A Stitch in Haste

Can it be? Am I actually defending "Olympinomics"?

A critic of spending taxpayer money on the Olympics recites from the hymnal:

As reported in the press and media events, an overwhelming majority of Chicagoans -- 84 percent -- was supportive of the city's bid to host the 2016 Olympic events.
...
Another way to tease out how residents feel would be for pollsters to present some menu options: "If Chicago were going to spend an additional $1 billion over the next few years on various civic projects, how would you like to see the mayor, City Council and other public agencies allocate that amount of money?" Alternatives could be: (a) The 2016 Olympic Games; (b) Shoring up our roads, bridges and public transportation; (c) Putting more police on the streets and in neighborhoods; (d) Public schools and health care; (e) Efforts to make Chicago a greener, more environmentally responsible city.

I would be willing to wager a sizable sum of money on where having a public party in eight years would rank on people's priority list -- and how much they would be voluntarily willing to shell out for it.

Sounds about right.

But then the author seems to over-extend a bit:

If Boeing, Sears, Motorola or McDonald's gives $1 million to help finance our Olympic bid, that is $1 million that does not get returned to stockholders as dividends or plowed back into the company for new projects and production. In addition, that is $1 million that does not, then, support an exhibition at the Field Museum, a new gallery at the Art Institute, or an after-school youth program.

When I sit down each December to write out checks to local, national and international charities and other non-profit organizations, I am implicitly choosing how to allocate, say, $2,000 among various groups and activities. The slice that goes to WTTW Ch. 11 doesn't go to the Chicago Coalition for the Homeless or the American Cancer Society—or to the University of Chicago. It's still just $1 million or $2,000 no matter how a corporation, a wealthy benefactor or I cut it.

There is no free lunch in this world and no free Olympic Games either.

As I commented at another blog that first noted the op-ed:

I'm not sure this reasoning is very robust.

If one assumes that a corporate sponsor of the Olympics has a constant expenditure function for advertising (hardly an outlandish assumption), then the only opportunity cost from sponsoring the Olympics is the next best alternative advertising, not the next best alternative use imaginable. There is no basis to assume that the money would, almost by definition, be returned to shareholders, invested in capital projects, deployed to research & development, etc., "but for" the Olympics.

My employer matches charitable donations by employees (up to a certain limit). My employer also makes (anti-Friedman?) direct donations to charity. I have no doubt whatsoever that the budgetary flowchart is that the firm allocates a certain amount to charitable donations ex ante, then reduces that amount to reflect employee matching (i.e., the total outlay is constant regardless of how much or how little employees apply for matching grants). But that is simply not the same as saying that, by matching employee donations, the firm is reducing capital expenditures, R&D or returns to shareholders.

It's one thing to oppose the Beijing Olympics on moral grounds. It's one thing to note that a stadium is not a legitimate public good. It's one thing to note that the same moral defect that drives someone into politics in the first place often manifests as an obsession with foolish vanity projects at taxpayer expense.

But none of those valid criticisms equates to summarily concluding that a private party's subjective preferences and decisions as to how to spend their private money can ever be objectively "irrational." That crosses the line into Kip's Law.