There has been a nice discussion on salaries going on across the web. There are two small things I wish to add to the general discussion, and rather than sprinkle them far and wide, I’ll post them here.
1) The term “inflation” should not be applied to salary growth in MLB. Yes, I know what people mean, but inflation has a very distinct definition: a continuous rise in the price level, which reflects the average prices of all goods and services in the economy. The rise in baseball player salaries reflects a relative change in value compared to all other goods in the economy. They are becoming more expensive in relation to other things we purchase. And look, I understand the innocent mis-use of the term, but given the recent passing of Milton Friedman, let’s at least honor his dictum: inflation is always and everywhere a monetary phenomenon.
2) In absence of some external force or cognitive bias, teams will pay players a salary equal to their net marginal revenue products (MRP). Non-free agents earn less than their MRPs, because their movement within the labor market is restricted. Free agents ought to earn their projected MRPs (there is a lot of variance in these projections) in the competitive labor market, and no team ought to pay a player more than his estimated MRP value, even if it has room in the budget. To do so would be a violation of everything we have come to know in labor economics. Might some team make mistakes based on past rules of thumb? I’ll grant room for some small mistakes, but owners and GMs are pretty smart. I think it’s important to start from the premise that owners know what they are doing (even though it’s not always the case, and we should be on the lookout for mistakes) and try and interpret what is going on.
Given what Tangotiger points out about salary growth in MLB, I’m inclined to think these salaries aren’t as out of whack as I first thought. Furthermore, I believe the potential mistakes that are being made are in regard to projecting players—Soriano and Matthews look like panic moves to me—but that’s me as a fan talking. I would not be surprised if I am proved wrong in the future, more so about Soriano than Matthews; I still can’t understand what the Angels are thinking…unless revenue growth is going to rise at a rate a good bit higher than 10%.