Stadiums, Subsidies, and other Wishful Thinking (Part 3)

This is a wrap up of a short series on economic development ideas that are allergic to evidence. Parts one and two are here.

Aside from wasting public money, what do outrageous investments in megaprojects and inequitable economic incentives have in common? The common thread, and the rot at the root of economic development, is an ideology based in wishful thinking.

When economic development fails to meet the needs of the people it is supposed to serve there are a few plausible explanations. The more attention grabbing explanation is corruption and cronyism, which tends to draws a lot of attention and quick denunciation. The boring explanation is a lack of critical thinking and imagination on the part of public officials. Cities copy what’s popular, go for cheap wins, and try to take the shortcut on the complex path towards economic growth. A ribbon cutting is much easier than sorting out the threads connecting federal and state governance, education policy, tax rates, public investment, racial and economic inequality, local real estate markets (and on, and on…).

It makes a lot of sense that we end up where we do. We elect politicians to improve conditions, not to write a dissertation. It is hard to run a city or a state, and sometimes Pyrrhic victories seem better than slow infinitesimal progress. Striking a deal to focus on the process rather than the results doesn’t seem on its face so insidious, but the human mind has incredible ways to get us to believe that we are doing is right. The logical end result will always be things like stadiums and tax incentives.

Here’s a fitting explanation from the New York Times article about 38 Studios:

At bottom, 38 Studios may be that rare political scandal that grew not from any lies that anyone told the public, but from the stories that desperate politicians told themselves.

So true. I’d just go back in and take out the word “rare”.

Here are a few rules I’d like to suggest to move us away from the wishful thinking paradigm.

Rule 1: Trust No Silver Bullets. That next convention center expansion or new real estate deal will not be our savior. Even important steps like supporting new entrepreneurship or getting zoning right are merely steps in the right direction. We want so bad for the answer to be something as easy and momentous as a huge public building but wanting will not make it so. We have to resist the temptation.

Rule 2: There’s Always Blowback. Something that seems brilliant can have unintended consequences in a decade. Urban renewal is a great example of a period of magical thinking, and the projects of that time are not so far from the stadiums of today. We’ll bulldoze blighted neighborhoods, the thinking went, and the problems associated with them will go away. Instead, the frenzy completely erased whole communities and wiped out local wealth. Many neighborhoods are struggling to recover from choices made in the 1950s. There are dozens of parallels today, each of which has important, predictable downsides. We need to be humble enough to recognize how our big plans could end poorly.

Rule 3: Hold Politicians to Realistic Standards. Like I said at the beginning of the series, I think people are beginning to finally get it. I’ve seen more articles criticize the way things are done, from megaprojects to megaevents like the Olympics. The rise of blogging and special interests news sites make these complex deals easier for interested groups to analyze and criticize than in the days of the citywide daily newspaper – although it can be harder for such sites to have the same pull.

The question is whether and how quickly this perspective will be adopted by public officials. One thing’s for sure – if you don’t say anything or vote as if these issues are important to you, the deals will continue. There’s just to much incentive for dealing behind closed doors for general distrust to have the same effect as calling out offenders.

From an excellent paper by Peters and Fisher examining the lack of impact of tax incentives:

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government—providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems —and then letting the economy take care of itself.

It’s comforting to beat up on megalomaniac politicians, but this is really a sin of omission on the part of voters. We want someone who can affect the economy, and our political language reflects it. We yearn for someone who can “create jobs” or “bring home the bacon.” Simply wishing we had more control doesn’t mean we do and when we force someone to take that role this is the outcome we can expect. Voters have to recognize that the power that politicians actually do have is still quite important, just not as straightforward.

Just as I finished this post, I came across this article from the Springfield (Mass) Republican. A casino is set to open in Springfield, and the Republican’s reporter took a trip to Atlantic City to see how the former gambling hotspot is recovering from the decline of the industry. The answer? They’re diversifying their one horse economy…with convention centers.

Sigh. The work continues.