David Boaz

A Washington Post story on Egypt’s addition to the Suez Canal reminds me of stories about stadiums, arenas, and convention centers. First, there’s a leader with an edifice complex:

There was no public feasibility study, just an order from the new president. He wanted Egypt to dig a new Suez Canal. Oh, and he wanted it completed in a year.

That was last August. And on Thursday, with much pomp and circumstance, President Abdel Fatah al-Sissi inaugurated the new waterway — an expansion of the original, really.

And then, as noted above, there was no real study. In the United States elected officials usually commission bogus studies that economists laugh at.

There’s the hoopla in place of sound economics:

For the past few weeks, the country has been bombarded with messages, slogans and propaganda — all extolling the virtues of what the government is calling Egypt’s “gift to the world.” The canal will double shipping traffic and change the world, officials say. In a countdown to the opening, the flagship state newspaper said: “48 hours… and the Egyptian dream is completed.”

Just this week the mayor of St. Louis, saved by a judge from having to endure a public vote on taxpayer funding for a new NFL stadium, exulted:

“Having an NFL team in a city is really, I think, a huge amenity,” he said. “It’s one of the things that make living in a big city fun.”

Like the stadiums, the new canal path wasn’t needed:

But less important amid the hyper-nationalist fervor, it seemed, is the fact that the $8 billion expansion of one of the world’s most important waterways probably wasn’t necessary….It will probably shave only a few hours off the time that vessels wait to traverse the canal. Global shipping, economists say, has been sluggish since the 2008-2009 world financial crisis.

As with stadiums and other grand municipal projects, economists scoff at the purported benefits:

“This is politics. [The government] wants to give the impression we are entering a new phase of the Egyptian economy,” said Ahmed Kamaly, an economics professor at the American University in Cairo. Egypt’s economy tanked with the turmoil of the Arab Spring, with foreign reserves plummeting and the tourism industry suffering.

“It’s all propaganda,” Kamaly said of government’s grand promises of a revived national economy. “The benefit is overestimated.”

Egypt wants to be known as a modern country. Well, spending taxpayers’ money on white elephants is certainly a characteristic of rich, advanced countries. But $8 billion is a lot even in the white elephant league.

Occupational licensing needlessly regulates scores of workers in the United States. Indeed, despite years of criticisms from economists, the percentage of workers required to hold a license has risen substantially in recent years. The Cato Institute has been talking about the problem for years. But some of our readers might be surprised to see the latest critics: A recent White House report critiquing and evaluating  licensing requirements, Occupational Licensing: A Framework for Policymakers. We’re particularly pleased that the report cited both an essay in Cato’s monthly online magazine, Cato Unbound, and one of the entries in Cato’s online forum, “Reviving Economic Growth,” which will soon be published as an ebook.  

The White House report, which was prepared by the Department of the Treasury Office of Economic Policy, the Council of Economic Advisers, and the Department of Labor, documented the massive growth of licensing in the last few decades. Over a quarter of U.S. workers now need licenses to do their jobs, and the percent of workers who need state-issued licenses has increased five-fold since the 1950s. The report concluded that this can harm employment opportunities and inflate costs for consumers. It also disproportionately affects certain populations, including immigrants and anyone with a criminal history.

The report cited Mercatus Center scholars Tyler Cowen and Alex Tabarrok, who argued against the effectiveness of licensing in “The End of Asymmetric Information” for Cato Unbound. “Yelp, Angie’s List, and Amazon Reviews all make it easy for past buyers to report their observations on seller quality and for future buyers to observe a seller’s accumulated reputation,” they wrote. Thus, they said, one of licensing’s supposed benefits, helping consumers identify quality work, is becoming obsolete.

A few pages later, the Framework for Policymakers cited Cato’s growth forum, where Dean Baker of the Center for Economic Policy Research made the case for freer trade for both pharmaceutical drugs and foreign-born physicians, who face high licensing barriers in the United States. Baker argued that lowering these barriers would improve access to services for middle- and low-income consumers.

Throughout the Framework, the authors also extensively referenced the work of Morris M. Kleiner, one of the premier critics of occupational licensing, whose work has been published in Cato’s Regulation magazine, and the work of the Institute for Justice.

The White House report nicely dovetails with a new study from Brink Lindsey, Cato’s vice president for research, which identifies occupational licensing reform as one of a few key issues with the potential to unite Americans across the political spectrum—whether progressive, conservative, or libertarian. While the White House report is by no means a coup, it may be a sign that critics of occupational licensing are finally gaining traction.  

News comes this morning that Beijing has been awarded the 2022 Winter Olympics, beating out Almaty, Kazakhstan. Which touches on a point I made in this morning’s Boston Herald: 

Columnist Anne Applebaum predicted a year ago that future Olympics would likely be held only in “authoritarian countries where the voters’ views will not be taken into account” — such as the two bidders for the 2022 Winter Olympics, Beijing and Almaty, Kazakhstan.

Fortunately, Boston is not such a place. The voters’ views can be ignored and dismissed for only so long.

