Stop the Presses — Two Economists Agree

Posted on December 16, 2007 by


If you put all the economists in the world end to end, you still couldn’t reach a conclusion.  This joke (old yet still good) highlights a basic characteristic of economics.  Economists tend not to agree.  So when we see two economists independently telling the same story, well, that’s news.  On Saturday I noted a column by JC Bradbury – appearing in the New York Times – which advocated  a novel solution to the supposed steroid problem in baseball.  Soon after – and I am assured independently – Steve Walters (a frequent guest blogger at the WoW Journal) submitted the following column to be posted in this forum.  Yes, as you will see, Bradbury and Walters reach similar conclusions.  So I guess these two economists must be on to something.

For those who forget, apart from his day job as a professor of economics at Loyola College in Maryland, Steve has served as a consultant to two MLB teams and writes occasional statistical analysis features for The Sporting News. He grew up in Salem, Massachusetts, remains a citizen of Red Sox Nation, and counts as his most cherished piece of sports memorabilia an autographed copy of MBA: Management by Auerbach.  And here are his thoughts on steroids in baseball:

Fixing Baseball’s Steroid Problem

Economists like to solve problems by harnessing incentives.  Our recipe is usually very simple:  Figure out who has the strongest incentive to make the world a better place, and then try to arrange things so they can do so.

If the Mitchell Report on steroids in baseball is any guide, lawyers like to address problems by:

–Billing lots of hours spent talking to people, some of whom (with luck) will be stool pigeons;

–Billing lots of hours spent writing up a long report that fuels gossip and generates publicity for the firm;

–Making sober-sounding recommendations that, if adopted, will cause enough squabbling to enable future generations of lawyers to bill lots of hours.

And if judged by its potential to make the world a better place, the 409-page Mitchell Report may be the worst piece of work by a lawyer since Congress handed Kenneth Starr an unlimited budget and subpoena power.  All for a reported $20 million ($50,000 a page-almost as much as The Wage of Wins authors got!).  

How has the Distinguished Gentleman from Maine managed to do so little good with so much time and money?  By ignoring incentives-both as a source of the problem, and as a possible solution.

Let’s start by understanding the nature of a player’s incentive to stick a needle into his butt (or navel-who knew?) and inject chemicals of questionable quality and unknown long-term effect.  In econ-speak, what we have here is a “positional externality” problem:  every player wants to improve his position, relative to all other players, in order to capture the huge rewards that go to big-leaguers.  But when a player resorts to illegal, chemical means to do so, it puts pressure on everyone else (those “external” to the initial decision to cheat) to do similarly unwise and destructive things.

At any point in time, there are 750 ballplayers in the big leagues. They stay in 4-star hotels, bask in the adulation of millions of fans, and earn salaries ranging from fabulous (the current minimum is $390,000) to incomprehensible (A-Rod, we’re looking at you).  This means that the 751st best player in the world, who rides buses between Super 8 motels in places like Syracuse and Scranton, will be tempted to “do whatever it takes” to become 750th best.  Which puts pressure on that guy, and so on up the chain.  To preserve his relative position and the rewards that go with it, every player will be tempted to cheat.

This is easy to see.  The next point, however, seems to have eluded the Lords of Baseball:  This positional externality is mainly a problem for the players themselves.

Sure, baseball owners and their Commissioner must “protect the integrity of the National Pastime.”  At the least, cheating might pose marketing problems.  More importantly, it’s a moral issue.

But as economist J.C. Bradbury pointed out at his splendid Sabernomics blog, it does not appear that fans are much repulsed or attracted by players bulked-up on ‘roids or HGH.

We grumble, but we watch.  We want to see the best 750 players; not many of us turn away because some might have gotten into that group (or improved their standing in it) via chemistry.

In other words, the “external costs” here seem to fall not on owners but mainly on players.  They’re the ones at risk for shrinking testicles, organ damage, and maybe an early exit, Lyle Alzado-style.  And for every dishonest player, an honest one loses his job or considerable money.

So should the owners ignore the problem?  Not at all.  But they should recognize that their moral obligation to do right by fans and players does not require them to be the head honchos in this effort.

If players bear most of the costs of the steroid problem, they have the greatest incentive to get a handle on it. The best players in a steroid-free world would be the same ones in a world where everyone juices-but all would be healthier and could stop writing checks to shady characters peddling vials of… who knows.  And the best players have a strong incentive to prevent lesser talents from using illegal means to leap-frog them into The Show or get a bigger contract.

Luckily, the players already have an organization that could and should want to minimize this risky and wasteful conduct-their union, the MLBPA.

Unfortunately, the Lords of Baseball have maneuvered the players’ union into a position where it has not just dragged its feet, but actively resisted attempts to mitigate the problem.  The owners did so by defining the integrity of the game as exclusively their property and assuming they alone could police players’ conduct; their ham-handed initiatives have bred mistrust by players and delayed progress for years.  Indeed, the Mitchell Report itself-with its casual use of hearsay and its promotion of a sinister-sounding bureaucracy (a new “Department of Investigations”) and snooping (e.g., intercepting packages shipped to players)-promises to further set back labor relations, as my friend Ken Rosenthal has eloquently stated.

But the union is the entity best situated to do the policing here.  The owners should not see the MLBPA as their adversary in this case. Indeed, they should toss the hot potato that is performance-enhancing drugs to the union and say “this belongs to you.  You speak for the 750 best players in the world.  Figure out how to keep ‘em healthy.  Keep cheaters from stealing your members’ jobs or costing them money.  We’re out-except to pay the bills for any testing or bureaucracy you decide to use (since, after all, we want you to have an incentive to do this right and not skimp).”

If the MLBPA owned this issue, I’m pretty sure that use of PEDs would go down farther and faster than it will with Mr. Mitchell’s Inquisition Squad.  Labor economists have identified a host of salutary effects of unions in giving workers a collective voice that solves trust issues and enhances job performance.  I’d bet that once players knew that membership in their fraternity was contingent on honest conduct and once they trusted the policing mechanism, it would be significantly harder to cheat.

But I’ve prattled on long enough.  Time to total up my hours and send a bill to the Commish.

– Steve Walters

Posted in: Baseball Stories