First, a reminder on correlation versus causation here. For those of you that are too lazy to read that link, let me summarize: CORRELATION DOES NOT IMPLY CAUSATION.
Now that we are reminded of that important concept, let me introduce what I find to be a particularly amusing article on the relationship between Yankee success and economic health:
Wall Street might want to root for the Yankees in Game 6 of the World Series on Wednesday night in the Bronx. That’s not just because the Yankees represent New York, but because a coincidental sports indicator shows that a Yankee victory in the series has historically been bullish for the stock market.
For the record, this article is from the New York Times, not from some random no-name publication. To its credit, the article is careful to point out that it’s a “coincidental” indicator. In econ-speak, we call that a spurious correlation. We could have also made it simpler and called it “correlation without causation” instead. In this case, the relationship probably holds because some external force is affecting both Yankee success and economic performance. (For example, it could be the case that positive expectations allow the Yankees to spend more money, which makes them do better. I am playing around with the numbers here and will let you know if I find anything.)
The people over that the Wall Street Journal seem to be thinking along the same lines:
If the Yankees win the World Series the economy will have a nice bounce back in 2010 but if the Phillies prevail it will be a long slog to recovery, according to a Real Time Economics analysis of gross domestic product following Yankees and Phillies World Series victories since 1930 (which is as far back as the Commerce Department’s GDP numbers go). Okay, so it’s a stupid calculation, but just for fun let’s take a look at the numbers.
There is also the matter of correlation versus causation. Just because the stats point in one direction doesn’t mean there’s any causal link between Yankees victories and growth. Or is there? “Perhaps the Yankees thrive in years in which their rate of outspending other teams surges, and that their investments stimulate the economy. Or they only outspend when their staff economists forecast economic growth,” Mr. Bialik wrote in an e-mail. He added: “This Mets fan says any argument that suggests rooting for the Yankees is inherently flawed.”
Unfortunately, whoever wrote the headline “Yankees World Series Victories Boost Economic Growth” is less enlightened on the matter. The people writing about the negative relationship between Phillies wins and economic performance don’t do much better:
Historically, the truth is difficult to pinpoint, but one thing is certain – the triumphs of Philadelphia baseball always coincide with the devastation of the U.S. economy. You can’t have one without the other.
Had A’s owner/manager Connie Mack not created a dynasty, FDR and Churchill likely would not have been called upon to save the world.
Okay, the article takes the argument far enough to get me to believe that it is actually satirical. (I hope so, at least, but the commenters seem confused about the article’s tone, so perhaps the author should have made it more clear.) Serious or not, the article bring about the notion of the counterfactual, which is basically the “what would have happened if the world was the same except that this one thing didn’t happen?” scenario. If we are going to show that one thing causes another, in this case that the Yankees winning causes an uptick in the economy, we have to establish a counterfactual where everything is the same but the Yankees don’t win and show that the uptick doesn’t happen in this case. (Sadly, that would be a price I am willing to pay.)
Okay fine, maybe this is just a long-winded way of saying “Go Phillies.” At least if the relationship does turn out to hold, I have a reasonable hedging strategy going…