by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
Here’s a fun little exercise in which WRAL tried to add up the costs of HB2 but discovers “they have created only a tiny ripple on the state economy.”
WRAL added cities’ economic impact figures for canceled businesses expansions, canceled conventions and conferences, and canceled sporting events, which together “top $505 million.” Nevertheless,
it’s a tiny fraction of the state’s overall economy. According to the U.S. Department of Commerce, North Carolina’s gross state domestic product for 2015 was $510 billion. So, even at $500 million, House Bill 2’s impact on the state economy has been about 0.1 percent.
This is a case of reaching the right conclusion, poorly. As has been discussed here, North Carolina has the 30th largest economy in the world (if you count U.S. states among the nations). The amount of unseen, unremarked-upon, untallyable economic activities that goes into an economy of such magnitude is unfathomable. It is foolishness veering on hysteria to think that a handful of discrete, one-off events not occurring would derail it in any palpable way.
WRAL says that its “rough analysis” used “conservative estimates.” The basis for that determination:
It does not include losses for which no economic impact data was available, such as the reported cancelation of 1,000-job expansion in Raleigh by an unidentified technology company. It also doesn’t account for businesses that may have bypassed North Carolina because of the controversial law without announcing it publicly, or for other damage to the state’s global brand.
That being said, it’s far more likely WRAL’s estimates are quite overstated. Here are some problems with WRAL’s approach:
1. Taking economic impact estimates at face value.
As I have discussed frequently, most recently in my newsletter urging people to “Apply some good horse sense to ‘economic impact’ studies,” economic-impact figures are habitually overblown. Economic impact estimates from conventions and conferences and sporting events are especially notorious for wildly inflated figures.
Here’s a handy rule of thumb from a Politifact report on lobbying efforts for public money to renovate the Miami Dolphins’ stadium (which gave a “False” ruling to the project’s economic impact studies):
But many independent economists say the benefit is much lower than boosters’ totals. These economists share a joke: take the boosters’ estimates and move the decimal place one point to the left. Economists say boosters dangle the enormous revenue figures as politicians are weighing whether to support public funding. (Emphasis added.)
2. Assuming economic impact on a city applies fully to the state.
Even if one were to grant at face value the economic impact figure to Charlotte of losing the NBA All-Star Game or the economic impact figure to Raleigh of losing a convention, one could not apply those figures to North Carolina without proof that any and all attendees would be from out-of-state and would otherwise have no alternative economic activities planned in North Carolina.
Only new, out-of-state economic activity counts for the state. Someone spending time and money in, say, High Point instead of Charlotte doesn’t.
3. Assuming that cancellations said to be over HB2 were in fact over HB2 — and for no other reason.
Granted, this is not something media are inclined to question, even when outfits making a “principled” stand here find those principles applicable only within the physical borders of North Carolina.
Also granted, it’s not something that lends itself to dissection, especially not in a rough analysis. I include this only to question the declaration that WRAL used “conservative estimates.”
Nevertheless, I discussed this problem back in April under the heading “A few of the assumptions made in arguing economic disaster from the Bathroom Bill.”
4. Assuming only negative economic impact from HB2.
Especially for those who have bought into the initial question-begging over HB2 so completely that they take it all as established fact, this assumption is easy to make. But just as some businesses may not publicly announce bypassing North Carolina solely because of HB2, others may not publicly announce selecting North Carolina because of it. Not being able to gauge effects based on “North Carolina’s global brand” means not being able to gauge negative or positive effects.
It may not seem “right,” but it can’t be discounted or presumed zero.
As I wrote back in April,
Media want someone to project the impact on an entire state of a single piece of legislation that doesn’t change taxes or incentives? That’d be a tall, time-consuming task for an economist, let alone a pundit who thinks “demand curve” is how Tarzan calls a pitch.
Given those limitations, WRAL is correct even while likey overstating the problem. HB2’s actual economic impact on the state of North Carolina — NBA, NCAA, and ACC cancellations included — can be only minuscule.