Dick Bove says that the government’s attempt to clamp down on pay in the financial sector while top earning athletes take home bundles shows that the government believes sports are more valuable than finance.
Bove looks at professional sports and notices that the average basketball player in the NBA makes $5 million per year and the average Major League Baseball player makes $3 million per year. Goldman Sachs pays an “average” employee just $800,000.
“One might argue that sports leagues are government sponsored oligopolies. As a result of restraining trade in this fashion, government allows sports figures to earn incomes at the peak of American industry,” Bove writes.
Bove’s finding about the implied government valuation of sports versus finance is interesting but it doesn’t go far enough. If you extend his thinking, it suggests that an increased government role in the financial sector will likely lead to high pay on Wall Street.
This will come as sobering news to those who expected increased regulation would bring pay on Wall Street down from the stratosphere.
The key to Bove’s argument is that government involvement tends to create oligopolies in industry. And pay at government created oligopolies, where companies are protected from competition by government regulation, tends to soar.
Now that government regulation seems to be driving further consolidation in the financial sector, we should expect the same process to play out.