Spending Money Doesn't Guarantee Success

Last night the Milwaukee Brewers finished a 4 game sweep of the Los Angeles Dodgers in the National League Championship series. The Dodgers were chasing their 3rd straight World Series win, and in doing so they’ve amassed the largest payroll in MLB history. The fans of smaller market teams bemoan the fact that their team is at a disadvantage, and that is a real issue. However, the players must still perform regardless of how much money they are being paid. Shohei Ohtani is making enormous sums of money and yet he struck out on three pitches with 1 out and a runner on third base.

Having the ability to pay huge amounts of money has maybe turned the Dodgers front office into the guy who has a hammer, so everything looks like a nail. Bringing in another premium free agent is their first instinct to solve problems. But paying Shohei Ohtani $700 million doesn’t mean he’s going to get the ball to the outfield when it’s needed most.

There are a few parallels I’d like to draw. I often hear complaints from various government run programs that more money is needed. And the reality is that more money is wanted, and because government is not incentivized to conserve resources the budget is always blamed. “We need to pay the teachers more…. “. I’m not arguing that paying teachers more isn’t a good thing, I have friends who are teachers and I’d like to see them make a great living. But paying them 10% or 20% more isn’t likely to change the outcomes they produce. Paying Shohei Ohtani $800 million wouldn’t have made him hit fly ball that drives in the runner when it was needed.

Entrepreneurs are often cash starved; thus, they are incentivized to accomplish goals as cash efficiently as possible. This is why I’m not a fan of government programs (and this is ignoring the fraud and graft that almost always go along with such programs). Government programs by their nature have zero incentive to be efficient with cash. In fact, many programs reduce the budget if the entity doesn’t spend all the cash. Talk about perverse incentives!