Today's Sunday Dumbness: Star Economics

This is 50 million dollar man David Beckham - 50 million a year that is, "earning" his money by risking brain damage every day. He just signed with the L.A. Galaxy in a deal that should allow him to earn that amount each year for many years, in what is the galaxy's most pathetic soccer league. Though his best years as a player are behind him, his best years as an L.A. star are not. This is apparently why his personal salary, as Daniel Altman points out in today's New York Times business section, is as big as the payroll for the rest of the league.

We are now regularly confronted with individuals whose salaries higher than that of entire towns. Quite often our response is to fall on our knees and worship them, and then give them everything they want. This is of course a sign of our advanced mental degeneration, an index of a Rome-like empire on its last legs. Or is it? Luckily the business pages are there to save me from the agrarian populist in me that thinks Beckham is a vampire waiting to find his Buffy. Thank you NYT.

Daniel Altman tells us that there's this thing called "star economics," and it has a theory. The theory

is that an enterprise can’t distinguish itself just by maintaining a high average in the quality of its work force. It has to have a star, a breakaway figure, to attract the attention of customers and to inspire its own employees. Moreover, the received wisdom is that a business can’t do all the things that we now think are so important — “taking it to the next level,” “thinking outside the box” or “beating expectations” — without a star leading the way.

Another way of putting the theory is that people are sheep, including the people that run big businesses like pro sports teams. Or alternately - the agrarian populist in me of course loves the people - that the product is no good on its own, so needs some kind of hypnotic trick. This is of course the core objective of advertising: create a need that doesn't yet exist, or magnify a small need into a big one. So firms that make dubious products will now spend any amount of money making those products look beautiful and good.

The question is where does this money come from? The amounts are incredible - in 2006, the New York Yankees 40-player payroll was almost $195 million, or nearly 4 Beckhams. The sources are complicated, but they boil down to the consumer of the product, including the consumers of the cars and beers that advertise and of the products of the corporations whose luxury boxes and other expenditures supply a growing slice of pro sports teams' revenues. Nobody puts a gun to our heads to force us to buy this stuff.

The problem for me is that it's impossible for anyone to tell how it works by reading articles even in more or less the best newspaper in the country (with undoubtedly the best business section, by far). Here's the kind of crud you have to wade through (Altman again).

The economy certainly seems to be producing more stars. The highest-paid Americans are leaving the rest of the work force further behind almost every year. A combination of factors is behind the trend: the huge opportunities offered by globalization, the sudden popularity of hedge funds, the heady climate of innovation in high technology, the enormous pay packages offered to top executives, and more. The economy creates stars. And the more that employers chase them, the greater their radiance.

Yet one could argue that in corporate America, at least, the heyday of the star system has already passed. Even Jack Welch, the nation’s favorite management guru, now has his critics.

As an explanation, this is dead on arrival. It can't even tell the difference between a cause and an effect. Executive pay is not, for example, an effect of globalization, but an effect of an elite culture whose tiny membership compete to stay ahead of each other. Globalization as we know it, driven by companies seeking the cheapest wages in the world and global reach, is in part the effect of absurd executive salaries. It's more complicated than that, sure, but you'll never figure it out from the newspapers. Stars are produced, globalization and hedge funds appear, engineers bring forth new thoughts at dawn, crows fly east before the gathering storm, blah blah blah, and then "the economy creates stars." Actually, no.

The economy doesn't create stars, people do. In particular, people in power with bad policies. But why go into it: who's paying attention? We live in a culture that is completely intimidated by money and prone to superstition and hero-worship. Does the U.S. really believe in democracy? Can you have democracy in a "star economy"? Can you have self-governance when some people make 1000 times more than the next person?? Jefferson would have thought we are insane.

Let's count the way the French do, in terms of the time it takes for one person to earn as much as the next. If you make, say $50,000 this year, you are above the median income in the United States - middle-class we might say. To earn Beckham's annual $50 million, you would have had to start working one thousand years ago - around, say, 1066, at the Battle of Hastings when the Normans invaded Britain. And that's just one year of Beckham. To earn two years of Beckham, you would need to have started to work when Jesus was born.

Too bad you can't bend it like Beckham.

By the way, the NYT reported a few days earlier that the cost of immunizing all the world's children against measles, whooping cough, tetanus, tuberculosis, polio and diphtheria, is $600 million - or a little more than 10 Beckhams.