Economics of the Olympics

I share this link http://www.bbc.co.uk/news/business-19071419 with Frontier Centre for Public Policy and their argument:

"Organisers promised that the Olympics would provide an economic boom for London. Basic economics tells us that government spending doesn't "create" wealth, it just moves it around, and regular businesses in London are suffering."

is sloppy.

First, it is not true that "Basic economics tells us that government spending doesn't "create" wealth." Basic economics, i.e. most college level economic text books say government create wealth in that GDP=C+I+G+NX. Of course G is government purchases. Of course you may argue that G is not efficiently achieved but that is whole another matter.


I do agree that such a big event like Olympics have very limited stimulative effect, but because of different reasons.

1. At this moment, Europe is sliding into another recession and the U.S. is still in depression, so Europeans and Americ
ans, presumably the biggest spectators groups (unfortunately, except Japanese, Asians, like Koreans and Chinese, do not travel to Europe so much), may be very reluctant to shop downtown. They may just watch games and go back to hotel.

2. The Olympics last only 15 days. During the Games, there might be a bigger consumption due to an increase in the number of tourists. Therefore, the hosting nation's people can TEMPORARILY have greater income. However, it will be gone soon. Households and businesses will unlikely use that windfall due to the Olympics and instead save it for future use.

3. Usually hosting nation's Olympic Committee bids for the Games at least 7-8 years before the Games. When it bids, its economy is usually very good. When it starts building new venues and infrastructure, that is typically overshooting in
the economy. It probably does not harm the economy at that moment, but can turn toxic if the hosting city is unable to finance the debt they have made for that 7-8 year period. For example, Montreal had got into trouble for next decades since it hosted the 1976 Summer Games.

However, there do exist very rare cases of Olympic success. For example, South Korea's 1988 Summer Games were great success. It was the first surplus Olympics till then. The Korean economy was very fast growing back then and so it needed ne
w infrastructure, expanded subway system, roads, new hotels, clean river, etc., anyway. Plus two years before the Games, Seoul hosted Summer Asian Games, a copycat of the Olympics. So the venues that we used for the Olympics were already used ones and they have been used very often for a lot of domestic or international sport or non-sport events. The apartments built for the athletes were sold to the ordinary people or parts of them are still being used for national teams' accommodation.