SOUTHWEST HARBOR — 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, maxed out at only slightly over $100,000 (about $500,000 in today’s dollars) during his Hall of Fame career. This shocking disparity in athletes’ incomes may tell a larger story about the U.S. economy.

No fan would regard Sizemore as Kaline’s equal. Is baseball more popular now 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 – 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 the 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 concept can be used to explain the changes from Kaline to Sizemore, but in a sense hardly ever discussed by most economists.

During Kaline’s career, the “reserve clause” left every player contractually subservient to the first team that 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 attorney Marvin Miller and St. Louis Cardinal star Curt Flood courageously challenged the reserve clause in federal courts. Though Flood’s appeal to the Supreme Court lost, the case raised awareness of the issue and led to a series of labor rulings that brought about the end of the reserve clause.

With the elimination of this legal restraint, both the supply and the demand side of the equation changed. The number of bidders for star players greatly increased, but as Wikipedia correctly notes, “Miller clearly understood that too many free agents could actually drive down player salaries. Miller agreed to limit free agency to players with more than six years of service, knowing that restricting the supply of labor would drive up salaries . . . .”

Unionization and legal victories were not the sole forces 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 stadiums complete with luxury boxes – often financed by regressive sales taxes – are.

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.

Wal-Mart wages are determined by supply and demand, but once again the question is who is shaping and gaining leverage in this market. Wal-Mart 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 the advocacy group Business for a Fair Minimum Wage, comments: “Wal-Mart pays workers less now than when Sam Walton started the company in 1962. The average wage for Wal-Mart 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, the chain squeezes its other suppliers. And just as baseball teams move at will, Wal-Mart thinks nothing of relocating or closing any of its stores when union organization or higher-wage ordinances are threatened.

Finally, Wal-Mart, just like Major League Baseball, is subsidized. Sklar comments: “The Walton heirs . . . have a combined net worth of $136 billion. Wal-Mart workers top the state lists of employees depending on the public safety net.”

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

— Special to the Press Herald

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