Archive for January, 2009

Be Careful When You Criticize Experts

Yesterday, baseball and political analyst Nate Silver accused Harvard economist Greg Mankiw of academic intellectual dishonesty. It’s not a charge that ought to be thrown around lightly.

The type of tax cut that Romer and Romer think falls into this category is what they call an “exogenous” tax cut — one designed not to counter business cycles, but rather a “spontaneous” tax cut under relatively healthy economic circumstances.

This is very much not the type of tax cut that we are contemplating right now. Instead, what is being contemplated is a countercyclical action in an unhealthy economy designed to return the economy to normal growth. Romer and Romer are not all that keen on this type of tax cut; in fact, they argue that such “countercyclical fiscal policy is not achieving its intended purpose,” and that “policymakers’ efforts to adjust taxes to offset anticipated changes in private
economic activity have been largely unsuccessful”…

The thing is that’s really irksome is that Mankiw should know a lot better. This is not some random blogger at Townhall trying to parse a difficult economics paper and overlooking an important point of context — this is one of the premier economists in the world. He knows very well what the Romer and Romer paper says — and he’s made a deliberate choice to misrepresent it.

In poker terms, this is what we’d call a “tell”. Mankiw doesn’t have anything. He’s bluffing. Out of ideas. Taking one for the team, and touting the party line for shits and giggles. Except, this isn’t exactly fun and games, and Mankiw should leave the discussions to people who are serious about getting our economy moving again.

Nate is a smart guy—smart enough that he ought to know when he’s in over his head—but he misses the boat on this one, as Mankiw is “kind enough” to point out.

I usually don’t respond to blogosphere commentary on my work because, after all, time is scarce. But this critique by Nate Silver is noteworthy because the error it makes is so fundamental. It offers a teachable moment….

This argument raises the question: Why did the Romers focus on exogenous policy changes? The reason is that these are the only changes that can be used to reliability identify the effects of tax policy. If a tax change is made in response to some event, call it X, that influences the economy, it is hard to disentangle the effects of the tax change from the the direct effects of X. The Romers focus on exogenous tax changes for the same reason doctors conduct randomized drugs trials–not because they are interested in randomization as a prescriptive tool, but because randomization solves a statistical identification problem.

Imagine if a clinical doctor reasoned the same way as Silver did. He would say, “All the evidence on the effects of this drug are from randomized drug tests. In my practice, I never randomize treatment of my patients. Therefore, I can safely ignore the results from the randomized experiments.”

That is, of course, fallacious. We need the randomized experiments to inform us about the effects of medical interventions, even though interventions in practice are rarely randomized. Similarly, we need to consider the effects of exogenous tax changes, even though many actual tax changes are not at all exogenous.

The point isn’t that Mankiw “should know a lot better”; he does know better. That’s why he’s a professor at Harvard and one of the most respected economists in the world. It’s always possible that an expert is wrong—they make mistakes all the time—but, when preparing a critique of an expert you’re first thought should be “what am I missing?” not “what an idiot!” If you think an expert should know better, he/she probably does. Start from this premise that you are wrong, and reexamine the disagreement. If you still think the expert is wrong, proceed with caution in presenting your criticism. E-mail a friend with knowledge in the area, or even send an e-mail to the expert. Jumping ahead to calling someone a partisan hack is a less forgiving approach, especially if the mistake is on your end.

The “error” that Mankiw supposedly makes is so fundamentally correct that it does make for a teachable moment (in more than one respect)—the kind that will stay in Mankiw’s class lecture notes for years.


Addendum:
For all the people out there criticizing Mankiw for dissing the Romers, I just learned something interesting from Mankiw’s recent NPR interview.

— Mankiw was a friend of Christina’s in graduate school.
— Mankiw was best man at the wedding of David and Christina.
— David Romer was best man at Mankiw’s wedding.

If he’s doing anything that the Romers find offensive or inappropriate, I think he’s going to hear about it and it would cost him some close friends.

So, Why Don’t You Tell Us How You Really Feel?

