In a recent interview with Bloomberg (Simon’s commentary here), President Obama compared bank CEOs to athletes–a analogy favored by Goldman director Bill George, among others. However, Obama got the analogy right:
“The president, speaking in an interview, said in response to a question that while $17 million is ‘an extraordinary amount of money’ for Main Street, ‘there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.'”
That is, Obama is saying that some bankers are overpaid, just like some athletes are overpaid. Maybe he read my earlier post?
There, I wrote:
“So yes, bankers are like athletes. Their individual contributions are overrated relative to their supporting environments; they are overpaid; they are paid based on where they randomly fall in the probability distribution in a given year; and paying a lot for bankers is no guarantee that your bank will be successful in the future. Team sports, like banking, are an industry where the employees capture a large proportion of the revenues. And one with negative externalities, like upsurges in domestic violence around major sporting events. Neither one should be a model for our economy.”
More generally, Obama is trying to strike a balance: put pressure on Wall Street while not appearing to be wielding a pitchfork himself. This is why he felt compelled to say, “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.” At the same time he feels compelled to advocate for relatively mild reforms, such as paying bonuses in stock instead of cash, which is at best a partial solution. (Top Wall Street executives were already paid overwhelmingly in stock rather than cash before the financial crisis.)
I’m not sure why he needs to strike that balance. CEOs are overpaid, bankers are overpaid, and bank CEOs are overpaid. Why not just say it plainly?
By James Kwak
The Baseline Scenario 
because he soon might need a job?
and GS would be a pretty lucrative one.
I’m glad Obama was still able to find a few private-sector employees who are able to actually benefit from our “free-market” system. Presumably, these lucky few even get health care.
Reintroduce high marginal tax rates on income over $1 million. Problem solved.
Regarding what Obama said, “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.” This statement is supported by some new work of Dan Ariely. It was covered on “Marketplace” http://marketplace.publicradio.org/display/web/2010/02/08/pm-wealth-q/
One difference between high paid athletes and CEOs: The taxpayer isn’t obligated to bail out Tom Brady when his team misses the playoffs.
As even Krugman noted, athletes have not been known to take down the entire global financial system with poor performance. There is a colossal difference, James.
… but they might be called upon to fund a new stadium to optimize his “performance”.
Bankers are diverting the entire world financial wealth away from world society and world economy. We are talking about hundreds of trillions.
Just the aptly named Dimon manages 80 trillion dollars of derivatives, nearly double world GDP. Those derivatives do not correspond generally to anything real. No athlete can divert (= steal) that much money away from the rest of the world.
I wonder if Roman intellectual society had debates over whether there were differences between the hugely overpaid professional gladiators and the hugely overpaid Friends of the Emperor.
Perhaps the mere existence of this discussion thread is indicative of something?
“Dressed to kill, the average life span of a gladiator is 27 years and exceptional ones live past 30 years. A typical gladiator fights 3 times a year and each would last about 10-15 minutes. Only a lucky few survive more than 10 games. Freedom is even granted for those who can survive for 3 to 5 years.”
http://tinyurl.com/ydu5bch
Actually, taxpayers do pay the salaries of athletes, thanks to the massive handouts given to billionaire team owners by sycophantic municipal leaders.
A-Rod, for example, was twice the beneficiary of these types of swindles-first with the Texas Rangers, for whom George Bush (as managing partner and owner) screwed the taxpayers of Arlington, TX, and then with the NY Yankees, who robbed the taxpayers of NYC with the help of the Bloomberg administration.
You don’t happen to have equivalent statistics on the “life expectancy” of pro athletes or bank CEOs?
But there are two critical differences: 1) Athletes–even relatively mediocre athletes at the major league game–are so much more talented at what they do than most of us, including most CEOs and bankers, who owe their position to some combination of luck, greasy pole climbing talent, and (a distant third, I suspect) real executive and managerial talent. 2) More importantly, athletes sell their talent on an open market (imperfect to be sure) to extremely savvy buyers, whereas CEOs and bankers, in effect, pay themselves what they think they deserve.
We in general don’t begrudge them, but we also (surprisingly to Mr. Ariely and to myself) very widely across the entire political spectrum feel their current share of the pie is far more than any human being needs. That was the really interesting part of his findings.
obama is missing the fundamental differences; athletes perform a useful social function of entertaining while bankers performed a destructive function of wrecking the housing and stock market and then the economy.
I beg to differ. Just visit my hometown of Washington DC, and see how much the local taxpayers paid for the new Nationals baseball stadium. And the $600 million bailout wasn’t even put up for a vote! And what do we get, a last place team of bloated salaries whose recipients claim Florida as their residence to avoid paying the local income taxes. I am outraged but to no avail. Seems like government bailouts are the rage among professional sports.
