Reason for Poverty: Circumstances or Bad Decisions?

Almost all NFL football players are potentially rich. A career lasting 6 years (the median length) will provide an NFL player with more earnings than an average college graduate will get in an entire lifetime, plus a modest pension. Yet within 12 years after retirement, 12.7% of players have filed for bankruptcy (presumably becoming “poor.”)

From the study abstract:

We find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement.  Moreover, bankruptcy rates are not affected by a player’s total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.

Apparently, there are many other players who fall into financial straits without a formal declaration of bankruptcy.  A widely-cited Sports Illustrated article reports that 78 percent of former NFL players are bankrupt or under “financial stress” within two years of retirement.

Why does this matter? Because why people are poor matters. Do we want to redistribute the same amount of money to a former NFL football player as we give to someone at the same level of income who is poor through no fault of his own?

To make up an example, imagine people who spend the night gambling in a casino. At the end of the evening, some walk away winners; others are losers. Should the government redistribute income from the winners to the losers?

Most people would say “no.” Why? The only reason for the losses is the decision of the losers to gamble. If we subsidize their losses, we would be rewarding people for making bad choices.

In reality, the government requires winners to report their winnings as taxable income. But it doesn’t let the losers deduct their losses. A lot of people regard this practice as unfair. And they are probably right.

If we allowed losers to deduct their losses, federal tax policy would be implicitly redistributing income from gambling winners to gambling losers.

That doesn’t seem to make a lot of sense.


Submit a Comment

Your email address will not be published. Required fields are marked *