John Buell

Economic Lessons From the Boys of Summer

While watching a Red Sox game the other night I was led to wonder why Grady Sizemore, the Sox right fielder, has received contracts as high as $7 million during his career whereas the Detroit Tiger right fielder of my youth, Al Kaline, only maxed out at slightly over $100,000 (about $500,000 in today’s dollars) during his Hall of Fame career. This shocking disparity in sport incomes may tell a larger story about the US economy.

No fan would regard Sizemore as Kaline’s equal. Is the sport of baseball more popular than in the ’70s, thus leading to increased demand for star players? Since football has achieved stunning levels of popularity – especially here in New England — and now dominates the rhetorical landscape, it would be hard to make that argument. Economists like to explain changes in salaries for baseball players, corporate CEOs, and hedge fund managers by citing and validating “market forces” and supply and demand. Market forces will set these prices and thus promote most efficient utilization of scarce resources. Interfering with supply and demand, such as with minimum wage laws, causes inefficiency and costs jobs.

Mainstream media seldom tell us about the elusive preconditions for this happy outcome. No buyer or seller has enough of the market to be able to influence price. Both buyers and sellers must be “rational agents” and have equal access to information.

The supply and demand metaphor can be used to explain the changes from Kaline to Sizemore, but in a sense hardly ever discussed by most economists. One of the major changes in baseball is rules governing who could bid for star players. During Kaline’s career the “reserve clause” left every player contractually subservient to the team that first drafted and signed him. So the demand side of the equation was a literal monopsony, one buyer. And while superstar players are rare, teams had access to scores of talented athletes.

These circumstances changed when former steel-union attorney Marvin Miller and St Louis Cardinal star Curt Flood courageously challenged the reserve clause in Federal courts and won. Flood’s victory left supply and demand intact, but the number of bidders for superstar services increased and enhanced player salaries dramatically.

Unionization and legal victories were not the sole force driving salaries. Owners and players have made baseball — and pro franchises — more profitable. They manipulate their franchises in the same way manufacturing CEOs treat their factories. They relocate wherever they can get the most lucrative subsidies. Cheap labor may no longer be a possibility, but state- of- the- art stadia complete with luxury boxes — often financed by regressive sales taxes — are.

TV advertising adds to the inordinate wealth of both players and owners. Most ads hardly serve an informed consumer. Nonetheless, today’s consumer can seldom purchase products for which there has been no advertising. Ads themselves also often serve as barriers to entry, thus buttressing the oligopolistic structure of most product markets.

Baseball may seem an outlier when it comes to questions of economic justice. Yet baseball reflects and helps validate many of the inequities and inefficiencies in major consumer and labor markets. Walmart wages are determined by supply and demand, but once again the question is who is shaping and gaining leverage in this market. Walmart has its own version of the reserve clause. Through an aggressive competitive strategy it has cornered the retail market — especially in many rural communities. Thus it limits options in the labor market. Holly Sklar, director of Business for a Fair Minimum Wage, comments: “Walmart pays workers less now than when Sam Walton started the company in 1962. The average wage for Walmart sales associates – $8.81 an hour according to IBIS World industry research – is lower than the 1962 minimum wage of $8.91, adjusted for inflation.”

In similar fashion it squeezes its other suppliers. And just as baseball teams move at will, Walmart thinks nothing of relocating or closing any of its stores when union organization or higher wage ordinances are threatened. Finally Walmart, just like Major League Baseball, is subsidized. Sklar comments: “The Walton heirs … have a combined net worth of $136 billion. Walmart workers top the state lists of employees depending on the public safety net.”

Walmart’s extraordinary profitability, just like Sizemore’s astronomical salary, is hardly the fruit of free market competition. Anti-trust and fiscal policy shape both the supply and demand sides of the equation and allow considerable room for price and wage setting if not even outright price fixing. This is no efficient market. It is time to make laws that serve the great majority of our citizens.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, July 1-15, 2014