Thursday, July 12, 2012

Michael Jordan and inequality

In an op-ed for the WSJ, recent Harvard Law grad Matthew Schoenfeld uses a Michael Jordan basketball analogy to demonstrate why inequality itself is not bad. I have made this statement before on this blog, but his NBA analogy is clever. From the article:

" 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."

(FYI, the Gini coefficient is a measure of inequality, with 0 being perfect equality and 1 being complete inequality. If interested you can find more info here.)

 Mr. Schoenfeld did not use real income, but assuming a 4% rate of inflation it would take roughly 18 years for prices to double so even 3.7 (500,000/135,000) times more nominal income over 12 years is certainly an increase in real income.

Thus every player on the Bulls, even the lowest paid player, saw an increase in their real purchasing power due to MJ's greatness.

Mr. Schoenfeld closes the article with:

"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."

I completely agree. We need to focus on improving our education system (vouchers!) and growing the economy, not senselessly worrying about how much more the top has than the bottom.

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