A Stitch in Haste

Marginal Revolution:

New York City...is considering building a $1.4 billion stadium to bring the Jets back across the river from New Jersey, where they share quarters with the Giants. New York city and state would ante up $300 million each even though NFL football teams only play eight home games a year. Are communities crazy to do this kind of thing?

Not necessarily, according to economists Jerry Carlino and Ed Coulson, whose highly readable recent paper on the subject tries to take account of the intangible value people derive from sports teams. "We found that once quality of life benefits are included in the calculus," they write, "the seemingly large public expenditure on new stadiums appears to be a good investment for cities and their residents." The authors liken having an NFL team to having an old-growth forest--it's something people enjoy even if they never visit. This is to say nothing of the pleasure and unity they derive from rooting, discussing, etc.

Yes, you read that correctly: the very fact that many people will not use the stadium is a perfectly valid reason to make them pay for it through public subsidies. Or, if you prefer: it is perfectly permissible for the government to impose a "fan tax," even on those who never actually attend, or even watch, a game (i.e., who are not "fans").

It's interesting that one of the sections in the Carlino and Coulson paper is titled "External Benefits to the Rescue." Rescue from what, exactly? Of course, from the real-world economics of such projects, which never live up to the economic hype.

Welcome to modern academic economics -- now you have an idea why I fled it for the (relative) sanity of Wall Street and the law.

Professional football is not the space program, and spectator sports are not a public good (they are perfectly excludable). Just because something is big doesn't mean it has to be publicly provided -- think "Empire State Building," "airliners" or "Lord of the Rings."

If the stadium has to rely on such ephemeral, de minimus selling points as "increased rooting," then that's a pretty clear sign that the project, qua public undertaking, is destined to be a dud. And as for the "intangible" benefits of increased "rooting," how about its very tangible costs (e.g., lost productivity at the water cooler every Monday morning; empty law school classes in October)? And Los Angeles and Detroit might have something to add about whether "extra rooting" is a good thing.

(SIDEBAR: As a libertarian, I certainly would defend the stadium qua private undertaking: If the Jets or anyone else can raise the money to build their stadium without public subsidies, then let them build it -- regardless of any local NIMBY whiners.)

Meanwhile, for their silly math, Carlino and Coulson get an official A Stitch in Haste "Goomba Goom!"

UPDATE: Great minds think alike -- the good folks at Reason's Out of Control (not to be confused with Reason's Hit and Run) uncover more pseudo-economics trying to justify light rail in a think tank's report:

Academics are taking note too. Rail, they say, lends itself to socializing. "A mode of transportation like a train is much more of a social mode than a car," said one. "When you are in a train, you have to interact with other people."

Reason's response is comparable to mine. A short must-read in conjunction with this post.

For Discussion: How might the Broken Window Fallacy also be at work here?

Related Posts:
Maybe We'll Be Really Fortunate and Mount St. Helens Will Erupt
Why Subsidize Student Loans?
Government-Provided Broadband: Um, Why?
Anybody But Bloomberg: NYC and the Olympics

(Cross-linked at Outside the Beltway.)

For those who are following the stadium debates in New York City and Washington, D.C., a major Brookings Institution report has been released showing that, historically, despite the relentless claims by politicians and central planners to the contrary, a close cousin of publicly-funded stadiums -- publicly-funded convention centers -- rarely if ever deliver on the promises that politicians' make about them.

Here are some highlights:

