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Saturday, December 03, 2005


Baseball & Economic Development

Here's a local economic development story to take a look at:
"The city and MLB worked to finalize the terms of the lease yesterday, but it was not completely done. It is unclear whether the council will approve it when it votes. Many council members have threatened to vote against the lease if it does not contain additional financial commitments from baseball, and some members said they will reject it because they favor building the ballpark near RFK Stadium, where it could be less expensive.

City officials, including Mr. Williams, insisted yesterday the RFK site is not necessarily cheaper because it would have a smaller impact on economic development in the area and because the city already has sunk more than $100 million into the South Capitol Street site. MLB officials said they would consider the RFK site only if Mr. Williams asked for it. The city is doing an updated cost estimate for the RFK site and expects the results shortly."
I think there are a few things to note:

1. Apparently some on council say they think a site near the existing RFK Stadium would be less expensive. I suspect this isn't what they really think. I suspect they think if located at RFK their constituents will benefit (and that they will have greater chances of re-election).

2. Note the reference to cheaper and smaller economic impact in the second paragraph. This seems confused to me. From an economic point of view, we would probably say that emphasis on being less expensive is a bit misplaced. The real interest should be which location for the facility would mean the community enjoyed greater net benefits. Smaller cost, other things constant, would mean greater net benefits. But greater benefit, other things constant, also means greater net benefits. Economics advises that the facility should be located at the site that means greatest net benefits.

3. There is a reference to having sunk $100 million on one of the sites already. Sounds like a sunk cost to an economist, and that means the number $100 million should be seen as irrelevant to the best decision to make moving from now and into the future. Unfortunately, the reference here to the relevance of a sunk cost is an illustration of a common economic mistake made in debates of the best public policy to choose.

4. Consider the reference to the economic impact at one site versus another site. The idea is to pick which site provides the greatest economic impact. Unfortunately, economic impact is not the same as net (social) economic benefit. Instead the reference is to estimates of jobs, spending, and taxes. The idea here illustrates a common mistake in economic development discussions. The economic impact on jobs, spending, and taxes invariably consider only government spending money to build the facility. Of course the money to build the facility comes from somewhere. The estimates of economic impact never show estimates of jobs, spending, and taxes that would have been "generated" if the money spent on the project had been left in taxpayer pockets. Interest in economic impact is simply bad economics, and is very likely to lead to public policy that contributes to relative economic decline rather than to true economic development. Of course, good economic analysis would emphasize the question of whether we have a source of market failure. If we had a source of market failure, then we might well have reason to think a good choice of public policy would enhance economic development of the community. But, without a source of market failure, we have to expect government's choices will not be efficient and hence will not contribute to the community's economic development.

Looks like the politicians are having a feild day. They don't know what to do with all the money they have.....oooohhhhh...wait. That is our money. $100 million dollars as a sunk cost, that is no problem. I just wonder, what would have happened if the $100 million was injected directly in to the retail market. Stocks would raise, profits would go up. Who knows where this money could have gone. The sad part is, no matter where the money went it would have had a better result.>>>>just something to think about.
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