Teaching arts policy this fall, I needed a two-page briefing to warn my students off using economic impact studies as an arts advocacy tool. Here’s the result:<\/p>\n\n\n\n
What is<\/em> an Economic Impact Study?<\/strong><\/p>\n\n\n\n Definitions are hard to come by. I can tell you how a number is calculated,<\/em> so let\u2019s start there.<\/p>\n\n\n\n Pick a sector: it can be film production in a state, or nonprofit arts organizations, or cranberry farming, or anything.<\/p>\n\n\n\n First ask: What were total sales in that sector in a state over the course of a year? That should be easy to figure \u2013 every firm keeps track of its revenues. Suppose we arrive at a number, say $67 million.<\/p>\n\n\n\n Second: consider that the $67 million that was received in revenue was allocated<\/em> somehow \u2013 to buying inputs, to paying wages, or retained as profits by the business owners (if it is a commercial firm and not a nonprofit). When inputs were purchased, that constituted revenue for a different<\/em> company (say, a paint store). And the wages of employees were spent in different shops, giving those shops some revenue.<\/p>\n\n\n\n How much was spent in this second round in the state? It will be less than $67 million, since (1) some of the originally generated income will be put into savings, and (2) some of it will be spent on goods and services produced outside the state. But some<\/em> of it is spent in state. Suppose it is $40 million.<\/p>\n\n\n\n Now, of that $40 million in \u201csecond round\u201d revenue, some of that<\/em> is spent in state, generating even more revenue. As we go through rounds, the numbers get smaller and smaller, but they add up.<\/p>\n\n\n\n There are input-output<\/em> models of state economies that estimate how much revenue from any one sector ends up as revenue in a different sector.<\/p>\n\n\n\n So, let\u2019s add up the original $67 million plus all the subsequent rounds of spending. We can call the $67 million direct <\/em>impact, and the sum of all the other rounds indirect <\/em>impact. Suppose we get a grand total of, say, $167.5 million. In this case we would say the spending multiplier<\/em> is 2.5 \u2013 i.e. the sum total of all spending resulting from that initial $67 million is 2.5 times the initial spending.<\/p>\n\n\n\n People who do these studies would call $167.5 million the annual economic impact<\/em> of the sector.<\/p>\n\n\n\n What the number means<\/em> is a different question\u2026<\/p>\n\n\n\n What is Wrong with the Economics<\/em> of Economic Impact Studies?<\/strong><\/p>\n\n\n\n Suppose the above study was of the cranberry farming sector in the state economy. An advocate for that sector might say \u201cCranberries mean $167.5 million in income in our state. If we were to lose our cranberry farms, that\u2019s how much income we would lose.\u201d<\/p>\n\n\n\n An economist would respond: \u201cHold on. Suppose this actually happened \u2013 a study came out that said cranberries were very, very bad for health and the demand for them collapsed. Then the land devoted to cranberries would go to something else \u2013 growing another crop, or residential or commercial development, or something<\/em>. The people who worked on cranberry farms would work somewhere else \u2013 another farm, another business. The money that people used to spend on cranberries would be spent on other things.<\/p>\n\n\n\n \u201cIn our economy, industries are always<\/em> rising and falling, people moving from one sector to another. It is not as if when any sector goes into a downturn that the income is lost forever, that people never get another job. Or that if the sector had not been created that some people would simply never have found work.\u201d<\/p>\n\n\n\n The advocate quoted at the beginning on this section is assuming that the economy never adjusts, that there is never movement between sectors. But we know<\/em> that is false.<\/p>\n\n\n\n Further, note that if land were to switch from cranberry farming to blueberry farming, then blueberry farming would also have all those \u201cindirect\u201d spending numbers \u2013 essentially, any<\/em> job where people earn money has \u201cindirect\u201d effects. Cranberries aren\u2019t special in that respect.<\/p>\n\n\n\n And so, to consider an arts example, suppose a mayor says \u201cwe should spend money building a new performing arts center. Construction costs would be $3 million, and the total economic impact of the construction would be $7.5 million\u201d. An economist would say: \u201cyou could do a lot with $3 million: you could repair infrastructure, you could expand after school programs, you could lower taxes by $3 million and leave it to individuals to have more money to spend. Any<\/em> of those options would also have \u2018economic impact\u2019. So \u2018economic impact\u2019 doesn\u2019t justify spending on the performing arts center. What would<\/em> justify a new PAC would be if the public benefits from using it exceeded the costs of building it and running it, i.e. a proper cost-benefit analysis. Building a PAC is a cost, it is not the benefit.\u201d<\/p>\n\n\n\n Economists don\u2019t like \u201cEconomic Impact\u201d studies<\/em> \u2013 they know that the conception of them is wrong, and they lead to bad reasoning.<\/p>\n\n\n\n What is wrong with the Politics<\/em> of Economic Impact Studies?<\/strong><\/p>\n\n\n\n A few things.<\/p>\n\n\n\n I sometimes hear from arts advocates that use EI studies that \u201cwell, it works \u2013 politicians listen to us when we have these numbers\u201d. But\u2026<\/p>\n\n\n\n First, I have never seen evidence that this is true. I\u2019ve studied this subject for twenty-five years, and have never seen evidence that economic studies have informed decisions on public spending on the arts.<\/p>\n\n\n\n Second, the numbers don\u2019t give any policy guidance. Suppose I were to tell you that the annual economic impact of the nonprofit arts sector in Bloomington is $73 million. If you were on city council, what would that tell you? That arts support should be increased? Or decreased? That this is a very big number? Or about what one would expect? That we should increase spending on arts program X but decrease it on arts program Y? I have never<\/em> seen a policy decision where the economic impact number made a difference. (To see this, imagine that I told you \u201cI\u2019m sorry, I made a typing mistake, it\u2019s not $73<\/em> million, it is $63<\/em> million\u201d. How would that correction affect any<\/em> arts policy decision?).<\/p>\n\n\n\n Third, remember that any advocacy activity involves an opportunity cost \u2013 if you stress this<\/em> message, you have less time to press that <\/em>message (Professional political campaign managers know this). So any effort in a media campaign directed at emphasizing economic impact means less effort on all the other reasons we might advocate for public support of the arts, all the other benefits.