I had resigned myself to not write about this issue, but something came to me while I was looking at potential future-homes online. Baseball was in an artificially inflated bubble, just like the housing market. Now, that bubble has burst and it begs the question, what will be the long-term implications?
First, some visual aids:
I chose a picture of Home Runs because it is what most people think of when they think of steroid use. It also happens to be the most visually indicative. However, a quick trip over to baseballgraphs.com shows that Runs, Slugging Percentage and OPS all saw significant spikes in the late 90s and have stayed at a high level since. Those graphs are just more noisy in the earlier years. Now, I am well aware that there is a substantial ballpark effect (the construction of hitter-friendly ballparks, starting with Camden Yards in the early 90s and just now trailing off) that could account for this difference. I don’t have the time or expertise to start making those calculations. Instead, I’ll make the assumption that everyone around baseball has made: steroids were used and offensive production increased. This is substantiated by an interesting paper by Grossman, Kimsey, Moreen and Owings, which examines the effect of steroid use and the game theory behind testing for it. Fascinating stuff people. I’m serious.
What I’m interested in are the parallels. Around the same time period, offensive output in baseball and housing prices were inflated to artificially high, and historically unsustainable levels. Both “markets” (to use the term loosely) experienced a bubble and that bubble has burst, resulting in steep declines for both. Before you jump down my throat: No, I am not implying that the two are related. Instead, I feel like there are a few interesting questions that we can ask ourselves. What will the implications of this Steroid Bubble be? In the housing market, the bubble bursting led to price depreciation, mortgage defaults, bank closures, the credit crisis and a depressed national economy. I argue that this is the result of a problem spiraling out of control without any viable solutions put in place to head it off. Interestingly, I don’t think that the baseball market can learn lessons or prepare for a fall based on how the housing market collapsed. Rather, I think that things could have worked the other way around.
The Steroid Bubble “burst” about two years before the current economic situation. Recall the commotion that surrounded the 2005 Congressional Hearings and BALCO case, the 2006-2007 investigation that culminated in the Mitchell Report and the Roger Clemens scandal last year. By my count, the steroid bubble “burst” in 2005—that is when drug testing was implemented—and has been experiencing the fallout for four years. During that time we have seen the following: The villainization and fall of some of the greatest players in Major League History, the guilt by association of all players who played in the “steroid era”, including some that predated the era (ahem, Fielder’s Choice. Cal Ripken? Really??) and the removal of baseball from Olympic Competition (perhaps entirely unrelated, perhaps a piece of the puzzle).
With the Arod situation, I think that we have finally reached the bottom. The game’s best active player has been busted, but his career will not end. Apart from the initial shock of the report, the general fan reaction has been “meh.” There is nothing more that could possibly come out that could have a bigger impact than an Arod admission. This is the bottom. This also happens to be a time when a number of veteran free agents may be forced to end their careers, despite having the ability to make a positive impact. Some cite the economy, but I say that, in part, this is baseball’s way of finally clearing out the rest of the steroid era. There has been a cleanse and purge across baseball, with only a few players hanging on, or signing for below-market wages. And while I feel bad for some players, especially those like Ken Griffey Jr., who is loved by all and emerged from this entire controversy unscathed, the market did what it needed to do to move on. We’ve had an infusion of new blood and high-profile young players that will be able to carry the next “era” of baseball on their shoulders.
On the other side here we are, in the first year of the collapse in the housing market. At some point it will reach a bottom, and at some point things will get back to normal. It is already starting to some degree. Prices and interest rates have fallen to the point where I, as a first-time homebuyer, can actually conceive of buying a house. Unfortunately, we are probably a few years from the “bottom”—the point where we can have one last potentially devastating shock to the system that just gets shrugged off by the rest of the nation that has already started moving on.
As soon as the bubble burst on baseball there was congressional and internal investigation, criminal investigation, new rules and stringent oversight put in place. There was pain, for both fans and players. Notably absent was any effort to prop the market back up, i.e. continuing the artificially high offensive output—something that runs contrary to the government intervention we are seeing to artificially prop the housing market back up. The baseball market has corrected, and it is been painful, but it was necessary.
Just imagine, if there had been as much swift action, investigation and oversight in the current economic crisis as there was when the baseball steroid scandal first broke, could we have stemmed off a lot of trouble at the pass and started the market on a path to correction that much earlier?
