What am I missing? Moneyball has quite a following among neoclassical
micro-economists and many of its founders and proponents were
economists. Yet, like neoclassical micro, it seems to miss the elephant in
the room and is more about ideology than actual practice.
As I understand it, advocates of Moneyball, sabermetrics and the rest see
large discrepancies between their statistical models of optimum baseball
team strategy and what teams actually do. They say that most of this
difference is due to an outmoded mix statistic priorities/models and that
their technocratic techniques can fix this.
No doubt some of the discrepancy is due to their better statistical
ideas. But it seems to me there is a far larger divergence from "optimum
efficiency" because baseball is a business - "irrational" decisions are
taken so as to increase total profit (or sometimes just shareholders
profit). And, in many cases, the old fashioned mix of statistical
priorities (which largely included the same factors but in a different mix)
more closely reflects the goals of the teams' owners (although not the fan).
Profit partly comes through winning games ("optimum efficiency") which can
boost revenue. BUT it also comes through other considerations such as
boosting market appeal by favoring play that is exciting albeit
"sub-optimal". AND one can just lower costs (rely on revenue sharing,
drafted young players who, like "illegal" immigrants or workers in an
outsourced location can't "feely" negotiate, etc). Each team's market has
its own conditions that produce that team's profit maximizing mix of such
factors (winning games, flashy play, low costs, etc).
So, for example, Moneyball is right to emphasize the value of walks rather
than just hits ('on base percentage' rather than 'batting average'). But
*in some markets* the excitement of extra hits will bring in more revenue
than if the team moves from 15 games behind 1st place to 12 games behind
through gaining extra walks. Likewise, it may be true that trying to steal
bases is not smart, but for teams adopting low-wage strategies, having an
aggressive running game helps cover up the fact that your business plan is
to finish last. Similar caveats apply to "small ball" and "forcing high
pitch counts vs free swinging home run hitters.
For my purposes, baseball analogies offer the opportunity to show how the
profit motive can force on us losing and "inefficient" overall
strategies. "Moneyball" when its pretending to be the owner's best
strategy misleadingly distracts from that point.
It reminds me of the "Capital Controversies". The real point is that it
shows how normal market forces will routinely lead companies to choosing a
mix of production technologies that produces less for society as a whole -
but gives the owners greater profit - i.e. capitalism inherently gives us
sub-optimal technologies. Instead, the insiders of Cambridge England,
enamored with their math, emphasized "reswitching" - an insider's
technological point that, by itself, just initially focuses on how
marginalist capital theory is wrong. No surprise that the debate died out
without much impact.
Paul
At 06:00 PM 10/4/2006 -0700, you wrote:
This article is interesting for what it says about executive wages and
what it didn't
say. If you scroll down to the reference to $400,000, the article says
that the
higher executive wage will hurt the team by reducing the money available
for the
workers. I wonder they are teaching this at the Stanford Business School.
Leonhardt, David. 2006. "Why C.E.O.'s Aren't Sitting in the Dugout." New
York Times
(4 October).
"Just over a year ago, the man who held the purse strings at a private company
outside San Francisco began negotiating a new employment contract with the
executive
who ran the day-to-day operations. The company had recently turned
around, thanks in
part to the executive, and the company, understandably, wanted to keep
him. It
offered him a salary of almost $1 million a year, which it considered in
line with
the market."
"The executive asked for almost $1.4 million. But the company wouldn.t
budge. Its
message was simple: We like you and we want you to stay, but that doesn.t
mean you
can name your salary."
.Anytime you.re running a business, you have to set a value on employees
relative to
your business,. the part-owner in charge of the negotiations told me a
couple of
weeks ago. .And before any negotiation starts, you have to consider your
alternatives..
"So the executive and the company parted ways. It started interviewing other
candidates, and he began interviewing for similar jobs elsewhere. Until the
situation took an unexpected turn -- and more on that later -- an
otherwise good
relationship looked as if it was going to be ruined by money. We know
these details
because the company in question was not an ordinary private company. It
was the
Oakland A.s. The part-owner was Billy Beane, perhaps the best-known
general manager
in baseball. The executive was the team.s on-field manager, Ken Macha."
