In Part 1, I outlined the theoretical understanding and some of the evidence that underlie the economic decision to subsidise a mega-sports event. I concluded that, on balance, subsidising a mega-sport event such as the World Cup is ultimately a poor use of taxpayer money in terms of purely measurable economic indicators. The conventional wisdom that such a big public investment leads to “spill-over” benefits within the economy was dispelled, or at least put into serious doubt.
The life of the average Brazilian over the past year or so has been an emotional roller coaster to say the least. Against the background that ranges from ardent protests in response to fiscal policy to complete despondency when the Canarinho (Brazil’s beloved national team) unforgettably bowed out in the semi-finals of their own World Cup after a 7–1 massacre at the hands of the eventual champions, Germany, a crucial economic question has been brought into focus: why do governments subsidise mega-sports events and what type of economic impacts should the economy expect from such a decision?
‘The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.’—Gordon Gekko, Wall Street (1987)
Environmentalists are well intentioned. In protecting the environment, environmentalists pursue interventions aimed at altering behaviour and market outcomes. To their delight, economists neatly rationalise these efforts through the concept of ‘negative externalities’, the case where two parties to a transaction externalise part of the cost onto a third party—e.g. pollution. This market failure justifies an intervention (e.g. Pigouvian taxes) to internalise the social cost and in turn reduce the market quantity.
Unfortunately, when misguided, interventions tend to fall victim to the phenomenon known as the ‘the law of unintended consequences’ or ‘the cobra effect’, a term popularised by German economist Horst Siebert.
The IT revolution is in full throttle. Among the most fascinating inventions—such as 3D printing and robots performing complex tasks—is the autonomous vehicle (AV, or the driverless car). By examining its economic implications, one cannot help but feel optimistic about how the AV will transform our economy and enhance living standards across the board.