Wednesday, January 09, 2008

The Patriots: Putting Adam Smith to the Test

One of the basic tenets of free-market capitalism is this: if we excel in our own small corner of the world, others will benefit along with us. Adam Smith called it the Invisible Hand, the force that allowed the butcher, baker and brewer to flourish as they practiced their craft while providing valuable services to others. Now this is, of course, macro economics at a very micro level, and it doesn’t take into account an enormous amount of variables: unforeseen incentives and changes in the market, government interference and regulation, the unpredictable nature of people themselves, among others. But this age-old doctrine seems to have worked pretty well in America, at least according to Milton Friedman, Ronald Reagan, and well, myself. And not only in America, but pretty much anywhere free markets are encouraged and the rule of law defended, be it Hong Kong, Chile or Estonia. Yes, when people practice their craft legally and honestly, others benefit alongside them. That this simple doctrine works as well in a small town as internationally speaks to its simple truth and the universal nature of incentives.

But we have seen that old-fashioned jealousy, envy and fear have led many to denounce the baker and the butcher when they excel at their craft and make a fortune doing it. Alongside renouncing the baker and butcher comes a condemnation of the vehicle (capitalism) that allowed such wealth to be legally and ethically created in the first place. “It’s unfair,” they cry, “that so few should become so wealthy while so many are still so poor!” It’s the exact line that the likes of Clinton, Edwards, Obama, Huckabee and other such populists spew on the campaign trail. And the same thing is said about others who excel, even to the point of perfection. As I predicted, the venom spit towards the New England Patriots has increased as they inched closer and closer to perfection. America has decided not to cheer on this team, but to root for their downfall. As I’ve said before, how unpatriotic!

But what about Adam Smith’s theory? Does it really work, or is it just a simple fantasy that may work in theory but never in practice? Let the Patriots help answer the question. Without a doubt, we can say they have excelled at their craft, more than anyone else in league history. Not only have they excelled, but they’ve done so in an era of free agency, losing plenty of marquee names over the years. They’ve also done it in the era of the salary cap, which means money alone could never solve their personnel problems. They’ve done it with a brilliant scheme, a coaching genius, and unmatched shrewdness...you know, the old-fashioned way. I can think of no better example than the New England Patriots to put Adam Smith’s much maligned theory to the test. So let’s consider who else has benefited from the Patriots’ success, besides the fans, owners and businesses in and around New England, which in and of itself counts for quite a few people.

1. The networks. The Patriots run at perfection has been a boon for NFL ratings, which were on a downturn the last several years. Their close Monday night game against the Ravens set an all-time cable ratings record. The Patriots-Giants game was the fifth highest rated NFL game of all time, and it came on a Saturday night. For more on their record ratings, go here. Clearly, the television networks are ecstatic to pull those shares and pass the cost on to advertisers.

2. The NFL. The Patriot’s run has gotten the casual fan more involved in the product on the field, just as the McGwire/Sosa home run chase did in 1998 for MLB. Like any business, the NFL is always looking to expand market share, either by exciting an apathetic audience or generating a new one altogether. The Patriot’s have been a godsend, bringing positive media exposure to a league that had been bombarded by dog-fighting, gun-wielding, drunk-driving thugs in the off-season.

3. Their competition. Yes, even the Patriots’ competition benefits from their excellence. It sets the bar higher and in turn forces them to improve. (For example, the Colts’ success forced the Jaguars to get better.) It also gives a roadmap for how teams can succeed in an era of free agency and the salary cap. It’s no wonder every year college and pro teams pick off the Patriots’ staff, hoping they can emulate New England’s success.

Maybe the question should be, who hasn’t benefited from the Patriots’ success? I can’t think of anyone, from retailers to the league to big-time television. Adam Smith, from my point of view, has been proven right yet again.

Update: Check out Gavin Kennedy's post here.
Update 2: For a more cynical take on the Patriots' success, go here.

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