A Stitch in Haste

Gee, another taxpayer-underwritten convention center is failing to live up to the promises made by politicians and bureaucrats:

Nearly four years ago, city officials opened the $850 million Washington Convention Center with a string of superlatives. The largest publicly financed project ever built in the city, they said, would attract more than a million visitors a year, fill hotels and set off an economic boom.

Instead, convention attendance is dropping, the surrounding neighborhood is yet to be transformed by the promised new development, and conventioneers are filling fewer hotel rooms than expected.
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To pay for the center, the city raised its tax rate for all hotel rooms and restaurant meals. It is hard to measure how much of the promised $1.4 billion boost to the local economy has occurred, and convention center supporters no longer cite the regional economic impact figure because they admit it is nearly impossible to track.

Politicians overpromising, making numbers up and then scratching their heads over their failure as if they had no reason to foresee it? Go figure. (Oh, right, they can't go figure, never mind.)

"Convention center mania" relies on several false premises:

• That convention centers (along with their siblings, sports stadiums — and their inbred offspring: campaigns to host the Olympics) are somehow a public good. They are not (i.e., since they are perfectly excludable and generate no true externalities). "Big" is not synonymous with "public." If there is demand for a convention center, then some risk-taking entrepreneurs will build one (i.e., "If you come, they will build it"). If a private sports team needs a stadium, meanwhile, then let them built it themselves, financed by their own revenues. Leave the taxpayer out of it.



• That convention centers are a natural monopoly. Exactly the opposite: they are one of the most fiercely competitive industries in the economy. The article notes, "Most convention centers lose money or barely break even." Of course they lose money — there is an excess supply of them, since state and local governments subsidize them. If the worst centers were allowed to fail, then the supply would decrease, the remaining centers could raise rates and — gasp! — make money. This is elementary economics (if not elementary politics).



• That an economy can ever tax itself into prosperity. That includes at the industry level: You don't help hotels by taxing them.



• That businesses (e.g., hotels) in fact pay taxes. Businesses collect taxes; people (e.g., conventioneers) pay taxes. And they also respond to taxes. Incentives — and disincentives — matter.



• That the ubiquitous record of total failure of central planning somehow does not apply to centers and stadiums.



• That opportunity costs (i.e., what might have been built instead of an underperforming convention center) can be properly blanked out when evaluating projects.

Maybe someday the mania will end. But given the vanity of politicians and their concomitant obsession with vanity projects, we should probably not be optimistic.