If you listen to some of London’s political elite, the 2012 Olympics are bringing a huge economic benefit to the United Kingdom, which is an economy currently in recession. The elites in favor of the Olympics say the London Olympics have led to an eight-year construction boom, a revitalization of East London, and major upgrades to London’s transportation and infrastructure system. In addition to the infrastructure and revitalization benefits, there are so-called multiplier effects: hundreds of thousands of people are in London for the games; they will spend money on meals and merchandise; the vendors will receive money and then go buy things too; and the virtuous cycle of spending will continue on and on.

The benefits they are selling us, however, are exaggerated and reflect a confused notion of economic progress. Economists have studied the impact of the Olympic games for the host country, and the overall return on Olympic investments has been negative. The Olympics are expensive for the host country (somewhere around $14 billion for the London Olympics), and they seldom bring more benefits than costs. The host city typically experiences huge cost overruns and unforeseen expenditures. Moreover, the long-term “glow” from hosting the Olympics quickly fades for most cities. One does not need to be an economist to see some of the evidence of negative returns: Readers should look up pictures of the Olympic staging sites from the Beijing Olympics of 2008; the memorable “Bird’s Nest” from the 2008 games sits empty. Athens, Greece, which hosted the 2004 Olympics, is still burdened by their overbuilding, and many hotels built for the games are in disrepair and now sit empty.

If hosting the Olympic games is a bad idea, we must then ask ourselves the following: Why would a country ever want to put in a bid for the games? The answer is politics! For the special interest groups in a host country, the opportunity to host is a real boondoggle. Contracts can be allocated to politically connected hotel and stadium builders; temporary security jobs can be added; and vendors enjoy a one-time blip in their sales. The concentrated benefits to builders and Olympic staff are visible, large, and irresistible for any rational politician. But, they come on the backs of taxpayers, who are dispersed around the country (and, thanks to Olympic revenue sharing, around the world). Politicians receive some short-term benefit for attracting the games, as they receive praise for temporarily boosting employment in their countries. The full costs of their action — the “bird nests,” which quickly become rat nests, the empty hotels — fall on future investors and taxpayers.

Rather than think of the building of stadiums, villages, and hotels as a driver of future economic growth, it’s far more appropriate and accurate to think of the Olympics as one very big, expensive party being put on by the host country. The ceremonies and competitions are spectacular, of course, but they are not much more than a two week party. The people will come in droves for two weeks and the events will be watched all over the world, but the positive spillovers from the Olympics are not very large.

The Olympics, like most major sports, are a lot of fun to watch, and many of the competitive events — from swimming to track and field to water polo—are nail-biters for spectators. But, they are not and never should be expected to be huge money-makers and engines of economic growth. Economic growth is determined by deeper, more fundamental factors — factors like economic freedom and a country’s legal environment, and it’s not something that can come about through one big event or one big stadium. To expect growth to come if we just build a big enough stadium or have a big enough party is to problematic because it sets oneself up for disappointment and represents a naïve understanding of basic economics.

 

Scott Beaulier is Executive Director of the Manuel H. Johnson Center for Political Economy at Troy University.