Every once in a while it is heartening to think that world’s people may finally be awakening from their economic anesthesia and experiencing rightful revulsion about what has occurred. We are told that the global economy fell on its own into a pit of despair in 2008 and has been unable to escape it all “despite” the best efforts and heavy doses of government (including monetary) “stimulus.” The theoretical underpinning of government “stimulus” is the very Keynesian notion that spending on anything during periods of “slack” is far, far better than doing nothing.
That is a notion that has been swallowed whole by not just neo-Keynesian academics but monetarists that are practicing it through central banks all over the world. The mantra of “aggregate demand” is activity for the sake of activity. Better to do something, so they say, with “idle” resources than do nothing and let the economy languish.
With another round of Olympic bidding, for 2024 games, opening up, there is indeed a pushback against the massive “costs” that hosting entails. Even Italy, the sick big man of Europe, is planning on making a pitch but one that isn’t universally applauded.
“Proposing Rome as a future Olympic city is like painting an old Fiat 500 red and hoping that people will believe it’s a Ferrari,” said Luca Zaia, the governor of the Veneto region and a heavyweight in the Right-wing Northern League party.
“This is madness, they’ll be the Olympics of Waste,” said Matteo Salvini, the head of the Northern League, who added that arrests are being made in Rome on an almost daily basis as investigators probe the links between politicians and the mafia.
What’s odd here is not that a major Western newspaper is picking up “waste” in Mafiosan tendencies, but in terms of economics. Under the paradigm of “aggregate demand” there is no such thing, purportedly, as waste. And if there was ever a nation in need of “stimulus” it would be Italy.
This is not unique, however, as again there is a sense of foreboding about hosting Olympics that I don’t believe was present the last time, and certainly not as far back as when Greece bid on the 2004 games (and destroyed their economy to do it). Even erstwhile “stimulus” proponents see the Olympics as a net negative.
Just listen to the economists who study this topic: “My basic takeaway for any city considering a bid for the Olympics is to run away like crazy,” Victor Matheson, a professor of economics at College of the Holy Cross, told me in an interview last fall. His research has found that hosting “mega-sports events” like the World Cup or Olympics tends to cost an enormous amount — and brings few tangible benefits.
The question is why that realization can’t (and likely won’t in the orthodox media) apply more broadly, especially in the age of Krugman’s Keynesian Revival. Just as it is wasteful, and thus a net cost without benefit, to build single-use facilities for a one-off sporting event, the same could be true of almost every piece of government “stimulus”, shovel-ready or not, right down to John Maynard Keynes’ suggestion of building pyramids in the desert (or burying gold in mines and digging it up). Waste is waste.
It’s almost as if people are starting to recognize the contours of very real limitations to top-down commandments that prize GDP and economic activity only tomorrow as the sole measure of economic health. Part of that is to appreciate the unspoken balance sheet to everything that is done. Harm the balance sheet by stuffing it with nothing but waste and eventually the economy falls apart when the losses come due. At that point, no amount of derivatives and swaps can hide the cash flow aspects of an inordinate number of white elephants that were counted as redistribution rejuvenation.
Creating future losses doesn’t seem like much of an economic program, a fact that goes right along with hideously distorted current finance.
