Normative Narratives

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Transparency Thursday: Is There Anything More American Than Baseball?

Baseball is America’s pastime. Despite the NFLs meteoric rise as America’s most popular sport, and the global expansion of basketball, baseball remains uniquely American in more ways than most people generally realize.

For one, baseball is “Americas Pastime” because it has been around longer than football. The exact origins of baseball are debated, but historians agree that it has existed since the early-mid 19th century. In a way, American and Baseball grew up together, and will be forever intertwined. The dog days of summer, hot dogs and cold beer, and watching a baseball game have become an enduring image of American culture. The image of the hard working American also has parallels to baseball players, whose 162 game schedule is unrivaled by any other major sport.

The following analysis is much less nostalgic and much more economical. It is inspired by the fast-approaching beginning of the 2013 MLB season, and a recent report by Forbes which states that the average value of MLB baseball teams rose by 23% last year, the “biggest year-over-year change in valuation ever calculated by Forbes magazine”.

“In its report, Forbes, which has been tracking the league’s finances since 1998, revealed that the money that all teams made from the $450 million sale of the Montreal Expos in 2006 was invested in hedge funds that are now worth more than $1 billion.

“The value of a team used to be about a team itself,” Forbes executive editor Michael Ozanian said in a phone interview with “Then it shifted to the stadium value and then to the television deals, and now it’s more about what’s not on the field at all.”

Is there any other sport that parallels the U.S. economy so? I think not. Both represent capitalism in their purest forms. America is one of the strongest pro-market advocates of all the world powers. MLB has the most free market-driven amongst major sports.

In baseball, there is no salary cap, and competition is protected through a redistributive luxury tax system. In the U.S., as in baseball, the open market determines someone’s wages, and poorer parties are compensated by redistribution of wealth to help ensure equality (who does this better, the U.S. or MLB, is open to debate). Other major sport’s wages are also determined by market forces, but are influenced in general by salary caps, which distort market values.

The MLBPA is the strongest of all the players unions. Strong unions, believe it or not, used to be a bastion of American wealth. The MLBPA was perhaps too strong, to the point where regular steroid threatened the integrity of the game. Just like in America, vested interests continue to hold sway until the system is “brought to its knees”, and only then is real reform discussed (in baseball it is PED testing, in the American economy financial and tax reform).

Baseball as a sport exemplifies American ideals, and as a business mirrors the U.S. economy. Teams increased value represents not an increase in popularity of the sport, but savvy off field investments by teams.

How would you feel if your team lost lots of money in the financial market and it affected the on-the-field product? We already saw this to a certain extent with the Wilpon-Madoff debacle, but most people assumed this was an isolated issue—the recent Forbes report suggests perhaps all teams are more vulnerable to financial market shocks than we may realize.

But restricting team’s investment opportunities would be decidedly un-American. Perhaps MLB should put a limit on the amount a team can cut it’s payroll from year to year, ensuring that off-the-field investments do not affect the product a team puts on the field?

Most people will not care about this issue unless it affects them directly—out of sight out of mind. Mets fans were outraged that their team’s payroll took a hit when the Wilpon’s lost money in the financial market. I would also not be surprised if eventually we find out the Marlins salary-dump was somehow linked to losses not directly related to baseball activities.

Perhaps investment in financial markets is an unstoppable force, and that any entity that has a large amount of capital—including major sports organizations—will naturally be drawn to it. I do not know if the commissioner’s office has the power to regulate how owners invest their profits even if it wanted to.

Banks have to have a certain amount of reserve cash to back up their assets, known as a reserve requirement. Perhaps the commissioner’s office should institute a similar policy to ensure that financial market fluctuations do not affect the integrity of the game. Or should the system stay as it is, and address teams financial woes on a case-by-case basis as it currently does ?(such as the Dodgers MLB managed bankruptcy)

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Economic Outlook: “Teetering on the Edge” of the Fiscal Cliff

President Obama cut his holiday vacation in Hawaii short to resume talks in hopes of averting the fiscal cliff. Members of Congress will also be called back. What could possibly make two sides that cannot seem to agree on anything more cooperative then pulling them away from their families during the holidays? You will have to excuse me for not shedding a tear for these poor politicians, they’ve had months to deal with this issue—the ineptitude of our political system over the last few months (years?) is mind boggling.

The “Fiscal Cliff” is not is really a cliff, it is more of a hill which eventually leads to a river of molten magma. Spending cuts will take time to be enacted, and tax increases won’t hit immediately either. The January 1st deadline will not lead to The Great Depression, but confidence (consumers, producers, and financial markets as well) will be shaken. Also, the clock will start ticking on real human suffering at the hands of elected officials, which is unacceptable.

The fiscal cliff talks remind me of a Simpsons episode (as most things in life do). In “Much Apu  About Nothing”, the citizens of Springfield face the catch 22 of government services (they must be paid for).

“Quimby: Are those morons getting dumber or just louder?

Assistant: [Takes a moment to check his clipboard] Dumber, sir.

Quimby: They want the bear patrol but they won’t pay taxes for it. This is a situation that calls for real leadership. [Opens the door to his office to confront the angry mob.]

People, your taxes are high because of illegal immigrants! “

It has already been highlighted that many conservative small government states are also the states which receive the most federal aid. People want the services the government provides, they simply do not want to pay for them (understandable, but not rational).

This has led the G.O.P. from being conservative on budget deficits to a “starve the beast” approach to governance. The party believes that large surpluses are bad for the economy, as they will lead to expansion of government services (which they believe will lead to inefficiencies in both the public and private sector). By cutting taxes, and bringing in less government  revenue, programs will have to be cut. This was the thinking behind the Bush-era tax cuts.

This is not how governance has worked in practice however. Social programs are very popular, and some are necessary for security, and economic growth and stability. Instead of cutting programs en lieu of lower taxes, these programs were financed by deficit spending. Add a few expensive wars and a bursting housing bubble and you get the “Great Recession” of 2007-2009.

The G.O.P., through bad policy and bad philosophy has gotten us into this mess. Now, they hope to extend the mess by continuing with their tried and failed rhetoric. It is time to wake up and smell the bullshit people. Even if you do not agree with gay marriage, gun control, or allowing illegal immigrants to stay in the country, you should believe in arithmetic and historical / empirical fact. The G.O.P. allowed itself to become controlled by a fringe group (which rhymes with the Pee Party), and continues to hold the U.S. economy hostage in order to protect the interests of a small group of wealthy supporters.

Do not be fooled by the scapegoats (“People, your taxes are high because of illegal immigrants!”), the problem and solution are both as clear as day.

It is amazing that the House of Representatives was able to maintain a G.O.P. majority after the ineptitude of the 2010-2012 congress. Perhaps we need to start teaching economics and political science to students at a younger age, because there is clearly a mismatch between how things work and how the majority of the country perceives how things work.

There is also the fact that the average American is much more willing to compromise than elected officials. Perhaps a national referendum (vote) should be allowed during times of political gridlock. Some countries allow a vote of confidence to dissolve an ineffective government and vote on a new one, maybe the U.S. congress needs a similar mechanism.

What do you guys think?