Monday, December 22, 2008

Bubble Trouble

Karl Denninger has some required reading on our current economic troubles. My take on the situation pretty much mirrors his thoughts, although I could never have articulated my concerns with the precision that he has.

I have been thinking about bubbles a lot lately, and I am starting to wonder if many of the seemingly insane societal trends that we have witnessed develop over the last couple of decades are going to implode in concert with our economic bubbles. Over the last week, I ended up thinking about two potential examples: baseball salaries and weddings. There are probably many more, but I happened to think about these two because I read the New York Post and my wife watches TLC.

Let's start with baseball salaries. Here is a crude and hastily assembled chart of each year's highest salary in baseball.

This was brought to mind by the Yankees' recent $243 million signings. Now I am not impugning Sabathia and Burnett (although Burnett strikes me as an easily impugnable pitching talent), but the economics of supporting a roster like this are difficult. For example, apparently the new list price for a seat behind the dugout for a regular season game is $2500. We are not talking World Series here. We are talking a Wednesday night game in June versus the Mariners.

During the salad days, companies may have been willing to cough up such absurd amounts, but when it comes time to cut costs, season tickets seem like they would be an early victim of the hatchet. There are certainly going to be a lot less Wall Streeters guzzling $8 beers in 2009. And I was told anecdotally the other day that a little company called Kraft finally threw in the towel on their season tickets, deciding they were just too expensive. If Kraft is crying uncle, there must be many lesser organizations in the same position.

Like any poor trader, I am calling a top in baseball salaries. Even as the top talents are able to bring in absurd salaries, overall free agent prices are weakening. I think the combination of a weak economy and baseball's many issues are going to change the landscape so dramatically that a decade from now we will look back on these salaries in astonishment.

And now to nuptials, another institution gone cuckoo on the back of cheap credit. The average wedding costs over $30K. In a nation where the median household income is only $48K, this is insane. It is particularly insane because the funding source for a wedding has changed...

This year only a quarter of brides will count on mom and dad to pick up the tab.
Instead, nearly one-third of brides and grooms will forgo tradition and foot the
entire bill themselves.

For a young couple, "foot the bill" really means "create a pile of debt". Historically, weddings were celebrations funded by families where guests provided cash and gifts to the happy couple. It was a carefully orchestrated transfer of wealth to the younger generation to give them a financial foundation on which to build their life. We have now completely flipped the script, burdening newlyweds with a pile of debt instead of a pile of assets. It has been an insane and destructive trend, but as with the baseball's insanity, perhaps a dose of recession will wake us up to our own many follies.


GammaBoy said...

Coincidentally, the NYT has an article today about recession and weddings.

It is also highlights another insane trend - student loan debt:

Given the amount of debt piling up from their graduate school studies, she suddenly thought that the $30,000 to $40,000 she had planned to spend on her wedding seemed ridiculous.

I am a guessing a graph of college costs would closely mirror the one I did of baseball salaries. Insane. Frankly, with college costs where they are, I am beginning to wonder whether college is even a good investment anymore.

Restless Native said...

With my six-day old son in arms I agree that college has become exorbitantly expensive. The difference between weddings and education is that weddings are a one-time bounce, with the benefit being a really fun night (probably more so for the guests than the couple) at the country club or the VFW Hall. The gifts may or may not off-set the cost of the party, and at the very least, there is a ton of frictional cost involved.

College, however, at least to this point, has proven to be an investment that pays off. Someone please find supporting data for this. I have to go wash onesies.