t learn a damn thing, and at worst, came away with the idea that income inequality is not a serious issue because of some flawed sports analogy. 

Income inequality is a huge issue in the U.S. I realize that is politically charged, but it deserves a level of discourse significantly higher than what appeared in the Wall Street Journal yesterday.

Any comments?