How Capitalism Will Save Us (11 page)

Pinochet established an authoritarian government that violently suppressed the Far Left. However, at the same time, he instituted freemarket reforms such as removing price controls, opening trade, and privatizing some state enterprises. They unleashed a wave of prosperity. The Chilean economy began to diversify, reducing its onetime dependence on copper.

What the strongman didn’t grasp was that he was creating conditions for his own political demise. The prosperity created an ever-larger middle class that grew increasingly dissatisfied. By the late 1980s, it was no longer possible to resist demands for more political freedom. General Pinochet agreed to hold a plebiscite on his future. To his own astonishment, he lost the vote. The emergence of a free Chilean economy has been largely credited with helping the nation return to democracy. The moral of the story: prosperity brings democracy and not gratitude to dictators.

N
urses save lives. Yet the median income for a registered nurse is around $65,000.
²⁷
Tiger Woods plays golf. Yet in 2009, according to
Forbes
magazine, Woods earned $110 million—almost 1,800 times a nurse’s pay.

Is the free market immoral because it rewards an athlete more highly than someone who saves lives, especially when there are not enough nurses to fill jobs in the U.S. health-care system?

The value that the market places on someone like Tiger Woods is astonishing. Not everyone may agree with it. But it is fair.

How did Woods get to be paid $110 million a year? Only about three hundred people in the world are qualified to play on the PGA tour—the world’s elite golfing competition. Woods is at the top of this select group: He has won fourteen majors, is only the second player in history to win three major championships in a single year, and is on course to become the second most winning player of all time on the professional tour.

Woods is the most popular representative of a sport that is played by over 26 million Americans. But more than a national passion, golf is also a $76 billion industry, fueled by ticket sales, television revenues, and a mass following that spans from community golf courses to country clubs, where the game has become a valuable business tool.

Few individuals have been as critical to an industry as Woods has been to golf. When a knee injury knocked golf’s marquee player out of the tour in 2008, the entire industry slumped: television ratings plunged by nearly half, ticket sales fell, sponsors fled, and tournaments struggled to attract crowds. Summarizing Woods’s importance to the game, one tournament director observed, “When he plays, everyone in golf benefits.”

Woods, in short, is the driver for a multibillion-dollar industry. The result: a $110 million salary.

Comparing Woods’ compensation with a nurse’s pay calls to mind a question once posed by the great economist Adam Smith: why do diamonds, which have very little practical use, command a higher price
than water, which is essential to life? This disparity is known as the paradox of value or the “diamond-water paradox.”

Some economists explain this apparent contradiction with what they call the theory of marginal utility. What matters is not the value of water or diamonds to society, but their worth to the individual consumer. Yes, H
₂
O is essential to life. But as individuals we usually find it to be abundant. Therefore, a glass of water is less valuable than a single diamond, which is extremely scarce and provides enormous satisfaction to its owner.

No golfer has the skill of Tiger Woods, whose performance has made history. Fortunately for society, there are many more nurses with life-saving abilities than there are golfers who can rival Woods’s record or sports celebrity. So in terms of the labor market, Woods is more valuable than a nurse and plenty of others as well, including many highly paid executives.

Remember what the market is: a public forum where people vote. But instead of casting ballots, they vote with their money.

Tiger Woods’s earnings reflect the value placed on him by the millions of people whose dollars flood into the PGA tour and golf as a sports industry. The alternative would be to have some centralized government entity decide Tiger Woods’s salary. That would be less democratic and less fair.

P
eople who buy into capitalism’s bad rap often hold up advertising as yet another example of the immorality of free markets. Ads, they claim, seduce and mislead people. They’re an annoying, unwanted intrusion
on TV, in cyberspace, newspapers, magazines—and every corner of our lives. Americans are defenseless against such pervasive “propaganda.”

The late historian Arnold Toynbee has been quoted as saying, “[I] cannot think of any circumstances in which advertising would not be an evil.”
²⁸
Advertising has a long list of critics. Among the most influential was the late economist John Kenneth Galbraith. In
The Affluent Society,
²⁹
he asserted that advertisers applied “ruthless psychological pressures” to artificially create demand for products. Galbraith’s contemporary, social critic Vance Packard, wrote about how advertisers used psychological research and techniques to manipulate consumers. In the 1970s, Wilson Bryan Key, in a book titled
Subliminal Seduction
, advanced the notion that advertising contained hidden, seductive images. He famously claimed that a liquor ad’s alluring photo of a vodka on the rocks contained subliminal images of a woman’s breasts hidden in the ice cubes.