Tuesday, January 10, 2012

Are the 2012 Olympics a Keynesian Stimulus?

Last week, Jeremy Hunt, the UK Culture Secretary, characterized the UK government's spending on the 2012 as a Keynesian stimulus to the economy:
The minister responsible for the Olympics rounded on those attacking the government for spending money to promote the UK, saying the event was “a massive Keynesian boost to the economy”. . .

“I do think it’s a stroke of luck that we are hosting the games right now,” he said. “There are people who say that doing a project like this is a massive Keynesian boost to the economy. That is definitely the case, in terms of the money being spent.”
Writing on his blog at Forbes, Stephan Szymanski, an economist at the University of Michigan who studies the business of sport, takes strong issue with that claim:
To be Keynesian, there needs to be additionality. Already planned government expenditures cannot restore confidence or demand since they formed part of peoples’ expectations and beliefs before the recession occurred. The core of Keynesian theory is the restoration of business confidence by providing a pleasant surprise to compensate for the unpleasant shock.

Now, if the government were to announce that it was going to go over its budget and spend an extra, say, £5 billion on the games (above and beyond the £9.3 billion) then this would qualify as a Keynesian stimulus, but we are not likely to hear a confession along these lines any time soon.

But even then, this would be nothing more than a drop in the ocean. Gordon Brown’s stimulus package in 2008 was £500 billion, and some economists argue that even that was too little. But the present government with its commitment to cutting the budget deficit and public debt are in any case pursuing the opposite of a Keynesian policy. This is hypocrisy of the highest order.
You can see Szymanski's 2011 presentation on the Economics of the 2012 Olympics which he presented at the Play the Game conference here in PDF and in the video below.

Play the Game 2011. Plenary session: Chasing the White Elephants - Mega-events for the Public Good, part 2 from Play the Game on Vimeo.


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