I nominate this for Tyler Cowen’s “Markets in Everything” series.

ebay

SELLING THE HEART AND SOUL OF ONE USED ATLANTA BRAVES FAN. For 25 years I have proudly stood by my team in the good seasons and the bad. I’ve been around for worst to first and I was there when Sid slid. I grew up listening to Skip, Pete, Don & Joe call the games and felt like I had lost a family member when Skip left us. I have always been proud to call the Braves MY TEAM no matter what. When the Braves allowed John Smoltz to leave for Boston they allowed the heart of the franchise to walk right out of the front door and should be ashamed of themselves. Money should not have been an object in these negotiations…John Smoltx IS the Braves. The ownership and management of the Atlanta Braves should be ashamed of themselves, not only have the let down themselves, their team, and the city of Atlanta but they have shattered the core of the Braves family. Upon selling my support for the Braves I will no longer attend games, watch them on TV, listen on the radio, or follow them online. I am unable to support a team who so haphazardly gave up the FACE of the franchise. This is a sad day for Atlanta and for Braves fans everywhere. Congratulations Boston you just recieved THE CLASS ACT of major league baseball and he will literally pitch for you until his arm falls off. 100% of the winning bid for this auction will go directly to the John Smoltz foundation. The focus of The John Smoltz Foundation is to serve and fund organizations that change the lives of children and adults in a profound and positive way. The John Smoltz Foundation is dedicated to making a difference in the lives of people who in turn will pave the way for others to do the same.

Here’s an image from Talking Chop.

talking chop

I wouldn’t get too down. A year ago, Atlanta residents felt similarly about the Falcons.

C’mon Braves, At Least Be Honest

Before I get started, I am on the record defending the Braves’ decision to not match Boston’s offer for John Smoltz. I think it was the right move; and, even though many disagree, I think it should be understandable from a business perspective. So, why is the front office botching the PR of this difficult decision in a way that makes the organization look even worse?

Here is the response of CEO Terry McGuirk.

“John is a great guy,” McGuirk said. “He follows his own head, and I just don’t know what’s going on with him right now. We’ve offered less of a guarantee, but we’ve offered a substantial guarantee. Coming off an injury like this, we feel like it’s the right thing that we should be doing [in regards to the incentive-laden offer].

“We’ve offered him a package that would get him in the $10 million range, if he were to pitch a full season and pitch well. For him to walk away from that and to go to another place, I’m just shocked and surprised.

“I read today in something that his agent said the other set of incentives [from the Red Sox] were ‘more attainable.’ If John Smoltz pitches like John Smoltz pitches, I think [the Braves’ incentives package] is attainable. If he’s not healthy, it’s not going to happen.”

Supposedly, the Braves had a contract on the table for $2 million guaranteed, with a $1 million bonus for being on the active roster and an additional million for every month that he spends on the active roster. On it’s face, McGuirk’s statement is literally true. If Smoltz is on the roster opening day through the entire season, he would receive a total of $9 million ($2 million base, $1 million roster bonus, and $6 million for every month he is on the roster). I think it is fair to say that this is in “the $10 million range, if he were to pitch a full season.” However, this ignores the reality that Smoltz is not capable of pitching the entire season.

Rehab will most likely keep Smoltz off the active roster until late-May/early-June according to all the reports that I have seen. Thus, Smoltz’s contract would have maxed out at the $7 million which has been reported in the press. The Red Sox are guaranteeing around $5 million before another $5 million in incentives even kick in, and the incentives appear to activate with lower thresholds that are congruent with Smoltz’s recovery schedule. The difference between the Sox’s and Braves’ offers is $3 million, not $1 million, as McGuirk seems to insinuate—or maybe he thinks $7 million in the $10 million range.

We also have the following quote from GM Frank Wren.

“We were willing to pay John as much or more than the Red Sox to pitch,” Wren said early Thursday evening. “We just weren’t willing to pay him as much as the Red Sox were to not pitch.”

Again, this is misleading. I think it refers to the fact that the guaranteed bases represent the biggest difference between the two contracts. But, unless the Braves were offering greater marginal incentives than the Red Sox, the statement that the Braves are paying him “as much or more than the Red Sox” to pitch is incorrect. Let’s assume that the Red Sox and the Braves have the same incentive plan on the table ($1 million roster bonus plus $1 million per month); thus, here is what Smoltz will get in millions of dollars according to his time on the roster.

