Friday, April 17, 2009

Spectator Sports and Economic Growth

I have said this before but as The Oregonian has once again put it on the front page it bears repeating: No evidence for the positive is NOT evidence for the negative.

I am, of course, referring to the link between investing in spectator sports and the economic growth of the city.  Here is what we know: when you look carefully at the basic measure of economic growth, GDP per capita through time, and introduce a sports stadium and/or new sports franchise there is no apparent 'bump' in the data.  Or more precisely, sometimes you see a bump from the direct construction spending, but it is temporary.  From this you can conclude that there is no evidence that such investments create a measurable spurt in local economic growth.  You CANNOT conclude, however, that such investments do not spur growth because you cannot compare it with the counterfactual (like you could in a lab - see yesterday's post).  The fact is that any sports franchise investment is a relatively small part of any city's economy and finding a measurable effect on overall growth would be so extraordinary as to rouse suspicion that the correlation is spurious.  

Think of a study which looked at the the GDP of Denver over the last 50 years and controlled for many other factors that effect the local economy including, for example, revenue from natural resources.  Then you add the addition of the Rockies baseball team and see if there is a jump in the time series.  Nope.  But does it mean the rockies did nothing for the local economy?  No, it means that there is no identifiable boost, but since we don't know what growth would have looked like absent the Rockies we can never truly say anything meaningful about what their presence has meant for growth.  

My guess is that investments in sports franchises are not considerably more or less stimulating for growth than any other average business investment in the short and medium term.  The difference in my mind is the much bigger social welfare that spectator sports provide than, say, a new restaurant.  Just look at the folks that turned up for the Blazer rally yesterday.  What this means is that you may not get outsized private returns on the investment but you may get outsized public returns.  

What I don't know, and will probably never know, is what such franchises do to the long term trajectory of the growth of a metro area.  Would Portland be any different if the Blazers never arrived?  I don't know, but I suspect that, just like theaters, museums, concert halls, spectator sports make a place a nice and stimulating place to live and are part of the decision to live somewhere.  So I suspect that the Blazers have had a small role in making Portland a desirable place to live over the past 30 plus years and this cumulatively has created a different growth trajectory than there would have been without them.  Since Oregon does a particularly bad job of educating its residents, we benefit from the flow of educated people who choose to live here, and cultural amenities, including spectator sports, are important in this regard.  

This leads to the argument that we should spend more on education.  This argument is powerful, but the city's investment in the stadium is an investment in a revenue generating asset paid for by borrowing from the future.  Conflating this with current investment education is a mistake - it is not a zero sum game.  I would love it if investments in public school buildings could lead to increased future revenues that would pay for such investments, but the reality is that they don't - or at least not ones the city can capture.  

The essential story of economic growth is the mixing of educated workers, technology, capital, infrastructure, etc.  To put it simply, you need to create educated people AND a local economy in which they can be productive.  I think that given the relatively small cost to the city and the potential benefit to the residents of the city it is worth it.  But as always, I get a lot of personal benefit from spectator sports and soccer in particular, so I am inclined to think the overall benefit is large. Judging from the movement of the poll, I am in the minority.

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