The Impact of Moneyball on the MLB

Yesterday, Skip Sauer, an economist from Clemson University, posted over at TSE about how the impact of Michael Lewis's Moneyball on Major League Baseball.

When Jahn Hakes and I embarked on our first academic paper on the subject, we thought there was a decent chance that we could refute the economic claims in Moneyball, in particular that players with high OBP were under-priced in the labor market.  Any card-carrying economist knows this is inconsistent with equilibrium in a well-functioning, competitive labor market, and were not baseball teams intensely competitive?  But instead, Jahn and I found that high OBP players did come cheap, relative to the contribution of their skill to winning baseball games.  Intriguingly however, we found that the “OBP discount” vanished in 2004, the year that Moneyball was published.  The likely reason:  other teams, like Michael Lewis, had looked into what was going on in Oakland, and hired people out of the A’s front office.  Now there were multiple bidders for high-OBP players in baseball’s labor market, thus driving up their price.

OBP refers to on-base-percentage. And more from his second paper inspired by Moneyball.

In the early, pre-expansion period of 1986-1993, the estimated percentage boost in salary from a one standard deviation increase in the ability to take walks was a measly 2.8%.  Post-Moneyball, the figure was 14.0%.  The financial returns to the overlooked skill increased by a factor of five. Is that not indicative of a fundamental change in the game?

Pretty impressive findings. I've been thinking about sports economics as a potential career for several years now. Perhaps this movie will generate some buzz and increase demand for people trained in economics, statistics, finance, and mathematics that want to work in professional sports for a career. Or even college sports for that matter. As someone who grew up in a great college town, I wonder about the extent to which big-time college football programs are actively implementing advanced statistical analysis to improve their teams.

The Best American Sports Writing 2011 - FREE!

One of the most popular posts on this blog to date has been the The Best American Sports Writing 2010 - Free that I posted earlier this year. I guess people like free stuff. In that post, I linked to as many articles of the 2010 edition of the book as possible, since most of them could be found somewhere on the internet.

Well, I have done the same thing for the latest edition, The Best American Sports Writing 2011, which is coming out on October 4th. There are a few articles that I have not been able to locate yet, so if you are able to find them, let me know and I'll link to them here. If you prefer reading in book format, you can pre-order the book right now for $10 on Amazon for a both the paperback and Kindle editions. Enjoy!

Risks, Danger Always in Play by John Powers from the Boston Globe (subscriber access only)
 

Breathless 4 by Chris Jones from ESPN The Magazine

The Surfing Savant by Paul Solotaroff from Rolling Stone

School of Fight: Learning to Brawl with the Hockey, Goons of Tomorrow by Jake Bogoch from Deadspin.com

The Franchise by Patrick Hruby from ESPN.com

Eight Seconds by Michael Farber from Sports Illustrated (unable to locate)
 

ABC News Investigation: USA Swimming Coaches Molested, Secretly Taped Dozens of Teen Swimmers by Megan Chuchmach and Avni Patel from ABCNews.com
 

Own Goal by Wells Tower from Harper’s Magazine

 

Culture of Silence Gives Free Rein to Male Athletes by Sally Jenkins from the Washington Post
 

High School Dissonance by Selena Roberts from Sports Illustrated
 

Gentling Cheatgrass by Sterry Butcher from Texas Monthly

Pride of a Nation by S. L. Price from Sports Illustrated

The Crash by Robert Sanchez from 5280

The Patch by John Mcphee from The New Yorker (subscriber access only)

 Fetch Daddy a Drink by P. J. O'Rourke from Garden and Gun

Trick Plays by Yoni Brenner from The New Yorker 

The Short History of an Ear by Mark Pearson from Sport Literate (unable to locate)
 

If You Think It, They Will Win by Bill Shaikin from the Los Angeles Times (unable to locate)

The Dirtiest Player by Jason Fagone from GQ

Old College Try by Tom Friend from ESPN.com

Dusty Baker a Symbol of Perseverance by Howard Bryant from ESPN.com

Icarus 2010 by Craig Vetter from Playboy (not even going there)
 

Danny Way and the Gift of Fear by Bret Anthony Johnston from Men’s Journal
 

The Tight Collar by David Dobbs from Wired.com

Life Goes On by Mark Kram Jr. from the Philadelphia Daily News

The Courage of Jill Costello by Chris Ballard from Sports Illustrated

Above and Beyond by Wright Thompson from ESPN.com

A Gift That Opens Him Up by Bill Plaschke from the Los Angeles Times
 

New Mike, Old Christine by Nancy Hass from GQ 

I haven't had a chance to read any of the articles yet, but I'll update this post with my personal favorites when I do.