Months	Braves	Red Sox
0	$2	$5
1	$4	$7
2	$5	$8
3	$6	$9
4	$7	$10

Wren is apparently referring to the first derivative of the incentive schedule. For both teams, the change in the salaries with roster time is identical; however, Smoltz clearly gets more income from the Red Sox when he doesn’t pitch and when he pitches. Being healthy for the Braves wouldn’t get Smoltz up to the salary that he would earn with the Sox. Technically, what Wren said could be true—we don’t know the exact details of the Sox’s incentives—but from Smoltz’s perspective his he still gets more from the Red Sox even if he is healthy. Now, if the Braves had offered $2 million base with $2 million per month pitched, then being healthy for the Braves could get him a salary equivalent to what the Red Sox offered.

Why are the Braves doing this? I’m no PR expert, but I think it’s time for the Braves to scale back the whiny commentary. When the offseason started, I didn’t expect the Braves to have a healthy Smoltz on the roster in 2009 nor to acquire Rafael Furcal. Yet, fans are now up in arms complaining about the failure of the team to get these guys on the roster.

In Furcal’s case the team cried foul over alleged agent misbehavior. It doesn’t matter who is at fault. In both cases the team should have just said, “We tried to acquire a player that we thought would help the team; however, financially we were not willing to meet the salary demands without sacrificing the long-run competitiveness of the team. We wish him well, and we will continue to pursue other avenues to pursue the team.” This doesn’t eliminate fan disappointment, but I think the negative effects of the rejection wouldn’t linger in fans’ minds as long as they have because the team engaged in a meaningless blame game.

So Long, Smoltz

According to numerous reports, John Smoltz will be joining the Red Sox for a guaranteed $5.5 million plus the potential for $4.5 million in incentives. This has already started an uproar in Bravesnation, because Smoltz has basically gone out of his way to deny his interest in other teams to fans. I’ve heard him on the radio a few times assuring fans that he planned to stay.

From a team-quality standpoint, I really don’t see what the big deal is. John Smoltz is not just slightly hurt, and $5.5 million is a lot of guaranteed money to cough up for an injury risk. He didn’t just get his knee scoped. He’s about to turn 42, and he’s coming off major shoulder surgery. Yeah, I know he’s throwing off the mound, yadda yadda yadda, but that’s a long way from being the dominant pitcher he has been over the past few seasons.

From 2005–2007, he was basically a $15 million pitcher—one of the league’s best, and I don’t want to understate this. From the reports I’m reading, Smoltz’s injury should keep him out for the first third of the season. So, if he returns to his old starting form immediately after his return, he’ll be worth about $10 million—two-thirds of a $15-million pitcher. That’s the level at which incentive bonuses max out. However, the incentives cannot be based on quality, and must be determined by awards or quantity-of-play benchmarks. I suspect the incentives will be based on the latter considering that the Red Sox bonuses have been defined as “more attainable” than what the Braves offered. I think it’s more likely that if Smoltz does reach innings-pitched goals it will be at a performance level closer to a third or fourth starter rather than as his old dominant self. Thus, if he doesn’t trigger the incentives, he’ll be getting paid a lot to pitch very little; and if the incentives do kick in, I doubt the amount paid will match the performance.

The Braves supposedly had offered $2 million with incentives increasing the total to $7 million. I would not recommend that the Braves offer more than this. It’s easy to forecast Smoltz being on the hill in October, but there’s also a decent chance that he’ll be sitting on a gold-plated butt cushion in the dugout.

I don’t think Frank Wren deserves the heat that he is going to get for this. The Braves have paid Smoltz $130 million over his career. Smoltz wanted more, and I don’t blame Wren for passing. Signing and not signing Smoltz both have risks, and I think he gambled on the right side.

MLB and the Economy

There is an interesting story in today’s New York Times on baseball during the Great Depression. I don’t have much time to comment but I thought I would post a chart mapping MLB attendance and GDP from 1920–1960.