Indeed, Boston should be celebrating more than Beijing this week. A small band of opponents of Boston’s bid for the 2024 Summer Olympics beat the city’s elite – business leaders, construction companies, university presidents, the mayor and other establishment figures – because they knew what Olympic Games really mean for host cities and nations:

E.M. Swift, who covered the Olympics for Sports Illustrated for more than 30 years, wrote on the Cognoscenti blog a few years ago that Olympic budgets “always soar.”

“Montreal is the poster child for cost overruns, running a whopping 796 percent over budget in 1976, accumulating a deficit that took 30 years to repay. In 1996 the Atlanta Games came in 147 percent over budget. Sydney was 90 percent over its projected budget in 2000. And the 
Athens Games cost $12.8 billion, 60 percent over what the government projected.”

Bent Flyvbjerg of Oxford University, the world’s leading expert on megaprojects, and his co-author Allison Stewart found that Olympic Games differ from other such large projects in two ways: They always exceed their budgets, and the cost overruns are significantly larger than other megaprojects. Adjusted for inflation, the average cost overrun for an Olympics is 179 percent.

Bostonians, of course, had memories of the Big Dig, a huge and hugely disruptive highway and tunnel project that over the course of 15 years produced a cost overrun of 190 percent.

Read the whole thing.

Boston, the home of the original American tax revolt, has just dodged a big tax bill by dropping its bid to host the 2024 Summer Olympics.

The Boston Tea Party in 1773 expressed Americans’ growing resentment of British control and their demand for “no taxation without representation.”

After Americans got a sense of what taxation could be like even in a democracy, a tax revolt swept the country, from California’s Proposition 13 in 1978 to Massachusetts’ Proposition 2½ in 1980.

And now Bostonians have once again said “No” to their ruling elite.

As usual, Boston’s Olympics bid was supported by business leaders, construction companies, university presidents, the mayor and other establishment figures.

“‘10 people on Twitter’ manage to best Hub elites.”

The opposition was led largely by three young professionals who set up the No Boston Olympics organization. The construction magnate who headed the local Olympic committee dismissed the group early on, asking: “Who are they and what currency do they have?”

Even at the press conference on the day the city’s bid ended, Mayor Marty Walsh grumbled, “The opposition for the most part is about 10 people on Twitter.”

Apparently those 10 people did a lot of tweeting, to significant effect. After the bid collapsed, WBUR radio noted, “No Boston Olympics was persistent with its message that hosting the games was risky, expensive and would leave taxpayers footing the bill with no economic gains.”

In the station’s monthly polls, opposition to the Olympics rose steadily over the spring from 33 percent to 53 percent.

Some planners and politicos were beside themselves at the withdrawal of the bid. Thomas J. Whalen, a political historian at Boston University, told The New York Times that it sent a discouraging message:

“The time of big dreams, big accomplishments, is over. ‘Think small,’ that’s the mantra for Massachusetts. ‘Limit your dreams’ ” he said. Worse, he said, the end of the bid took away a great opportunity for a “master development plan for Boston.” That is, it took away an opportunity for planners and moguls to tell the people of Boston where and how to live.

The head of the bid committee once lamented that “what bothers me a lot is the decline of pride, of patriotism and love of our country.”

No doubt the East India Company and King George III felt the same way in 1773.

The critics knew something that the Olympic enthusiasts tried to forget: Megaprojects like the Olympics are enormously expensive, always over budget, and disruptive. They leave cities with unused stadiums and other waste.

E.M. Swift, who covered the Olympics for Sports Illustrated for more than 30 years, wrote on the Cognoscenti blog a few years ago that Olympic budgets “always soar.”

“Montreal is the poster child for cost overruns, running a whopping 796 percent over budget in 1976, accumulating a deficit that took 30 years to repay. In 1996 the Atlanta Games came in 147 percent over budget. Sydney was 90 percent over its projected budget in 2000. And the
Athens Games cost $12.8 billion, 60 percent over what the government projected.”

Bent Flyvbjerg of Oxford University, the world’s leading expert on megaprojects, and his co-author Allison Stewart found that Olympic Games differ from other such large projects in two ways: They always exceed their budgets, and the cost overruns are significantly larger than other megaprojects. Adjusted for inflation, the average cost overrun for an Olympics is 179 percent.

Bostonians, of course, had memories of the Big Dig, a huge and hugely disruptive highway and tunnel project that over the course of 15 years produced a cost overrun of 190 percent.

Columnist Anne Applebaum predicted a year ago that future Olympics would likely be held only in “authoritarian countries where the voters’ views will not be taken into account” — such as the two bidders for the 2022 Winter Olympics, Beijing and Almaty, Kazakhstan.

Fortunately, Boston is not such a place. The voters’ views can be ignored and dismissed for only so long.

The success of the “10 people on Twitter” and the three young organizers of No Boston Olympics should encourage taxpayers in other cities to take up the fight against megaprojects and boondoggles — stadiums, arenas, master plans, transit projects, and indeed other Olympic Games.

From Cato University 2015: Summer Seminar on Political Economy

The Cato Institute’s premier educational event, this annual program brings together outstanding faculty and participants from across the country and, often, from around the globe in order to examine the roots of our commitment to liberty and limited government, and explore the ideas and values on which the American republic was founded.