Despite the commitment of billions of dollars by a variety of state and local governments, the available national data on convention demand is at best scant, murky, and of limited reliability. The national market data regularly employed by consultants comes from a small number of industry sources, and often reflects estimates rather than performance, guesses rather than substance.
...
Washington, D.C. replaced its 380,000 square foot center with a new $834 million, 725,000 square foot facility at the end of March 2003. ...More recently, the center saw convention attendance of 281,900 for fiscal year 1999 and 345,800 for fiscal 2000, with a total of 352,243 hotel room nights in fiscal 2000. Authority officials anticipate about 400,000 room nights generated by the new center in 2004. After building an entirely new convention center with almost double the exhibit space, the Washington Convention Center Authority has seen effectively no increase in attendance or hotel use.
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Faced with convention centers that are routinely failing to deliver on the promises of their proponents and the forecasts of their feasibility study consultants, many cities wind up, as they say, "throwing good money after bad." Indeed, weak performance -- an underutilized center, falling attendance, an absence of promised private investment nearby -- is often the justification for further public investment. A new center is thus often followed by a subsidized or fully publicly-owned hotel, then by a new sports facility such as an arena or stadium (occasionally combined with the convention center), ultimately by an entertainment or retail venue, and perhaps a new cultural center or destination museum.

Now of course convention centers compete against each other while stadiums rarely do, so the economics of a convention center are in some respects different from the economics of a sports stadium (as noted above, however, the two are often bundled in one vanity "super-program").

But much of the economics are the same, especially when it comes to alleged "multiplier effects" (e.g., "new stadium equals new tourists equals new restaurants equals new revenues for the city"). Break that first link in the chain, as the Brookings study does, and the whole house stadium of cards collapses. (Compare and contrast: Despite chronic promises to the contrary, hosting the Olympics is invariably a money-losing proposition.)

Meanwhile, Kansas City provides yet another example of the "pseudo-economics of rooting" with a proposal to implement a new county sales tax in order to maintain the Truman Sports Complex, home of the Kansas City Chiefs and the Kansas City Royals. If the county doesn't pay for the upgrade, the teams would be allowed to move. Of course, the notion of those teams actually paying for their own stadium, or why people who don't use the stadium should have to pay for it via a sales tax, didn't seem to come up. (Hat tip to Government Bytes.)

UPDATE: Great timing -- related posts today from Reason's Out of Control on both convention centers and the D.C. stadium fight.

Related Posts:
Sports Stadiums and the Pseudo-Economics of "Rooting"
"Buy Me Some Peanuts and...a $432.5 Million Stadium"
Anybody But Bloomberg: NYC and the Olympics
The Folly of Public Provision of Private Goods

As the clock ticks down on the conjoined Bloomberg boondoggles known as the West Side Stadium and the 2012 Olympics, some new and unwelcome data on the fiction that the Olympic Games "help" a host city's economy: (WSJ -$)

For a few giddy weeks last summer, the whitewashed houses at the foot of [Athens'] Mount Parnitha, and the 10,500 athletes who lived there, were the center of the world.

Today the Olympic village is a ghost town, and most of the jobs it generated have vanished. Soldiers guard the site while the government tries to find another use for it. "Please move on," one tells a visitor. "There's nothing to see here."
...
Meanwhile, Greece is still waiting for an Olympic boost to materialize for its $8.86 billion-a-year tourism industry. In 2003, the number of annual visitors to Greece declined almost 7% to 13.9 million and dropped again in 2004 to 13.1 million.
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To a degree, Greece's woes are no different than the headaches past Olympic cities have experienced. In the history of the Games, only two cities — Los Angeles in 1984 and Atlanta in 1996 — have earned a profit. Montreal, which hosted the 1976 Summer Games, won't finish paying off its debt until next year: Its Olympic Stadium has been a financial sinkhole, with a malfunctioning domed roof that collapsed in 1999 under a load of snow, injuring five people setting up for an auto show.

Now of course New York City isn't Athens and the U.S. isn't Greece. But the chronic lies (or, to be generous, myopia) of those who amazingly chant "more jobs, more housing, more tourism" from the Olympics are simply ignoring reality. In the case of New York, the illogic is even more bizarre due to Bloomberg's "Mobius strip" reasoning: We need the stadium for the Olympics, and we need the Olympics for the stadium.

Huh?

