Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

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. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, April 15, 2005

The "Field of Dreams" Fallacy

Phil Miller, at the Market Power blog, decries the continued use of the phrase, "If you build it, they will come."

The problem, as he points out, is that fans who come to a sports stadium usually would have spent their money in some other way in the same economic area if they hadn't attended a sporting event. This "diversion effect" negates any impact that having a professional sports team might have had on a local economy.

Mayor Michael R. Bloomberg recently provided a new reason for building a 75,000-seat stadium on the Far West Side of Manhattan - and it's not the Olympics, conventions, or professional football.

"Keep in mind that what this is about is jobs, jobs, jobs - and people need those jobs now," Mr. Bloomberg said the day the Metropolitan Transportation Authority voted to sell development rights to the Jets so that they can build a $2.2 billion home on the Hudson.

Mr. Bloomberg, like so many others, make the implicit claim that if the public doesn't build this stadium it won't get built and if so, then x jobs will no longer exist and/or will never exist. But this is silly.

It is silly, not only because of the diversion effect, but also because, in the long-run, the aggregate supply curve is vertical and labour is mobile. Job creation is an empty argument.
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