Attendance and GDP

Clearly, there was (and is) a relationship between the economy and MLB. Still, I’m an optimist about the current situation. Though top-tier sports are not recession-proof, I think there are a few reasons to think they are less sensitive to economic downturns than other sectors of the economy. Despite the down year, baseball’s attendance declined by about 1.1 percent. And when compared to 2006, attendance was up 3.4 percent. Even if fewer people go to the ballpark or buy deluxe cable packages, watching sports on television (and the internet) is cheap entertainment. Fans are loyal, and quite reluctant to give up sports even when times are tough. And the underemployed have more time to watch baseball.

Since 2003, MLB revenues have grown at an annual rate of over 12 percent—though we’re still waiting on 2008 numbers—and attendance has averaged 2.5 percent growth. My feeling is that the current recession will stunt growth rather than do serious damage. Yes, some people in MLB will loose their jobs, and maybe even player salaries will suffer a bit; though, I think they’ll be the last thing touched. The credit crunch may cause some teams to give jobs to players who they’d rather keep in the minors, when previously they would have preferred to pay a superior veteran a higher wage.

I think the article’s conclusion sums up the resiliency of baseball nicely.

Remarkably, while thousands of banks collapsed during the Depression and millions of people lost their jobs, no major league baseball franchises folded or moved during the period (though at least two changed hands, including the Boston Red Sox).

“The teams muddled through,” said Rodney Fort, a professor of sports management at the University of Michigan. “We know from this truly historic episode that things didn’t go to hell in a handbag.”

At least today, we’re not dumb enough to impose a 10-percent federal amusement tax like the one implemented in 1932.

Get Well, Mac

I suspect many readers are aware of this, but I wanted to pass along the news that popular Braves blogger Mac Thomason is fighting cancer. All signs point to a likely recovery, but still it’s scary and no fun for Mac.

For those of you not familiar with Mac’s Braves Journal, it may be the oldest baseball blog still in existence. For so long, a Braves game didn’t happen unless Mac recapped it. I have great respect for Mac, and I wish him a quick recovery.

Pat Burrell, Philanthropist

I’m not referring to the portion of Pat Burrell‘s new two-year $16-million contract that will be going to the Rays Baseball Foundation. When I first read the headlines, I inadvertently believed the deal was worth $16 million per season, which is close to what I anticipated he would get. For two years, I have him valued at approximately $30 million. This contract is also considerably less than the $31.5 million that Burrell’s former Phillies will pay Raul Ibanez over the next three seasons.

I can only guess what motivated Burrell to sign this contract. Here are a few potential explanations.

  1. The down economy has reduced revenue expectations, decreasing teams’ willingness to pay for free agents.
  2. There is a glut of free-agent outfielders on the market, forcing competition between players, and thus depressing salaries.
  3. Burrell wanted to take less to play in a comfortable environment that the Rays provide.

I don’t think the economy explains much of the discount. The inferior-but-similar Ibanez received a far superior contract in the same market conditions. Ryan Dempster and A.J. Burnett both received big contracts that I believe exceed their expected values. Furthermore, I believe the potential damage to MLB from the recession has been exaggerated by management, who want to convince players to sign for less. Though baseball will suffer, I think the damage will not be that large and short-lived. I’ve been following the economic impact stories closely, and baseball—like other major sports—seems to be somewhat resistant to recessions. Fans love their sports teams, and following sports is a relatively cheap form of entertainment. In any event, the economic downturn cannot explain the magnitude of Burrell’s discount—a short-term deal for nearly half of his potential revenue generation.

The second potential explanation is an argument that I see frequently in discussions of the free-agent market. However, the common intuition regarding the number of free agents on the market affecting the competitiveness of the market is wrong. The relative scarcity of talent doesn’t change when a player signs with a team or when there are many players on the market. For every free agent signing, there is one less buyer on the market, and for every free-agent player there is an additional open roster spot. Braves fans are well aware the available slots for outfielders.

