Management by Baseball

The 9/29 issue of BusinessWeek features a column by Mark Hyman yclept Baseball's Playing Field Gets Even Less Level. Typical economist fluff, and quite a Sizzler lunchtime buffet of random tidbits. (I can't link you to it; BusinessWeek's site shows links, when you click on one, it tells you you can have free access but first you have to register, once you've registered, it tells you you have to be a subscriber. How 2001, eh?).

I won't even excerpt it (no point) but I will summarize his points paragraph by paragraph.

1) The Commissioner is happy with how competitive this season has been.

2) It wasn't the usual Selig hogwash; half the teams had a prayer with two weeks to go.

3) It's meant attendance is up, especially for the least-populated stadia (Florida +47%, KC +27%, Montr�al/San Juan +21%).

4 & 5) But the good feelings won't last because the dollar spread between highest- and lowest-payroll teams expanded, and 5 of the 8 lowest-payroll teams have actually cut payroll.

6) Fans and pundits didn't expect that in the wake of last year's labor deal with its luxury tax and revenue redistribution (Doug Pappas' short take here).

7) The taxing scheme hasn't affected the team it was most-targeted against (yes, the Yankees). But the big payroll Dodgers wouldn't make a big player move in the stretch though it might have gotten them into the playoffs.

8) While revenue-sharing is redistributing $265 MM, the poorer recipients aren't spending their way to the top; management says teams are investing in player development (true for some, like Milwaukee & Pittsburgh), an agent points out owners are pocketing the money (true for some, Tampa Bay & K.C.)

9) So if the revenue-sharing isn't responsible for the competitive parity, what is? Better player evaluation on the part of the Royals, Expos, Marlins & A's.

Conclusion slug) Don't count on this kind of competition next year.

The headline and conclusion don't match the content of the article (while I'm grumpy about BusinessWeek's foppish sniffy approach to registration, on the news side they usually are the class act of the business weeklies). There's a red plastic five-gallon bucket o' observations, some of them worthwhile, there are some numbers thrown in in an attempt to enhance credibility, and no essential understanding of process or the way real markets work outside academia. There's a focus on payroll size instead of success, a side-issue instead of a result (yes, while on average, payroll size is a somewhat positive indicator of wins, in any given case the richer may or may not win more games)...in short, a typical economist's waste of oxygen. Eighty-five percent of economists' work is a waste of oxygen.

Baseball's new taxing schemes have changed team behaviors. Some of those changes have led to short-term performance up-ticks. Some teams have made longer-term investments or are building reserves. Some are just pocketing the money and fattening ownership's bottom line.

Because there are only 30 organizations in baseball, and performance in baseball is measureable in wins & losses, non-baseball organizations have a lot of economic lessons to learn from it.

One example: Tax cuts. If you cut people's taxes in an economy most people view as "down", some will invest in ways that boost the economy, some will invest for the long-term and not boost the economy, and some people will just put the money in savings and not boost the economy a whit, an exact parallel to the behaviors above.

And no taxing system achieves the end goals right away because of Rigali's Law: The more money involved in an investment, the less decision weight comes from rationality and the more weight comes from emotion. Teams' behaviors changed this year, and next year, teams that didn't get what they wanted out of their attempts to adapt will change again, while those satisfied with their changes will probably change less. Some teams will find seams in the rules, some will be victimized by unforeseen consequences. That's reality, that's a stochastic system, and it doesn't gibe well with economists who are Communists or Free Marketeers, the binary-twin cults that refuse to recognize the stochastic trends in behavior and the benefits and limits of controls.