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:
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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{ 43 comments }
Billion? Trillion, I think
I'm not a proponent of the spending, but a study of stadiums specifically won't persuade proponents of spending on other infrastructure.
I'm not a proponent of the spending, but a study of stadiums specifically won't persuade proponents of spending on other infrastructure.
…"nearly a BILLION dollars!!!" –dr. evil voice
Russ, that is a "trillion", not a "billion". I know it is hard to get used to using that "T" word in the same sentence discussing a single new law. I guess we need to get used to it, to I fear, our great detriment.
Bush made $15,000,000 on the $500,000 that he borrowed to buy a 2% interest in the Texas Rangers baseball franchise. Taxpayers of Arlington, Tx were quite generous to the Rangers and GW Bush by funding a new stadium by a sales tax increase and using eminent domain to acquire additional land. Don't you just love these "joint" ventures between government and private industry. With the benefits shared equally among all concerned. I'd like to break a few joints myself.
Yes, I meant trillion Not billion. Corrected. Thanks.
Whenever the issue of sports stadium financing comes up, I'm reminded of how the City of Dallas did it right (once), when they built Reunion Arena in the late 1970s.
The $27 million cost was financed by private bonds. Here's the catch. They were very low-interest bonds because the bond gave the holder an option to buy tickets to any event ever held at Reunion Arena for a given seat.
Say you bought 2 bonds. That gave you the right to, say, Section 10, Row A, Seats 1 and 2. So every year, you had the option to buy Dallas Mavericks season tickets for those seats. When a concert/show was booked, you had the option to buy tickets for those two seats.
Needless to say, the bond issue was hugely popular among those who would actually use the facility the most. This worked great for the city and for the fans…just great.
Why wasn't this policy duplicated for the new American Airlines Arena (or other arenas for that matter)? Because the teams hated it. Each year, the Mavericks had to relocate season-ticket holders whenever bondholders with rights to those seats who hadn't bought them the previous season, decided to buy them for the next season. Plus, of course, as the idea of PSLs developed, teams found a new revenue stream there.
Russ
They'll have their own study crunching the same numbers differently and it'll all be a moot point.
Just stick to the argument. If you really need a statistic, point to Western Europe or Canada and move on.
The net effect of opening a Wal-Mart is also hotly contested.
And it leads me to think that some (perhaps many) people, to be internally consistent, might have to think about the stimulus as a net negative to the economy.
Think of Wal-Mart entering your locality as a form of stimulus: Wal-Mart stockholders are spending their equity, first providing construction and then retail jobs.
There are plenty of people who argue that this new local spending on development — not usually excessively subsidized by local taxpayers — destroys small town economies (through providing mindless low-paying no-benefit jobs selling cheap, low-quality merchandise to people who can't really afford it anyway).
In other words, lots of people — on all sides of the political spectrum — already believe that it matters greatly how money is spent, and that some spending patterns can easily hurt an economy.
Kevin B
"There are plenty of people who argue that this new local spending on development — not usually excessively subsidized by local taxpayers — destroys small town economies (through providing mindless low-paying no-benefit jobs selling cheap, low-quality merchandise to people who can't really afford it anyway)."
I'm kind of talking past your point, but I'm going to use this post as a springboard.
I know that this is only tangentially to your main point, but you're being a little misleading here. Wal-mart actually offers higher wages in my area for those sorts of jobs than most. The local mom and pop shop will be lucky to offer minimum wage ($7.50/hour), while Wal-mart starts off its cashiers at $9.00/hour and gives a raise every six months.
My point is that opening a Wal-Mart should be praised by the left, it offers a higher wage alternative to the sort of jobs that people in that income strata would otherwise be working (thus, stimulating local aggregate demand).
Kevin,
Was just at Walmart myself the other day and I was straining my eyes in the parking lot trying to find the armed gunmen forcing people in. They must be invisible (it's a fun game). The same cannot be said of this stimulus package which by definition is backed up with a threat of jail time.
Walmart is not a stimulus. It was never meant to be. People want Walmart because Walmart gives people what they want. If they didn't want Walmart, there would be no Walmart. Period.