This leaves me with the final explanation: Burrell was willing to accept less to play in Tampa. If Burrell was a financial mercenary, I think that he would’ve waited longer to sign a deal like this. Burrell went to college in Florida, so maybe he likes it there. Playing in front of fans who boo you for your big salary even when you are a productive player has to be frustrating. In Tampa, if the team stinks the fans just don’t go to the game. He’s earned a total of $54 million over the course of his playing career, so he’s probably willing to sacrifice some additional wealth for comfort.

We’ll soon see how the rest of the market shakes it. If other deals are vastly below expectations, then I think it’s a sign that the economy is having a dramatic effect on the players market.

Should the Braves Take a Chance on Andruw Jones?

It appears that Andruw Jones will be leaving the Dodgers within the next few weeks. Given Jones’s affinity for Atlanta and manager Bobby Cox, and Atlanta’s need for outfield help, a reunion seems possible. While it all comes down to what the Braves have to give up to acquire Jones, I think that Andruw is risk worth taking.

There is no denying that Jones was bad last season—a line of .158/.256/.249 is about as bad as you can get. This was preceded by a poor 2007 performance of .222/.311/.413. Is Andruw Jones even worth the league minimum? I think so.

I still believe that Andruw’s 2007 was largely a product of back luck, and that he should rebound. The table below lists Andruw’s performance in several areas from 2004–2006 and 2007–2008. The former years are good years, while the latter two are not.

Year	AVG	OBP	SLG	Iso	K rate	BB rate	+/-
2004	0.261	0.345	0.488	0.227	22.76%	10.99%	?
2005	0.263	0.347	0.575	0.312	16.67%	9.52%	?
2006	0.262	0.363	0.531	0.269	18.98%	12.26%	+27
Mean	0.262	0.352	0.531	0.269	19.47%	10.92%	+16
							
2007	0.222	0.311	0.413	0.191	20.94%	10.62%	+22
2008	0.158	0.256	0.249	0.091	31.93%	11.34%	-4

Though 2007 was not up to Andruw’s previous level, it was still a reasonable fluctuation below his typical performance. Jones’s average was way down (the most variable hitting metric), and that explained a good bit of his decline in OBP and SLG. His isolated power was down too, but .190 is respectable. His defense (as measured by John Dewan’s Plus/Minus) was a few plays above his average over his previous three seasons. It was a good bet that Jones would be a decent player who would outperform his 2007. The Dodgers apparently agreed as they offered him a two-year, $36 million deal.

Then 2008 happened. It is easy to view 2008 as a continuation of 2007; but, Jones didn’t continue to decline, he collapsed. This wasn’t aging, Jones went from being an elite baseball player to being below major-league caliber. Even his defense suffered. I believe that Jones’s knee injury—which forced him to spend a large portion of the season on the DL—combined with poor conditioning, adjusting to a new team, and even a little bad luck caused Jones’s problem. I believe that these are all correctable.

I have seen Jones compared to other guys who never panned out like Rubin Sierra—Jones’s “most similar” player from age 21–27. That is a worthy comp, but I think of Jones like Mike Lowell. He was a very good player who just looked awful during his age-31 season in Florida. The Marlins basically forced the Red Sox to take him in the Josh Beckett deal. At the time, I was certain Lowell was done, but it turns out that Lowell had some good baseball left in him.

I think there’s some good baseball left in Andruw Jones. At 32, he is on the downside of his career, but player career paths look more like Stone Mountain than the Matterhorn. If he’s healthy and motivated, I think he’ll be a serviceable major-league outfielder. Is he worth the full value of what the Dodgers owe him? I doubt it, but that should be irrelevant to his new team. If the Braves could get him for the $5 million he will be paid next season, I’d jump at it. Especially, considering that the Braves outfield needs some players. The 2008 Andruw might be the real thing; and if that is the case, you eat the contract and write it off as a risk that didn’t turn out. But if his problems are behind him, he’ll be a bargain.

UPDATE: Of course, this pops up on BTF right after I posted.

Report: Andruw Jones Quits Winter Ball

just a few lines to let you know that andruw jones left his team for good, and is not coming back, the reason is that his wife is sick, but the real reason for me is that the team asked him to leave. He was struggling here, only a .148 ave, slow in defense