Have we reached peak economic impact analyses? On Swift-onomics

Last week I saw an economic impact report showing how the automobile dealers industry in Canada is worth billions to the economy, generating hundreds of millions in tax revenue, yadda, yadda, yadda. Now I read about Taylor Swift who, a NYT journalist reported, created an economic boom in the US last year generated $5.6 billion from her tour and other activities.

As someone who writes these reports for a living (it’s a part of my consulting practice), it is important to differentiate between an economic ‘footprint’ and what is being positioned as an incremental economic impact.

In other words, the implication from the NYT journalist (maybe not intended) is that somehow Taylor Swift generated $5.6 billion for the U.S. economy that appeared out of nowhere. Without Swift, the U.S. economy would have been out $5.6 billion.

That is not true. If Swifties didn’t spend $5.6 billion on Taylor Swift they would have spent that money elsewhere - other entertainment, or purchases, etc. We can debate the economic multipliers for performing arts versus going to the movies but Swift’s spending shouldn’t be positioned as something ‘incremental’. Now, if she is attracting attendees from other countries or there is other export revenue, then that piece is ‘incremental’ and generating incremental taxes, jobs, etc.

The same applies to the auto dealers. In fact, you could argue they are a ‘cost’ to society as they just mark up what the car manufacturers want to charge to sell cars. Without the auto dealers, you could argue, there would be more money for households and businesses to spend. Don’t send me angry emails. I see an important role for auto dealers but if we didn’t spend our money with them, we would spend it elsewhere.

Where economic impact analysis is important is when it deals with incremental economic activity or when it tells the story of an industry that is export-focused.

For example, firm x is going to set up in your community. They will boost spending in the community by $10 million (direct costs and supply chain). That will create incremental spending, incremental tax revenues, etc. Or if firm X is an exporter and they close their operation in your community, you will see spending decline by $10 million and all the ripple effects.

If one auto dealer closes, the economy doesn’t contract. That spending just goes to other auto dealers or other activities. Now, if people have to go to another community or province to purpose a car, then that becomes an import and the economic activity is lost.

The point is companies and industries have now figured out they need to tell government all the GDP, jobs and taxes they bring to a community, province or country. Some of these benefits are wildly exaggerated.

I don’t have a problem with people talking about Swift-onomics but insinuating all that spending is new to the economy is misleading at best and dishonest at worse.