Is Sports like Wall Street?

Washington Post sportswriter Sally Jenkins often has sensible things to say. And in today’s paper she makes some interesting points about hyper-competitiveness in sports and finance. But I think she was led astray by investor, college athlete, and Clinton Treasury appointee Roger Altman:

There is a strong natural connection between Wall Street and sports because “both are quite binary worlds, somebody wins and somebody loses,” according to Altman, who was a varsity lacrosse player at Georgetown.

That’s just wrong. In sports it’s true: somebody wins and somebody loses. If the Yankees beat the Red Sox, that’s a binary outcome with a winner and a loser. It’s what economists call a zero-sum game. If Michael Phelps wins the gold, then everybody else doesn’t.

But in the market both parties to a transaction expect to gain. I get a meal, the restaurant owner gets my money. I get a salary, Cato gets my production. As Murray Rothbard wrote in the Concise Encyclopedia of Economics:

The mercantilists argued that in any trade, one party can benefit only at the expense of the other—that in every transaction there is a winner and a loser, an “exploiter” and an “exploited.” We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a “positive-sum” rather than a “zero-sum” or “negative-sum” game.

No doubt businessmen do like to “win” – sometimes they say “money is a way of keeping score.” They like to make the deal and block their competitors. Sometimes their testosterone may even impel them to make deals that aren’t economically rational, and the market has a way of punishing such decisions. But the people who make the deals – both parties, all parties – all expect to benefit. And usually they’re right. We’ve all bought things that we wish we hadn’t, or made investments that didn’t pan out. Most of the time, though, both parties to a transaction are pleased to make it and remain pleased after the fact. And the process of repeated positive-sum transactions creates economic growth and development.

Sports is different. The game may be fun, for both competitors and spectators. But in the end, as Altman correctly says, in sports “somebody wins and somebody loses.”