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Mary Barker: Economics lessons from the world of sports

Published: Thursday, Sept. 4 2014 10:37 a.m. MDT

Zach Greinke signed a six-year contract in 2012 worth $147 million for an average yearly salary of $24,500,000 (or $1,788,500 of Lou Gehrig’s dollars) plus a signing bonus of $12 million.

Jeffrey Phelps, Associated Press

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Baseball Hall of Famer Lou Gehrig consistently ranks among the top players in the history of the game. During his time as first baseman for the New York Yankees, he earned around $8,000 a year ($109,589 today). Shoeless Joe Jackson, the legendary outfielder of the Chicago White Socks, was never paid more than $6,000 ($82,192 today). Apart from Babe Ruth, most players back in the day were paid so low that they were tempted to collaborate with gangsters to fix games, as in the 1919 World Series. By contrast, Zach Greinke signed a six-year contract in 2012 worth $147 million for an average yearly salary of $24,500,000 (or $1,788,500 of Lou Gehrig’s dollars) plus a signing bonus of $12 million.

There are many factors that account for the tremendous changes the world of sports has experienced, but the rules governing contracts is one. In the mid-1960s, baseball players created a more robust and efficient union under the leadership of Marvin Miller. He strengthened the union’s finances through a group licensing program, educated players and stressed the importance of solidarity. In 1968, when the first collective bargaining agreement was struck, the minimum salary for players jumped from a two-decade long $6,000 to $10,000 and they received better working conditions.

A further development — free agency — was won in the 1970s despite repeated attempts by owners to thwart it. Yet beyond individual income, the common good was also taken into account. It was considered that universal free agency wasn’t in the interest of the game, and thus a system of service time for future free agents was devised. Outside of baseball, in the NFL and NBA, service to the greater good has led to the imposition of wage caps to keep overall costs down and increase the parity among teams.

Professional sports also benefit from government subsidies and other privileges. In reference to the NFL, The Atlantic enumerated some of them. “Taxpayers fund the stadiums, antitrust law doesn't apply to broadcast deals, the league enjoys nonprofit status, and Commissioner Roger Goodell makes $30 million a year. It's time to stop the public giveaways to America's richest sports league.”

The world of sports illustrates important lessons about the economy. We tend to think of capitalism as “one thing” and “natural” — an ecosystem that gives everyone what they deserve if only left alone. We miss the fact that the ecosystem itself is created; that it takes many different forms, none of which is natural; and thus our incomes depend on many factors. They depend on government, for example, to protect property rights, enforce contracts, etc. They also depend on both merit and power. Yet, it is often assumed that to highlight the latter (the role of power) is somehow to disparage the former (merit), when in reality it is the opposite. The hope of social justice theorists is to minimize the role of power in order to strengthen that of merit.

Moreover, power has the largest effect on incomes before any taxation or government redistribution, belying the notion that we each earn what we deserve and that government action simply “robs” from the worthy to give to the not. The income disparities we observe between Lou Gehrig and Zach Greinke, for example, have nothing to do with merit.

We should recall that the original left disdained what is today known as welfare. Marx, for example, championed labor, not government handouts. It was because people worked that he thought they should receive their just due. Progressives of the early 20th century fought for the right to employment at a dignified wage, not the right to a government check. The welfare state wasn’t the creation of the left but rather the compromise between left and right, the former not willing to leave those without social power behind, the latter not willing to grant the rights to employment, a living wage, or ownership to all who participate in production.

Unlike the world of sports, however, the average worker today lacks the social power to command a fair deal for his labor, explaining the failure of salaries to keep pace with productivity and the skyrocketing CEO to worker pay.

Mary Barker teaches political science in Madrid, Spain, and is currently on leave to conduct research and is teaching at Salt Lake Community College.

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