AEI’m So Confused

Six years drinking at the open bar of power is enough to get anyone a little woozy, so it should be no surprise that the shots fired at MoMA from the right by two pundits from the American Enterprise Institute were so sloppy and off the mark.
In their Wall Street Journal oped, [“Creative Accounting: MoMA’s Economic Impact Study”] the two think [sic] tankers, Kevin Hassett and Phillip Swagel not only question a recent MoMA-sponsored study that claims the Museum will have a $2 billion economic impact on the NY city/state economy over three years, they attempt, apparently, to discredit the charitable tax deduction system that underpins the entire nonprofit sphere [cultural, charitable, and otherwise], they seek to peel off cultural institutions from any type of economic consideration at all by deriding the very attempt to translate into financial or political spheres the “soft” value of “culture and enlightenment” [which, when “unsentimental,” “hard-boiled economists like [them],” say it, is not a compliment].
Fortunately, for Culture, at least, their case is so wilfully misleading, illogical, and shot through with flawed comparisons and assumptions, that it’s still several minutes away from being called even “soft-boiled.” It’s glaringly wrong enough to make you wonder what the econ-major interns are doing at Journal and the AEI, because they’re definitely not factchecking articles for publication.

First, I’ll step through the Journal article and point out the errors. Then, I’ll look at MoMA’s actual press release and make some back-of-the-envelope calculations on whether MoMA’s numbers actually make sense. [Which is something the AEI authors never bother to do; they’re too busy snarking around the edges of the non-profit system and the methodologies for valuing it.]
With only the roughest calculation in my head as I write this sentence, though, I’m betting that any differences or discrepancies will be either reasonable or arguable, but that they won’t be significant enough to warrant an AEI takedown.
Disclosure: I should mention here that I’m not a disinterested outsider. I am a longtime donor (relatively minor amounts, especially in this context) to MoMA and the co-head of a donor organization there, and so I am involved in both sustaining the Museum and benefitting from the tax deductions Hassett and Swagel discuss. But I’m in no way privy to any insider information about the report, and I definitely only speak for myself, not the insitution. And I can only imagine the eyes rolling in the Museum as I wade into this topic at all.]
Why an economic impact study?: the AEI tries to sound shocked and put upon by the very idea of quantifying MoMA’s “value to society [sic],” and yet such economic impact studies are commonplace in the travel & tourism industry, and MoMA itself has commissioned such studies for years. See this study of the economic impact of the 1998 Jackson Pollock retrospective, for example, which looks at the percentage of local vs out-of-town visitors, their primary reasons for coming to NYC, and on down to the number of jazz CD’s sold in the Museum shop. In fact, ARA, the firm MoMA used, also conducted a similar survey for NYC & Company, the official tourism organization of the city, to estimate the impact of Christo’s Gates project. The language and methodology of all these reports is substantively the same, so if AIE has a beef with MoMA’s study, it’s real problem is with caring about the 44 million visitors to NYC and the $23 billion they spent in 2005.
“Subsidies”: H&S then “conjecture” that MoMA commissioned the study “to build support for the substantial public subsidies the museum receives, including both direct financial support from the city and state and indirect support through tax breaks given to MoMA and its donors.” They cite a “recent” gift from New York City of $75 million. Actually, it was $65 million, it was in 1998, it was the first and only direct taxpayer support the Museum has ever sought or received in its 75-year history, and it came from Republican mayor, Rudy Giuliani.
This kind of local governmental “investment” in “the arts” and culture” is widespread/ubiquitous, and economic impact study is a foundation of this practice, just as it is with all sorts of other state and local economic development incentives and priorities. [And it doesn’t particularly stand out among the types of incentives packages Giuliani was doling out to investment banks and media companies during the 90’s boom.]
The article takes greater issue with the tax deductions donors receive [which the authors label “subsidies,” a disingenuous term at best]. First they estimate a tax savings of $270 million on MoMA’s $650 million capital campaign donations, using a blended marginal federal/state/city tax rate of 42%.
[The authors entertain themselves with a rhetorical question:

Should that money go to MoMA, or would it be better used to feed the homeless or provide education to New York’s schoolchildren? It depends at the margin on the value that the alternative uses of funds provide.

