Tuesday, September 20, 2011

O'Reilly, Blowhard

I very much enjoyed yesterday's story of Bill O'Reilly threatening to stop working if his taxes went up, which I first saw in a fun item from Kevin Drum.

Perhaps it's just the almost-pennant-race season talking, but my immediate thoughts when I hear this kind of stuff isn't so much Ayn Rand as it is the somewhat related (but I'll try, I promise) predictions that free agency in baseball would lead to lots of rich ballplayers retiring early. Those predictions were common throughout the late 1970s and all through the 1980s, and I still see them every once in a while, despite 35 years of evidence to the contrary. Here's the thing: if there's one thing that a few centuries of capitalism has taught us, it's that most of us really, really, really like money, and despite its probably diminishing marginal returns in how much enjoyment we get out of our lives, very few of us behave as if it has diminishing marginal returns. That is, millionaires keep working. Some of them even work really hard (hard enough to convince themselves that those who aren't rich must be lazy, although granted many wealthy people don't have to actually work all that hard to convince themselves of that).

At any rate, after 35 years, I can only remember a handful of baseball players who retired voluntarily when they still could have collected a paycheck that would have constituted a non-trivial addition to their net worth: Will Clark, Mike Mussina, Andy Pettitte...I'm sure there are others. But not very many. Certainly, no one has retired in midcareer because he had enough money now.

Returning to O'Reilly, what I'd guess is that a lot of well-off people feel exactly how he (claims) to: that it wouldn't be worth it to continue working if their tax rates approach 50% (and never mind that in reality no one is talking about effective overall tax rates that high). But you know what? No matter how sincerely they think that's the case, they are probably wrong. In the event, quite a lot of them would actually react by working more, since that would be the only way to make back the money they would be losing to taxes; others would just plug on, because they had set up their lives to "need" that continued income...or just because, when it comes down to it, they prefer more money to less, and continuing to work would still be the only way to accomplish that goal.

Hmmm...this is a fluff lightweight item that's already way too long, isn't it? Sorry. The main points, just to get out of here, are (1) people like money, and (2) people are really bad at making predictions about themselves, even when they're sincere about it.

(Update: Various typos fixed)


  1. The possibility that he would quit should give many of us a further reason to hope they do raise taxes on the highest earners ;)

  2. and 3) most people like to work.

  3. I don't disagree with the larger point, but I do want to quibble with one thing: "it's that most of us rally, really, really like money, and despite its probably diminishing marginal returns in how much enjoyment we get out of our lives, very few of us behave as if it has diminishing marginal returns."

    There's a huge selection bias here--the only people who keep working after they make millions are people who have already worked hard to make millions. What proportion of lottery winners continue working? That would be a better test, I think.

  4. Sandberg quit early in '94 at the age of 34, sat out '95, came back to play in 1996 and 1997, then retired for good. He was far from terrible in '97 - a full-time good defensive second baseman hitting .264 can always find work - but didn't want to come back again. He played his last game ten days after his 38th birthday.

  5. He might not be a baseball player but Carson Palmer retired because the Bengals wouldn't trade him. His argument for demanded the trade was that he didn't want to play for the Bengals and he had enough money for the rest of his life.

  6. Didn't Dye sit out this year when he didn't get a contract he liked?
    Look, there is an actual, valid point to be made along the lines of O'Reilly's. Incentives affect people's beavhiors. Note how the NBA teams in Canada couldn't really get big free agents because all those guys were looking at losing a ton on taxes.
    But that's also instructive. If the US raises the tax rate on the rich, the right question to ask isn't "would the rich prefer the old or new tax rates?" because the rich don't have time travel. Rather, it's to ask 2 questions:
    1) Would the rich quit working (as JB did)? And the answer is no. 61% of a million dollars is still a lot of money, even if it's slightly less than 65% of a million dollars: both are WAY more than 0.
    2) Would the rich prefer to work elsewhere? And the answer there is no: adding a minor amount to taxes in the US doesn't really fundamentally change the equation of what country to live in, particularly once you factor in moving expenses.

    In other words, faced with a choice between lump it or leave it (with leaving understood broadly), they'll choose lump it. But, for very obvious reasons, they'd prefer the scenario where their taxes remain low, because they like money.

  7. I think its important to keep in mind the difference between income and wealth, which (as anyone who has read "The Millionaire Next Door" knows) are surprisingly uncorrelated. Professional athletes are no different; a 2009 SI expose revealed the shocking number of former NFL, NBA and MLB players that are broke within a short time of their retirement. Its quite likely that even many successful, veteran, HOF-quality pro athletes are quite different from O'Reilly in their wealth (even if their salary is comparable to O'Reilly's). So the different level of necessity for a veteran athlete, vs. O'Reilly, in needing to work for money renders this comparison apples and oranges.