<\/p>\n\n\n\n Fourth, the whole point of arts advocacy is to make the case that the arts are different<\/em> from other sectors. You might take the externalities \/ public goods approach of the economists, you might take the \u201cour identities are tied to our cultural communities\u201d approach of the communitarians, you might take the \u201cwe have an obligation to pass a rich cultural palate on to future generations\u201d approach of Dworkin, but you\u2019re saying the arts are special. But \u201ceconomic impact\u201d makes it no different from cranberry farming, stock car racing, petro-chemical production, or any other sector, since they all have \u201ceconomic impact\u201d.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Teaching arts policy this fall, I needed a two-page briefing to warn my students off using economic impact studies as an arts advocacy tool. Here’s the result: What is an Economic Impact Study? Definitions are hard to come by. I can tell you how a number is calculated, so let\u2019s start there. Pick a sector: […]<\/p>\n","protected":false},"author":3,"featured_media":2587,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":{"0":"post-2585","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/www.artsjournal.com\/worth\/wp-content\/uploads\/2020\/11\/cranberries.jpg","jetpack_shortlink":"https:\/\/wp.me\/p3dIW5-FH","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":741,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/04\/what-do-we-talk-about-when-we-talk-about-the-economic-impact-of-the-arts\/","url_meta":{"origin":2585,"position":0},"title":"What do we talk about when we talk about the economic impact of the arts?","author":"Michael Rushton","date":"April 30, 2013","format":false,"excerpt":"In the news from Britain in the past week has been a speech by Culture Minister Maria Miller on the arts and the economy in the UK - the full text is here. Commentary has ranged from the concern about putting too much emphasis on the economic, to how we\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"multiplier","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/04\/yorkshire-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":791,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/05\/the-economic-impact-of-everything-a-response\/","url_meta":{"origin":2585,"position":1},"title":"The economic impact of everything: a response","author":"Michael Rushton","date":"May 16, 2013","format":false,"excerpt":"I will present a thoughful comment from my previous post in full, since it is worth addressing in depth: Respectfully, so what if \u201cmany, many firms will approach government with the same claims\u201d of job creation and economic impact? So what if every living organism announces what economic benefit they\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"we get letters","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/03\/postbox-224x300.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":2135,"url":"https:\/\/www.artsjournal.com\/worth\/2016\/11\/why-its-time-to-completely-totally-finally-give-up-on-economic-impact-studies-in-the-arts\/","url_meta":{"origin":2585,"position":2},"title":"Why it’s time to completely, totally, finally give up on economic impact studies in the arts","author":"Michael Rushton","date":"November 12, 2016","format":false,"excerpt":"This is my last attempt at this topic, based on some recent (friendly!) twitter conversations and questions. One. Let me start with some data. Here, from the US Bureau of Economic Analysis, are sector shares of GDP (i.e. the total value added from each sector) for recent years. If you\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"no, I don't think it will really work","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2016\/11\/kill-projects-like-vampire.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2016\/11\/kill-projects-like-vampire.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2016\/11\/kill-projects-like-vampire.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":1119,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/03\/a-cautionary-note-on-the-social-and-economic-value-of-the-arts\/","url_meta":{"origin":2585,"position":3},"title":"A Cautionary Note on the Social and Economic Value of the Arts","author":"Michael Rushton","date":"March 14, 2014","format":false,"excerpt":"Arts Council England has released a new report on The Value of Arts and Culture to People and Society: An Evidence Review. What to make of it? From the foreword by the Chair of the Council, Sir Peter Bazalgette: Of course the inherent value of arts and culture is, in\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"think of the grandchildren","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/03\/keynes4-300x290.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":2234,"url":"https:\/\/www.artsjournal.com\/worth\/2017\/11\/about-that-arts-council-england-economic-report\/","url_meta":{"origin":2585,"position":4},"title":"About that Arts Council England economic report","author":"Michael Rushton","date":"November 7, 2017","format":false,"excerpt":"I've been away from the blog for a while, but I just can't keep myself away from economic impact studies of the arts. The latest is from Arts Council England - you can read the report here. Three things: First, the goals of the study are not clear. Britain's Office\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"now multiply by 2.77 precisely","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2017\/11\/abacus.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2017\/11\/abacus.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2017\/11\/abacus.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":1796,"url":"https:\/\/www.artsjournal.com\/worth\/2015\/01\/new-research-from-the-nea\/","url_meta":{"origin":2585,"position":5},"title":"New research from the NEA","author":"Michael Rushton","date":"January 13, 2015","format":false,"excerpt":"New research on arts participation and economics has been released by the National Endowment for the Arts. I won't try to summarize everything there, just a few comments: Two of the reports are on participation: one asks about who participates in what, the other asks people about why they participated.\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"what are the data telling us?","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/04\/whirlwind-computer.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/2585","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/comments?post=2585"}],"version-history":[{"count":1,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/2585\/revisions"}],"predecessor-version":[{"id":2586,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/2585\/revisions\/2586"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media\/2587"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media?parent=2585"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/categories?post=2585"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/tags?post=2585"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}