The Bad Economics of Arts Impact Studies

John Kay has a very good column in the Financial Times explaining the problem with studies designed to show the positive economic impact of the arts. These studies essentially count up all of the money spent by arts organizations on labor, rent, advertising, etc. and expenditures by patrons on complementary goods such as food and drink. Then they use that number to show how much economic activity occurs because of the arts and also how much tax revenue is generated for the state by this activity.

Kay does us an excellent service by showing that the same approach could be taken to demonstrate the positive economic benefit from disease. Kay begins:

Many people underestimate the contribution disease makes to the economy. In Britain, more than a million people are employed to diagnose and treat disease and care for the ill. Thousands of people build hospitals and surgeries, and many small and medium-size enterprises manufacture hospital supplies. Illness contributes about 10 per cent of the UK’s economy: the government does not do enough to promote disease.

Such reasoning is identical to that of studies sitting on my desk that purport to measure the economic contribution of sport, tourism and the arts. These studies point to the number of jobs created, and the ancillary activities needed to make the activities possible. They add up the incomes that result. Reporting the total with pride, the sponsors hope to persuade us not just that sport, tourism and the arts make life better, but that they contribute to something called “the economy”.

Kay highlights the fact that what these studies count is not the net or even gross benefit of the arts. They merely calculate the cost. For the arts to be of obvious economic benefit, they must generate revenue greater than that cost. Kay also rightly implies that professional economists should know better.

One limitation of Kay's piece is that he tries to incorporate the notion of "cultural value" in assessing the worth of the arts. While I am prepared to say that we can conceptualize about the value some art has for a society's culture, there is no way (as Kay acknowledges) we can measure that or even account for it in economic calculation beyond what people are willing to pay for it. If, however, we account for it in that way, then there is no need to treat it as a separate category of value.

Several years ago I wrote about the trouble with arts impact studies in the United States. One of the worst things about these studies is their attempt to justify increased government funding based on spurious calculations. Ridiculous claims are made saying that for every dollar the government spends on the arts, it gets up to eight in return. This completely ignores that the vast majority of artistic activity would be done anyway without government aid. It also entirely leaves out the cost of foregone activity due to the taxes funding the arts subsidies.

Advocates of government arts funding offer several different arguments in support of arts subsidies. One that should be yanked off of the stage is that government arts subsidies are a boon to the economy and tax revenues alike. Do not get fooled by the siren song of the economic impact of the arts study.