Art Carden  

On Bastiat and the Edifice Complex

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Last week, I asked my principles of macro students to do the following:

Evaluate this argument in light of Frederic Bastiat's essay "What is Seen, and What is Not Seen." You may use the assigned readings and videos, but you may not consult any other sources.

"The city of Birmingham and the state of Alabama should work together to finance a domed football stadium in downtown Birmingham. It would be an economic engine for the city and an economic engine for the state. The money spent on the stadium would ripple through the economy and create jobs and prosperity as those building the stadium buy food, cars, and entertainment. After the stadium is finished, it will encourage economic development as people spend money at and around the stadium. The city government and the state government should build a domed football stadium in downtown Birmingham."

Here is my own answer, with a couple of extensions:

If a private developer or sports team wishes to build a stadium in Birmingham using their own money, we should welcome them with open arms. We should not, however, welcome them with open (taxpayers') wallets. In Frederic Bastiat's essay "What is Seen, and What is Not Seen," he argued why not. Using taxpayer money to build a domed stadium in downtown Birmingham creates the kind of "prosperity" that comes about when people have to fix their accidentally broken windows. The tax money spent on a stadium will be money that taxpayers don't spend or invest elsewhere.

The argument that the city of Birmingham should build a stadium using taxpayer dollars is built on an emphasis on the easy-to-see benefits. It's easy to see the new construction jobs that come about because the government is building a stadium. It's harder to see the things that aren't being built because the money that would have been used to build them was taken in taxes. It's very easy to see the hustle and bustle of activity in restaurants, bars, and hotels on and around Big Events, but it's harder to recognize that a lot of that activity is merely redistributed from other parts of the metropolitan area. The money people are spending on entertainment around a new stadium is money they aren't spending in other parts of town like Five Points, Avondale, or Pepper Place.

A couple of extensions:
1. i've seen the fascination with "if you build it, they will come"-type boondoggles referred to as the "edifice complex." Clever.

1. There's actually a fairly well-developed body of research on the effects of stadiums. Here's a 2008 article by Dennis Coates and Brad Humphreys in which they summarize the research on the effects of government subsidies for stadiums and big events. These are not economic winners.

2. Teams are notorious for trying to shake down cities for sweeter stadium deals. The Cardinals did it when I lived in Saint Louis, and the Falcons are trying to do it doing it in Atlanta even though the perfectly-functional Georgia Dome is only 21 years old.

3. My best guess is that a stadium in a mid-sized city like Birmingham would almost certainly suffer a fate similar to the Alabama Cruise Terminal.



COMMENTS (7 to date)
Milton Recht writes:

Also should consider marginal taxation effects and Tiebout sorting.

If no stadium is suggested or built, will the city and state tax the public anyway and spend the money for different purposes? For example, raise government employee benefits or wages, build a public ice rink, build a new city hall, police station or court house, etc.

If the government will tax anyway, then voters and rent seekers with greatest influence wil attempt to get amenities that increase their general welfare the most.

Government employees and union workers should be indifferent as to what project as long as some taxation and projects occur.

Tiebout sorting suggests that higher taxed, mobile voters and rent seekers like amenities such as a new stadium in Birmingham and used their political power to promote the idea. Addtionally, new stadiums tend to raise ticket prices and increase number of season tickets, which tends to make stadiums expensive for the avergage citizen and move stadium seats into a luxury goods category.

Tom West writes:

Well, I remember 20 years being *shocked* to hear a bunch of men at the next table discussing moving their (from what I could tell) medium size business and plant to a cheaper city from Toronto.

The idea got shot down when despite the fact that they (the executive team, presumably) could buy bigger houses, there was no professional hockey team at the discussed location. The economic benefits to the company appeared to come a distant third to the first two factors.

I'm not a big fan of the state subsidizing big stadiums, but I'm fully aware that businesses decisions are made by people who might reject economic development in a city because it wasn't "cool" enough, where "cool" can be defined in a myriad of ways including having a shiny stadium.

Ricardo writes:

If you're going to use my tax money to build schools in which little or no learning takes place, the least you can do is buy me a baseball stadium.

Brian Tracey writes:

The link to the 2008 article doesn't work. The article is here:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCwQFjAA&url=http%3A%2F%2Feconjwatch.org%2Ffile_download%2F222%2F2008-09-coateshumphreys-com.pdf&ei=he7oUcvMAYmMqwGi3IDwBA&usg=AFQjCNEHx-ZzlWiqJd-HKjauzW1vdcWGrg&bvm=bv.49478099,d.aWM

Shayne Cook writes:

Art:

Re: Your second extension 1., "These [stadiums]are not economic winners." (emphasis and insert mine).

Stadiums might not indeed be fiscal, accounting or financial "winners", but I'd argue that since they exist at all, they are "economic" winners. Accountancy is NOT economics.

As an aside, the link to the Coates/Humphreys article seems to be dysfunctional. I was going to read that article to see if Coates and Humphreys also confuse accountancy with economics.

For example, did they measure other impacts to the community, such as ability to attract new business investment, as indicated by Tom West's comment? Did they conduct robust surveys to try to get information on how much local "identity" is invested in a professional sports team presence, etc.?

Point being, financial "balance" is a thing to be worshiped by accountants. Economists should recognize that the accountancy is only a small part of the story.

R Richard Schweitzer writes:

There is an element missing from the way the proposal was suggested:

the usual method of financing such projects is to issue bonds (preferably revenue bonds) with source repayments of interest and principal from assessments upon the use of the facilities (ticket fees) and possible related activities taxes (very difficult) in which the governmental functions are basically to "guarantee" the ultimate repayment of principal but not interest. The possible tax advantages to particular investors is also a factor.

It is interesting that the city of Birmingham Alabama was the locus chosen for this example.

In fact, by encouraging the use of a stadium within the city of Birmingham, and improving that stadium, the revenues from collegiate football were increased. The revenues from collegiate football were largely responsible for the development of the extremely important Medical Center and School of Medicine at UAB (sometimes referred to as the medical center that football built).

There was an occasion some 50 years ago when the public approved a bond issue for the improvement and expansion of stadium capacity and at the same time rejected a bond issue for the repair and maintenance of public schools.

There are more things "unseen" than are looked for with such specific political or economic insights.

If there is a public appetite for spectator sports and that appetite can produce revenues for a medical center (as it has) that should be considered by professor as well as student.

Look a bit further for what is "unseen."

Floccina writes:

Even if the stadium brings in business it might be bringing it from another city. That is not so great.

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