  8. I also take some issue with the generalized notion that everyone is motivated by money to work. Getting back to the idea that wealth and salary are separate sources of income, many rich people have enough wealth that their salary is pretty much irrelevant, with their motive to work fairly obviously coming from elsewhere.

    A good example, related to O'Reilly, is Rush Limbaugh. Limbaugh makes somewhere around $50-$60 M/year for his radio show...but his net worth is north of $1 B; presumably he has access to the kind of high-quality financial planning such that his assets throw off more in income, at a lower blended tax rate, than his radio show. I'm not saying his radio show is chump change, but he probably amasses more than his sizable salary from his asset base...and really, who thinks Limbaugh is more motivated by an incremental annual $50 M than by his role as a kingmaker in right-wing political circles, which role vanishes as soon as he retires?

    Perhaps a better illustration comes from baseball. Derek Jeter signed a $51 M extension with the Yankees last year, instead of a ~$15 M offer available elsewhere. He may have been motivated by love of more money, but here are some other, more plausible, motivations (to me):

    1) The GM who throws $51 M at you is more committed to keeping you in the lineup than one who spends $15 M; 2) ancillary equity-building opportunities are greater in the Bronx than KC; 3) related to point 1 above, he thinks he's better than he is, and he would rather spend his dotage sitting on 3500 hits than 3050, which is easier to do with a franchise that has committed $51 M than one comitting $15 M; 4) he would rather be in New York.

    In summary, I'm not saying that Jeter, O'Reilly, Limbaugh, or anyone else is not sensitive to more money - its just that we should be careful about attributing too much to that factor.

  9. On Palmer -- I don't know enough about football to really say anything worthwhile, other than to mention that with football you're talking about a pretty good chance of a serious life-affecting injury from continuing to play, which isn't really the case for baseball.

    Other than that, I don't disagree with the main points that CSH made. I do think that lots of people, perhaps most of us, factor in lots of things beyond money in making decisions (and it's certainly true that a lot of pro athletes screw up their financial situations). My only real point is that we should be very cautious about assuming that people with lots of money won't really care about getting even more; I think the evidence shows that most of them do in fact care about having even more.

  10. This whole argument of "increase my taxes and I will work less" is so bogus that I wonder whether anyone actually is sincere when they advance it. I see it as merely a nifty rhetorical trick.

    Anyone who sincerely advances this argument has such a low degree of self knowledge that it boggles my mind.

    There was an economist who wrote a lengthy article on the subject last year or so where he claimed that he would cut back if his taxes go up. I would love to interview him a year or so after the next time his taxes go up an appreciable amount.

  11. Jonathan, thanks for taking up my argument. This may be overkill, but my view is that for most of us (those of us who aren't Silas Marner-types), money is merely instrumental to some other good. Unfortunately, for many of the world's citizens, that "other good" is "eating tonight". But we're talking about the lucky few rich here.

    More money provides many benefits not related to simple aquisitiveness or those I listed above; one of these is stature, i.e. in many professions, the one who makes the most money has the most stature. So $17 M/yr Jeter has a certain profile that $5 M/yr Jeter lacks; arguably that profile would translate into ABs and other opportunities.

    In closing, and keeping in mind that Limbaugh has enough money accumulated to earn ~$50 M/yr from his investments, imagine a world where his radio gig, with all of its pleasant externalities, was only able to pay him $1/year, while he could get a job as garbage collector in Palookaville, earning $50 M/year. Which job would he do? Do his accumulated assets affect your answer?

    And now that I think about it, you're probably right about O'Reilly not caring about tax rate in deciding to work. Perhaps not because he is acquisitive, but rather because his demographic would suggest he's probably saved enough to make working unnecessary, so the marginal financial impact to him of a higher tax rate is zero. After all these years, and all those high salaries, and all that presumed saving, O'Reilly almost certainly isn't in it for this year's money anymore.

  12. Jeff King, arguably. He retired at age 34 when he wasn't a great player but a passable one. Joe Posnanski says that he retired the day he became eligible for his pension.

    It's also relevant that Joe Posnanski says that Jeff King really didn't enjoy playing baseball. Anyway, your larger point stands.

  13. You're right on the larger point, but Jeremy Bonderman is still only 28 and could surely make many teams' rotations, if he were willing to play for less money than he used to make.

    I bet there are multiple psychological biases at work here: people keep working even after they have "enough" money, but people won't work for much less money even if they're otherwise willing to keep working. Even if the pay cut is from $12.5 million to some mere seven-digit number.


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