Cronyism and Sports

Sometimes I feel as if I am just trying to “stir the pot” as it were and make my sports-loving friends angry.  So let me say before I continue that I love sports of many kinds—college football and basketball, cross country, track, bicycling, and a few others to a lesser extent.  But I do not believe I ought to have the right to make you pay for my interest.  Well, that’s exactly what is happening all over the country and in particular, recently, in Detroit, a place which is already bankrupt—if you don’t know how bad things are, please inform yourself.

Let me use Detroit as the representative example.  A billionaire owner of a hockey team hit upon the idea that inner-city Detroit could be revitalized if a new hockey arena was made the centerpiece.  It will cost about $440 million (without cost overruns).  Fine you say, a billionaire pays for his own arena to help Detroit.  Wrong.  He wants the citizens of the city to and state to pay for most of it.  The scheme is this:  The state of Michigan sells bonds to build the arena.  The bond-buyers have a legal promise that they will be paid with interest if they invest.  The arena gets built and then the debt has to be serviced each year (payments to bond-purchasers).  The billionaire wants to contribute a small amount to service the debt and to use property taxes from citizens to pay most of the yearly pay-back.  Overall the billionaire will pay about $35 million over 30 years while the taxpayers will pay the rest—remember the actual cost plus interest.  This would be a crime if it were a market transaction because you cannot force someone else to pay for what you want.  But this is government at work, or rather really bad government in the form of cronyism.

So what possible justification could there be for this travesty?  Easy, someone said—against the contrary advice of almost every sane economist anywhere—that this arena will draw people to Detroit in droves, create new jobs, create incentives for more development around the arena and generally benefit the poor citizens of Detroit with showers of new tax revenue.  Unfortunately, almost anywhere this same hoodwinking has been attempted, the result has been the same.  No grand new developments, no throngs of people visiting the city and spending money.  And still the citizens must pay for it.  Mostly there are professional football, baseball and basketball facilities (another good example close to home is Cincinnati).  Most large stadiums are actually only in use 7-8 times per years (for pro football), more for basketball-type arenas and baseball stadiums (the teams often demand a separate facility too).  The bottom line is the cities are not miraculously saved, but worse off in terms of services and tax burdens.

Why then does it happen over and over?  The simple answer is because certain big business ventures “get in bed with” government to persuade it to do for them what they would never have done on their own because it would be economically stupid.  Can you say “cronyism”?  This is not capitalism.  It is not how any economist worth his or her salt would argue markets ought to work.  Don’t blame the economists or the market as an institution.  Blame those who don’t care about ordinary citizens and can harness the power and revenue of the state for their own ends.  Adam Smith said it very well about business if it is allowed to ingratiate itself with the state:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. (Smith, Wealth of Nations, 1776)

Smith was right and right about what should be done—or not done.  This kind of cronyism is using government to choose winners and losers, with the major losers being the taxpaying citizens, in this case of a city already strapped for cash and in dire straits financially.  And all that so that on occasion a few dozen thousand people can watch a sporting event in comfort at someone else’s expense.  It isn’t just.