What Stagnating Wages and Stagnating NFL Offenses Have in Common

Plus, checking back in with labor unions and Professor Wolfers

Recent editions of Understanding America have asked “Do Labor Leaders Not Know What Workers Want, or Do They Just Not Care?” and declared ourselves “Against Justin Wolfers-ism.” Well, we now have an answer from the labor leaders. And more from Professor Wolfers to stand against. But first…

THE RINGER FANTASY FOOTBALL SHOW TACKLES CONSERVATIVE ECONOMICS

The Ringer Fantasy Football Show is my favorite podcast. Fair warning, it’s lovably immature and downright goofy; definitely not safe for work. But the guys are whip-smart, the conversations wide-ranging, and so I was especially delighted when last week’s Wednesday episode veered directly into the analogy I always like to use when explaining the need for public policy to shape productive markets.

As I first wrote five years ago in a short essay for City Journal, titled “Our James Harden Economy”:

Professional sports offer a rules-based system for competition, within which players are free to pursue whatever strategies and tactics they believe will yield victory. In this sense, sports resemble the market economy, which guarantees participants the freedom to pursue success by the means that they deem most effective, within a regulated system. Sports and markets provide a degree of creative free play—a kind of contained chaos—that generates often-surprising outcomes. Just as competition among technically superb athletes can be uniquely exciting, market economies—in rewarding brilliance, diligence, and innovation—have proved uniquely capable of generating broad societal benefits, especially when compared with centrally planned economies that try to script results, in the manner of, say, WrestleMania.

Yet sports and markets also share a common vulnerability: a general tendency exists for competitive strategy, through continual refinement, to evolve in ways unpredictable to the game’s creators and fundamentally inconsistent with the game’s structure and objectives.

The quintessential example, back in 2019, was James Harden, point guard for the Houston Rockets, who was the prominent pioneer of a new style of basketball promoted by Rockets general manager Daryl Morey that sought to optimize offensive efficiency by relying almost exclusively on layups and three-point shots. The Rockets became one of the NBA’s best teams, Harden won the league’s Most Valuable Player award, and fans generally hated it. In the market economy, by analogy, one might think of the private equity industry’s leveraged buyouts. No question, some of America’s most talented business leaders have found extraordinarily effective ways to earn a great deal of money for themselves and their investors by shifting risk on to workers and extracting value from their firms. But the broader public is not enjoying the show.

The fantasy football guys had an even better and more contemporary example, lamenting how the NFL’s salary structure creates a perverse incentive for teams to take excessive risks by shoving rookie quarterbacks into their lineups instead of helping them develop methodically.

What we’re seeing in the NFL with some of these rookie quarterbacks is the league itself is now overleveraged on these guys. And especially first round picks where you have this intense need from the fan base and probably internally in the organization to play these guys way too early and then basically it’s boom or bust. And it sort of reminds me a little bit of what happened with the freeze and threes Morey-Ball stuff in basketball where someone had a good idea, they exploited it, and when everybody started doing it you were like I get it and I know that there’s a statistical backing for this idea but it kind of just looks bad…

The proof is in the pudding. Offense is down dramatically this year. And it’s down dramatically from last year, which was also a really bad year for offense. And so the NFL offenses are just trending way, way down. Field goals are up at all-time levels. The NFL is kicking more field goals than ever. Who wants that?

The actual problem here is a fascinating one, and reminiscent of how the dysfunctional venture capital industry’s quest for “unicorn” software companies, which can grow quickly to massive valuations with minimal capital investment, has stifled innovation and productivity. In the 2000s, the top draft picks at quarterback had the leverage to extract huge guaranteed contracts, which made drafting one an extraordinarily risky proposition. So the league revised its salary cap to limit the contract value a rookie can receive. Top veteran quarterbacks can earn upwards of $50 million per year, but rookies sign four-year contracts worth $5–10 million per year. The most valuable asset a team can have is a quarterback who plays like a veteran star but only gets paid one-tenth as much.

So teams have no interest in gradually bringing along a young quarterback, even if doing so would maximize his chances of a long and successful career. Instead they, quite rationally, throw the young guns into the deep end of the NFL pool, hoping that their guy figures out how to swim, even as they know most won’t. Each team maximizes its slender chance of making the Super Bowl, even as they collectively put a vastly inferior product on the field. As the guys noted on the podcast:

This is happening in every sport. Basketball had the identity crisis with threes and layups where you got guys passing up open layups to shoot threes and the sport just looks weird to the point where people are criticizing Kevin Durant for taking mid-range jumpers. Baseball, the nerds won and it’s more efficient than ever… Exploiting the analytics like it’s a video game ruined baseball to the point where they got them to add a clock… I don’t know what you do with the NFL, but… if we’re incentivizing teams to just throw quarterbacks out, the product is way worse.

