Monday Morning: Mozart was born too soon. A-Rod wasn’t

Christmas came early for Alex Rodriguez and a few other high-priced baseball players, and to tell the truth I was annoyed.

Why should anyone be paid more than a quarter of a billion dollars over 10 years to play a game, hit a small ball around a grassy field? For that matter, why should Tiger Woods earn more than $80 million a year for hitting an even smaller ball into a small hole?

Heck, A-Rod’s 10-year compensation would build a lot of schools. Tiger’s one-year earnings would run a midsize hospital.

why gates?

Some people question why Bill Gates should be the wealthiest man in the world. But at least Mr. Gates created a company from scratch and developed products that increased the productivity of millions of workers. In fact, his company directly or indirectly created millions of jobs in the United States and elsewhere.

I don’t have any problem with most self-made industrial millionaires. Most of them are smarter than I am, work harder than I am willing to work and have taken more risk than I am willing to take. And most of them added to the nation’s gross domestic product, the nation’s wealth.

I have more of a problem with chief executives of corporations earning $20 million or $30 million a year (usually from exercising stock options). But there one can see some connection between the decisions those executives make and the creation of greater wealth for the companies’ shareholders, and through the company’s contribution to the nation’s gross domestic product, to the greater wealth of the nation.

But $25 million a year for an athlete? Ridiculous! And what about $20 million for a movie star who might work only six weeks a year making a movie?

Just the thought of this kind of money being paid to people who play games or entertain causes agita. It seems so undeserved. It seems so wasteful. It seems to reflect a distorted sense of national priorities.

That’s the way I felt until I read an interesting essay: “Wolfgang Amadeus Mozart and the Internet” by Seymour Lotsoff, senior managing director of Lotsoff Capital Management, a Chicago-based fixed-income manager. Mr. Lotsoff is one of the most insightful thinkers in the investment management world.

Mr. Lotsoff notes that Mozart died poor, in large part because there were only a few aristocratic buyers for his music. The buyers set the price, and since few potential buyers could afford the orchestras and choruses necessary to enjoy the music, the price was set low.

Today, Mozart would be writing pop songs, movie scores or Broadway musicals while CDs and the Internet would be providing a paying audience of more than a billion people. While the price of each CD would probably be relatively low, the sales of millions of CDs would make Mozart rich, and the world richer still, because millions could enjoy the fruits of Mozart’s genius.

Mr. Lotsoff’s essay reminds me that a true market economy distributes rewards according to the value of the output — not according to the political influence of a particular industry or according to the intensity of the effort required to produce its product. It also reminded me that entertainment — whether sporting events, movies or recordings — also is part of the gross domestic product, part of the nation’s wealth.

Further, he reminded me that those who buy tickets to sporting events, movies or shows, or who buy CDs, willingly part with their cash. Those who produce the sporting events, movies or records willingly pay high salaries to those they believe will draw the biggest audiences and make their enterprises a success.

I may not like what A-Rod’s new salary says about the nation’s priorities, but those priorities are not the fault of the free-market economy.

Meanwhile, Mr. Rodriguez’s successful contract negotiations will no doubt create much work for a small army of financial advisers and tax lawyers on the staff of the baseball star’s agent, Scott Boras.

Merry Christmas to all of them.

Mike Clowes is the editorial director of InvestmentNews.

Related Topics: Just Thinking