The entire Bloomberg campaign for the stadium has been nothing but a series of red herrings and bait-and-switch tactics: Why do the Jets need to play in Manhattan rather than the outer boroughs, as the Yankees and Mets do? Blank out. Why are we so concerned with the Jets playing in New York City proper, but not the Giants? Blank out. Why should the Jets receive $600 million in taxpayer subsidies, especially when, unlike baseball, basketball or hockey, the average New Yorker will never even get to see a live game? Blank out (or worse, call it a "rooting tax"). Why should the Jets be given a sweetheart deal for the (government-owned) land rather than putting it up for a bona fide competitive bidding process? Blank out. How exactly do you operate a football stadium in Manhattan with exactly zero parking spaces? Blank out. If the Olympics are such a sure thing, then why does the IOC require host cities to provide taxpayer subsidies for the games as a precondition for consideration? Blank out. What does the Javits Convention Center have to do with any of this? Blank out.

Meanwhile, supporters of the taxpayer-subsidized projects are busy deflecting recent criticism over the stadium by asserting that — get this — Bloomberg's public fetish advocacy for the Olympics is responsible for rising real estate prices in the City.

Are you kidding me?

Add on to that the Freedom Tower debacle, to which the apologists respond by "reminding" us that Mayor Bloomberg "gave" authority over the site to fellow RINO, Governor Pataki, in exchange for staying out of Bloomberg's way regarding the West Side Stadium.

Gee, and I thought that the Mayor of New York should actually, um, lead New York and have at least some responsibility and input over what goes on in his own city. Silly me. I didn't realize that New York City and New York State politics was really nothing more than a giant game of Monopoly, with the politicians swapping Marvin Gardens for Water Works and Ground Zero for the West Side train yards.

Oh, and just in case, a new motto already seems to murmuring among Bloomberg's Olympics cheerleaders: "There's always 2016."

Give me a break.

It would have been nice if the death of the West Side Stadium proposal had come at the hands of a libertarian politician who stood firm against demands for taxpayer subsidies to rich private interests (i.e., the New York Jets), who rejected the fraudulent arguments of the boondoggle's supposed "benefits" as mere Broken Window Fallacy, and who proudly ridiculed the notion of a "rooting tax."

Instead it was petty politics. New York State Assembly Speaker Sheldon Silver had a price, unknown to all but the other power brokers. Mayor Bloomberg either couldn't or wouldn't pay that price. The back-room "I'll support your nonsense if you support my nonsense" maneuvering broke down. The stadium -- and almost certainly with it Bloomberg's asinine pursuit of the 2012 Olympics -- are dead, dead, dead.

Right result, wrong reason.

Sigh.

Mayor Bloomberg and his West Side Stadium / 2012 Olympic minions endlessly chanted the Politics of the Mobius Strip: "We need the stadium for the Olympics, and we need the Olympics for the stadium."

Or maybe not:

Leaders of the fractured bid to bring the 2012 Olympics to New York City are re-examining earlier options for a stadium in Queens, three people familiar with the discussions said yesterday.

Two options involve a partnership with the Mets, one to refit Shea Stadium for the Olympic Games and the other to build a new stadium in the Willets Point area nearby, they said.
...
Olympic organizers scoffed at a Queens stadium site until the rejection of the West Side stadium proposal Monday. Since then, they have been scrambling to produce a viable alternative...
...
The idea of a temporary structure for the Olympics is one of many possibilities that have been raised this week, said three people with knowledge of the discussions.

Now wait just a minute. All this time Bloomberg insisted that the West Side Stadium was the only option for securing the Olympics, and now all of a sudden alternatives not only might be available, but were available when the Olympics proposal was first being drafted. Which invites the question: why weren't multiple contingency plans put forward at the outset?

Simple. Bloomberg lied. He intentionally played the brinksmanship, all-or-other card in the hope that it would pressure politicians into approving the West Side Stadium plan.

Note also how Bloomberg & Co. lied about the tie-in to the Javits Convention Center, another "critical" aspect of the boondoggle plan. Now that the West Side Stadium proposal is dead, dead, dead, suddenly a stadium in Queens, with no renovation or expansion of the Javits Center, would also be okay. Go figure.

Oh and here's lie number three: A major "benefit" promised under the original proposal was that there would be permanent enhancements to the neighborhood, long after the Olympics were gone. Now — presto! — a plan for temporary facilities that would be dismantled after the games are over would be perfectly okay too. Go figure.

