Here’s what we were thinking: What if we did for mortgages what the Internet did for buying music, plane tickets and shoes? You would turn an intimidating process into an easy one. You could get a mortgage on your phone. And if it could be that easy, wouldn’t more people buy homes? And wouldn’t those buyers need to fill their homes with lamps and blenders and sectional couches with hand-lathed wooden legs? And wouldn’t that mean all sorts of wooden leg making opportunities for wooden leg makers And wouldn’t those new leg makers own phones from which they could quickly and easily secure mortgages of their own, further stoking demand for necessary household goods as our tidal wave of ownership floods the country with new homeowners who now must own other things. And isn’t that the power of America itself, now shrunk to fit the hands of a child, or more helpfully, a home-buying adult. Anyway, that’s what we were thinking.
Of course! This is the Great Stimulus Fallacy, writ large for the entire world to hear on Super Bowl Sunday. If we just make it easier for people to obtain loans, then they’ll buy homes, which will magically “increase demand” for other consumer goods, and the producers of those goods, now flush with cash from these increased purchases by the aforementioned new home-buyers, will then have more cash to be able to buy homes themselves, and so on, into economic recovery Utopia!!
Only seven years ago that all played out rather differently, specifically because there were people who couldn’t afford the variable rate mortgages that they were signing up for – and no, these weren’t all ignorant people being taken advantage of by Duh Evuhl Bankkersss!! In 2002, I bought a house for $299,000 in a nice town, on a cul de sac. At 2500 square feet, it was one of the smaller houses of the dozen or so that made up our little slice of the American Dream. I wound up with a government job and a chance to go fight the people who took down the Twin Towers, so I sold my slice at a decent profit – in just 10 months – and left our wonderful neighbors behind. Even then, though, I would ask people about how the house could have increased $100,000.00 in just a year. How is that possible? And how could my neighbors – who had one spouse working a rather middle income job – afford an even bigger chunk than we could? Answer = A.R.M. An Adjustable Rate Mortgage that had a balloon payment in 5 years OR (sometimes, “as well as”) a change in interest rate that would make the payment go up precipitously. So how were they going to pay for that? With rosy projections, that’s all. They told us one night at a dinner party how they were getting this paid off and that paid down and were going to get a promotion and raise, etc., etc., and this is how they would be able to afford paying the Piper when he came calling at the end of the initial variable rate. Of course, when I went back years later, that family was gone and that house – all 3500 sq. ft. of it – was empty.
What the Super Bowl Ad – and the Super Bowl itself – reveal is what has become a fundamental economic fallacy that shapes our Country: I will gladly pay you next Tuesday for the promise of all kinds of stuff I can’t afford today. Credit. Like Wimpy in the Popeye cartoons, we are a fat guy asking for another hamburger and we’re certainly going to pay for it… (next Tuesday, of course!). Notice you never see Wimpy, uhhh, working? Like, at an actual job?
But… Stimulus!!
You can’t stimulate what isn’t there. The missing element in the commercial is whither and whence will come the wages – the actual earnings and savings from actual jobs – that “those buyers” are going to use “to fill their homes with lamps and blenders and sectional couches with hand-lathed wooden legs?” Notice please the conspicuous absence of any mention of the original value that needs to be created by those buyers for which they will trade to obtain a home and the sundry items with which to fill it. In the commercial, it’s as if the existence of the iPhone App itself somehow magically stimulates the economy.
I can’t entirely blame people for their ignorance. God knows there are Nobel laureates, politicians, media pundits, and any number of advertisers telling repeating this nonsense over and over and over. The Super Bowl itself is merely a reflection of – and excellent study – in exactly this kind of economic charlatanism.
John Mara, President and CEO of the New York Giants, promised in the bid presentation that the game would be a win-win-win situation, benefiting both states and the city of New York by “pumping hundreds of millions of dollars into the local economies.”
Of course it will, John.
An economics wonk did a study on these claims. I’m linking to the entire paper because it would behoove most Americans to read it. He’s not the only one, however. He cites to several economists who previously were also less than convinced by the NFL’s propaganda machine – er, I mean, the “Sport Management Research Institute” – the company hired to provide such estimates on behalf of the NFL.
Phil Porter (1999) has provided a far less sanguine appraisal of the Super Bowl’s economic impact. Porter used regression analysis to determine that the impact of the event was statistically insignificant, that is not measurably different from zero.
But it wasn’t just one or two folks. Some other economists did the same analysis and guess what they found?
Similarly, Baade and Matheson’s (1999) examination of twenty-five Super Bowls from 1973 to 1997 found the game associated with an increase in host metropolitan area employment of 537 jobs. Based on simple assumptions regarding the value of a job to a community, they estimate an average economic impact of roughly $30 million or roughly one-tenth the figures touted by the NFL. Coates and Humphrey’s (2002) cursory look at all post-season play in American professional sports found that hosting the Super Bowl had no statistically significant effect on per capita income in the host city.
(Emphasis added).
There is another study contained in this paper on the impact of the 2000 Olympics on Sydney’s hotel industry – and the concomitant drop in hotel occupancies in other Australian cities – indicates that the “economic impacts” claimed are nothing more than prestidigitation: they focus the reader, and potential city leaders, on one area and hide or ignore what’s going on in other areas. This is quintessential economics. When the NFL Pro Bowl left Hawaii for a few years and then came back, it allowed for some actual comparative studies. Guess what people who studied these things found?
