Lecture 15 The Arts and Economic Development Criticisms of Economic Impact Analyses Professor Julia Lowell lowell@econ.ucsb.edu Spring 2012 5/ 23/ 2012 Econ 191ac -- Lecture 15 1
Outline: Lecture 15 • Where we are now in the syllabus • Discussion of class project & Homework 13b/ 14 • The arts and economic development • Criticisms of economic impact analyses • Homework 15 5/ 23/ 2012 Econ 191ac -- Lecture 15 2
W HERE W E ARE NOW I N THE SYLLABUS 5/ 23/ 2012 Econ 191ac -- Lecture 15 3
Where We Are Now Class 1 6 : TODAY The arts and economic development; doubts about economic impact analyses (EIA) Class 17: MEMORIAL DAY HOLIDAY Class 18: Wednesday, 5/ 30 Doubts about EIA; valuing the arts Class 19: Monday, 6/ 4 Valuing the arts; FINAL EXAM REVIEW Class 20: Wednesday, 6/ 6 CLASS PROJECT PRESENTATIONS & handout of final exam 5/ 23/ 2012 Econ 191ac -- Lecture 15 4
DI SCUSSI ON OF HOMEW ORK 1 3 B-1 4 : USI NG LEXI S-NEXI S 5/ 23/ 2012 Econ 191ac -- Lecture 15 5
Class Project – HW13b-14 Due Wednesday 5/ 23 Let each of your team members be responsible for one of the following tasks for your 2 cities: 1. I dentify the relevant state and local art councils (may be more than one local council). What kinds of organizations/ activities do they fund? 2. I dentify private foundations that operate there. What do they fund? 3. Find as many artists’ membership organizations as you can 4. Find organizations that are focused on particular ethnicities, cultures and neighborhoods. What are the largest ethnic groups in town? 5. What are the primary industries/ biggest companies? 6. Key cultural events/ activities/ places? (What should a visitor do?) 5/ 23/ 2012 Econ 191ac -- Lecture 15 6
Class Project (HW13b) Biggest Industries & Employers • What are the primary industries/ biggest companies? – Try Lexis-Nexis – Chamber of Commerce – www.city-data.com – Check to see how variables are calculated; for example, does employment number represent local employment? (ex: Miami employment in cruise ships?) 5/ 23/ 2012 Econ 191ac -- Lecture 15 7
Using LexisNexis to Get Information on Companies and Industries • See instructions on the class webpage • In class walk-through 5/ 23/ 2012 Econ 191ac -- Lecture 15 8
CLASS PROJECT REVI EW : CHARACTERI ZI NG THE CULTURAL ECONOMY OF AN AMERI CAN CI TY ( REPEATED) 5/ 23/ 2012 Econ 191ac -- Lecture 15 9
Project Presentation Details • ~ 15 minute presentation from each team • Use Powerpoint slides – If you want to use another software program, please check with me to see if my machine will run it • Can do sound effects and video clips – Plus links to Internet • May have one presenter or multiple presenters – Choose people who want to do it/ are good at it • Can have each team member create own slides – But I recommend that one team member be in charge of integrating the full presentation 5/ 23/ 2012 Econ 191ac -- Lecture 15 10
What It’s About – Project Overview • Your team consists of members of the grants committee for the private, super-wealthy Econ191 Foundation – The committee’s job is to evaluate proposals from cities seeking cultural program grants – Your team is presenting rival proposals from two cities to the Executive Director of the Foundation, Jae Low – The grant will fund a cultural festival that involves some local cultural insitutions (e.g., art museum, symphony, jazz club) • Your presentation will – Provide some background on each city – Describe the organizations involved in each proposal – Explain how each city might benefit from the proposed project, including an mini economic impact study – Recommend which of the proposed projects (which city) should be funded and explain why 5/ 23/ 2012 Econ 191ac -- Lecture 15 11
What It’s About – Project Details • Background section – Provide information on each city’s size, demographic composition, industry base, & other info relevant to your recommendation – Side-by-side comparison charts & tables may be good here • Organizations section – Provide data on revenues & employment of the relevant cutural organizationstheir contributions base, how they spend their money – Provide information on possible funding partners for the Foundation (local arts council? other private funder in the area?) – Provide info on orgs and groups likely to be featured in festival/ fair -- local amateur artists groups? Culturally-specific groups (eg, Tajik-Americans?) • Benefits section – Who will benefit from the grant? How? – As available, provide data on participation and tourism; describe production chain (creator to consumer) to capture economic impact • Recommendation – Conclude with your recommendation on which project/ city should be funded & explain why 5/ 23/ 2012 Econ 191ac -- Lecture 15 12