He lied. He gambled. He lost. Time to move on.

As for the Mets and Shea Stadium, the same standard should apply to them as to the Jets. Let them build whatever they want, wherever they want — so long as it's with their own money and not with any taxpayer subsidies.

Meanwhile, John Tierney skewers the politics of stadiums:

[T]he creation of "sacred space" ... gives people a sense of identity with the city. In Ur, it was the shrine of the moon god, Nanna, a 70-foot-high ziggurat towering over the Mesopotamian plain. In Athens, it was the Parthenon. In Venice, it was the Basilica of San Marco.
...
But does anyone think that New Yorkers will have an identity crisis if the Jets and the Olympics don't come to Manhattan's West Side? The proposed stadium would have been a generic hulk like most other new arenas and convention centers, sitting empty most of the time and preventing the surrounding area from becoming the kind of space that urbanites really revere: a neighborhood with homes and businesses and street life.

Exactly. Today's urban stadiums and convention centers are not comparable to the Circus Maximus or the Parthenon. They are more analogous to the pyramids — the ultimate expression of the petty vanities of leaders like Bloomberg who want to live forever.

New York City was the second city eliminated in the voting rounds for the 2012 Olympics.

Of course, hindsight is 20-20, and it's gauche to kick an opponent when he's down, but this silly idea was stillborn from the outset. Mayor Bloomberg should simply issue a public apology for the embarrassing and unnecessary distraction and move on.

Two hasty stitches:

1. Many New Yorkers, Mayor Bloomberg obviously among them, seem to think that New York City can get by on its name alone. Um, no. Visitors — whether individual tourists, major conventions, the Olympics — not to mention long-term newcomers such as workers, college students, immigrants and new businesses — will only come here if it is a place worth coming to. And that means sticking to the basics: keep taxes low, regulation to a minimum, basic services such as crime fighting and street cleaning high on the agenda, and so on.

New York's failed Olympics bid had it exactly backwards, focusing too much on "If we build it, they will come...' ("it" of course being a scandalously planned Manhattan stadium for the New York Jets).

New York is already "built," so the proper approach is something closer to "If you treat it right, they will come..."

---

2. From the news story:

Paris is bidding for the third time in 20 years after defeats for the 1992 and 2008 Olympics — and the IOC tends to reward persistence.

From an earlier post:

[A] new motto already seems to murmuring among Bloomberg's Olympics cheerleaders: "There's always 2016."

Ugh.

UPDATE: Nicole Gelinas echoes my thoughts about how NYC is "too capitalist" for the Olympics. Mayor Bloomberg, meanwhile, is engaging in some pretty brazen revisionism by suddenly declaring that NYC's bid was always a "long shot."

Assume you have to plan a medium-sized to large convention of some sort. Maybe a trade show, maybe a national civic organization meeting, maybe a professional association proceeding.

Where are you going to have your convention?

The answer is almost certainly going to be Las Vegas. Because that's simply what Las Vegas does best.

Or you might try New York — or San Diego, Chicago, San Francisco or New Orleans. Those large cities are also suitable for conventions.

But unless you are planning a tractor show or the annual meeting of Berkshire Hathaway shareholders, you are simply not going to have your convention in Omaha, Nebraska:

[T]he city of Omaha, Nebraska, would have to tap reserve funds to make payments on the bonds it sold to build the [convention center] hotel in 2002. When the city sold the $103 million in bonds, it also promised to make up a portion of the debt service, if hotel revenue fell short.
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The hotel, owned by the city and operated by Hilton Hotels Corp., is meeting its goal of filling two-thirds of its rooms, but not at the rates originally projected, which were $143.43 in 2005 and $147.07 in 2006. A couple can stay there this weekend, for example, for as little as $109 per night.

That's not all. It looks like the city will have to increase property taxes in 2007 to pay debt service on the bonds it sold to build the convention center.

Sorry, but even at $109 per night, Omaha is not a bargain.