A bridge/museum/road/swimming pool either needs to be built or it doesn't. If we actually wanted it, we would have had it already. If we didn't need it a year ago, we probably don't need it now either.
We will get the bridge/museum/road/swimming pool, but there will be a potentially endless amount of other things that don't necessarily even exist right now that we would have actually wanted that we will not have. Also, those currently non existent things would have involved jobs.
That's why this is impossible to cost. Because we will never know what we missed out on.
And that's in good times when we could, you know, afford it.
btw before this gets out of hand, Kevins point is well taken. I just wanted to point out the inherent difference between public and private spending
Isn't there a big difference in the stimulative effect of spending when the economy is at full employment vs. when there is a large gap between current employment and full employment?
Stephen,
Yes, there is a big difference. And this trillion in spending is focused, laser-like, right on the 4 million unemployed, who happen to be trained for large-scale, unionized construction jobs, green technology, etc. Of course, the most of the employment will be in that fabulously productive government sector. Anyone can be a bureaucrat! Except, of course, for 1.5 million of the unemployed who probably could not pass a drug test.
"Isn't there a big difference in the stimulative effect of spending when the economy is at full employment vs. when there is a large gap between current employment and full employment?"
There's only a stimulus if you believe that the proper measure of the state of a nation's economy is the sum total of everyone's spending. If, more properly I think, the correct measure is the sum of wages paid and profits earned by private business then the stimulus is nil.
After all, who cares how much a government employee spends? Those of us in the private sector already coughed up his gross pay out of our earnings. Why count it again when he spends it?
Oh, that's right — how else could you come up with the magical, mystery multiplier?
Here's how the multiplier works
The government grows by some factor > 1
Our Cardinals stadium is one such publicly funded project.
It was hell for the ball team and crooks involved, but they did finally get it. And I heard someone on the radio – I forget who but it was someone quasi-official – but they attributed the AZs' success this year to the stadium itself.
It's an interesting story of local graft and money politics if anyone is interested in looking it up. Local talk jock Charles Goyette led a brilliant charge against them, and did very well even though we still wound up funding the stupid thing.
Right-Wing Extremist who wants to blame everything on the Democrats and ignore the Bush Depression causes, unless of course it can be blamed on the Democrats. This article is so transparent, biased and made for propaganda.
The added dollar multiplier effect always takes place. The multiplier continues until a dollar is removed from circulation. Once a dollar is given to one person, they again spend it on something else or they save it and the bank lends it to make interest and so on forever.
Each person who handles a dollar will keep spending it and create another transaction. That one dollar will multiply over time into many purchases made by many different individuals and businesses.
Now building a sports stadium would means paying workers, buying cement, steal, etc. Each of these entities would in turn spend the money personally or for the business and so on and so on forever.
arnold,
Then why stop at a trillion, why not go for a googol.
Here is a tip.
I'd like to know what the proponents of spending think of the stadium literature.
Posted by Russell Roberts
I think it has almost nothing to do with the very specific conditions of applying a government spending stimulus to a specific economic condition in which markets are frozen and aggregate demand and jobs are plummeting.
Yeah building stadiums now would likely be helpful but not as helpful as building roads, advancing renewable energy technologies or bailing out state economies, giving out food stamps or extending unemployment benefits.
Using eminent domain and taxpayer funded bonds in times of stable economic conditions to build stadiums likely results in a multiplier of < 1.
Muir,
you lying embecile. if you had the guts to backup your claims, you will have a bald head and apologizing to the whole world for your narrow minded political propaganda.
I happened to stumble on an interesting argument that even in times of "lagging aggregate demad" the multiplier is less then 1. This doesn't prove that fiscal stimulus doesn't work as that would require the multiplier toby < 0 (at least I think so), but it implies that the 'multiplier' is nonsense.
Suppose that the economy is in crisis, and suppose that there are lot of idle resources => their price is therefore something very near 0. Now suppose that the government manages to let people build roads with these IDLE resources, therefore it effectively costs the government ZERO. People will be paid with food and clothing that will just compensate the energy they will spend building the roads.