If there is one certainty to be found in this article, it is the zero-probability of the AEI and its friends in the current administration advocating a tax increase for the “wealthiest Americans” in order to “feed the homeless or provide education.”]
After an irrelevant aside about Johnny Damon and floating the idea that the value of MoMA can somehow be divined by what it would cost to “buy,” relocate, or recreate, the authors commit a basic mathematical error in an attempt to equate public “subsidy” cost with value:

Dividing the approximately $90 million annual subsidy [i.e., $270 million/3, I think] from the city in cash and tax breaks among eight million citizens, the museum justifies itself so long as the average city dweller values the existence of MoMA at about $11.25. Counting the federal and state subsidies would add a dollar or two.

First, set aside the fact that the $650 million was raised and the tax savings accrued almost entirely before the study’s 2004-7 timeframe. The lion’s share, over 80%, of the $270mm tax “subsidy” derives from federal, not local taxes. So for analysis, shouldn’t this cost be amortized over the entire population of the US, not irrelevantly dumped onto the shoulders of NYC’s 8 million residents? That’s less than $1/citizen, or $2.25/tax filer total, not per year. For comparison, the combined budgets of the once-beleaguered, now-neutered NEA/NEH now total around $270 million/year.
But what does this figure have to do with the “value” of MoMA or any cultural institution, never mind its economic impact? Nothing. Which is, not coincidentally, the value of H&S’s flawed concession that “this is a proper tradeoff: MoMA gets a public subsidy in exchange for bringing people joy and making New York a special place.”
The Stadium Comparison: The economic folly of public funding for stadiums is well known, and the authors are correct that such deals are often sold using dubious ancillary job creation or economic benefits, but it’s incorrect and dishonest for H&S to compare MoMA with such a scheme. These stadiums are usually built with public money–hundreds of millions of locally sourced dollars, usually raised through new taxes, bonds, or tax incremental financing [which are still taxes, but are only on the incremental revenue generated by a project. Notheless, assuming a stadium is built anyway, this is tax that cannot be spent elsewhere. Fungibility is a two-edged sword.] But the primary economic value accrues very narrowly, to the owner of the team.
MoMA, by contrast, raised more than 90% of its $858 million capital campaign privately. From a public financing perspective, the $65 million was leveraged 13:1. The city’s payback period on sales and payroll taxes alone is barely two years; the rest of the economic impact is gravy. The value of tax deductions, meanwhile, doesn’t accrue to the Museum, but to the donors, a fairly small, wealthy bunch, true, but a much broader benefit than derives from handing a new stadium to George Steinbrenner. [But again, this whole argument seems moot. Is the AEI really arguing against giant payouts to sports team owners or doing away with tax writeoffs for philanthropists? I doubt it.]
Marginal economic impact: Here, I think, is the crux of H&S’s complaint, that MoMA can only justly stake a claim to an economic expenditure if it can be proved that it’s wholly incremental and would not take place unless MoMA itself existed. Another moot point, since MoMA itself has existed since before economic impact studies themselves came into being, but it’s also one that the AEI folks can’t bother to make directly, or explicitly.
But still. Workers would work elsewhere, corporations would fete elsewhere, visitors would visit elsewhere, they argue, even if MoMA didn’t exist. How does such a hypothetical even begin to be useful for informing a discussion of cultural institutions’ value, much less economic development or policy decisions? It seems as absurd and fanciful–if not exactly Dada-esque, a slur the authors find great pleasure in making–as anything that a conservative economist could imagine an artist doing.
MoMA’s economic impact As the authors only parenthetically acknowledge, MoMA’s study uses a methodology that is common–even widespread–in both the economic development and travel & tourism fields. If they have problems with it, you’d think they’d refute it. Or even describe it, but no.
Here’s how MoMA explained the scope of the study in its press release:

In the first year after its reopening, from November 2004 to November 2005, more than 2.67 million people visited MoMA. Of that audience, 28 percent came from the New York metropolitan area, 34 percent from elsewhere in the United States, and 38 percent from other countries. One-fifth of the out-of-town visitors said that MoMA was their primary reason for visiting New York City; the spending of these visitors was used in calculating MoMA’s economic impact.

