Alex Rodriguez is a genuine baseball prodigy. In his junior year of High School, Rodriguez was selected as both the USA Baseball Junior Player of the Year and as Gatorade’s National Baseball Student Athlete of the Year. He was the first high school player in history to try out for team USA. Rodriguez was signed by the Seattle Mariners immediately after graduating high school, and has played major league baseball ever since.
Today, Rodriguez is the highest-paid baseball player in the world. He earns around $30 million a year, and is worth about half a billion dollars. To put this in perspective, Rodriguez earns about 750 times as much as the average high school teacher. At first glance, however, perhaps Rodriguez deserves this handsome compensation. In contrast to the article I wrote last week, Rodriguez did not come from a wealthy family. Though some of skills may be due to an arbitrary endowment of natural talent, he had the same opportunity as almost every other kid to refine his natural talents and practice playing baseball.
Moreover, millions of people consent to pay money to see Rodriguez play. There’s nothing coercive or opaque about Rodriguez’s earnings. People pay good money to see Rodriguez and the New York Yankees. In other words, the market distribution of Rodriguez’s talent was almost entirely the result of choices in a free market.
But even so, is Rodriguez’s success entirely his own? He benefitted from competent coaches, agents, and other players. He benefitted from personal trainers, health care professionals, and attorneys. On a broader level, Rodriguez benefitted from a society with infrastructure and public services that allowed him to succeed. Police officers and Firefighters helped to protect the neighborhoods and schools were Rodriguez grew up. Public roads helped to ensure that Rodriguez could make it to baseball practice and training. Simply living in the United States benefitted Rodriguez. The bottom line is that we all bought into Rodriguez’s success as a baseball player. While his personal talent is arguably the most important factor in determining in his success, it is by no means the only factor.
Our society establishes a reciprocal bargain between the government and citizenry. Citizens pay taxes, and in exchange the government provides services. Everyone benefits from these services. Education, transportation, and emergency services are just a few of the things that allow people to be wildly successful in the United States. People who are extremely wealthy owe something to the society that facilitated their rise to riches. When the idea of communal success is coupled with the concept of arbitrary advantage (discussed in my previous article), we see there is warrant to tax the wealthy more than other individuals. Innovation never occurs in a vacuum, and all people ought to benefit from innovation and success that they contributed to.
The United States is characterized by what economist Robert H. Frank calls “winner-take-all markets.” In these markets, a large number of people viciously compete for just a few high-paying positions. Professional sports, Wall Street, computer programming, and the financial sector are all examples of winner-take-all markets. Fierce competition fosters an increased propensity for success. However, competition necessarily incorporates different economic agents, who all contribute to the success of the winner. As such, the winner’s earning are not entirely his own. He owes something to the environment around him that allowed for the success he enjoys.
There are extremely wealthy people that realize this. During a recent interview on the Colbert Report, Melinda Gates (the wife of Bill Gates, and co-founder of the Bill and Melinda Gates Foundation discussed with Colbert why she and her husband donate so much money to public education in the United States.
She recognized that public education helped her husband become the successful software tycoon that he is. Without good schools, Bill Gates would have never acquired the skills necessary to program computes, negotiate trade agreements, or prudently invest his earnings. As such, Gates acknowledges that his success is not entirely his own. He owes something to the teachers that helped him learn, the police officers and soldiers that made him feel safe, and the firefighters that helped ensure his safety.
Almost all of the wealthy people in our country owe some measure of their success to their community. In fact, they owe more to their community than the people who are less well off. As such, it is justified to tax them more than poor individuals. Despite this, platitudes run amok in the political arena. Taxes are discussed as being “punishment” or “theft.” Such characterizations perpetuate animosity between the rich and rest, further exacerbating the idea of “class warfare.” Taxes need to be characterized for what they are: a bargain that benefits everyone, and a mechanism to equalize opportunity for everyone participating in the market.