"One of the many baseball fans following this story last October was a
retired banker
named Robert L. Joss, who had become the dean of Stanford Business School
after
having been a vice chairman of Wells Fargo and the chief executive of an
Australian
bank. As he read the local newspaper accounts of the breakup between Mr.
Beane and
Mr. Macha, Mr. Joss was struck by a thought: "You.d never see this in
corporate
America."
"It.s difficult, in fact, to come up with a single example of a company
and its chief
executive splitting up over pay. Chief executives retire and are
fired. But as long
as they remain on the job, they evidently don.t end up disagreeing with
their boards
about how valuable they are. The negotiation over a chief executive.s pay
is one
that never seems to fail, which, of course, means that it isn.t much of a
negotiation
at all. It.s more like a friendly conversation."
"But the Ken Macha story is a wonderful allegory because it highlights a
more subtly
human problem with pay. When directors at a big company think they have
found the
right person for the job, they persuade themselves that no one else on
earth could do
it as well. They basically fall in love. Once that happens, almost no
price seems
too high."
"The Oakland A.s, however, can.t afford to fall in love. Their modest
budget allowed
them to spend just $62 million on players this season, compared with the
Yankees.
$200 million payroll."
"The contrast between this hard-headed approach and corporate America.s
cult of
personality was especially clear to Lewis Wolff, the A.s 70-year-old
managing partner
who was both Mr. Beane.s and Mr. Macha.s boss. Before buying the A.s last
year, Mr.
Wolff ran 20th Century Fox.s real estate division for a time, and he now
sits on the
boards of two New York Stock Exchange companies. .At my advanced age,.
Mr. Wolff
said, laughing, .I.m learning from Billy..
"Billy -- as Mr. Beane is almost universally known -- understood that Mr.
Macha had
real value as a manager. He helped the A.s overcome a dreadful start in
2005 and go
on a late-summer run that nearly won them another division title. But Mr.
Beane also
understood that the additional $400,000 a year his manager wanted was
$400,000 the
team wouldn.t be able to spend on a player who could make the difference
between
second place and first."
"So the team held firm, and one year ago this week, after the 2005 regular
season
ended, Mr. Macha returned home to the Pittsburgh suburb of Export, where
he began
looking for a manager.s job with another team. On the plus side, the
teams with
openings generally gave their manager more of a say than Mr. Beane.s carefully
proscribed system did. But these other teams also weren.t very good, and
there was
no guarantee that Mr. Macha would get one of the jobs anyway."
"A week later, Mr. Macha received a handwritten note from Mr. Wolff.
.You.ll be
successful at anything you do,. it said, according to Mr. Macha. .Thanks
for a great
season.. The letter caused Mr. Macha to reconsider. That night, he
called Mr.
Beane, and they had a conciliatory conversation that ended with Mr. Beane
saying,
.What can I do to help you?. Within a few days, they signed a deal very
similar to
the one the A.s had originally offered."
"This season, despite a rash of injuries, the team built by Mr. Beane and
run by Mr.
Macha won its division again. While the Boston Red Sox (payroll: $120
million), Los
Angeles Angels ($103 million) and San Francisco Giants ($91 million) have
all been
eliminated, the A.s beat the Minnesota Twins, 3-2, in the first game of
the American
League playoffs yesterday. The two teams play again this afternoon."
[The A's won again.]
"As Mr. Joss, the Stanford dean, sees it, there is more than one lesson to
the story.
Certainly, board members should realize that no employee is
irreplaceable. But they
should also remember that they have great leverage in pay negotiations,
because being
a chief executive -- like being a big-league manager -- is an enormously
appealing
job."
.Not only is it good economically, but it.s meaningful work: The executive
is doing
something he loves, and he is part of something,. Mr. Joss said. .You
wonder how many
C.E.O..s would really leave these jobs..
--
Michael Perelman
Economics Department
California State University
Chico, CA 95929
Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com