Project Grading • Project is worth 30% of your grade • Grading will be mostly on content, but get style points too • Slacker policy – Historical precedent: At least 1 team (and probably more) will get stuck with a slacker – So, each team member will grade the other members’ contributions to team, e-mail to me – My grading will reflect these assessments 5/ 23/ 2012 Econ 191ac -- Lecture 15 13
THE ARTS AND ECONOMI C DEVELOPMENT 5/ 23/ 2012 Econ 191ac -- Lecture 15 14
The Most Common Measures of the Economic Impact of the Arts • Size analyses – How big is the cultural sector or “industry”? • Multiplier and input-output analyses – How does spending on or by individuals and organizations in the cultural sector impact the rest of the economy? 5/ 23/ 2012 Econ 191ac -- Lecture 15 15
What to Include in a Size Analysis? Defining A Cultural Sector • Educators • Suppliers • Creators/ Performers • Brokers (market makers) • “Live” Presenters • Reproducers • Distributors • Consumers/ Funders 5/ 23/ 2012 Econ 191ac -- Lecture 15 16
Multiplier Analysis: Measuring the Impact of an NEA Grant 1. The NEA gives a theatre company a $1000 grant to buy materials for sets from a hardware store 2. The hardware store spends $600 on fixing its roof 3. The roofing company spends $360 on its holiday office party, catered locally 4. The caterer pays a gardener $216 for landscaping 5. Etc. 5/ 23/ 2012 Econ 191ac -- Lecture 15 17
Direct versus Indirect Spending: Multiplying an NEA Grant (1) 1. The theatre company buys $1000 worth of materials from a hardware store – This is direct spending 2. $600 on roof repairs 3. $360 at the caterers 4. $216 to SoCal Edison 5. etc. – This is indirect spending Total so far: $1000+ $600+ $360+ $216= $2176 In this example, what is the marginal propensity to spend? 5/ 23/ 2012 Econ 191ac -- Lecture 15 18
Direct versus Indirect Spending: Multiplying an NEA Grant (3) $1000 + $600 + $360 + $216 + … = $1000 + $1000* (0.6) + $1000* (0.6)(0.6) + $1000* (0.6)(0.6)(0.6) + $1000* (0.6) 4 + $1000* (0.6) 5 + $1000* (0.6) 6 + … = $1000* [ 1/ (1-0.6)] = $1000* [ 1/ (0.4)] = $1000* 2.5 = $2500 With a marginal propensity to spend of 0.6, the multiplier is 2.5. The total impact on the local community of a $1000 NEA grant is $2500. 5/ 23/ 2012 Econ 191ac -- Lecture 15 19
Note on Multiplier Math Why is $1000 + $1000* (0.6) + $1000* (0.6)(0.6) + $1000* (0.6)(0.6)(0.6) + $1000* (0.6) 4 + $1000* (0.6) 5 + $1000* (0.6) 6 + … = $1000* [ 1/ (1-0.6)] ? 1 ∞ 𝑦 𝑙 Because for 0 < x < 1, ∑ = 1 −𝑦 𝑙=0 This is a power series. 5/ 23/ 2012 Econ 191ac -- Lecture 15 20
In-Class Exercise: Simple Spending Multiplier The Santa Teresa City Council gave $6,000 to the ST Arts Council to put on a cultural festival (direct spending). Economists at UCST calculated that the spending multiplier for Santa Teresa is 0.8. Can you calculate the economic impact of the festival on Santa Teresa with just this information? Is there anything else you need to know? 5/ 23/ 2012 Econ 191ac -- Lecture 15 21
Simple Multiplier Analysis Doesn’t Require Much Information … Only need • Amount injected into economy from outside (e.g., grant from external source = direct spending) • A multiplier So it is relatively inexpensive to construct estimates based on this analysis 5/ 23/ 2012 Econ 191ac -- Lecture 15 22
But It Isn’t Very Accurate How is multiplier estimated? Why assume one multiplier is applicable to transactions between – Different types of local businesses – Businesses and individuals – Businesses and government – Individuals and government Indirect spending will vary considerably depending on which actors (business, individual, government) and which sectors are involved 5/ 23/ 2012 Econ 191ac -- Lecture 15 23
A Better Measure of Economic Impact: Input-Output Analysis To determine how the an injection of money (from an NEA grant, for example) impacts the other businesses and individuals within different sectors of the local economy interact: • Sectors buy from and sell to other local sectors • Sectors buy from and sell to businesses and individuals outside the local economy • Sectors pay their employees, who spend and save • Sectors pay taxes 5/ 23/ 2012 Econ 191ac -- Lecture 15 24
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