What Stagnating Wages and Stagnating NFL Offenses Have in Common

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.