The fact that there is a convention center glut is not new news — I blogged about it back in January. But let's examine why there is a convention center glut in the first place.

The answer is quite simple: because the government builds them.

There are two aspects to this phenomenon of "if the government builds it, they still won't come." First, the very fact that the private sector won't build these projects shows that they cannot be self-supporting (which is a polite way of saying "profitable"). If there were a true demand for Omaha convention space, then Hilton, or some other "greedy" capitalist outfit, would figure that out and proceed accordingly. Demand creates its own supply.

Second is the vanity aspect. What better photo op can there be than "The House that Politician Built"? Throw in some Kelo-style gobbledygook about "economic development" and "revitalization" and some Broken Window Fallacy about how it will of course create jobs, jobs, jobs, and of course any project will be far bigger, far more expensive — and far more likely to lose money — than the true economics and demographics of the city would suggest. After all, it's always far less painful to lose taxpayer money than your own.

The politics and economics of convention centers expose a fundamental falsehood about public construction: just because something is big does not mean it is a public good. Skyscrapers are big, commercial jets are big, cruise ships are big — and they are all built privately (at least in this country).

I feel sorry for the taxpayers of Omaha who were duped into supporting this boondoggle.

But look on the bright side: If they ever form a "taxpayers union," then they have a convenient and inexpensive place to have their convention.

Cross-posted at Bastiat's Window.

I almost fell out of my chair:

The Jets and Giants signed an agreement on Thursday to jointly build a stadium complex in the New Jersey Meadowlands, ending the Jets' long and tumultuous attempt to cross the Hudson River, first to a stadium on the West Side of Manhattan, then to a park in Queens.

In signing the agreement to share the estimated $800 million cost of construction, the two teams became equal partners in the stadium complex, the first time in the history of the National Football League that two teams have sought to finance and build a stadium together.
...
[The Jets] famously enlisted the support of Mayor Michael R. Bloomberg in a bruising battle to build the world's most expensive stadium, on a platform over railroad tracks on the West Side, but it ended in failure.

No taxpayer money whatsoever is subsiding the new stadium. (The State of New Jersey will, however, provide 20 acres of public land to each team for training facilities.)

So much for the fallacy that a sports stadium specifically, or sports entertainment generally, are "public goods" that require tax subsidies (obnoxiously euphemized by some as a "rooting tax").

As I blogged throughout the West Side Stadium circus, just because something is big does not mean it is a public good. If you (the owner) build it, then you can damn well pay for it. And if you (the fan) use it, then you can damn well pay for it too. Leave taxpayers out of it.

Hopefully voters will remember how utterly unnecessary all the wasteful petty politicking over the West Side Stadium plan was, and that, in the end, it truly was nothing more than a pompous and unnecessary vanity project for Mayor Bloomberg.

As people prepare to ignore the 2006 Winter Olympics in Turino, Italy, the Olympicrats at another future venue for the Great Global Boondoggle have encountered something that cannot be so easily ignored:

The committee responsible for organizing the [2010] Vancouver Olympics announced Friday that its venue construction costs have risen by 23 per cent to an estimated $580 million from $470 million. To cover the $110-million cost jump, the Vancouver Olympic Committee ... has asked the provincial and federal governments for an extra $55 million each.

As we saw last year with Mayor Bloomberg's idiot attempt to bring the 2012 Olympics to New York City, the selection process is a grueling, exhaustive bidding process that candidate cities spend months or years, not to mention vast sums of money, researching and preparing.

And they still miss the mark by 23%? The Canadian Olympicrats have barely broken ground on a event that is four years away and they're already 23% over budget and in need of a nine-digit taxpayer bailout? Disgraceful. And, incidentally, unheard of (and not tolerated) in the private sector.

Any politician who argues that bringing the Olympics to their location is an economic boon rather than a wasteful vanity project is a liar.

New York City was mercifully spared the "honor" of hosting the 2012 Olympics. Let's hope that we are similarly insulted in 2016 and forever more.

More thoughts from ElectEcon.

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.
...
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.

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.