Major League Tradeoffs
Would you work one year for $1 million? Before you answer, you should know that your work would be playing Major League Baseball for the reigning champion San Francisco Giants. Most people would leap at the chance both for the money and the experience, but not Edgar Renteria. Renteria mostly played off the bench this season, but in years past he was a premier defensive shortstop and handy with the bat, hitting the walk-off single in game seven of the 1997 World Series for the Florida Marlins. (He returned to the Fall Classic as a Cardinal in 2004, where he also initiated the final play of the series — a ground out to finish off the awful four game sweep by the Red Sox — but that incident was not indicative of the quality of his play that year or in that series.) Despite struggling in the regular season this year, Renteria bounced back in the World Series with two home runs and earned the series MVP award, which might be why he was expecting a bit more than $1 million:
“To play for a million dollars, I’d rather stay with my private business and share more time with my family,” he said. “Thank God I’m well off financially and my money is well invested.”
Now, many people will look at this and see an example of an overpaid sports star, greedily seeking an ever larger pile of money, but I think it nicely illustrates two economic concepts: diminishing marginal utility and opportunity cost. Playing Major League Baseball is a major time commitment (162 regular season games per year, 81 of them on the road), and, according to his statement, his next-most-valued use of that time is spending time with his family in Colombia, so giving up family time was his opportunity cost to earn those huge salaries. However, Renteria has earned many millions of dollars over the years, and apparently he has invested it wisely, so each additional $1 million is worth far less to him than the first million he made. As his baseball salary dwindles, the amount of time he has left to spend with his family is also shrinking, so that good is becoming ever more valuable. Whereas $1 million was easily worth the opportunity cost for a childless and dramatically poorer Renteria in the early nineties, it’s simply not worth the effort now that he is financially comfortable with a family to tend to.
In a similar fashion, income taxes artificially encourage people with the means to opt out of the labor market to consume more leisure. There’s nothing wrong with that choice, but, as a consequence, society will be a little poorer without the wealth that this labor would have created. Consequently, we should minimize the distortionary effects of taxes by keeping them low and let markets signal what people need and want through prices.
