Almost all of us are impacted by tax laws, government regulations, and public subsidies. That is true of individuals pursuing their own interests, profit-oriented commercial businesses, non-profit organizations seeking to follow their own visions of a better world or government agencies of one sort or another.
Given that such taxes, regulations, or subsidies can directly impact the success or, even, viability of a broad range of individuals’ and organizations’ objectives, it is not surprising that a lot of effort is put into influencing the decisions that governments make. Public relations professionals are hired to positively influence the public’s perception of the size and importance of the contribution different organizations make to our individual and collective well-being. Lobbyists are hired to try influence the decisions of legislators and regulators in order to make those government decisions more supportive or, at least, less damaging to their organizations’ activities and objectives.
One popular public relations gimmick that is regularly used is the so-called “economic impact analysis.” Recently we have seen such impact analyses used to try to influence the public’s view of the Colstrip electric power plants, the activities of Montana artists, new Montana coal mining proposals, the Montana’s University system, and the expansion of the Medicaid health insurance program, to name just a few.
Given that we tend to perceive economic hard times as either just around the corner or currently upon us, this feeling of economic vulnerability is an attractive pressure point for those that seek to protect or enhance their private interests by wrapping them in our collective public interest in a stable and prosperous economy. That is, private interests are disguised in the public interest by suggesting that almost all citizens have a direct economic interest in the success of those private interests.
This use of economic language to magically transform almost any private interest into the public interest has to be recognized for the public relations gimmick that it is. This purposeful confusion and masquerade would simply be insulting or laughable, like any other advertisement, if it were not for the distortion and corruption of economics that such so-called “economic impact analyses” depend upon.
Economics, as a social science, studies how individuals and societies cope with scarcity. It also develops guidelines for the optimal use of scarce resources. Central to economics is the unavoidable need to make tradeoffs or choices that involve weighing benefits against costs in the pursuit of net benefits or avoidance of net losses.
In real world settings, it is rare to find situations where there are only benefits to reap and no costs that have to be considered. As economists often remind us, “There is no such thing as a free lunch.”
But “economic impact analyses” shrug off this central economic tenet that costs and benefits need to weighed. These very peculiar “economic” analyses typically describe economic ventures as having only benefits and no costs for the local community. But the corruption of the basic insights of economics goes even further, and transforms things that both businesses and economists would usually label costs and simply re-labels them as benefits. In these “impact analyses”, no economic choices or tradeoffs need to be made. The “analyst” simply presents an array of pure benefits to the community and implicitly suggests that it would be irrational not to embrace and approve such a free lunch. With only benefits and no costs, whatever is being proposed becomes an offer that is simply too good for the public or government to burden with taxes or regulations, not to mention the absurd possibility of actual rejection.
It should be clear that something is missing from this type of public-relations-based impact analysis, namely the weighing of benefits and costs in the process of making rational choices. If there were only benefits and no costs associated with a proposed project, there would usually be no controversy at all about that proposal. It is because there are perceived costs (as well as benefits) that public controversy emerges. In that setting any economic analysis worthy of that label should attempt to weigh both the benefits and the costs so as to contribute to a rational public decision. But in the world of public relations, the motivation is the often the opposite: To overstate the benefits and suggest that there are no costs.
This is not to say that real economic impact analysis has no important uses. If, for instance, a very large project is proposed that may significantly boost the population, placing stress on public services such as schools, police and fire protection, and the local road and highway system, a real economic impact analysis might provide warning of these potential disruptive and costly impacts so that mitigation measures and their funding can be planned for. It is important to note that in this setting, particular costs associated with the project are explicitly investigated rather than just laying out pure benefits.
Environmental impact analyses, of course, also have the purpose of carefully and completely laying out the full range of benefits and costs so that the public and public decision-makers can, in a classic application of economics, compare and weigh both so that an informed and, hopefully, more rational and productive decision can be made.
The next time you hear a commercial group or anyone else bragging about the gigantic positive economic impacts it has or will have on the well-being of the community, treat it as a paid advertisement that almost certainly has repeatedly violated all of the basic rules of economic logic. That impact analysis is highly likely to simply be a gimmick to trick the public into providing private business interests with special treatment at significant cost to the public interest.
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