What Say Paul Krugman About Rio's Olympic-Sized Implosion?
“The legacy of the Rio Olympics is a farce.” Those are the words of USA Today’s Nancy Armour in a recent edition of the newspaper. Truer words have rarely been written.
As Armour went on to note, while the “closing ceremony was six months ago,” “several of the venues are abandoned and falling apart. The Olympic Park is a ghost town, the lights have been turned off at the Maracana and the athletes village sits empty.”
But wait a second. How could this be? If Princeton economist Paul Krugman is to be believed, along with numerous other modern disciples of John Maynard Keynes, Rio should presently be booming thanks to the billions spent in order to stage the 31st Olympiad. Keynesians have long explained that it doesn’t matter what governments spend money on, so long as money is spent. Careful capital allocation be damned, government spending for the sake of spending is the path to prosperity.
Goodness, Keynesians have told us for decades that even the maiming and killing that is war has a growth upside. Rio’s implosion is the latest evidence revealing that Keynes knew of what he spoke when, asked about his many disciples, he replied “Oh, they’re just fools.” Truer words have rarely been uttered.
Indeed, if there were ever an opportunity for Keynesian spending to be revealed as the driver of economic growth, it was Rio. Bereft of the infrastructure and facilities necessary to stage an Olympic Games, Rio’s politicians brought new meaning to “shovel ready” when they set about putting on the 2016 Summer Olympics after being tapped to host in 2009. With very little time, the country’s politicians, giddy with Keynesian visions of spending multipliers, shoveled out billions in order to turn what wasn’t into a credible Olympic venue. That they failed is an understatement. Last summer’s Games only succeeded insofar as they made the South American city that couldn’t a global object of pity.
Still, Keynesian fabulists shouldn’t get off so easy this time. It’s worth repeating yet again their nauseatingly obtuse belief system that says rampant government spending is the path to prosperity. Ok, but the problem now is that a poor South American city is even poorer after “the billions that were wasted, the venues that so quickly became white elephants, the crippling bills for a city and country already struggling to make ends meet…” Nancy Armour, thank you for exposing nearly a century of broadly accepted economic truth as a cruel lie.
So, the question now is why the billions spent only succeeded insofar as they further impoverished what was already struggling. To say that government debt is the problem is to miss the growth point. Lots of rich countries led by prodigal politicians can run up debt that is wasteful, but that doesn’t break an economy. As for the spending itself that represents a tax on growth, to say that governments can only spend to the extent that the sources of their spending (the private sector taxpayers) have less is shooting fish in the most crowded of barrels. Figure that the mildly sentient always knew that government spending was and is economically harmful. That’s a given.
The bigger story here has two parts. Lest we forget, errors of the spending and investment variety in the private sector are rampant. They’re constant. Most businesses fail, and in high-growth areas like Silicon Valley, over 90 percent of new businesses fail. But here’s the crucial difference: errors in the private sector are quickly corrected simply because private sector companies don’t have a bottomless well of dollars, euros and real to endlessly spend on projects that don’t fulfill a market need. The genius of private sector investment over government waste (don’t call what isn’t held up to market discipline “investment”) is that sooner rather than later the bad ideas are starved of resources so that they can be replaced by better ones. Getting right to the point, in the private sector bad ideas die, and they often do so quickly.
Second, economic growth is about investment, and investors are attracted to cities, states and countries where capital is treated well by virtue of entrepreneurs and businesses being treated well. Implicit in all of Rio’s waste was that the spending would foster a long-term boom, but such a view ignored the greater truth that no investor is going to commit capital to a country based on a three-week event. Only economists in thrall to the proverbial “helicopter money” theory of economic growth could believe what is absurd; that three weeks of sporting events could paper over decades of lousy economic policies that had repelled talented investors and entrepreneurs alike.
Only human capital can power long-term economic growth, but government spending is a human capital and investor repellent simply because the taxes required to fund government waste exist as a penalty on the talented. The answer to Rio’s economic problems, and this is true anywhere in the world in which economic growth is limp, is for governments to tax and spend less so that the talented can keep a great deal more of what they produce. Rio got it backwards, money spent where it's not treated well quickly exits, but then economists and politicians have been getting backwards what is rather basic for as long as taxation has existed.
So while it would be naïve to presume that the Rio 2016 debacle will put a final nail in the Keynesian coffin, one can at least hope that this most mindless example of government waste will shower great shame on a mindless economic ideology. What say you, Dr. Krugman?