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How the NFL can save the world.
Calibrationism will restore competitive balance in the economic system, generate high GDP growth, low government debt and revitalize the middle class by following the governing principles of the NFL.
Definition: Government's primary job is to calibrate. When a governing body creates rules for a system of enormous size and complexity it is best to look back to times when the system functioned at optimum levels and use the ranges from those times to create the present system's parameters.
This presentation will explain why, since 1980, the economy has grown at only 2.6% despite huge debt fueled government expenditures and how to return to high GDP growth and low government debt.
Hello, my name is Jay Gianukos and I'm a documentary filmmaker. Medical bills wiped out my family financially and I have never been able to recover. I wanted to find out why. As a storyteller my first instinct was how did we get here?
For years I've heard that people can't afford homes and that never made any sense to me because if people couldn't afford homes then the price of homes should go down, but they didn't. So the question was why?
The simple answer is income inequality, which means there's the same amount of money trying to buy the homes in total, so the price doesn't go down but more of the money is concentrated into the hands of fewer people so the total number of people buying homes doesn't go up.
What is the nature of income inequality?
There's a Pew research study about the percentage of total earned income in the United States. Basically what it says is that prior to 1980 the middle 60% of wage earners (the middle class) earned 60% of the total earned income. Currently the middle 60% of wage earners are earning 40% of the total earned income. That means that since 1980 the middle class has essentially lost one third of its income or buying power.
What does that mean specifically for somebody in the middle class?
If you make the average per capita income, you're earning roughly $70,000 a year.
If the percentage of total earned income was like it was prior to 1980, you'd be earning a little over $100,000 a year for the exact same job without any increase cost to the company.
So what happened to that $30,000?
Well that entire amount has been redistributed up to the top 20% of wage earners.
Why did this happen?
I believe that this is the nature of all competitive systems. Over time, in a competitive system, the top 20% of performers have a disproportionate amount of leverage when negotiating compensation and over time the percentage of what they earn goes up.
So how specifically was the money redistributed?
In the 1980s corporate consolidation began to increase. There was an arms race for the top executive, sales people, engineers, scientists, and lawyers in the larger corporations. In order to lure the most talented people to the larger companies they offered them higher financial compensation. In order to do that they had to find the money somewhere so the only place they could find it was in the middle class.
How specifically did they do that?
The simple answer is that they stop giving raises to the middle class, eliminate pensions and minimize their health care exposure.
You could say, well that's the nature of all competitive systems.
Why is that a problem?
Here's the problem.
From 1940 to 1980 the country's average GDP growth rate was approximately 4.3%.
Since 1980 the economy has grown at just 2.6%.
In the 20th century, which includes the Great Depression, the economy grew at an average of 3.6%
So from 1980 until now the economy's grown at one percent slower than it grew in the entire 20th century which includes the great depression.
Even though the middle class no longer had pensions and many of them lost their health care they kept getting old and kept getting sick.
Being a Democracy the politicians need the votes of the middle class so when they asked the middle class what they needed, the middle class said, “well we just lost our pension and many of us lost our health care.” So the government put Social Security “in a lockbox” and they expanded and created Medicare, Medicaid and Obamacare.
Where does that money come from?
There were no increased revenues elevating the tax base so they had to borrow money from future generations. So now a large percentage of what used to be corporations' costs are on government spreadsheets and not the businesses spreadsheets.
At the end of the Second World War, the most expensive war in human history, the federal government's debt to GDP ratio (in other words the amount of money the federal government owed relative to the size of the economy as a whole) was 115%.
In the decade of the 1960s, which was within 15 years of the Second World War, the Korean War and in the middle of the Cold War and the Vietnam War had already started, the debt to GDP ratio averaged just 41%.
So in other words the economy was growing at 4.3% and the federal government was paying off its debt. The growth wasn’t from Keynesian economics. The country was growing and was paying off debts at the same time.
Today the Federal government's debt to GDP ratio is around 123%.
Wait, it gets worse. This means that since 1980, the government has borrowed trillions of dollars, pumped it into the economy and the economy still grew slower than it did in the entire 20th century.
Why did this happen?
The cost of the middle class getting old and getting sick is essentially being paid twice. The money that used to pay for the middle class getting old and getting sick from 1940 to 1980 has been redistributed to the top 20% of wage earners.
70% of the federal government budget is Medicare, Medicaid, Obamacare and Social Security.
The economic system is broken.
So how do we fix it?
There's an organization that was faced with a very similar challenge and they solved the problem in a brilliant way. The organization is called the National Football League.
In 1993 the league faced an existential crisis. The players were demanding free agency and because the NFL is not a government sanctioned monopoly, like Baseball, there was a real threat that another group of very wealthy people starting a new football league.
