My John Locke Foundation colleague Roy Cordato has a new column out on economic impact studies. In it, he explains why most such studies are worse than useless. A case in point, is a recent study on the impact of the nuclear power industry in the Carolinas, which generated considerable local media attention. Cordato writes:

The study uses a proprietary statistical package called IMPLAN. IMPLAN is widely used by consultants who are hired by industry groups to demonstrate the “benefits” of an industry’s economic activities in a particular geographic area. Studies using this package are quite common. They all suffer from the same flaw: They don’t actually measure economic impact.

IMPLAN’s attractiveness is tied to the fact that its users do not need to know anything about economics. They need to know only how to manipulate and make use of IMPLAN. Hence, it is almost always the case that when IMPLAN is used, the results that are reported say little about what an economist would describe as the real economic impact.

A calculation of the true economic impact of any investment activity has to consider both benefits of that activity and costs. The benefits arise from the productive output generated by the investment, and the costs arise from the use of resources that are employed in producing that output. The only kinds of studies that can measure actual economic impact are those that invoke cost-benefit analysis, in which the value of the productive output generated by the investments is balanced against the opportunity costs, i.e., the alternative uses of the resources that are taken out of the economy to generate that productive output.

This industry study, and the IMPLAN statistical package used to produce it, does none of this. First of all, there is no attempt to ask the most basic, freshman Econ class question: How else might the resources — land, labor, steel, energy, lumber, technology, etc. — that are going into the nuclear industry have been used? Indeed, if one simply reads through the study, it would be easy to conclude that all the resources used by the industry would have been sitting idle had it not been for these nuclear industry investments. In other words, the study seems to assume zero or close to zero opportunity cost.