“Where does the money come from?
I don’t know where they get it
But I gotta get me some.”
- Tonic Sol-fa
“Where does the money come from?”
The guys from Tonic Sol-fa sing a very common thought for many Americans.
The thought of being able to pull oneself up “by the bootstraps” into the realm of the uber-rich is a romantic thought that has dominated American literature, music, and screen for decades, so it’s not surprising that the country has bought into the imagery.
However, much like what has been seen in the last 30 years across the country in many aspects, the disparities to achieve this romantic ideal have become farther and farther apart.
I remember when the Minnesota Twins signed Kirby Puckett to a three-year, $9 million dollar contract in November of 1989. It made Kirby the first ever player to earn $3 million in a year - for a week. By the time the 1990 season started, three more players eclipsed that number, and by the end of the 1990 season, Kirby was barely in the top 10 of player salaries.
In sports, when a new salary milestone is set, it’s a big deal. Two offseasons ago in baseball, Mike Trout became the first player to receive a $400 million overall contract. His contract was the largest ever in sports history at the time, now surpassed by Kansas City Chiefs quarterback Patrick Mahomes.
Last week, the Los Angeles Dodgers chose to add to their 2020 World Series Championship team by signing the best pitcher in the National League from the 2020 season, Trevor Bauer.
Bauer has some very rough edges and has been outspoken about not wanting to be tied down to long-term contracts, so instead, he set a new mark in baseball for a single-year contract, signing a deal that will earn him $40 million in 2021 and $45 million in 2022.
All of these contracts come from somewhere.
Where? The pockets of you and me.
We pay the tickets, pay for cable packages featuring sports-specific networks, buy the products the players sell, purchase their jerseys or other team apparel, and so many more things that pump money into the machine that is professional sports.
It’s easy to look at such a thing and get disgusted, disenfranchised, and turn away.
Except that it’s exactly what we’ve done in every modality of business in this country.
The Economic Policy Institute (EPI) released a study that is already two years old, showing that Chief Executive Officer (CEO) pay for the top 350 firms in the country had grown by more than 1000% from 1978 to 2018.
What is more incredible is that the “bootstraps to riches” story is more and more a farce. The ratio of pay for a CEO to the average worker in 1965 was 20/1, meaning if an average worker was making $10,000, the average CEO was making $200,000. Definitely a disparity, but not crazy.
That had grown some by 1989, to 58/1, meaning that same $10,000 worker was now looking up to a CEO making $580,000 (by ratio).
However, the explosion of CEO pay since 1989 has been dramatic, and the 2018 EPI study showed a ratio of 278/1 ratio. To keep with the $10,000 worker ratio, that CEO is now making $2.78 million.
Discussion on the minimum wage in Congress has found many saying that the prices for common goods would increase and drive “average” people into poverty and business to shut their doors.
The truth on prices is that the Consumer Price Index (CPI), which has been tracking prices of certain goods for a century at this point, shows that since the first minimum wage laws were put into place in 1949 (at just 75 cents per hour!), the average home price has grown more than 3,000%, the average car price has gone up by more than 2,500%, and the cost of a loaf of bread has gone up by more than 1,700%.
Minimum wage has gone up by 967%.
In 72 years.
So, the prices haven’t been waiting on minimum wage to go up, they’ve gone up just fine on their own.
Heck, even taking the last 50 years (as some significant minimum wage legislation was passed in the 1960s and 1970s that led to $1.60 per hour in 1971), we find that a new home has gone up by more than 1,600%, a new car has gone up nearly 1,100%, and that loaf of bread has gone up more than 800% while minimum wage has gone up 453%.
Bumping the minimum wage to $15 per hour right now doesn’t outpace those common goods. In fact, when bumping up the minimum wage to $15 per hour, it shows a 938% minimum wage growth over 50 years. That’s still less than the price of a home or car has gone up in that time, and right on pace with items that the CPI tracks, like bread, gas, and milk.
As a baseball fan, I have to be honest that the game takes advantage of players in their first few years in the league, players who often provide significant value to the team while not yet earning much compared to their veteran peers. The disparity is something likely to bring Major League Baseball to a bitter discussion when the game’s Collective Bargaining Agreement expires after this coming season.
As a nation, we are doing the same thing, separating the richest farther and farther from the average worker, and certainly farther and farther from the worker making a minimum wage, the exact workers many of these businesses build their companies utilizing.
When the price of a McChicken goes from $1 to $2, the minimum wage worker takes a lot of heat for earning more money, but rarely does anyone mention that the CEO of McDonalds is making nearly $9,000 per hour.
Where does that money come from?