What is going to be the result? In 5 years there will be a road and people will be able to use the fruits of the governments work. NOT NOW. In 5 years. Any multiplier? Nope.
Back to reality: the resources do not have price of 0, therefore they are not idle. Therefore the more money is paid, the greater the crowding-out effect. If we conservatively assume that the 'road' in the former example has multiplier=1 (it is net gain to the economy that the road is built), it follows that the multiplier effect is definitely less then 1. Even in times of crises. Simply always.
There is no such thing as a multiplier effect…
http://www.chron.com/disp/story.mpl/front/6268167.html
Here in Houston the largest provider of health care just opted out of medicare.
It sure isn't going to get any better with the great porkulus spending.
Government health care, anyone?
Right-Wing Extremist who wants to blame everything on the Democrats and ignore the Bush Depression causes, unless of course it can be blamed on the Democrats. This article is so transparent, biased and made for propaganda.
This
articlecomment is so transparent, biased and made for propaganda.As Bush is no longer in a position to sign such legislation, it is appropriate to refer to the current holder of the post of president when commenting on the economic policy cited as justification for the next bleeding.
Meet the new boss, same as the old boss.
Also, what is the magnitude of the ME (Multiplier Effect) ?
How is it determined?
If there is a multiplication at each transaction, isn't the magnitude of the ME essentially unlimited?
Value creation requires economic activity, but economic activity (production) is a cost and, if value is not created, is a waste of resources.
The multiplier effect is a fabrication to justify the bleeding. The irony is that the patient believes in the bleeding as regenerative.
From IMF research on recessions:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=879624
"The average fiscal multiplier across all 43 recession episodes is -1.5." –p17
What is going to be the result? In 5 years there will be a road and people will be able to use the fruits of the governments work. NOT NOW. In 5 years. Any multiplier? Nope.
There is no such thing as a multiplier effect…
Posted by: andy
Andy,
You completely ignored the people who had no job until the road was commissioned to be built. They now have money and spend it on things in the private economy. The money they spent on new shoes stimulates the shoe makers income and on and on.
It's no wonder you think there is no stimulus effect. You came to the table with a preformed opinion and a closed mind.
George,
Oh yeah? Where does government get the money from? What skills does the bank employees bring to the table for all the planned construcion work? What does retail sales clerk bring? How do you know if roads are the best place to burn the money? What impact will it have on "Global Warming"?
How did the $5.5 trillion that Japan spent ( considerably smaller economy than U.S ) help them?
Explain the equation to calculate the multiplier. You are a man of facts right, so go ahead and explain. Explain how you calculate the components. Explain the margin of error at every stage. Go ahead George, dazzle me.
"You completely ignored the people who had no job until the road was commissioned to be built."
And you a) assume that these workers had no job before the road was commissioned, and b)ignore the opportunity costs.
"The money they spent [sic] on new shoes stimulates the shoe makers income and on and on."
We could stimulate the glass maker by throwing rocks through windows. Get on that and let us know how it works out for you…
muirgeo, you seem to ignore the fact that those people building the road are being paid out of money taken from the pockets of people that are working..depriving them of the opportunity to spend it.
How does taking money from person A and giving it to person B amount to an increase in consumption in the economy? How is it any different than person A spending the money himself?
The progressive/left meme seems to be that economic activity, per se, creates value, and that the amount of value that will be created can be calculated from the quantity of money created and put into circulation.
Government induced economic activity guarantees waste because the government has a no fail guarantee.
As government cannot fail, it cannot be known whether it has succeeded.
Amazing, the faith that so many place in the ability of men with guns to produce value.
"muirgeo, you seem to ignore the fact that those people building the road are being paid out of money taken from the pockets of people that are working..depriving them of the opportunity to spend it."
Well, if you will insist on taxing income, rather than privilege, then that is what happens.
For instance, you might try taxing the privilege of exclusive use of the commons of land, as suggested by Henry George.
Milton Friedman – no Socialist he – considered such a tax on land rental values (or Location Benefit Levy) as the "least worst" tax.
