Here’s a paragraph from an e-mail that I received last night:
I like Café Hayek. But you’re too uncritical of market outcomes. Markets are not perfect. One fault with them is skewed salaries. Why does Carlos Beltran  [the baseball player who just signed a $119-million contract with the New York Mets] get paid so much more than you, professor? You contribute more good to society than he does, but I know that you aren’t paid a salary as large as his…. I’m not complaining about income inequality. I’m complaining about an injustice. Ball players get paid tens of millions of dollars while scholars and educators get paid much much less. That makes no sense.
Fair question. Why are Carlos Beltran and other superstar athletes and entertainers paid so very much more than dedicated scholars, researchers, educators, even physicians?
The reason this sort of question resonates with so many people is that the very asking of it seems to indict – to condemn – the market. After all, who doubts that scientific research, teaching, and medical-care provision are worth much more to society than entertaining the masses with athletic prowess and good looks? And yet athletes and entertainers are paid fortunes while researchers and teachers are not.
The resolution of this apparent paradox is the margin .
Here’s what I mean: Let’s all agree (because it’s likely true) that if all collegiate education were wiped out today, in a single stroke, the loss to society would be far larger than the loss would be if, instead, all professional baseball were wiped out in a single stroke.
But thankfully, such situations are not those confronting us. What does confront us is a situation in which many high-quality and accomplished or promising scholars are now serving the market by teaching and researching. Many others, who are working elsewhere, are willing to move into teaching and research if salaries there were just a bit higher.
Therefore, when George Mason University determines the maximum annual salary that it offers to pay to me, it figures out (1) how much value I will add to the university (given the large number of people already teaching and researching here), and (2) how much it must pay someone else to do my job. Because not filling my job will not bring university education to a halt – in fact, the effect would be little noticed – the value that anyone in my job adds is far, far less than the value of university teaching and research on the whole.
Moreover, because many other people with my skills are willing to work at my job, GMU will (sensibly) refuse to pay me more than it would have to pay another equally qualified candidate for my job.
The economics of professional sports is the same.
The total value to society of professional sports is higher than is the pay that any one superstar player receives. The value to any team that a visible, popular, skilled superstar adds is in the millions. In part this is because the skills necessary to perform at the level of a Carlos Beltran or a Peyton Manning are far rarer than are the skills needed to perform as a even a superstar teacher or researcher. (Isn’t this fact worthy of long and loud applause?!)
Some people will object that Americans ‘over-value’ professional sports. That might be, but it’s a value judgment – and it’s one that I suspect is arrived at through faulty reasoning. The total value that Americans place on professional sports is impossible to determine by looking at the salaries of professional athletes. These salaries reveal only the value to each team of each athlete. Likewise, it’s a gross mistake to conclude that, because professional athletes are paid more than even Nobel Prize winning scientists, society values sports more than it values research and education.
Finally, isn’t it wonderful that we are so very wealthy – that the masses of Americans earn such high incomes and have so much leisure – that as consumers we support very lucrative enterprises that entertain us so thoroughly?