There are winners of course. The Crown Casino, Fosters, The Daily Planet, Lygon St. - But overall its a big loser.

In my view the businesses that want it to stay should be the ones to subsidise it. Then we’d start to see some real hard nosed financial calculations being done.

Let me put forward a hypothesis, as yet unproven, but I leave you to assess its plausibility.

1. Some years ago, G.P. boss Bernie Ecclestone donated one mill. pounds (I think) to the British Labour party to shore up the G.P. there, so it’s a fair bet he is doing the same here.
2. If so, public revelation of such would be politically embarrassing for the Vic. Govt., as it was to the Blair Govt. which was forced to refund the money. So the govt. will not release details of the contract with Ecclestone on grounds of confidentiality.
3. To retain public support for the race, the govt. repeatedly quotes economic reports claiming enormous economic benefits for Victoria.

Economic consultant NIEIR examined the economic impact of the 1996, 2000 and 2005 events; coming up with estimated benefits of $96m., $131m amd $175m. respectively. But these figures are meaningless. Any economic activity creates benefits, whether it be a sausage factory or trip to the dentist. That is no case for government subsidisation.

Subsidisation is only justified if the event produces ‘positive externalities’, i.e. social benefits over and above those accruing to the consumers. But if it produces ‘negative externalities’, i.e. social costs, it should be taxed, banned or otherwise discouraged.

Supporters of the race argue there are social benefits in the form of international exposure of Melbourne (presumably for tourism) and excitement for the city.

Opponents argue there are social costs in the form of environmental damage to Albert Park, disruption to other (passive) uses of the park, noise, pollution (and attendant health risks), traffic disruption, adverse effects on adjacent businesses, etc. They are also not impressed with the tourist argument – on the grounds that Melbourne is already over-populated.

In my judgement, the opponents win hands down; net externalites are negative. Add to these the growing losses and the G.P. is a clear economic loser and should be scrubbed.

There has also been severe criticism of the methodology used in the analysis of the G.P. (and also of other special events). Such analysis has to make an assumption as to whether the event increases aggregate expenditure or has no effect on expenditure.

If the latter, allowance has to be made for ‘opportunity costs’, i.e. alternative uses of the resources employed in the event, and this is often omitted.

If the former (i.e. increases aggregate expenditure) a Keynesian income-generation model is usually used. This assumes that the resulting increase in income and employment is good for the economy. But this is only true if the economy is suffering from demand-deficiency, as in a recession. If the economy is experiencing excess demand, any extra spending generated by the event will add to inflation and be bad for the economy. This was the case in 2000, when the Reserve Bank increased interest rates five times. Yet the report claimed economic benefits of $131m! In my book these were disbenefits.

I have not read the 1996 or 2005 reports so cannot comment on them, except to suggest that Keynesian methodology is completely irrelevant for the analysis of special events, except where a confined regional impact is targeted, (e.g. Bathurst or Phillip Island).

It’s life Robert, but not as we know it!

And BALLS! to motor racing.

Heh.