OPINION:
In 1997, the International Olympic Committee announced that the 2004 Summer Olympic Games would be hosted in the competition’s ancestral birthplace of Athens, Greece. Greek citizens were euphoric about the boost the games would bring their country.
You can probably predict what followed. As Athens prepared to host the games, construction delays and administrative snarls led to unanticipated cost overruns. The initial budget projection of $1.6 billion ballooned to a final estimate of $16 billion, a tenfold increase.
Worse yet, the small Mediterranean nation derived little lasting economic benefit from hosting the games. Indeed, Greece is now the fiscal basket case of Europe.
As the 2012 Summer Games proceed in London, it’s worth looking back to Greece’s Olympic experience as a case study in how the international competition rarely delivers on its lofty promises of long-term economic development.
One noted economist, Andrew Zimbalist of Smith College, has studied the Olympics and other “mega-events” and determined that they are “a loser’s game.” Mr. Zimbalist notes that the games encourage overbuilding and misallocation of resources while doing little to increase tourism.
“There may be a few former hosts that experienced long-term economic benefits, such as Barcelona,” Mr. Zimbalist wrote recently at theAtlantic.com, “but scholarly research has found that any gains are difficult to identify.”
Londoners likely will undergo similar disappointment. Predictably, the cost of the 2012 Summer Games has exceeded projections. Initially projected at about $3.9 billion, the costs reportedly exploded to an estimated $14.5 billion (a number that will probably end up even larger in the final accounting). Meanwhile, the credit rating agency Moody’s Investors Service issued a report in May warning that the games would be “unlikely to boost” the British economy.
This isn’t intended as criticism of the games as a sporting event. I love the Olympics and I have been cheering wildly for Michael Phelps, Gabby “the Flying Squirrel” Douglas, Missy Franklin and all the other athletes representing the United States in London. However, I believe the games’ economic impact is a perfect metaphor for the shortcomings of large-scale government stimulus spending.
When a nation is chosen to host the Olympics, officials unfailingly tout the supposedly stimulative economic boost that will accompany the games. Occasionally, that happens. More often, however, host cities are left holding the bag. It turns out that many of the problems governments discover when “investing” in hosting the Olympics are the same problems with other types of economic stimulus — ambitious promises that fail to materialize, misallocation of resources and, all too frequently, a debt hangover that lasts for years.
That certainly describes the United States’ recent experience with stimulus spending. When President Obama signed the more than $800 billion American Recovery and Reinvestment Act in February 2009, the national unemployment rate was 8.3 percent. Stimulus supporters pledged that the federal spending spree would beat back the recession and bring unemployment down. Three years later, unemployment is 8.3 percent — essentially unchanged — while deficit spending continues at a rapid rate and the national debt has topped $15.8 trillion.
The untold story of America’s failed experiment in stimulus spending under the stimulus act from 2009 to 2011 is that a large amount of funds went toward plugging holes in state and local budgets. Doing this didn’t solve any problems; it just put them off for another day.
Other stimulus initiatives, like the much-derided Cash for Clunkers program, succeeded only in shifting consumption patterns from one month to another, resulting in no meaningful and lasting gains whatsoever.
One need not travel to an Olympic village to learn the failures of short-term stimulus measures. In my experience advocating for small businesses, I have met with hundreds of entrepreneurs who know their business will fail if they spend more than they earn. Small businesses on Main Street expect their government to act the same way.
Unfortunately, some of our policymakers haven’t learned the lessons of these failures in stimulus spending. Nor have they heeded the advice from Main Street. Someone should let them know: Government stimulus spending is a loser’s game.
Thomas Sullivan is a lawyer at Nelson Mullins Riley & Scarborough LLP, where he runs the Small Business Coalition for Regulatory Relief.
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