Another round of BS

“Study: Golf
worth $650m to province,” screamed an August 22 headline in the
Chronicle-Herald. “Nova Scotia’s golf industry had an economic
impact of about $650 million in 2008, according to a national study
released this week,” begins the article, written by business reporter
Tom Peters.

Six hundred and fifty million dollars is a hell of a lot of
money.

It’s over two percent of the entire provincial GDP, the accepted
measurement of the size of the economy. If the “economic impact” of
golf on the provincial economy is in fact $650 million, it’s worth
screaming headlines, truly.

But of course, it’s not. A few paragraphs down, Peters explains that
golf “contributed an estimated $262.5 million to the province’s gross
domestic product…. The nearly $650 million was generated from direct,
indirect and induced spending.”

Er, indirect spending? Induced spending?

“If someone indicated they spent money on golf, then we attribute
that money to golf,” Tom McGuire tells me. McGuire is vice president of
Strategic Networks Group, the firm that conducted the study. That’s
money spent on golf clubs and club membership fees (“direct spending”)
or the cost of filling up the gas tank to drive to the course, and the
money spent on silly pants and cocktails at the 19th hole (“indirect
spending”).

The “induced spending”—what McGuire calls “gross production”
calculation (as opposed to GDP)—is “the sum of the wholesale, and the
resale and the end retail price” of anything connected to golf.

So say it costs a factory $100 to make a golf club. The factory
owner sells it to a distributor for $150, the distributor sells to a
retailer for $200 and the retailer sells it to a real estate agent for
$400.

(All this assumes the club was made in Nova Scotia, and not bought
from an American website sourcing clubs made in China.)

As far as its share of the economy (GDP) goes, the club is worth
$400.

But the “gross production” value of the club is all the costs and
resale prices of everyone who ever touches it, or
$100+$150+$200+$400—the absurdly large figure of $850, more than
twice what the real estate agent pays.

Gross production is a real calculation with narrow real-world uses
for economists. But for the rest of us trying to understand the
relative importance of the real estate agent schmoozing his marks,
gross production is pretty much bullshit.

I don’t mean to pick on golf—unlike many similar studies,
McGuire’s study at least relies on real, if misleading, accounting
principles. A lot of other people spew out bogus economic impact
numbers produced with “multipliers” that are pulled completely out of
thin air.

For some reason the multiplier is often exactly seven—just throw
whatever expense you can remotely connect to your project, and multiply
it by seven to get a nice big number you can trot out as your project’s
“economic impact.”

In 2005, a government study claimed the fishing industry is
responsible for 15 percent of the provincial GDP, and please ignore the
abandoned fishing villages lining our coasts—the study says the
fishing industrying is booming.

During the Commonwealth Games fiasco, Canmac Economics, a Sackville
firm, issued a report saying that if all the assumptions of
Games’ proponents held true, the Games would generate $2.4 billion in
economic activity. The Commonwealth Games study underscored the
ridiculous nature of these calculations—the more debt-ridden you
become and the more your spending spirals out of control, the better it
is for the economy. Negative impacts on the economy, like a debt crisis
taking money away from infrastructure improvements, are never
considered.

But I can’t really blame organizations for using misleading economic
numbers, because experience shows that the media will unquestioningly
re-report the numbers without analysis or comment.

Without a critical press analyzing claims and calling “bullshit”
when needed, we get a dishonest picture of the world—Saddam Hussein
has nuclear bombs, Barack Obama wants to kill American grandmothers,
Stephen Harper is a regular guy who loves kittens and golf is a $650
million business.

In the end, bullshit economic numbers are the result of journalists
not doing their jobs.

This article appears in Sep 10-16, 2009.