Applaud All Market-Made Millions – Econlib

During the NFL offseason, star running back Saquon Barkley inked a stunning $40 million contract extension with the Philadelphia Eagles. And truly, who could argue against it? After rushing for 2,005 yards last season and playing a pivotal role in securing yet another Lombardi Trophy for Philadelphia, he’s more than earned his keep. I’m certainly not the only one to recognize this. As one sports writer aptly noted , “He deserves it…Barkley is easy to root for, not only because he can jump backward over people, but also because he works hard, he’s kind, and he’s a great teammate.” 

It’s rare to find anyone challenging the notion that it’s inappropriate for a football player—or any entertainer—to earn tens of millions of dollars. Yet, if a CEO pulls in a similar figure, suddenly it’s deemed to be a manifestation of greed or a symptom of the excesses of late-stage capitalism.

Even when fans voice concerns about the exorbitant salaries of those playing games for a living, the outcry lacks the venom that typically accompanies critiques of corporate executives. Why the discrepancy in our reactions to the wealth amassed by entertainers versus that of business leaders?

I have a couple of theories: (1) the value generated by executives is often obscured and (2) there’s a suspicion that they accumulate wealth by exploiting their employees. However, both points miss the crux of the matter. Ultimately, what justifies compensation is the value an individual brings to the table. Therefore, a CEO is no less deserving of their market-driven wealth than a standout athlete.

Let’s delve into these theories regarding our varying responses to high salaries. First, consider athletes and entertainers; the value they create is conspicuous. One can literally witness Barkley leap over defenders with grace. His exceptional talents stand out, especially when compared to other running backs in the league. The link between Barkley’s contributions to his team’s success and his earnings is starkly evident. Similarly, Taylor Swift’s concerts are a sight to behold, with packed stadiums and ecstatic fans. Even if her music isn’t your cup of tea, it’s clear why she has reached billionaire status.

In contrast, the contributions of a CEO are enshrined in spreadsheets and boardroom discussions. If they make astute decisions, the company flourishes—but this growth is not as visually apparent as Barkley’s on-field prowess. There’s no highlight reel showcasing efficient logistics or superior management.

Just because the value generated by executives is less visible doesn’t negate its existence. Consider this analogy: great coaches significantly influence their teams’ victories, despite not being on the field. They strategize plays, inspire players, hire support staff, cultivate a positive culture, and guide draft picks. A CEO operates similarly. The CEO of Starbucks isn’t physically serving coffee, yet they orchestrate the processes and systems that allow millions to enjoy their morning lattes. The invisibility of one’s contribution doesn’t diminish its significance.

Secondly, people often harbor skepticism towards wealth generated through employment. It’s perfectly acceptable to amass riches from ticket sales to your performances—those are simply customers choosing to spend. Yet, many argue that CEOs accumulate wealth at the expense of their workers, who are truly the ones generating value. This perspective embodies the belief that employers exploit their employees.

However, an employer exploits their employees no more than Saquon Barkley or Taylor Swift exploits their fans. The relationship that entertainers forge with their audience is, in many respects, economically and ethically analogous to that between employers and employees: both are founded on voluntary agreements that individuals enter into, anticipating mutual benefit.

Milton Friedman, a notable economist, once articulated, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” Essentially, Taylor Swift proposes to her fans: “I’ll perform for you, but you’ll need to buy a ticket.” If someone isn’t a fan, they can simply decline the offer without consequence. Conversely, a devoted fan likely believes that purchasing a ticket will enhance their experience and thus accepts the deal.

Employers extend a similar proposition to potential employees: “I’ll pay you a set wage if you’ll serve coffee to my customers.” If the job isn’t appealing, there’s no obligation to accept, and the individual remains no worse off for the offer. However, if they see value in earning money as a barista, they’ll likely take the position.

One might counter that employers are more exploitative than entertainers, given that unemployment is arguably a more dire situation than a lack of entertainment. This viewpoint, while worth consideration, is difficult to justify if the employer isn’t to blame for the worker’s unfavorable circumstances. The employer who extends a job offer is merely the individual who made the best proposal, as evidenced by the worker’s acceptance over other options. Thus, if criticism is warranted, it should be directed at all the employers who presented less appealing offers.

The crux of the matter is this: just as entertainers draw audiences by providing value, so too do executives attract employees by offering something of worth. Both thrive by enhancing the lives of others. Therefore, the wealth generated by a CEO is no less commendable than that of Saquon Barkley, even if it sometimes requires a bit more effort to recognize.