Host Parties or Make Levees?

Michael Giberson

Locals and tourists in New Orleans celebrated the first weekend of Jazzfest this past Friday, Saturday, and Sunday; I?ll be joining the fun this coming weekend. This year?s 37th annual festival is slightly scaled back from a year ago ? the second weekend is only three days rather than last year?s four-day event ? but news reports say attendance is up. However, as with Mardi Gras earlier this year, some folks of a more Puritan way of thinking wonder why all the celebrating when there is so much more work to be done.

A few days ago, Tyler Cowen said that economic impact studies ? he was particularly referring to studies of the economic effects of arts spending ? should not be trusted. Cowen quotes from his new book, Good and Plenty: The Creative Successes of American Arts Funding:

A study of this kind might show that an arts festival or new arts arena brings millions of dollars in economic value. But these studies typically treat arts expenditures as creating value out of nothing. Implicitly it is assumed that if the money had not been spent on the arts, no other economic or social values would have been produced. Again, the relevant comparison is whether an arts arena leads to more value than some alternative.

Absolutely. The economist in me jumps up, pumps its fist in the air and says, ?Right on, brother!? And then, as economists are wont to do, it added, ?On the other hand….?

It may be easy to dismiss arts economic impact studies as inconsequential fluff, relatively speaking. After all it ain?t exactly the automobile industry, or international oil markets, or some other suitably deep, serious economic topic. But the context of such studies is almost always the dispensing of public funds, a suitably serious topic for economists to be sure, and if advocates of this arts center or that stadium have bothered to commission an economic impact study then we must be talking about a serious chunk of change.

When Cowen says these studies can?t be trusted, I say, ?Compared to what?? In his posting he suggests comparison to alternative spending projects, but I assume I shouldn?t trust the alternatives? economic impact studies either. (Do I pick the one that most overstates the economic benefits of a proposed project? Isn?t there a ?Winner?s Curse? problem here?) The suggestion is on the right track, but the criticism without some pragmatic advice on how to do a better study left me unsatisfied.

When Cowen posted a ?Request for Requests? a day or two after the earlier post, I requested he explain ?how to perform an economic impact study that would be trustworthy.? Today he responded with two simple suggestions, ?Use a multiplier of 1, not three or four? and ?Compare your studied project to the best available alternatives.? Seems like good advice, but questions remain.

What should New Orleans do? Host parties or build levees? Obviously, if New Orleans is going to continue to be New Orleans, it will have to do both. But how, on the margin, when dispensing public funds, do public officials choose between a little more party or a little more levee?