Sorry James K., I utterly eject the analogy to athletes. If athletes ran the world, I might think differently.
Here’s another theory. The newest revised baseline scenario is out, and includes this material:
Isn’t the most likely interpretation of Obama’s otherwise delusional “savvy businessmen” remark that he’s sending the banksters a signal that he understands and accepts this dynamic?
Wow..hue swing and a miss James.
Now Im really wondering who the banker suckup is. Making millions as an individual baseball player is fine. It’s not a matter of winning the world series, it’ about selling out stadiums. Yes, taxpayers might take some hit on financing the stadium, but are less likely if a star can help you draw viewers, whether you win it all or not. And for the most part, when the team doesnt win, they dont sulk and go out and drain your 401k and pay themselves bonuses with it.
Tone deafness apparently knows no bounds.
“…there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.’””
Schilling’s endorsement of Brown still stings the Democrats I guess…
Overpaid athletes, once again.
Actually, I don’t think that many of them are overpaid. First of all, the really good ones, the mega-talents, people like Albert Pujols, Peyton Manning, or LeBron James, have such rarefied talent that they are likely worth more than their teams can actually afford.
At least they have talent. I laugh hysterically when I hear banks talking about how they need to retain “talent.” What talent? What substantive thing did this talent do for us lately? Aside from pillage the countryside screw as many ordinary people as they possibly could?
ayyy!!! there’s the rub!
“…screw as many ordinary people as they possibly could?”
I think Wilt Chamberlain got up to 12,000.
If you want to make another parallel, the extraordinary salaries of pro-athletes also leads them to take extraordinary risks (steroids) in the same way the salaries and bonuses of bankers encourage them to take outrageous risks in pursuit of higher profits.
The difference being, that pro-ball players might ending up paying the price in terms of their health while no one in the stands gets hurt. Not so with the bankers.
By the way, how much is Lloyd Blankfein and Ken Lewis’s autograph going for these day?
great point on the random probability distribution
A few differences I see, that I haven’t seen anyone else mention:
1. Professional athlete salaries are determined by a highly competitive market of competing teams. There is a lot more collusion than competition between Banks. As I see it, it is an us (the big banks) vs. them (everyone else) dynamic.
2. The performance of a pro athlete is subject to objective analysis. The performance of a money manager is more subject to subjective analysis, which leads to backroom deals and extralegal arrangements. Managers that can walk the walk often loose out to those that can only talk the talk.
3. The performance of a pro athlete is subject to almost daily feedback. The performance of a money manager is quarterly at most, and it is not uncommon to see risky positions rewarded short term, only to be reversed and then some years later, long after the bonus money has been spent. The inevitable result is that money managers take risky positions.
What’s the role of a bank in our economy? If these men represent success, things must be fine.
I would say then bankers are more like the managers or head coaches of pro sports teams. Once you are in the circle, it really does not matter how your team does, you will always have a job. Even more, they are like presidential advisors. Nothing succeeds quite like failure.
he’s on Goldman’s most wanted list with Larry and Rahm….smooth sailing for Goldman on the next finacial crisis
It’s pretty obvious that Obama is giving this interview in response to the recent fall in the stock market.
I say you take all the traders on Wall St. and send them over to Guantanamo. The market is perfectly ok without speculating. These guys are trigger happy all the time on arbitrage. If the Minister of Finance of any developed country so much as sneezes when he wakes up, then traders start selling off assets faster than Imelda Marcos can print cash. The world is safer without CDOs and SIVs. Traders do not even understand how they are priced. Investing for the short term is not acting responsibly.
re: “claim Florida as their residence to avoid paying the local income taxes”
Athletes (like anyone else) pay income taxes based on where their money is earned. So a Nats player pays DC income tax on half their salary, since they play half their games in DC, and pays income tax in other states and Ontario on a pro-rated basis according to the number of games played in each location.
yeah the whole pga/lpga golf millionaires live in florida. i really disrespect this. a lot of the tennis stars as well, the williams sisters, and europeans live in monaco or dubai. it’s accepted in this society. blatant off shore banking like.
depends if the athletes were doping.
the only similarities are the two corporate kleptocracy governing bodies. the IOC international olympic committee is like the IMF. get a dose of truth.
http://olympicresistance.net/
Um, no. DC, unlike similar cities that lie on the borders of two or more states does not tax income earned in DC unless the earner lives in DC. Congress has never — and likely will never — permit DC to impose a “commuter tax.” That is part of the reason that DC is revenue-starved (one of the other big reasons being that the federal government and federally chartered corporations, e.g., the Red Cross, are exempt from DC property tax).