John Kay’s article this week in the FT (“A good economist knows the true value of the arts”) was up to his usual high standard. 

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 UK’s 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.

We are used to seeing self-serving economic studies in this country, in which the alleged job-creation effects of particular activities are used to argue for special treatment or subsidies.  I have commented on a particular example of this already, where the Irish Insurance Federation tried to argue that up to 2,000 jobs in the life and pensions industry could be lost due to the Government’s planned changes to pension tax relief.  Self-serving claims that a sector needs special treatment to avoid job losses are rarely valid;  in fact, such claims should by definition lead to the particular cause that expresses them being treated with greater suspicion.

Tesco’s illusory jobs

14 July, 2010

The economic bulls**t was everywhere today as newspapers, radio and other media unquestioningly trumpeted Tesco Ireland’s press release claim that it “will create 748 jobs” as a result of opening “seven new stores as part of a €113 million investment in the Republic”.

Come on guys, this is lazy journalism of the worst kind. You are not paid just to regurgitate press releases without adding some analysis (or maybe you are?)

According to the Irish Times, Minister for Enterprise Batt O’Keeffe said the investment underpinned the company’s commitment to Ireland and added momentum to the Government’s economic recovery plan. He is quoted as saying that “the investment shows that this is not a jobless recovery. Our recovery is built on prudent Government fiscal and economic policies, indigenous entrepreneurship and continued investments from the multinational sector”.

I wonder if the Minister actually believes the stuff he spouts?

And, not surprisingly, Tesco made similar claims, with its chief executive Tony Keohane asserting that the investment would benefit consumers and create jobs at a difficult time for the Irish economy: “there will be a significant boost in local employment in terms of 748 new jobs at a time when Ireland needs to get people into work”.

The fact is, the new shops that Tesco will open will result, on a net overall national basis, on little or no jobs. For we already have far too many shops of all kinds in this country, thanks to the follies of the Celtic Tiger, and adding new Tesco stores will just hasten the demise of a load of other retailers and the associated jobs.

In reality I suspect that, in the retail sector at least, the overall number of jobs will actually decline, because I would assume that Tesco are relatively more efficient in the number of staff it requires to sell a given value of goods to consumers.

Typical of many attempts to influence Government tax (or other) policy is a statement which is reported today, in which Mike Kemp, Chief Executive of the Irish Insurance Federation is quoted as saying :

“Up to 2,000 jobs in the life and pensions industry may be lost due to the Government’s planned changes to pension tax relief and the implementation of levies. Obviously, the threat of job losses is never good and should be avoided at all costs. And in the current climate I find it astonishing that the Government is willing to put these jobs at risk while also severely damaging the Irish pensions industry”.

Mr Kemp would have been better advised to argue his case on its merits, rather than relying on any alleged effect on jobs in his sector of a change in tax treatment of pension contributions.  His case is a reasonable one, but he damages it by his approach.

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