Inflation helps Phillies ... but how much?

April, 30, 2010
4/30/10
4:59
AM ET
Dipping into the ol' mailbag again, there's this missive from Cedric:

One more potential explanation for Ryan Howard's contract that would justify the dollars and length of time: inflation.

There are many economists predicting a high inflation rate for the US dollar after the global economy recovers and we have to work down our trade imbalance while repaying all that we have borrowed in the past two years to keep our economy from completely tanking.

If you want to assume 8-percent inflation for three years beginning in 2012, then Howard's deal morphs from indefensible to only mildly ludicrous. The Phillies get to pay Howard with 2015 dollars that are worth far less than we they're worth today. With this sort of inflation assumption, any deal negotiated in 2012 would have been at a much higher nominal dollar level than Howard is now scheduled to receive, if he continues to be one of the top 30 players in the game.

You're right about (at least) one thing, Cedric: Any analysis of a long-term contract that doesn't account for inflation is less than complete.

But I think 1) you're overdoing the argument, and 2) when it's done, it's generally overdone.

Predicting macroeconomics is exceptionally difficult, and there's simply no way of knowing what the inflation rate will look like in 2012, because the inflation rate is subject to a myriad of unpredictable things, including public policy and political considerations.

That said, I'm not sure that the inflation rate matters all that much. Generally speaking, baseball salaries tend to increase by roughly 10 percent per season. Might be eight percent one season and 12 percent the next, but it's generally been around 10 percent per season over the course of a few seasons.

My personal opinion is that salaries will not go up that much during the life of Howard's contract, because I think management has figured out -- not Phillies management, obviously, but management generally -- that veteran players are overpriced and young players are underpriced, and since younger players' salaries are carefully proscribed, it's relatively easy to keep costs down.

All of which is a roundabout way of saying that while $25 million probably won't buy as many wins in 2015 as now, I think the difference will be smaller than you might guess. And considering how many teams have regretted these long-term deals even with inflation, the message is that older players' performance typically deflates even more rapidly than the cost of a marginal win inflates.

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