The Disaster of Olympian Economics

Well, the Olympics of 2012 are starting on Friday — some of it practically right on my doorstep here in London.

And, as if on cue, the sun has come out in London in the past two days, after the dreariest June, well… since, folks started measuring these things. One local newspaper even trumpeted that London will be warmer today than Hawaii. But Mother Nature has a good sense of humor. The forecast calls for showers right during the three-hour period of the opening ceremonies on Friday.

London officials will put on a brave face — both in the rain and in the upcoming chaos. Those of us who live here know better. My mobile phone company already experienced a widespread blackout even before the first Olympic guests arrived. Londoners have been told that we can expect to wait an hour to get on the Underground. And the U.K. Border Agency Staff — yes, those pesky public sector workers, again — have voted to strike a day before the Olympics’ opening ceremony. How considerate of them.

Over the next three weeks, London will be anything but normal. Surface-to-air missiles have been placed on residential buildings. Unmanned drones are set to monitor the sky. Some 12,000 police officers will patrol the capital every day of the Olympics. More than 17,000 troops will join them in the streets of London. That’s more British troops than who patrol all of Afghanistan.

The American Connection

Republican presidential nominee and Salt Lake City Olympics hero Mitt Romney will be in London for the opening ceremonies. I’ll see him the night before at a political fundraiser here — at a yet undisclosed location. Unsurprisingly, there is no Barack Obama-style media mania greeting the presumptive Republican presidential nominee in Europe. Truth is, U.S. apology tours of recent years notwithstanding, Europeans don’t like us very much.

Consider this London Olympic souvenir on sale on the streets of London, emblazoned with these words:

“I’m renting my flat to a fat american family.”

On the one hand, you can dismiss this as all in good fun. On the other hand, imagine the international outrage if at the 1996 Atlanta Olympics you’d sell a bumper sticker saying:

“I’m renting my apartment to a drunk Brit hooligan (with bad teeth.)”

The truth is Americans are the only people in the world you can mock to confirm your politically correct credentials.

Ironically, it turns out that the Brits selling those souvenir bags wish there were more fat American families around to rent their flats. You see, the London Olympics aren’t quite as popular as expected. London did set aside (and pay for) 40,000 hotel rooms, including 1,800 four- and five-star rooms for the International Olympic committee. But when other London hotels started off charging five times their normal rates, most fat Americans balked. At one point in May, hotel bookings were 30% below what they were last year. And with plenty of Olympic tickets still on sale, organizers are now worried about how they will fill all those empty seats (Hint: lower the prices).

The Disaster of Olympian Economics

The Olympics are a terrific metaphor for what can go wrong with government planning. The dirty little secret of the modern Olympics is that, with rare exception, the Olympics are a financial disaster.

The budget for the Athens Olympics in 2004 ballooned to $11 billion, almost double initial estimates. But London won’t be outdone by profligate Southern Europeans. The original budget that won the bid for the London Games was around $3.9 billion. Even before the first brick was laid, costs were up to $8 billion on real estate alone. The Aquatics Centre, budgeted at $118 million, eventually ended up costing $434 million. Security measures alone cost $1.6 billion. Some now think that the games will cost around $19 billion. That’s almost five times original estimates.

And after the glory fades, you wonder whether it was worth it all. The debt that paid for the Athens Olympics only accelerated Greece’s economic fall. Beijing’s iconic Bird’s Nest, built at a cost of $423 million, was the very symbol of Beijing’s lavish games. But since then, it has hosted only a handful of events a year. Will the same fate befall London’s Olympic Stadium, which cost almost twice as much as the Bird’s Nest, coming in at $780 million?

Today, the Olympics are a government-sponsored dog and pony show where the host country tries to show its best face to the world — a modern day version of Russia’s Potemkin Villages. Recall these were the hollow facades of villages — think of a movie set — set up by Russian minister Grigory Potemkin to fool Empress Catherine II during her visit to Crimea in 1787. Today’s equivalent of Catherine is the International Olympic Committee. When members visited London, the U.K. government monitored their progress on the streets of London through CCTV — and turned off red lights to give them a smoother journey. And for the duration of the games, 250 miles of London lanes have been designated “Olympic lanes” for VIPs and athletes. Potemkin would be proud.

And the Winner Is…

As for me, I’ll probably just go to a volleyball game or two down the street from me. I’ll miss the reception held for the 38 Stanford University Olympic athletes at the U.S. Embassy. By then, I’ll be off cycling the Camino de Santiago in Northern Spain — a medieval pilgrimage far, far away from the din of the 21st century.

Besides, I am confident that the U.S. Olympic team will do fine in my absence. After running a computer simulation 1,000 times, the Wall Street Journal found that the U.S. team walked away with the most metals in the 2012 Olympics — 998 times, collecting a total of 108 medals, 40 of them gold.

That means in 2012 the United States will reclaim its title as the world’s top Olympic nation — a crown it briefly lost to China in 2008, and to the Soviet Union and East Germany in the 1970s and 1980s.

I only hope that that U.S. Olympic team’s reclaiming its title as top dog in the world of international sports will stand as a metaphor for the entire country between now and 2016 Olympics in Rio de Janeiro.

Sincerely,

Nicholas A. Vardy
Editor,The Global Guru