Evidence against the multiplier

by Russ Roberts on February 17, 2009

in Stimulus

President Obama will shortly sign legislation creating nearly a trillion dollars of deficit spending in the name of stimulating the economy.

Is there any evidence that such spending will stimulate anything other than the pockets of the people who get the money at the expense of the rest of us?

There are attempts to measure the effects of government spending using macroeconomic data; the estimates are extremely imprecise. I have suggested that much of this variance and the way the estimates are interpreted is due to  the ideology of the estimators and the interpreters.

But there is one area of research where the findings are nearly unanimous—the estimates by academic economists of the impact of subsidies and spending on sports stadiums. Yes, building a stadium "creates" jobs, but the best estimates of NET job creation is zero. ZERO. Here is a summary of a survey of that research:

We offer an argument against sports subsidies based on economic intuition,
survey evidence that a majority of economists believe that sports subsidies are
unwarranted, and a review of the existing literature on the economic impact of
professional  sports. Although the intuitive argument and survey evidence do not
deny the possibility of certain local economic benefits from sports subsidies, the
empirical findings also strongly reject sports subsidies on the grounds of a lack
of economic benefits. The large and growing peer-reviewed economics literature
on the economic impacts of stadiums, arenas, sports franchises, and sport mega-
events has consistently found no substantial evidence of increased jobs, incomes,
or tax revenues for a community associated with any of these things.
  Focusing
our attention on research done by economists, as opposed to that of scholars
from public policy or urban development and planning departments, we find near
unanimity in the conclusion that stadiums, arenas and sports franchises have no
consistent, positive impact on jobs, income, and tax revenues. (Passage in bold added by me)

Those who favor massive increases in spending, particularly on infrastructure, as a way of improving anything other than the balance sheets of construction firms, have to argue that these microeconomic findings don't apply when unemployment is above 7% or some other argument. And as Ike Piggott points out, the literature on sports stadiums is usually trying to estimate the effects of money coming from outside the locality rather than from the locality itself. When you do it a nationwide level, the money comes from us.

I'd like to know what the proponents of spending think of the stadium literature.

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