Want a Stronger Economy? Get a Better Soccer Team: Matthew Lynn
By Matthew Lynn
Oct. 11 (Bloomberg) -- Worried about the state of your economy? You could
try tweaking interest rates, or figuring out ways to improve productivity.
Then again, you could just get a better soccer team.
Every time a major sporting event rolls around, economic pundits jokingly
try to draw a parallel between the performance of the national team and its
effect on the stock market and consumer confidence.
Now it seems that it may not be so lighthearted after all. A country's
sports team really can affect the economy.
A study on the World Cup in Germany in June and July this year found that
the unexpectedly good showing of the German soccer team caused a clear
improvement in sentiment. The players representing Europe's largest economy
were knocked out of the tournament in the semi-final against Italy. They
ranked third after a playoff.
That matches a U.S. study last year showing a relationship between national
soccer teams and stock-market movements. When your team loses, share prices
can go down.
So if you want a better economy or a healthier stock market, you might be
better off focusing on how people feel than the harder mechanics of money
supply or industrial production.
The Centre for Economic Policy Research in London studied the impact of the
2006 World Cup on ordinary Germans. By telephone survey, it asked people how
they felt about the outlook for the German economy in general, and for their
own economic prospects, as the tournament unfolded.
More than 3,000 people were surveyed the day after the German team played --
not immediately after the match, to discount short-term euphoria.
Popular Perceptions
The results were as conclusive as any scored on the field. ``The
unexpectedly good performance of the German soccer team improved both
economic perceptions and expectations,'' the paper concluded.
Remember, the tournament lasted only a month. Nothing much changed about the
state of the German economy during that time. All that happened was that the
team played well -- and yet people felt the economy was doing better, and
they were getting richer.
Indeed, in the months since then, the German economy has been doing pretty
well: Unemployment is down, retail sales are up, and the economy is
predicted to grow at its fastest rate since 2000.
Game, set and match to the theory.
The U.S. survey found something similar. Academics at the Massachusetts
Institute of Technology and Dartmouth College studied 42 national soccer
teams and their impact on stock markets. ``We find that losses in
international football matches have an economically and statistically
significant negative effect on the losing country's stock market,'' it
concluded.
`Football-Loss Effect'
The effect was most pronounced on smaller stocks, which tend to be
disproportionately held by small investors. ``Overall, our interpretation of
the evidence is that the football-loss effect is caused by a change in the
mood of investors.''
In turn, if stock prices decline, that will have an effect on the economy.
Investors and consumers will feel poorer and companies will find it harder
to raise capital. The net effect? The economy suffers because the football
team played badly.
To some extent, these findings are purely of academic interest. Yet they may
have some practical implications as well.
Finance ministers and central bankers spend a lot of time fretting about how
to improve economic performance. They fine- tune interest rates and fiscal
policy. They lecture us about productivity. They drone on about
competitiveness.
Maybe they are whistling in the wind. Just possibly they should spend more
time cheering us up.
Three Suggestions
Here are three places they could start.
Get some better football players.
Just a fraction of the money spent on industrial policy would be better
spent scouring school playing fields of some very poor but athletic
countries. Any small boys that showed skills with their feet could
automatically be offered a passport, and whisked away to soccer academies,
while their families are kept in luxury. A decade later, one of them will be
lifting the World Cup in your national colors, and the economy will boom.
Second, try to win the Eurovision Song Contest.
It may have become a bit of a joke, but there would still be some feel-good
miles in it. And how about offering the Rolling Stones 50 million euros
($62.7 million) to be your entrant? Mick and the guys have shown over the
years that they will do anything if the paycheck is big enough. And even the
Eurovision judges would find it hard to choose some warbling Estonian
teenager over the greatest rock band of all time.
If that fails, then just proclaim a national holiday and throw all the bars,
restaurants, clubs and cinemas open for the day. The bill might be pricey,
yet an economic boom would be guaranteed.
Heck, if nothing else, it would be more fun than announcing another
austerity package, longer working hours, and higher interest rates. And it
might even work better as well.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his
own.)
To contact the writer of this column: Matthew Lynn in London at
[EMAIL PROTECTED] .
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