Opinion & Commentary
Economy can kick a winner
After last year’s avalanche of bad news Australia’s economists probably needed the summer break more than anybody else. Yet it’s unlikely their holiday mood will last long when they’re returning to their desks these days. Dark clouds are hanging over the economic horizon. Recession is looming, unemployment rising and the budget heading for its first deficit in years. There are hardly any news stories that could make the economics profession happier, so it seems. Or are there?
Maybe our economists have only been reading the wrong parts of the newspapers. If they skipped the business sections and went straight to the sports news they would look with a bit more optimism into the future. At least that’s what economic research from Germany suggests.
Four researchers from Bonn University have written a fascinating study. Unfortunately they still managed to give it a terribly dull title: ‘Seemingly Irrelevant Events Affect Economic Perceptions and Expectations’. But the idea behind it is so cheeky that it may even cheer up the most pessimistic economic forecaster: that a country’s economic future depends on its sports results.
In order to test this hypothesis they conducted opinion polls among Germans before and during the soccer World Cup in 2006. Soccer is a big thing in Germany, as close as you get to a national religion, perhaps only rivalled by the Germans’ love of beer. But could it also be an economic factor, the researchers wanted to know.
So the they asked their fellow citizens for their personal assessment of the economic situation and their expectations about changes in the economy over the following year. Apart from the World Cup, which was hosted in Germany, there was hardly any other news at the time. And yet, the Germans became more and more optimistic about the economy’s future as their team went on a winning streak that nobody had thought possible. In the end it finished third in the tournament.
The researchers looked at the polling data from all angles but the result always remained the same: There was no explanation for the Germans’ sudden boost of economic confidence other than their unexpected performance on the pitch. The connection between the two may not be obvious. After all, why should GDP grow faster only because your team has just beaten Argentina in a penalty shoot-out? But apparently that’s what the Germans believed. In fact, the researchers even managed to put a number to it. In order to receive the same shift in economic optimism you would have had to give them a 23.5 percent increase in net monthly household income, they calculated.
As curious as this economic research appears at first, there are some important lessons to learn from it. And they probably don’t just apply to soccer-obsessed Germans, nor do they only hold during world cups.
The first lesson is this: How we feel about our economic prospects is as much due to our general mood as to ‘hard’ economic facts. As it turns out, homo economicus is not just a number cruncher but a human being after all. If his football team wins, he feels better. Perhaps he also livens up when the sun shines, the TV program is good, or the headlines in the morning newspaper don’t spoil his breakfast.
But if this first lesson is true, then a second lesson follows: How bad our current economic crisis will turn out to be for Australia does not only depend on China’s growth, American bank collapses or some fiscal stimulus packages. It will be equally important whether we still manage to see and hear the positive news in the overall noise of the crisis talk.
And there still are surprisingly many things you could feel good about: Petrol is much cheaper than it used to be only half a year ago. When you are buying a new car you can hope for some pretty good bargains, too. First home-buyers not only benefit from higher government grants but also from much reduced mortgage rates. Altogether, if you belong to the more than 95 per cent of employees who will keep their jobs in this crisis, chances are you will actually be able to increase your quality of life because of falling costs of living.
The worst thing that can happen in a downturn is to lose sight of the things you may feel positive about. But to be confronted by bad news day in, day out is hardly a recipe for creating optimism. Perhaps instead of indulging in the doom and gloom that this economic crisis brings, we should all remind ourselves that not everything is lost.
Apart from that, we can only hope for other things to save us: Australia retaining the Ashes or an Australian player winning a Grand Slam title again. And one more thing: economists starting to read the sports news.
Dr Oliver Marc Hartwich is a research fellow at The Centre for Independent Studies
