Teaching sport economics in times of COVID-19

This term I am not teaching my usual undergraduate course on soccer and economics in the Study Abroad program at my University (not enough US students in Barcelona now), but I am teaching my usual four two-hour lectures in the joint Master of Sports Management between my University and the Cruyff Institute.

I gave my first lecture last Thursday, where I presented the basics of game theory and the taxonomy of goods as classified along the two dimensions of rivalry-nonrivalry and excludability-nonexcludability. We'll apply these concepts to understand why institutions are needed in organized sports, and what is their role.

What may be of special interest this time is to reflect about the impact of COVID-19 in some institutional aspects of the sport. I will ask my students to confirm (or otherwise) with recent data the preliminary results that show that, as expected, the home-field advantage has diminished, in soccer and other sports. More generally, one would expect that, to some extent, the sports industry, especially in soccer, has become less populist, as the fans have less short-run pressure on club decisions. For example, has managerial turnover decreased, as expected?

More importantly, the financial problems because of the reduced revenues, have put pressure to increase the number of games between top teams. One form that this could take, in soccer, is the creation of a closed European Superleague. This can take a variety of forms, and probably there will be some sort of arrangement with the incumbent institutions, as it happened with the introduction of the current format of the Champions League in the 1990s. This time, the interest of US investing institutions injects even more credibility to the attempts to secede of some of the top clubs, including FC Barcelona and R. Madrid. There was an article about this in the Financial Timesthis this week-end.

The horizon of a very lucrative European superleague (or enhanced Champions League) would facilitate a mutualized exit from the current crisis (as suggested by the economist Stefan Szymanski), and it would correct a clear inefficiency: more top games are feasible and there is willingness to pay for them. But there will be redistributive implications that will have to be addressed (by compensating the losers), and important cultural implications in the form of reduced importance of national championships, and increased importance of European competitions. It will be the soccer way to a federal Europe.

A time-consistent left and a progressive time-consistency

I have spent a good deal of my research and teaching time talking about the Commitment or time-inconsistency Problem in Economics, and I still do it. This is the problem that monetary policy or regulation face in a democracy: there is the temptation of a short run popular policy, to the detriment of long run benefits (for everybody) in terms of lower inflation or higher investment. In a way, it is the collective version of the self-control problem in behavioral economics.

In a democracy, the collective temptation comes from pressures from the majority to redistribute resources in the short run, in many cases. The problem is there and will always be there. Populism can be interpreted as an attempt to give simple answers to this complex problem, or to behave as if it didn't exist. The challenge is to find forms of redistribution that are sustainable over time, taking into account political, economic and environmental constraints. Not easy.

When this problem is explained, some see in it the hidden agenda of trying to give certainty to big corporations and wealthy investors, to protect them from hungry mobs. But this would be misguided. Vulnerable people also need certainty. When scholars stop showing admiration for Trump and exaggerating the support he has among the poor, perhaps they will see the millions of individuals and families that have feared for their futures in panic of a second Trump administration. In other examples of national-populism, it was easy to perceive in Catalonia, in 2017 around the failed secession attempt, the fear of vulnerable people, mostly with origin in other lands, who where scared of losing citizenship, rights and future opportunities.

Populism has dangers. Covid-19 has shown them. Populist rulers have done very badly in managing the pandemic. But beyond it, and although at the macro level perhaps they have improved, there is typically a large cost to try to forget about constraints and burdensome institutions.

Happily in Europe, socialdemocrats and even Greens do not score high on populism. That is ground for hope, because the Ecologic and Digital transitions that leave no-one behind require investments today, meaning freeing resources from the present to devote them to the future. We must find ways to redistribute minimizing long run costs, and promote long run benefits without punishing today even more those that have been punished enough. A time consistent left, or progressive time-consistent policies and institutions, must be a fundamental part of efficient redistribution mechanisms.

Is populism about the elites?

Last week I had the opportunity to talk to Elias Papaioannou (who was giving a virtual seminar in my Department), the co-author of an excellent survey about the political economy of populism, which if I understand well is forthcoming in the Journal of Economic Literature. The article summarizes a lot of mostly empirical work on the features, determinants and consequences of political movements such as Trumpism, Brexit, and others that share similar characteristics. It does the best that can be done at this stage to present the state of the art of something that is still happening in front of our eyes.

As I told Elias, my interest in populism (no doubt a polysemic and multidimensional phenomenon) has three sources. First, I am interested in the commitment problem in economics, which I studied in several published articles in the field of economic regulation, where I discussed the advantages and disadvantages of indepenedent regulatory agencies (which are meant to isolate regulators from "populist" forces). Second, in several courses at the graduate and undergraduate level, on microeconomics or public economics, I always enjoy teaching a section on social choice and political economy, and results such as the median voter theorem and Arrow's impossibility theorem. Third, I have a personal interest in populism, as I see the Catalan secessionist movement as an additional example of modern populism in its (frequent) identitarian version.

The article is very good at explaining the different economic and cultural explanations of the phenomenon, and the mostly harming consequences of populists when they reach power. It also has a short part that summarizes useful, though scarce, theoretical work.

Since the phenomenon is on-going (as I write, I hear in the background the CNN with its unending program about the recent US election), new overviews will be needed soon. As I told Elias, in my view there is room for urgent work along two lines. One, although it may seem surprising, is to keep working on the definition. Papaioannou and Guriev settle into what they call the "lowest common denominator" of modern definitions of populism, which revolves into the separation of society between a virtuous people and a corrupt elite. In a way, this definition buys into one of the traps of populism, which constantly tries to disguise its true nature by accusing their opponents of their sins. They try to undermine democracy (now, in front of our eyes, Trump in the USA) in the name of democracy and the will of the people (conveniently defined, if necessary); or they say they are anti-elite and anti-corruption, when it is difficult to think of anyone as more corrupt than Trump and its entourage, or of a social group as more elitist than the pro-Brexit dominant branch of the UK Conservative Party, with Johnson, Gove, Rees-Mogg and others.

The other line of work that seems to me necessary and that would facilitate theoretical work (and therefore setting up meaningful hypotheses for empirical work) would be to connect work on populism with the theory of social choice. Although this theory mostly takes voters' preferences as given, some (such as William Riker on his classical book on Populism and Liberalism) stress that the indeterminacies of democracy are at the source of the evolutionary efforts of political parties to make convenient issues salient. The book by Hacker and Pierson "Let Them Eat Tweets" goes into this direction as arguing that Trump is an endogenous phenomenon.

There is a lot of work to be done. On the topic of regulation, the issue is not dead at all. Jean Tirole has a recent article arguing in favour of a middle ground between global technological monopolies and what he calls the populist temptation of a techlash. And to the extent that the previous research on independent regulators to which I contributed was inspired by the literature on Central Bank Independence, it is promising that there is already work trying to study how populism is affecting Central Banking.