Dr. Roy Cordato reminds us to be wary of economic impact studies that only tell part of the story.
To properly assess the impact of any economic activity, whether it’s building a convention center or sports stadium or installing a vast solar power plant, it must first be understood that the project will yield directly observable activities that one can reasonably expect to occur and there will be economic activities that don’t occur but otherwise would. By definition, these impacts, while real, are not directly observable.
The second category is what economists call opportunity costs. Opportunity costs are the result of the fact that all economic activity uses scarce resources that, under normal conditions, would be used for other purposes had the project under consideration not occurred. Opportunity costs, while real, are by their nature related to resource uses that are diverted from economic activities that would otherwise be pursued and are therefore unseen.
Remember this the next time you hear or read that a particular project is going to create lots of jobs and generate all kinds of new spending.
