Nov 5, 2009

2010 and all that


It is a basic principle in economics that estimates of employment and GDP impacts in themselves tell us nothing about the benefits and costs of government initiatives.

Government spending creates jobs. More spending creates more jobs. But whether that is in the public interest raises very different questions. Will the job creation employ people who would otherwise be unemployed, or just bid up wages and attract workers from other activities or regions? What is being produced – how much is it valued? How much of the cost will ultimately fall on taxpayers, and what other activities or expenditures might that consequently displace?

The recently-released PriceWaterhouseCoopers (PWC) report on the economic impacts of the 2010 Games, like the InterVistas report that preceded it, does not ask any of these questions. Notwithstanding all of the government and media attention it is receiving, it therefore provides no insight into the net benefits or costs of hosting the Games.

Illustrating this very clearly is PWC’s explanation of why they conclude the 2010 Games have produced similar impacts to what InterVistas predicted in 2003, despite the fact that virtually none of the tourism impacts forecast in the InterVistas report has materialized. The lack of tourism impacts has been offset by larger than expected spending on the City of Vancouver’s Olympic Village project and Richmond’s speed skating oval. More city spending has meant more employment impact.

The government’s press release accompanying the PWC report states this study confirms that the benefits expected from the 2010 Games are being realized. In effect it is saying the increased city spending has made us better off because of the additional jobs the additional spending has generated.

Of course this analysis and conclusion is fundamentally flawed.  As the famous, conservative economist Milton Friedman liked to point out, there is no free lunch. There certainly is no free Olympic Village housing or speed skating ovals. The cities’ net costs for those projects will mean less spending on other initiatives or higher taxes. Alternative public or private spending will be displaced.

The economic issue for the 2010 Games is whether the Olympic housing, the oval and the other facilities and opportunities created by the Games are valued more than what else could have been produced or done. And that question is something PWC and the government have not begun to address.

Indeed, there has yet to be a full accounting by government of all of the resources that have been allocated to these Games – the expenditures incurred and staff time provided by all levels of government, including crown corporations and agencies; and the costs that have been and will be imposed on residents and business by the construction and  the Games themselves.

No doubt there will be significant benefits from the infrastructure that has been built and from the pride and opportunities hosting the Games will provide. There may even be some employment benefits, not so much during the construction period when the economy was overheated, but now that there is more widespread unemployment.  But the impact estimates seized on by the government shed no light on the magnitude of those benefits, and in the absence of any estimate of the full costs are meaningless in any event.

Governments like focusing on impact studies. Since spending creates impacts and impacts are assumed to be unequivocally good, they can justify virtually any spending or policy initiative – the more spending the better.  However, it is a practice that should be resisted.  It serves only to obscure and often prevent a proper debate over the benefits and costs of what is being proposed or done.