What is an economist? Cartoon Edition

This is the second post in the series "What is an Economist?"

I am re-posting this cartoon from Greg Mankiw's blog because I enjoyed it so much. I also thought it fit well with this series.

Click picture to enlarge

From time to time this cartoon will pop into my head during class as we are discussing spurious assumptions that are made for economic theories and models. One of the wonderful things about economics is that models are usually built off of "reasonable" assumptions and proven laws of economics. Then we see where those assumptions lead us. Hopefully to some conclusions that we can cleverly test with real-world data. If those assumptions turn out to be unreasonable or flat-out wrong, we should go back and adjust our models.

What this cartoon points out, I think, is a major problem in many fields, but specifically in econ. Economists must be willing to go back and adjust assumptions and models to conform to real-world data and observations... If the catapult doesn't work, maybe a better strategy structure would be a bridge!

The FRED Excel Add-In - Getting Economic Data Has Never Been Easier

Paul Krugman posted briefly on his blog last month about a free excel tool called the FRED add-in (Federal Reserve Economic Data). This tool by the St. Louis Fed is a simple, yet essential for anyone who likes working with and analyzing economic data. Basically, this excel add-in streamlines the process of downloading/importing economic data into a spreadsheet. And it fits nicely into the current excel interface (see screenshot below).

I won't bore you with how to download and install it, but I would like to highlight some of the useful features.

• You have over 30,000 economic time series just a click away.
• You can easily update data once new information has been published.
• Data manipulations can be performed on any data set that you download. My favorites are percent change from the previous period and the natural log (I'm finding out in grad school that economists are quite fond of this transformation).
• Ability to change the frequency of aggregation (daily, weekly, bi-weekly, monthly, quarterly, and annual)
• A streamlined graphing process! Other than the actual importing process, I think the graphing feature is my favorite thing in the FRED add-in. I mean, mainly because I can shade US recessions on my graphs for the first time ever. It doesn't get much better than that!
•  You can also create a multiple series graph in a matter of seconds and create a secondary vertical axis while you are at it. 

Recession shading...

I hope you find this tool as useful as I have. As I play around with it more, I'll update this post with any other cool features that I stumble across. Here is the user's guide if you want to learn more about the FRED add-in.

What sort of economics tools, software, or websites do you use to look at economic data? Are there any other excel add-in's out there like this one? I would love to here from you in the comments section below or tweet me with your comment @zack0liver.

Moneyball on the Big Screen

As someone with a personal interest in sports economics, I am looking forward to the new Moneyball movie that is coming out later this month. It is based on the sports classic by Michael Lewis, one of my all-time favorite writers who I have blogged about previously here.

 

I hope that the movie touches some on the advanced sabermetrics that are used, but I'm assuming there it will just scratch the surface. It's Hollywood after all.

(HT Marion for sharing the trailer with me)

Does Maternal Race Impact Adult Outcomes?

Last week, I attended an interesting seminar about a new paper in the works by Peter Arcidiacono and Seth Sanders from Duke University titled Maternal Race and Black Outcomes. Peter Arcidiacono presented the research and did a great job handling a multitude of questions and challenges to the paper. I considered applying to Duke's MA Program, so I was excited to have a Duke professor come to present his work. Anyway, here is the abstract:

Differences between blacks and whites in test scores and labor market outcomes are stark. While much catchup occurred post-Civil rights, convergence has slowed. We examine how differences across education and labor market outcomes vary by maternal race and own race with identification coming from mixed-race families. While black students with white mothers come from families with similar demographics to black students with black mothers, their education and labor market outcomes are very different. There are no significant differences in test scores, grades, college graduation, and wages between black and white males with white mothers, yet large differences exist between these groups and black males with black mothers. These results are insensitive to alternative measures of own-race, using skin tone instead of own race, and including school fixed effects.

The paper is somewhat controversial depending on how the results are interpreted. One caveat is that these results are only statistically significant for boys, although girls' outcomes follow a similar pattern. Several major points stuck with me from the seminar.

1) Although black children with white mothers are demographically more similar to black children with black mothers, black children with white mothers have adolescent and adult outcomes that are more similar to outcomes of white children.

2) Skin tone of the child was insignificant in terms of impact on adult outcomes when maternal race of is accounted for.

