Economists Don’t Like Economic Impact Studies?

Michael Rushton is singing my song. Today he posted a critique of using economic impact as a measure of the value of the arts. It is “quick and dirty” as he says, so it won’t take much time to read the whole thing.

I have made many similar posts before, but what I appreciated about his post was that he points out not only are arts and culture not so special that something else can’t be substituted in its place, but the economic impact data is not useful for making policy decisions. I had noted the substitution problem 13 years ago, but the issue of usefulness of the data for policy making hadn’t gelled for me before today. (Rushton’s emphasis)

And so, to consider an arts example, suppose a mayor says “we should spend money building a new performing arts center. Construction costs would be $3 million, and the total economic impact of the construction would be $7.5 million”. An economist would say: “you could do a lot with $3 million: you could repair infrastructure, you could expand after school programs, you could lower taxes by $3 million and leave it to individuals to have more money to spend. Any of those options would also have ‘economic impact’. So ‘economic impact’ doesn’t justify spending on the performing arts center. What would justify a new PAC would be if the public benefits from using it exceeded the costs of building it and running it, i.e. a proper cost-benefit analysis. Building a PAC is a cost, it is not the benefit.”

Economists don’t like “Economic Impact” studies – they know that the conception of them is wrong, and they lead to bad reasoning.

[…]

…I’ve studied this subject for twenty-five years, and have never seen evidence that economic studies have informed decisions on public spending on the arts.

Second, the numbers don’t give any policy guidance. Suppose I were to tell you that the annual economic impact of the nonprofit arts sector in Bloomington is $73 million. If you were on city council, what would that tell you? That arts support should be increased? Or decreased? That this is a very big number? Or about what one would expect? That we should increase spending on arts program X but decrease it on arts program Y? I have never seen a policy decision where the economic impact number made a difference. (To see this, imagine that I told you “I’m sorry, I made a typing mistake, it’s not $73 million, it is $63 million”. How would that correction affect any arts policy decision?).

About Joe Patti

I have been writing Butts in the Seats (BitS) on topics of arts and cultural administration since 2004 (yikes!). Given the ever evolving concerns facing the sector, I have yet to exhaust the available subject matter. In addition to BitS, I am a founding contributor to the ArtsHacker (artshacker.com) website where I focus on topics related to boards, law, governance, policy and practice.

I am also an evangelist for the effort to Build Public Will For Arts and Culture being helmed by Arts Midwest and the Metropolitan Group. (http://www.creatingconnection.org/about/)

I am currently the Director of the Grand Opera House in Macon, GA.

Among the things I am most proud are having produced an opera in the Hawaiian language and a dance drama about Hawaii's snow goddess Poli'ahu while working as a Theater Manager in Hawaii. Though there are many more highlights than there is space here to list.

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