You might add a similar levy on the exclusive use of carbon-based fuels.
These two levies would enable individual income tax to be reduced to a nominal level, with enough to spare for a "National Dividend" as of right to all citizens.
And then top it off by abolishing taxes on corporate profits and on sales.
Replace these with a simple levy on the GROSS revenues of Corporations to compensate for Investors' unearned privilege of "free" limitation of liability.
This tax simplification might lead to unemployment among professionals, of course, but I am sure they would make the sacrifice for the greater good…
muirgeo, you seem to ignore the fact that those people building the road are being paid out of money taken from the pockets of people that are working..
Posted by: RVTurnage
No it will not.
It will be taken from those that already owe.
Why not take the trillion and divide it among the legal population? You could then eliminate the need for welfare, unemployment compensation, job training and myriads of such things. We would have a more efficient economy, everyone would use the money to maximize individual wants and needs and government could actually shrink. If most people opted to pay off or pay down their mortgages the banks would become solvent again.
"It will be taken from those that already owe."
Collect $780 million and run up the debt another trillion or two..the magic of the multiplier in action…no worries mate!
See how george, the self proclaimed evidence peeping economist, conveniently avoids answeing inconvenient questions. LOL
No it will not.
It will be taken from those that already owe.
You mean like this guy?
http://www.wsws.org/articles/2009/feb2009/dasc-f04.shtml
Too bad for UBS they could have put that money to much better use for society than whatever boondoggles, bridges to nowhere, or perpetual motion machines we can expect in the next few years.
One of the first posts I ever read by V.I. Mierduck was one where he bitched about the evils of road construction, because roads allow people to drive to Wal-Mart.
Funny. Now that the socialists control both elective branches of government; roads that lead to Wal-Mart are a good thing.
Maybe we can name all of the new roads after the Democrats' favorite fascist. The black-hating, Jew-hating, (former?) Klansman: Robert "Sheets" Byrd. They be good roads, now.
Die LGT Bank fehler
von Raivo Pommer
Der Chef der skandalumwobenen Liechtensteiner LGT-Bank spricht über Fehler seiner Zunft, falsche Regulierung und eine Amnestie für Steuersünder.
Rheinischer Merkur: Spätestens seit die Affäre Zumwinkel öffentlich ist, glauben die Deutschen, dass die LGT-Bank hilft, Steuern zu hinterziehen …
Max von und zu Liechtenstein: Das tun wir natürlich nicht. Unser Fokus liegt seit mehr als zehn Jahren auf dem Aufbau lokaler Banken in verschiedenen Märkten. So haben wir viel Geld investiert, um unter anderem in Deutschland eine Bank mit sieben Niederlassungen zu errichten. Hier werden wir von der deutschen Finanzaufsicht reguliert, und für die Kunden gilt das deutsche Steuerrecht
Brotio,
If you have ever driven through West Virginia, you will notice that they have by far the most beautiful (and usually empty) roads in the Union, which always puzzled me why West Virginia continues to be one of the poorest states in the Union. Perhaps it is because they are near the bottom in economic freedom, because all that dough from DC obviously ain't helping much.
You completely ignored the people who had no job until the road was commissioned to be built. They now have money and spend it on things in the private economy. The money they spent on new shoes stimulates the shoe makers income and on and on.
No,muriego, you didn't read my example.
The people didn't have job before. They have job now. They have no money – because their oportunity cost is 0 and government is paying them in kind with some 'free food' it find.
Do you see any multiplicator? I don't.
NOW from example to reality: nobody would work for 0. The government does not have the resources to pay the people. Everything the people obtain must be TAKEN FROM THE ECONOMY.
Result: crowding out effect. But: in the example we started with multiplicator=1. Crowding out DECREASES the multiplicator. Therefore the multiplicator is less then 1.
There is no multiplicator. Period.
There has to be a multiplier, since the counterfeiter is the only buyer who gets full value for their money.
I think it depends on how fast they can spike these projects. If they can manage to contract all of these projects with fixed bids, the resulting inflation will bankrupt the contractors — and then the government can nationalize the construction industry.
The socialists are playing a good game.