Jeremy Lin and the Political Economy of Superstars

CAMBRIDGE – The biggest news around Cambridge in recent weeks has been Jeremy Lin, the Harvard economics graduate who has shocked the National Basketball Association by rising overnight from nowhere to become a genuine star, leading a losing New York Knicks team to an unlikely string of victories.

Lin’s success is delicious, partly because it contradicts so many cultural prejudices about Asian-American athletes. Flabbergasted experts who overlooked Lin have been saying things like he just didn’t look the part. Lin’s obvious integrity and graciousness has won him fans outside the sport as well. The whole world has taken note, with Lin being featured on the cover of Sports Illustrated for two consecutive issues. The NBA, which has been trying to build brand recognition and interest in China, is thrilled.

I confess to being a huge Lin fan. Indeed, my teenage son has been idolizing Lin’s skills and work ethic ever since Lin starred on the Harvard team. But, as an economist observing the public’s seething anger over the one percenters, or individuals with exceptionally high incomes, I also see a different, overlooked facet of the story.

What amazes me is the public’s blasé acceptance of the salaries of sports stars, compared to its low regard for superstars in business and finance. Half of all NBA players’ annual salaries exceed $2 million, more than five times the threshold for the top 1% of household incomes in the United States. Because long-time superstars like Kobe Bryant earn upwards of $25 million a year, the average annual NBA salary is more than $5 million. Indeed, Lin’s salary, at $800,000, is the NBA’s minimum wage for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10 million, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

Economists have long studied the economics of superstars in fields where a company can lever enormously the decisions of a small number of individuals, making them valuable in a way that someone who can, say, chop down trees like the legendary Paul Bunyan, is not. But the political economy of what levels of income differences countries will tolerate remains uncharted territory.

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