This should sound familiar to anyone who has observed the techniques most often used in our market economy to maximize profit—techniques that have drifted ever further from creating value and improving productivity. Because, and this is the key point, there’s no reason to expect that those activities that generate the most profit are also the ones that are socially valuable. Just as there’s no reason to expect that those strategies key to winning an athletic competition are also the ones that fans want to watch. Indeed, there’s no shortage of sports that are wildly uninteresting and fail to ever command a significant following.

Rules matter. Rules shape the playing field on which the competition takes place, and good ones foster the productive competition that creates value for everyone. The competitors and the rulemakers are locked in a perpetual game of cat-and-mouse, with the former always looking for a new competitive edge regardless of what that might do to the quality of the game, and the latter always looking to respond by updating the rules to foreclose negative innovations and encourage positive ones.

Fundamentalists ignore this reality and try instead to insist that some timeless and immutable tradition defines the game and must remain untouched. Far from preserving the game, they ensure only that the people will lose interest and leave it behind.

DON’T ASK, DON’T TELL

A few weeks ago, I asked “Do Labor Leaders Not Know What Workers Want, or Do They Just Not Care?” Workers overwhelmingly say they want unions out of politics, but labor leaders seem not to have gotten the message, and indeed insist on pursuing a progressive agenda that bears no relationship to the views of their members.

In a kerfuffle on Twitter with the UAW’s communications director, I suggested that unions should poll their members, release the results, act in accordance with those wishes, and thus maximize their legitimacy and clout. The responses indicated that labor leaders see themselves more like celebrity athletes who should say whatever they want, or like think-tank fellows who should not allow themselves to be influenced by the people paying their salaries.

So imagine my delight when the Teamsters went ahead and released their internal polling last week, in support of their decision not to endorse in the presidential race. Teamsters support Donald Trump over Kamala Harris by more than 25 points, in case you were wondering. Is that margin representative of other private-sector, industrial unions? I’m going to guess it is. And the media and political analysts should, too, until other unions conduct surveys of their own and release results showing anything else.

But rather than soul-searching, the Teamsters’ move has engendered only indignation on the Left. Steven Greenhouse, longtime labor reporter for the New York Times, took to Slate to decry “The Gigantic Failure That Led to the Teamsters’ Decision Not to Endorse Harris or Trump.” According to Greenhouse, “it’s certainly understandable why a union’s president and board would hesitate to endorse a candidate when a majority of members apparently support someone else,” but “to my mind, that internal survey showing so many Teamsters backing Trump highlighted something else: The union’s leadership must have done a dreadful job informing and educating rank-and-file members.”

Teamsters members should support Greenhouse’s preferred candidate and, if they don’t, that must be because they are wrong-thinking. The union’s job is not to represent those members but to reeducate them. For a glimpse at how that might go, look no further than the UAW’s own endorsement of Harris, which specifically cited her vote against the Trump-negotiated U.S.-Mexico-Canada Agreement (USMCA) to replace NAFTA. The renegotiation indisputably helped American workers, in the automotive sector especially. But it was done by Trump, so the UAW will say it “hurt the American worker.” To answer my own questions, yes, labor leaders do know what workers want, and no, they do not care.

Event Note: I’ll be speaking about all this at a Federalist Society webinar this afternoon at 3pm ET: Conservative Populism and the Future of the Right’s Relationship with Organized Labor. Come listen in!

THE SIMPLE NUANCE OF JUSTIN WOLFERS

Last week’s offering, “Against Justin Wolfers-ism,” used the sub-par analysis of the eponymous University of Michigan professor to illustrate the unfortunate politicization of economics. At issue were tariffs on washing machines, and Wolfers had created a chart purporting to show that a 9% tariff had led to a 9% price increase, cutting off the data just before the price returned to its pre-tariff level and erased his point entirely.

In response, Wolfers posted another chart, extending the price data all the way to today and purporting to show that the “tariff expired, cutting the tariff rate by about 9%-pts. And then the price of laundry equipment fell by about 9%.”

“I made you a chart that links the tariff with the price increase,” wrote Wolfers. “Here, it's simple: Remove the tariff, and the price increase goes away.”

But the chart showed the laundry machine prices falling by 35%-pts compared to the other-appliance control, not 9%-pts. The rate of decline was no faster around removal of the tariff than longer beforehand or longer afterward. Confronted by these facts, Wolfers replied, “you're either confused about when the washing machine tariffs expired (early 2023), or you're doing a whole different kind of math.” Realizing that it was, in fact, just the regular kind of math, he then suggested that the entire price decline might be a result of the tariff.

“So your argument is that removal of a 9% tariff in February 2023 led to a gradual 35% decline in laundry machine prices beginning long before the tariff was removed and continuing long after?” I asked, genuinely perplexed.

His final reply concludes the discussion nicely: “I drew a graph and invited readers to draw careful and nuanced conclusions from it. When I make inferences, I tend to note that data are noisy, that there are other things going on…” How far he had come, in just an hour, from “I made you a chart that links the tariff with the price increase. Here, it's simple: Remove the tariff, and the price increase goes away.”

That distance is the one economists need to traverse if they are to participate usefully in deliberations over public policy.

Oren