A good economist knows the true value of the arts

11 August 2010, Financial Times

Activities that are good in themselves are good for the economy,
and activities that are bad in themselves are bad for the
economy. The only intelligible meaning of benefit to the
economy is the contribution direct or indirect the activity
makes to the welfare of ordinary citizens.
Many people underestimate the contribution disease makes to the
economy. In Britain, more than a million people are employed to diagnose
and treat disease and care for the ill. Thousands of people build hospitals
and surgeries, and many small and medium-size enterprises manufacture
hospital supplies. Illness contributes about 10 per cent of the UKs
economy: the government does not do enough to promote disease.
Such reasoning is identical to that of studies sitting on my desk that purport
to measure the economic contribution of sport, tourism and the arts. These
studies point to the number of jobs created, and the ancillary activities
needed to make the activities possible. They add up the incomes that result.
Reporting the total with pride, the sponsors hope to persuade us not just
that sport, tourism and the arts make life better, but that they contribute to
something called the economy.
The analogy illustrates the obvious fallacy. What the exercises measure is
not the benefits of the activities they applaud, but their cost; and the value
of an activity is not what it costs, but the amount by which its benefit
exceeds its costs. The economic contribution of sport is in the pleasure
participants and spectators derive, and the resulting gains in health and
longevity. That value is diminished, not increased, by the resources that
need to be diverted from other purposes.
Similarly, the economic value of the arts is in the commercial and cultural
value of the performance, not the costs of cleaning the theatre. The
economic perspective does not differ from the commonsense perspective.
Good economics here, as so often, is a matter of giving precision to our
common sense. Bad economics here, as so often, involves inventing bogus
numbers to answer badly formulated questions.

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But good economics is often harder to do than bad economics. It is difficult

to measure the value of a Shakespeare play: you can start with the box
office receipts, but this is only the beginning of the story. Adding up the
actors wages does not help. Changes in relative prices since the time of
Verdi mean that grand opera is now very expensive to perform. The
relevant economic questions are whether the cultural and commercial value
of the performance offsets these costs and whether these benefits can be
translated into a combination of box office receipts, sponsorship and public
subsidy. The appropriate economic criterion, everywhere and always, is the
value of the output.
But bad economics has been allowed to drive out good. I am sympathetic to
the well-intentioned people who commission studies of economic benefit,
though not to those who take money for carrying them out. They are
responding to a climate in which philistine businessmen assert that the
private sector company that manufactures pills is a wealth creator, but the
public sector doctor who prescribes them is not. Extolling the virtues of
manufacturing, they value the popcorn sold in the interval, but not the
performance of the play, arguing that the vendor of consumer goods creates
resources, which the subsidised theatre uses up. People who work in the
theatre, hospitals or education are often forced to listen to this nonsense. It
should be no surprise that so many of them despise business and the values
such business espouses. If these values were truly the values of business
they would be right to despise them.
The surveys on my desk are expensively commissioned because their
sponsors perceive a language they detest and do not understand. We need
to put out of our minds this widely held notion that there is such a thing as
the economy, a monster outside the door that needs to be fed and
propitiated and whose values conflict with things such as sports, tourism
and the arts that make our lives agreeable and worthwhile. Activities that
are good in themselves are good for the economy, and activities that are bad
in themselves are bad for the economy. The only intelligible meaning of
benefit to the economy is the contribution direct or indirect the
activity makes to the welfare of ordinary citizens.

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