So, like politicians in a democracy, the owners had to listen to the players. The commissioner Pete Rosell and the owners came up with this brilliant two part solution. The players would be guaranteed just under 50% of the league gross revenue and every team would have the exact same amount to spend on players.
This prevented players from feeling exploited, owners from driving wages up beyond the sustainable level, and most importantly, maintaining fair competition. It made sure that the realm of competition was on the football field and not based on the amount of money that the team was able to spend on their players. This achieved the primary goal of all competitive systems which is competitive balance.
What happened?
Magic.
In 2000, Major League Baseball, which has never adopted the salary cap model, was a $9 billion a year league and the NFL was a $4 billion a year league. Currently, Major League Baseball is a $11 billion a year league. Adjusted for inflation, over the last 24 years, Major League Baseball has actually shrunk.
The NFL, also a sports league, in the same country, at the exact same time went from a $4 billion year league to a $19 billion a year league.
How?
The NFL produces 92 of the top 100 highest rated shows on all of Television. Of the 100 highest rated shows on television, 92 of them are made by the National Football League and 8 of them are made by every other Media company on the planet Earth.
Why?
The magic of competitive balance. In the NFL 95% of the teams have made the playoffs over the last 10 years. If a small market team like the Kansas City Chiefs finds and develops a great player, they can keep that player. In baseball the small markets are basically farm teams for the higher revenue teams. This decreases the number of teams that are relevant, which decreases the interest in the fans.
This also creates a dynamic where the heart of the competition is between teams as opposed to the competition within teams. If the NFL does well the players do well. So the players and the ownership are all pulling in the same direction.
Calibrationism
Use tax incentives to recalibrate the economy back to the 10%/60%/30% levels for earned income.
How much the businesses pay their workers is up to the business owners. The primary thing the government should be interested in is the percentage that goes to the bottom 20% the middle 60% in the top 20% of their employees. This will minimize the percentage of the population that is dependent on the government for retirement and healthcare.
By locking in the percentage, you are essentially making the CEO, who has the most leverage, the most resources and the most information, the chief negotiator for the entire workforce. They can have a very informed conversation with the owner about what percentage of the gross revenue that should go to the employees of the company as a whole. This will unify the company.
It will also increase competition between companies because in order for the employees, including the CEO, to increase their compensation the company has to do better against other companies.
Prosperity For All
The top 20% of wage earners are considerably less wealthy today because the low GDP growth has been so low that the value of their fixed assets has grown slower. On top of that, high government debt has added to the economic burden of their children, their grandchildren, their great grandchildren, their great, great grandchildren…
The 62% of Americans that are living paycheck to paycheck are not going to be paying off the government’s debt.
If the economy had continued to grown at the rate that it grew during the 20th century, which was 3.6%, we would not have a $25 trillion economy, we would have a $30 to $33 trillion economy.
That means that even though the top 20% of wage earners will be earning a smaller percentage of the total earned income, the size of the total income would be larger, meaning they would make almost the same amount of money. The much larger economy would also significantly increase the value of their fixed assets. The top 20% of wage earners' primary source of wealth is from the increased value of their fixed assets, not from income.
This change could be done at a rate connected to GDP growth rate so that only money from increased GDP funds the changes. The middle class employees, who have not received a raise over the last 44 years when adjusted for inflation, would eventually be making 50% more than they’re making now without adding any cost to the companies or impact on the wealth of the top 20% of wage earners.
Fix the broken system and you have a win, win, win situation.
Business and government partnership
This ultimately comes down to a harmony between short term, interest and long-term interest. Every governing body represents the interest of the commons and the long-term. They build the roads and provide for the common defense. Governments also protect business owners from business strategies that are anti-competitive that slows GDP growth.
Businesses are designed to execute short term strategies that day-to-day, month-to-month and year to year move towards the long-term goal of economic growth. Government is designed to make and enforce the rules through which the competitors compete.
Conclusion
Adam Smith in 1776 famously wrote, a rising tide lift all ships. What he was pointing to is that it is a growing economy that creates wealth. Each individual business goes through its cycle to generate wealth to contribute to the economy, but it’s only if the overall total Grows in total each year gets bigger and bigger is their actual increased wealth for each individual in other words, each individual’s wealth only exists in relationship to every other economic entity.
The purpose of Calibrationism is to solve the threat that results from all progress by making sure that no one gets left behind and no one gets held back.
Implementing this structural mechanism that once again establishes a functional economic ladder for people to climb will lead to innovation that increases efficiency and economic growth at minimal cost. Harmonious interactions between the short term perspective and the long-term perspective will result in a society that is both prosperous and peaceful.
Jay is traveling the world speaking to business leaders politicians in the public about how calibration can bring prosperity and heal the divisi
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