A World Series of Irrational Exuberance

Economists in the Greater Philadelphia area (which includes West Chester, PA, home of the Dismal Scientist) are suffused with angst. The region's professional baseball teams have not won a championship in decades. In fact, Philadelphia boasts the longest championship drought of any North American city that hosts franchises in the big four major league sports: baseball, football, basketball and hockey.

It's even worse than that, however: The data strongly suggest that a Philadelphia Phillies victory in the current World Series spells bad news for the economic cycle. Although the precise transmission mechanism for this phenomenon has yet to be articulated, the correlation seems clear.

The Phillies last won the World Series in 1980, a period when the economy was contracting, inflation was growing by double digits, and the unemployment rate was near 8%. Following the Phillies victory over the Kansas City Royals that year, the national unemployment rate rose to 9%, before peaking near 11%.

Philadelphia baseball success has coincided with even worse times in U.S. economic history. The old American League Philadelphia Athletics (who later moved to Kansas City and then to Oakland, CA) last won the World Series in 1929 and 1930, years when U.S. unemployment averaged 5.9% per year. Following the Athletics' World Series victory in 1930, the jobless rate soared, reaching 23.5% in 1932 and marking the depths of the Great Depression.

In contrast, those occasions when the Phillies played in the World Series but lost were followed by upturns in economic growth. In the year after the Phillies' lost to the Baltimore Orioles in 1983, real gross domestic product accelerated to an average growth rate of 5.6%. The pattern was repeated after the Phillies' next Fall Classic appearance in 1993: A ninth-inning home run by the Toronto Blue Jays' Joe Carter dashed Philadelphia's hopes, but the economy took off. Job growth accelerated, inflation moderated, and the unemployment rate fell. The U.S. would continue to expand through 2000—years in which the Phillies remained far from championship contention.

A contrary indicator?

The economy's current woes began to take shape in mid-2007—just as the Phillies were nearing their first post-season appearance since 1993. Although the Phils were swept from the playoffs in the first round last year, one might well ask whether this constituted a leading economic indicator. Researchers might be well advised to pay better attention next time.

Whether the current recession ends up as mild as the 2001 or 1990-1991 downturns, or as severe as the 1980-1982 experience, could depend on many things, from public policy to dumb luck. But at least for forecasters in one metropolitan region, serious consideration will inevitably be given to the chance that it all might hinge on the outcome of the World Series.

And while that might suggest that the rational economic choice would be to pull for a victory by the Tampa Bay Rays, Dismal Scientist finds itself incapable of such behavior. Twenty-five years is a long time to wait for a championship. Go Phillies.