3) These results held for a variety of outcomes including wages, college completion, test scores, etc.

As you can see, this paper could likely take a lot of heat simply due to the issue it is trying to tackle. The fact that the mother's racial background is statistically more important than than her child's is a novel idea in this field. Is it culture, social networks and access, the inter-generational impact of discrimination on families, etc. or a combination of many factors? What mechanism is at work here? Here is the authors' conclusion:

That fact that the results seem to be different depending upon whether race is coded as race of the mother or race of the child is suggestive that race of the mother may have an affect on outcomes distinct from its effect through the race of the child. This pattern is supported by the findings in this paper which points towards differential investment patterns across mothers of different races.

What is an Economist? Tyler Cowen's Version

In a recent interview that Tyler Cowen did with the Economist, there is a segment where he talks about the econ blogosphere. Specifically, he discusses how the blogosphere and the internet is changing the very definition of what it means to be an economist:

If you look at someone like Interfluidity, known to his mother as Steve Randy Waldman, he is not credentialed the way that Paul Krugman is, but he is a brilliant guy. I think of him as much of an economist or more than any economist. I think partly, the notion of who or what is an economist is breaking down. Take Matt Yglesias, Matt is a philosophy undergraduate major at Harvard. Matt is a way better economist than most economists. It is as if being an economist is this new thing. It’s not just about researching an area for a few years and publishing a paper, it’s about knowing how to twiddle the dials on the internet and learn from this collective thing called the blogosphere, your twitter feed, or other sources that are out there and Matt is awesome at that, and in a funny way is one of the world’s best economists.

It is somewhat surprising to hear an academic economist acknowledge that people who are not formally schooled in economics can be better economists than people who have their PhDs. As someone who is planning on getting an MA in economics and working in the private sector, it is refreshing to hear that you don't have to have a doctorate to make a difference in the field.

I'll be on the lookout for other interesting answers to the question "What is an economist?" and I'll be posting them here. I expect a wide variety of descriptions, including some less than favorable portrayals of the "dismal scientists." If you have your own description of what an economist is (or isn't), share it in the comments section below.

Guest Post: Making Sense of the Balanced Budget Amendment

The guest post below is by Andrew Hanson, who blogs regularly over at Amateur Philosophy (you can also follow him on Twitter here.) Andrew is up to date on the DC pulse, and he is a wealth of knowledge about current policy developments. He always brings interesting points to the table, and best of all, he thinks like an economist! I'm thrilled that Andrew has taken the time to write today's guest post on the balanced budget amendment.

 

Greetings, Zackonomics readers! I'm Andrew Hanson. I'm a fellow 2009 Teach For America alumnus, and I blog at Amateur Philosophy on philosophy, economics, and public policy. Zack and I struggled together while teaching algebra to a quite memorable group of eighth graders. 

One of the most interesting aspects of the past five years is how hard-won economic knowledge seems to have been lost by many in the public policy realm, and zombie ideas have again gained influence. Many of these ideas are associated with the Tea Party Movement, which became particularly influential in the 2010 congressional elections. However, they've also gained influence in other conservative and libertarian circles as well. There are many examples. The so-called "Gold Buggers" have called for a return to the gold standard. The Hangover Theory has returned, suggesting that recessions are the punishment we deserve for unwarranted excesses and malinvestment during the boom. Inflation hawks have been crying out in fear of hyperinflation because of the Federal Reserve's decision to "print" more money. The most recent zombie idea is that the federal government is a family that needs to "tighten its belt" when times are tough. The Balanced Budget Amendment, a proposal that would amend the constitution to mandate that the federal government keeps the budget balanced on an annual basis. 

Let's focus on the Balanced Budget Amendment, why it's bad economics and bad policy. First, there is a long-term federal budget problem that can only be resolved by cutting health care costs and the Medicare entitlement. But balancing the budget this year and every year after that wouldn't help solve that problem; it would make it worse.  To understand why, we have to first think about why the federal government might want to run budget deficits in general. The primary reason the U.S. economy isn't growing is that there isn't enough demand for goods, services, and investments to take advantage of our productive capacity. Factories and workers are sitting idle when they could be engaging in productive activities. 

