Proving too much

An interesting business-review article on the metrics of giving urges donors to ask about the broad economic impact of their gifts, rather than merely the direct purchasing power of a particular grant.  But in talking about a parallel situation–efforts to evaluate the economic impact of sporting events–University of Chicago economist Allen Sanderson reminds us how quickly a reasonable notion can turn nonsensical.  Consider the Olympics’ alleged positive contribution to local economies: many of the anticipated consumer expenditures on the Games (attending events, going out to dinner) are not actually new money–"unless you assume that on an ordinary night everyone sits home in the dark and starves."

So before we celebrate the fact that each dollar of hospital wages generates 58.8 additional cents of economic activity, we might want to ask whether that’s more or less than the amount generated by each dollar of wages earned in factories or 7-Elevens, or–for that matter–in schools or art museums.  If not, then grantors in the health care field need to return to the original question: will this charitable dollar purchase something the community needs and wouldn’t otherwise have? 

To put it another way: the nonprofit sector is a significant component of the economy.  But the fact that it produces a large number of economic transactions doesn’t in and of itself demonstrate that the sector–or any one of those transactions–makes a net positive contribution to society.   

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