When Reggie Jackson’s five-year, $2.9 million contract with the New York Yankees kicked off baseball’s free-agent era in 1976, a box seat at Yankee Stadium -- the best in the house -- would run you $5.50. Thirty-eight years later, the minimum salary for a major leaguer is just below Jackson’s then-record amount. The biggest stars earn more for four games than Jackson did for an entire 162-game season. Now, tickets to a Yankees game range from $18 for the bleachers to $300 for the best seats. The connection seems obvious: The extraordinary run-up in player salaries has driven an outrageous rise in ticket prices.
But as any student of the baseball industry -- or any industry, for that matter -- knows, the relationship is exactly the opposite. As more people spend more money on baseball-related entertainment, baseball raises prices. Even so, game attendance has more than doubled since Jackson signed his big contract. Ticket prices, broadcast contracts, concessions and in-stadium advertising have exploded. And those are just baseball's old-fashioned revenue streams. Today, there's also pay television, luxury boxes and “VIP” experiences, high-end restaurants, logo licensing and collectibles. All of this comprises what economists call “raising the demand curve” for baseball.
More demand for baseball raises demand curves for almost everyone whose living relates to baseball. The increasing value of a slugging outfielder drives up the value -- and therefore the pay -- of the scouts who found him, the executives who signed him, the minor league instructors who nurtured him, the marketers who exploit his image and the broadcasters who call his games. A team of expensive sluggers requires a luxurious clubhouse, gourmet food, first-class travel, skilled publicists, state-of-the-art training equipment and top-notch medical care.
Which brings us to America's building awareness about our uniquely high prices in health care. New York Times reporter Elisabeth Rosenthal’s excellent series "Paying Till It Hurts" has brought this concern into focus by examining inexplicably big bills in every corner of health care, from stitches to ambulance rides to hip replacements. Rosenthal tours a world of irrationality and excess, where prices bear no relationship to underlying inputs of time or resources, and charges for the same service vary inexplicably across regions, institutions and even individual patients.
There’s only one problem: Like casual baseball fans, most health experts get cause and effect backward. They believe these absurdly high prices are what explain the U.S.’s high health-care tab. But it's the other way around. America’s unique willingness to pay more for health care -- the continuous raising of our demand curve -- forces up prices.
Ignore the political rhetoric, and look at the totality of U.S. policy in terms of its impact on health care as an industry. Medicare, Medicaid, new insurance mandates, elimination of coverage caps, Part D drug coverage and the Affordable Care Act have been the economic equivalent of baseball’s pay-TV revenues, new luxury boxes and online subscriptions services: huge new sources of revenue.