Economists know that recessions are accompanied by a fall in aggregate demand, and though it cannot prevent recessions completely, the federal government can make output and employment less volatile by adopting "automatic stabilizers", changes in fiscal policy that stimulate aggregate demand without policymakers signing any new laws or measures. The tax system, for example, collects less in taxes when output falls because taxes are tied to the level of economic activity: income, earnings, and profits. Government spending, such as unemployment insurance, can also act as an automatic stabilizer. As unemployment rises, the government spends more on unemployment insurance to make up for the lost spending in the economy. More automatic stabilizers, such as tying the payroll tax to the level of unemployment are being proposed now as well. 

A Balanced Budget Amendment would require the government to raise taxes and cut spending during a recession, which would further depress aggregate demand, and make the recession longer and far more painful. Instead, the federal government should try to balance the budget over the course of the business cycle, but even that may be asking too much. The federal government never needs to balance its budget completely; it just needs to keep the federal debt as a percentage of GDP at a reasonable level. Kenneth Rogoff and Carmen Reinhardt, economists at Harvard, have detailed exactly what levels are crisis and what countries can afford in their book "This Time It's Different". Their basic conclusion is that anything over 90% of GDP is quite dangerous, while a government could run the federal debt at 50% of GDP basically forever.

The Paradox of Thrift

It is hard to disagree with the fact that individual thrift is a good thing. However, collective thrift can be a bad thing, as we are seeing right now. Economists call this the paradox of thrift, and the idea is credited to John Maynard Keynes. In the following discussion of this paradox, it is important to distinguish between the short-run and the long-run.

In the short-run, sudden increases in the aggregate savings rate can be harmful to economic growth. We saw this happen during the Great Recession, and it is still and issue right now. According to the BEA, the personal savings rate was 5.4% of disposable income in June of this year. From 2005 to 2007, the savings rate averaged between 1.6% and 2.2% of disposable income (depending on the measure used.) When the savings rate more than doubles in a short period of time, it will be felt throughout the economy.

Data from http://www.bea.gov/national/nipaweb/Nipa-Frb.asp?Freq=Qtr

The pre-recession savings rate turned out to be unsustainable as many people had nothing to fall back on. Since the financial crisis and the related bursting of the housing bubble, consumers have held onto more of their money out of both fear and necessity. The sudden increase in the savings rate that occurred in 2008 is akin to a shock to aggregate demand. A shock to AD decreases national income, which in turn decreases savings despite the increase in the marginal propensity to save. Economist Paul McCulley of Pimco described the paradox like this:

If we all individually cut our spending in an attempt to increase individual savings, then our collective savings will paradoxically fall because one person's spending is another's income--the fountain from which savings flow.

This is an excellent description of the paradox of thrift in the short-run. Essentially, the paradox of thrift says that saving more of your money can be good for the individual, but if we all decide to do it at the same time, it can actually be worse for all of us than if we did nothing at all. This reminds me of game theory's famous prisoner's dilemma. Now, let's shift our view to the long-run.

In the long-run, collective thrift (i.e. a higher marginal propensity to save) is a usually a good thing, which is consistent with most people's intuition. To borrow Paul McCulley's lingo, savings are the fountain from which investment flows, assuming people aren't simply hoarding money.

So, what can we do about the the paradox that we face? My conclusion is that policymakers should encourage consumers to avoid having extremely low savings rates during economic expansions. Yes, low savings rates can stimulate growth in the short-term since more money is being quickly funneled back into the economy via consumption. However, low savings rates are counter-productive in the long-run. We still live in a world with business cycles, and when recessions rear their ugly heads, individuals and households need a financial buffer. When someone loses a job, past savings can be shifted to cover bills and living expenses if needed. In addition to individuals having this essential buffer, higher collective savings over the long-run are good for the economy since savings is the mechanism for investment. Policymakers can help over the long-run by limiting uncertainty and maintaining trust, so that savings are invested productively.

While the paradox of thrift does have some valid criticisms (here and here), it is an interesting concept that has important implications for our economy.

Graduate School

I am officially a graduate student in economics! Just over one week ago, I started my Master's degree in Applied Economics. The two tracks that I am deciding between are "Data Analytics" or "Applied Micro and Policy". I would love to do both of them, but the program is only three semesters long, so my capacity is limited.

Unfortunately, I have not been posting to the blog much lately due to the fact that I have been in the process of relocating to a new city for my graduate program. However, my goal is to post at least 3 to 4 times per week by the end of the the year, and writing that here will hopefully be an effective commitment device!

Now, I should get back to studying for my three-week Math Econ course. The Cobb-Douglas production function, Taylor's Theorem, and Hessian matrices await!

Look for posts soon... and don't forget to follow me on Twitter as an easy way to get updates for this blog.