Following the Simple Naive Keynesian Model (I call this SNKM, pronounced snickem) that still appears in far too many economics textbooks, an injection of gubmnt spending into the spending stream should have gigantic multiplier effects and should stimulate tonnes more economic activity. At least that's the nonsense I was taught back in the 1960s and that many people seem to believe today.
So Russia's expenditure of $45b on the Olympics should be good for their economy, right? Nope.
- Those are scarce resources that could have been used to produce something else, e.g. better highways, schools, and other infrastructure. This is the essence of the concept of "opportunity costs".
- Where does the funding come from? If the gubmnt taxes to obtain the funds, then spending is reduced somewhere else; and if the gubmnt borrows the funds, then those funds are far less likely to be available for someone else to borrow and spend.
And given the massive losses suffered by the Athens economy, and given all the unused infrastructure there following the Olympics, it is difficult to believe the Sochi Olympics will have [m]any lasting benefits.
From Bloomberg,
Putin marshalled more than $45 billion to host the most expensive Winter Olympics, rather than spending on schools, hospitals and infrastructure investors say is needed to revive growth. Government forecasts show that the economy, which expanded at an average rate of 7 percent in the first eight years of Putin’s rule, will grow at a third of that pace between now and 2030.
“If all that astronomical amount of money, astronomical even for Russia, had been invested in the improvement of utilities and services, it would have given a strong push to economic development,” said Vadim Bit-Avragim, who helps manage about 148 billion rubles ($4.3 billion) at Kapital Asset Management LLC in Moscow.