People should fear the economic effects of hosting the Olympics with all the same fright that they fear the economic effects of incoming hurricanes and tornadoes. It’s the smash-a-thousand-windows economic development plan.
Government “waste” is too tame a title for the Sochi Olympics. Sochi is an edifice to public corruption and dissipation. One must hope that Russia’s $50 billion games forever symbolize the scam that is “winning” a bid to host the Olympics and that the next time a U.S. president attempts to bring the games here people will condemn the endeavor. But the reality is: they won’t.
No matter how embarrassing this year’s Olympics has become, commentators will ultimately write it off as “Russia being Russia.” As The Economist magazine wrote last year, “in Russia corruption is not a side-effect: it is a product almost as important as the sporting event itself.” But if this is the only takeaway from this year’s games, it will be a major loss to the world. The fact is that nearly every major sporting event is staged with a combination of corruption and economic ignorance.
People love sports; politicians love spending; and no one ever remembers the last time. Economists have known for years that there are no fiscal or economic benefits to hosting major sporting events, but the political will to dump billions into public entertainment has been with us since the Greeks and the Romans, and there’s always some worthless self-serving economic study for supporters to back their position. As economist John Compton wrote in a 2006 paper excoriating such studies, “Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth.”
Unsurprisingly then, when the 1994 USA Bid Committee found $4 billion in net benefits to hosting the World Cup, the reality is that, as one study found, “host cities experienced cumulative losses of $5.5 to $9.3 billion.” This helps explain how, despite the overwhelming popularity of soccer in Brazil, Rio is rioting over the World Cup expenditures right now. “We are against the millions and millions of dollars being spent for the cup,” one student told The Telegraph.
It may be true that Sochi itself—primarily the politically connected—will benefit from the billions that Putin has poured into it, as one recent study found, even that study found that overall, Russia loses. “Ordinary Russians cannot be blamed for hoping that some profit might also come their way,” Vanity Fair notes dryly. Economist Dennis Coates helpfully gives a historical perspective:
Barcelona’s Olympic experience put the Spanish government $4 billion in debt, with the city and province taking another $2.1 billion of indebtedness. The Nagano Olympics added $11 billion in debt to Japan’s total. Athens projected costs of staging the Olympics at $1.6 billion, but actual costs were nearer to $40 billion.
Of course, even these costs will not be greeted with the horror that they deserve. Indeed, the most influential economist of the 20th century supplied the best defense of stadium-sized, Olympic-style waste that has ever been given. “’Wasteful’ loan expenditure may nevertheless enrich the community on balance,” Lord Keynes wrote in The General Theory. “Pyramid-building, earthquakes, even wars may serve to increase wealth.”
As long as long as people continue to love sports and as long as such ideas seem reasonable to anyone, we’ll continue to have government waste of Olympic proportions.