Now, I’ve been kinda hard on economists as a breed, so why should I rely upon any of them for these matters? It turns out, yes, Virginia, I do in fact have some experience in these matters, so I’m not just talking shit. When the CrossFit Games moved from The Ranch (i.e. Dave Castro’s parents’ home in Aromas, California) in 2010 to the (then-named) Home Depot Center in Carson, it was not by design. We got tossed out of Monterey County because of zoning. No one cared about our “economic impact.” Approaching the 10 year anniversary of the Games, we now regularly get asked to hold Regionals and other events in various locations around the world because of our “economic impact” and sitting in my current seat has given me a fifty-yard line seat, as it were, on the economic impacts of a sporting event – from ground zero to where we are now.
Of course, we never got into the scam of all scams, which is to say, figuring out how to make the taxpayers cover all of our expenses and infrastructure, which may be why it’s so hard to be a profitable sport for us. We’re also not a 501c3 (i.e. “non-profit”) – which is a term I detest – because people assume the name has something to do with the actual operations of the enterprise and not the mere name given by our tax code. Roger Goodell made over $40 million in 2014, and the NFL only recently recanted its tax-exempt status.
In 2013, the Atlantic Monthly wrote a scathing piece entitled “How the NFL Fleeces Taxpayers.” It follows a series of books that attempted to inform the uncaring American sports-viewing public about what really is behind the success of the Shield and its corporate-welfare member Teams.
Republican Governor Bob McDonnell (of Virginia), who styles himself as a budget-slashing conservative crusader, took $4 million from taxpayers’ pockets and handed the money to the Washington Redskins, for the team to upgrade a workout facility. Hoping to avoid scrutiny, McDonnell approved the gift while the state legislature was out of session. The Redskins’ owner, Dan Snyder, has a net worth estimated by Forbes at $1 billion. But even billionaires like to receive expensive gifts.
But wait, there’s more!
Taxpayers in Hamilton County, Ohio, which includes Cincinnati, were hit with a bill for $26 million in debt service for the stadiums where the NFL’s Bengals and Major League Baseball’s Reds play, plus another $7 million to cover the direct operating costs for the Bengals’ field. Pro-sports subsidies exceeded the $23.6 million that the county cut from health-and-human-services spending in the current two-year budget (and represent a sizable chunk of the $119 million cut from Hamilton County schools). Press materials distributed by the Bengals declare that the team gives back about $1 million annually to Ohio community groups. Sound generous? That’s about 4 percent of the public subsidy the Bengals receive annually from Ohio taxpayers.
And in case you thought it was only the politicians east of the Mississippi who were dirtbags, wait until you hear about what they did in the Great White North!
In Minnesota, the Vikings wanted a new stadium, and were vaguely threatening to decamp to another state if they didn’t get it. The Minnesota legislature, facing a $1.1 billion budget deficit, extracted $506 million from taxpayers as a gift to the team, covering roughly half the cost of the new facility. Some legislators argued that the Vikings should reveal their finances: privately held, the team is not required to disclose operating data, despite the public subsidies it receives. In the end, the Minnesota legislature folded, giving away public money without the Vikings’ disclosing information in return. The team’s principal owner, Zygmunt Wilf, had a 2011 net worth estimated at $322 million; with the new stadium deal, the Vikings’ value rose about $200 million, by Forbes’s estimate, further enriching Wilf and his family. They will make a token annual payment of $13 million to use the stadium, keeping the lion’s share of all NFL ticket, concession, parking, and, most important, television revenues.
After approving the $506 million handout, Minnesota Governor Mark Dayton said, “I’m not one to defend the economics of professional sports … Any deal you make in that world doesn’t make sense from the way the rest of us look at it.” Even by the standards of political pandering, Dayton’s irresponsibility was breathtaking.
Now, who can sing me California’s fight song?
In California, the City of Santa Clara broke ground on a $1.3 billion stadium for the 49ers. Officially, the deal includes $116 million in public funding, with private capital making up the rest. At least, that’s the way the deal was announced. A new government entity, the Santa Clara Stadium Authority, is borrowing $950 million, largely from a consortium led by Goldman Sachs, to provide the majority of the “private” financing. Who are the board members of the Santa Clara Stadium Authority? The members of the Santa Clara City Council. In effect, the city of Santa Clara is providing most of the “private” funding. Should something go wrong, taxpayers will likely take the hit.
The 49ers will pay Santa Clara $24.5 million annually in rent for four decades, which makes the deal, from the team’s standpoint, a 40-year loan amortized at less than 1 percent interest. At the time of the agreement, 30-year Treasury bonds were selling for 3 percent, meaning the Santa Clara contract values the NFL as a better risk than the United States government.
I could, literally, go on for pages and pages about the corporate welfare of the NFL, from its former non-profit status, to its use of the country’s universities and academic institutions as de facto minor leagues, to the taxpayer funded stadiums, but the most important decision was the Congressional giveaway of broadcasting rights in the 1960’s and exemption of the NFL and other broadcast sports from antitrust law.
None of this even begins to address the twin elephants in the room for the NFL: concussions and GatorAde/Pepsi. The NFL is killing its players, not just by the nature of the sport and its rules, but also with its principle sponsors being responsible for deadly hydration guidelines and diabetes. In fact, the more I research and write on the subject, the more depressed I get.
So, soak it up, America, you’ve paid for it. Woo-hoo!! Go Intentionally Fattened Athletes, beat the Other Guys Who Will be Broke before they’re 40!!*
*Because I know a number of former professional athletes in a handful of different sports, I feel compelled to add a disclaimer. Nothing I say should be interpreted as a shot at the athletes as a group. Like the spectators, when it comes to economics, they have been sold a complete bill of goods and preyed upon by people whose existence depends upon the fiction of these various sports. I should also note I am a lifelong avid sports fan, although I no longer watch very much of it. What I’ve learned about its economics makes it hard for me to enjoy it. When I watch the NFL, I feel like I’m watching an infomercial for Pepsi, beer, and fast food. In other words, the entire NFL on TV is like a Type 2 diabetes promotion and I’m in the business of reversing that.