For Barack Obama's inauguration, a crowd of millions is expected to descend on Washington to celebrate the 44th president taking the oath of office. Expect booked hotels, a flooded Metro and few empty tables at restaurants. The winds of change are precipitating a flood of money on the regional economy.
But economists who have studied these kinds of mega-events say that whatever the impact, its effects are likely to be dramatically over-estimated.
Let's do some math. Say one million people are coming to the inauguration, spending an average of $500 on accommodations, $300 on food, drink and tickets to an inaugural party, and $200 on souvenirs. That'd be $1,000 a head, or a total of $1 billion for the region. But don't stop there.
All those hotel managers, restaurateurs and vendors--after a week of nonstop work--are going to spend that money. Maybe a shopping spree or celebratory dinner. Maybe the people who earned that first billion will spend half that money locally, adding $500 million to the total spending of the event. And then those shopkeepers and waiters will have some extra money.
Assume (as many studies do) that for every dollar of direct spending for an event, there's an additional dollar of indirect spending, as the money circulates through the economy. So if the inauguration brings $1 billion in direct spending, it would bring $1 billion in indirect spending. And so, it sounds as if a $2 billion economic impact from the inauguration is perfectly reasonable.
Studies have suggested the NCAA Final Four has an impact as high as $110 million. For the Super Bowl, studies suggest $400 million. But estimates for single-day or weekend events are nothing compared to longer events. Before the 1996 Olympics in Atlanta, one study said the games would generate $5.1 billion.These claims, collected by economists Robert Baade of Lake Forest College and Robert Baumann and Victor Matheson of Holy Cross, all of whom study large events, aren't even the most outrageous. In their paper "Selling the Big Game," they mention a report from the Dentsu Institute for Human Studies that predicted a $24.8 billion windfall for Japan and $8.9 billion for South Koera by hosting the 2002 World Cup. For Korea, that worked to an incredible--and implausible--2.2% of the entire country's economy.
"Economists who have looked at the issue from an independent and scholarly perspective don't think that methodology is valid," says Andrew Zimbalist, an economist at Smith College. "These models usually make assumptions that are very unrealistic. Then combine an inappropriate methodology with very optimistic assumptions."
Zimbalist says the studies miss too many key questions. For example, if people are staying at a national hotel chain, much of that profit goes to corporate headquarters and does not recirculate. What if restaurants and hotels don't hire new workers but make their existing ones work harder?
"Just because you have $100,000,000 being spent in D.C. doesn't mean it stays in D.C. and affects the D.C. economy, "says Zimbalist.
Besides, if these events were really the cash cows that studies predict, the impact would be easy to measure after the fact, right?
Lake Forest's Baade has analyzed numerous events after the fact, using detailed sales tax, wage and jobs data. His conclusion: "In general, the economic impact of teams, mega-events and so forth has been routinely exaggerated."
While nobody doubts big events can cause a huge economic disturbance, the effects are not nearly so positive. Baade surmises, after years of testing different methods, the Super Bowl may make a difference of about $30 million to whatever city hosts it. That's not a bad boost, unless you've spent $600 million on a sports stadium to get the big game, instead of investing in schools, roads or keeping taxes lower.
To make a good estimate with the inauguration, one would have to know how many people were planning to come to Washington anyway but moved their trip to January instead of April. Will there now be a lull in tourism for several months? How many conventions and events were scheduled in a city other than D.C. to avoid the mess of inauguration? How many D.C. residents will decide to avoid restaurants for the entire week?
"Making an estimate at this point is unfeasible because we're not sure at all how many people are coming," says Chris Gieckel, a spokesman for Destination D.C., the official convention and tourism corporation for the city. The city's educated guesses range from 1 million to 5 million people.
But just wait, says Baade. "I'm sure there are going to be people doing analysis right after the inauguration. There will be claims made that it was a huge boon to the Washington economy. And that might be true," he says. But those quickest estimates are likely to miss the key details of what actually happened.
So a big party? No doubt. Billions of dollars flooding the streets of D.C.? Don't bet on it.