In other words, in one year, 20% of 1.9 million out-of-town visitors, 380,000 people, came to NYC because of MoMA, and the study considers their visit to contribute to “MoMA’s economic impact.” Using the roughest calculation possible [44.6 million visitors spending $22.8 billion in NYC in 2005, or $535 per capita], that translates to $204 mm/year. If MoMA’s study shows that, on average, their visitors spend more or stay longer, that number would go up. I have no idea.
The Journal article complains about a “ripple effect,” a 150% impact scaleup the study uses to account for vendor and other activity. Based on my figures, that works out to another $300 mm/year. Again, I have no idea, but such multipliers seem common in the economic impact study world; if the authors’ complaint is with the methodology, their random, diffuse attack on MoMA adds little credibility to their cause. But debates over such econo-mystical arcana would probably not make the cut for the paper, either, so I can see their dilemma.
What’s stands out from MoMA’s press release is also conspicuously unmentioned in the Journal article: instead of being a net consumer of tax subsidies, MoMA “will generate an estimated $50 million in tax revenue for New York City and an estimated $43 million for New York State” over the three years of the study, or about $30 million/year. I assume this is from payroll and sales tax from the restaurants, stores, and catalogue businesses. I’m sure the study also includes MoMA’s annual operating budget, now about $120 million. Add admissions fees of an average of $15/head for, say, 2.2 million [$33 million] plus 100,000 memberships at $80 [$8 million], and the identifiable total is $395 million/year, nearly $1.2 billion over three years [assuming attendance stays the same, of course.]
By mixing direct economic contribution and the arguably attributable, it should be clear that MoMA’s study makes no claim to producing two billion wholly incremental dollars. The definition and objective of “economic impact” must lie elsewhere. But is the AEI’s complaint that MoMA’s projected economic impact is off by 20%, or $100 million/year? How far would you get with that story pitch? And what does it matter in the Museum’s real world, either?
MoMA’s purpose should not be a mystery. Glenn Lowry is quoted in the press release saying the study is meant to “underscore the vital role that The Museum of Modern Art plays in the cultural life and economy of New York City and State.”
As the hoopla surrounding the new building dies down, the $2bn figure is a nice, round number to remind people and politicians and the city’s culture industry of MoMA’s centrality. And it helps create a positive ROI-like aura for the recently spent $850 million. One ancillary benefit of such casemaking may be blunting the edge of critics’ complaints that the Museum’s now out out of scale, too crowded, and corporate-cold.
[It’s an interesting sidebar to compare the Pollock impact study to the current one. Way back in 1999, 55% of the show’s 330,000 visitors were local, 45% out of town. On that percentage alone, it would appear that MoMA’s popularity with locals has dropped. And whatever your view of the Museum today, there is a non-trivial difference between an institution affirming its $2 billion presence and one boasting of “Sales of highest-grossing Pollock poster: Blue Poles, (1952): $72,000 (1,800 units).”]
What’s the impetus, ultimately, for the AEI authors’ article? I have no idea. Their conclusion itself–that these art people with their funny numbers make no sense, but it’s alright, because they pleasure us–makes no sense, not in the face of the last 15+ years where the arts have been endeavoring to find apples-to-apples economic justifications for their continued existence. And not in the face of the AEI’s well-heeled, ruling class constituency. Again, the article doesn’t call for an end to charitable tax deductions; and in fact, it even claims such levels of public expense are justified. And not, it has to be noted, in the face of the leaders of the institution: MoMA’s current president, Marie Josee Kravis, is herself an economist and a longtime conservative thinktank fellow.
It’s pure conjecture, of course, but I keep coming back to the contrast between the rough-n-tumble, masculine vocabulary the economists give themselves and the soft, illogical joygiving they ascribe to the Museum. Were Forbes to cover this story, they’d remind MoMA that she should just work on keeping herself attractive, and make sure she has a fresh drink ready for Economics when he comes home in the evening.