The NFL's Los Angeles Packers?

For those that follow the National Football League you may be aware that the league has an interesting way to dealing with the salary of their players. The story is that the two pronged attack of heavy revenue sharing and capping your costs (in the form of a hard salary cap) distributes talent to every team equally (in theory at least).

Economists are skeptical of the motives of the owners of the leagues. The correlation between payroll and winning is not quite as strong as many would expect with the exception of the extremes. So we hypothesize that it may be the owners attempt to keep costs down that is driving the cap issue. But leaving that issue alone right now the current news of salary being uncapped in 2010 is a subtle, yet very important potential structural change inside the NFL. The implications could be very interesting for the future of the NFL.

What appears to be happening is that the large market teams (Dallas, Washington, etc…) do not want to be a part of a heavy revenue sharing/hard salary cap system any longer (if you were always making more money would you want to always share it?). They appear to be getting in the way of an agreement between the owners that would result in the uncapped season. What follows is anyone’s guess, but keep in mind that the salary cap was a concession given up by the union in the collective bargaining agreement (CBA). So the question remains, if the owners give up something they fought so hard to attain in the first place, will the union be so kind as to give it back again? One possible outcome: The richer teams get the uncapped seasons followed by reduced revenue sharing that would allow the NFL to look more like Major League Baseball. A few large market teams would arise (I would put Eagles in that class) while a few smaller market teams would disappear, or move (perhaps teams like Green Bay moving to places with large populations and no teams like Los Angeles in order to collect more revenue). For football fans it is an issue worth monitoring.

Deficits and Debt into Historical Perspective

If I told you someone tallied up $10,000 in credit card debt and asked how bad that was you would probably tell me you do not have enough information to answer that question. One vital piece of info would be how affluent that person was. For example, if that person were a college student your answer may be different then if it were Bill Gates.

With this general idea in mind we explore the complex world of public finance. If I tell you that a government deficit was $100 billion, you should similarly ask which government, and how affluent they are. The gauge of affluence is measured by economists as Gross Domestic Product (GDP). Thus to put our current spending into perspective we examine how much the government outspend tax revenue this year (the deficit) as a percentage of GDP, and how much money we owe out as a result of past deficits (debt) as a percentage of GDP:

In case you are wondering, the debt was very large in the early 1900’s due to the World Wars.

(Charts were generated by usgovernmentspending.com)

Obama and the Tire Industry

One thing that economist stress is the fact that trade is good. Most economists would agree with the assertion that protectionist policies deepened the Great Depression. This is in part excusable as politicians catered to the initial drop in industry by ‘protecting’ them with tariffs. We fast forward to today and assume that our politicians take the important lessons we learned from the Great Depression and abandon ‘protectionist’ policy for short political gains. It does not always work out that way.

The latest example of this is in the tire industry. Obama decides to place tariffs on tires imported from China. Political opinions are that he is paying back some union support during the election (not to pick on Obama, as I recall an extremely similar action by Bush when he got into the office by placing tariffs on steal). The next step will be China’s retaliatory tariffs. The end result: reduced trade… which to an economists is a sad event.

What is the Auto End Game?

As previous postings indicate, many economists were (and still are) skeptical of the auto bailouts. Further evidence that it was a bad idea via the link. The punch line: That the tax payers will not recover their money. I have two questions: Why did the US government ‘bail out’ the auto industry if they (and everyone else) knew bankruptcy was inevitable (which it was according to intrade). Question number two: What did they get ‘bailed’ out of?

Technology Today

Two very interesting videos via 'Division of Labour'. Two main points here, the obvious one is that technology increases at an increasing rate. Slightly more subtle is the fact that technology does not exhibit diminishing returns (double the amount of technology we more than double our output).