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Another round of BS

Organizations use misleading economic numbers because the press lets them get away with it.

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"Study: Golf worth $650m to province," screamed an August 22 headline in the Chronicle-Herald. "Nova Scotia's golf industry had an economic impact of about $650 million in 2008, according to a national study released this week," begins the article, written by business reporter Tom Peters.

Six hundred and fifty million dollars is a hell of a lot of money.

It's over two percent of the entire provincial GDP, the accepted measurement of the size of the economy. If the "economic impact" of golf on the provincial economy is in fact $650 million, it's worth screaming headlines, truly.

But of course, it's not. A few paragraphs down, Peters explains that golf "contributed an estimated $262.5 million to the province's gross domestic product.... The nearly $650 million was generated from direct, indirect and induced spending."

Er, indirect spending? Induced spending?

"If someone indicated they spent money on golf, then we attribute that money to golf," Tom McGuire tells me. McGuire is vice president of Strategic Networks Group, the firm that conducted the study. That's money spent on golf clubs and club membership fees ("direct spending") or the cost of filling up the gas tank to drive to the course, and the money spent on silly pants and cocktails at the 19th hole ("indirect spending").

The "induced spending"---what McGuire calls "gross production" calculation (as opposed to GDP)---is "the sum of the wholesale, and the resale and the end retail price" of anything connected to golf.

So say it costs a factory $100 to make a golf club. The factory owner sells it to a distributor for $150, the distributor sells to a retailer for $200 and the retailer sells it to a real estate agent for $400.

(All this assumes the club was made in Nova Scotia, and not bought from an American website sourcing clubs made in China.)

As far as its share of the economy (GDP) goes, the club is worth $400.

But the "gross production" value of the club is all the costs and resale prices of everyone who ever touches it, or $100+$150+$200+$400---the absurdly large figure of $850, more than twice what the real estate agent pays.

Gross production is a real calculation with narrow real-world uses for economists. But for the rest of us trying to understand the relative importance of the real estate agent schmoozing his marks, gross production is pretty much bullshit.

I don't mean to pick on golf---unlike many similar studies, McGuire's study at least relies on real, if misleading, accounting principles. A lot of other people spew out bogus economic impact numbers produced with "multipliers" that are pulled completely out of thin air.

For some reason the multiplier is often exactly seven---just throw whatever expense you can remotely connect to your project, and multiply it by seven to get a nice big number you can trot out as your project's "economic impact."

In 2005, a government study claimed the fishing industry is responsible for 15 percent of the provincial GDP, and please ignore the abandoned fishing villages lining our coasts---the study says the fishing industrying is booming.

During the Commonwealth Games fiasco, Canmac Economics, a Sackville firm, issued a report saying that if all the assumptions of Games' proponents held true, the Games would generate $2.4 billion in economic activity. The Commonwealth Games study underscored the ridiculous nature of these calculations---the more debt-ridden you become and the more your spending spirals out of control, the better it is for the economy. Negative impacts on the economy, like a debt crisis taking money away from infrastructure improvements, are never considered.

But I can't really blame organizations for using misleading economic numbers, because experience shows that the media will unquestioningly re-report the numbers without analysis or comment.

Without a critical press analyzing claims and calling "bullshit" when needed, we get a dishonest picture of the world---Saddam Hussein has nuclear bombs, Barack Obama wants to kill American grandmothers, Stephen Harper is a regular guy who loves kittens and golf is a $650 million business.

In the end, bullshit economic numbers are the result of journalists not doing their jobs.

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