Introduction


For decades, the Grateful Dead toured from location to location within the United States, bringing a specific brand of music with them. In addition to their music, the Grateful Dead also brought with them a large group of followers known as Dead Heads. In many communities, the Dead were received with barely subdued hostility. Many towns resented the sudden arrival of thousands of hippies and drifters, and the perceived chaos they were thought to carry with them.


But for all the sturm and drang, some economists wondered what the real impact of the Dead's arrival was. Were there benefits that the communities were overlooking to the presence of a large rock show, or was the cost to a community too high to invite the Dead to play?


In 1997, a pair of economists at the University of Nevada, Las Vegas decided to answer that question when the Grateful Dead arrived in their hometown. Armed with nothing but a strong love of music, a well-constructed survey, and some computer modeling software, they set out to learn once and and for all what these crazy hippies were really worth.

Multipliers, Surveys, and Drug-crazed Longhairs (i.e. Economists)



Introduction to Multiplier Analysis

In order to evaluate the economic impact of a concert or other event, economists often rely on a method called multiplier analysis. The basic idea is this: Think of a local economy as a series of pipes or channels. Money travels through these pipes and channels, being used to buy goods and services, hire workers, and provide other benefits. There are pipes that connect to the outside of course, bringing in money from exports or taking it away for the purchase of imports.

Most economists agree that one of the goals of an economy is to bring in more money than it sends out. All things being equal, this process leads to growth as residents see increased wages, higher purchasing power, etc. This process will tend toward an equilibrium over time, because as residents' standards of living increase, so does their dependence on imported goods and services. There are ways of resisting this trend such as focusing growth on self-sufficiency, but for the most part economies will, over time, stabilize.

However, what happens when a sudden event brings a large amount of money into the community all at once?

In this case, we can think of a large quantity of water being dumped into our series of channels and pipes. The cash will slosh around through the system with some of it flowing out, but much more cycling around the channels. How much cash stays in the system depends on a number of factors, most prominently the ability of the local economy to provide necessary goods and services. Determining the impact this large "cash dump" has on the local economy is the purpose of multiplier analysis.

In order to determine the impact that thousands of hippies and music fans had on the local economy, Ricardo Gazel and R. Keith Schwer (our economist heroes in this story) would need to gather a great deal of data about how much money was being spent, and where it was going. Additionally, they'd need to figure out how well the local economy managed to keep that cash flowing through the sluices before it washed out to sea.

Data Collection (or "How to convince longhairs to talk to people with bow ties")
Dr. Dan Rubenson, seen here explaining a general equilibrium model
Dr. Dan Rubenson, seen here explaining a general equilibrium model


In order to collect data, Gazel and Schwer knew they were going to have to brave the wilds of the Dead show. Normally economists try not to actually interact with other human beings, particularly those located out of doors. On this occasion, however, it appeared there was no other way for our heroes to find out what they needed to know. They would have to use a little known technique that involved asking careful questions and analyzing the answers. This survey was their primary source of data collection,so it would have to be good.


Survey Fun Fact!

Economists and other social scientists have long been aware of the ability to accidentally influence the results of a survey by being present. This is commonly referred to a experimenter bias. In order to get good data, Gazel and Schwer actually had hired hands conduct the surveys while they enjoyed the many unique amenities offered at Grateful Dead shows. This process of having someone else conduct your survey in order to keep the results unbiased is called a double blind survey technique. Professional economists always make to minimize their involvement in the survey work when they are doing data collection, whether it is at a party, a concert, or a tropical beach.


Survey Construction


In order to make sure that the survey was as effective as possible, Gazel and Schwer provided three different methods for data collection: an electronic push button device, a paper survey, and a direct interview. These surveys were designed to figure out two basic things:
  1. How much money did non-locals spend on local goods and services while they were there?
  2. How much money did local residents spend on the show that would not have been spent otherwise.

Whenever surveys are performed there are a number of concerns that have to be addressed. First of all is the issue of response bias. If someone being surveyed thinks that there is a more desirable answer or feels there might be a reward for answering a particular way, they might not answer the question honestly. This is a real problem when asking questions that might have a moral consequence, for instance. In the case of the Grateful Dead concert goers, there are many respondents who may have been engaged in "peculiar circumstances." In order to guard against response bias, our economist heroes did two things:

  1. They ensured a very large number of respondents. (over 2,000!) As the number of respondents in a survey increases, the "randomness" of the sample tends to increase. This means that even though they were interviewing people who might share interests and attitudes, the more people they dealt with the greater the variation in those viewpoints.
  2. They established a control group. In addition to those who were self-selecting to take the survey, Gazel and Schwer posted an interviewer near the entrance to the concert for many hours. That interviewer questioned every 10th person that passed by, regardless of all other considerations. This group of interviews could then be compared against the other data to help identify areas of concern or inaccuracy.

Finally, the interviewers incentivized respondents who opted to take the long paper survey by giving them a coupon for a free large coke. In order to prevent people from simply taking the survey for the coke, no one was informed of the incentive until after the survey had been completed.

This might seem like a tremendous amount of work for a somewhat simple survey, but economists are very skeptical about surveying as a technique for gathering data. While survey techniques are much more controversial in contingent valuation, most researchers go through great pains to ensure that their data collection methods are as reliable as possible. In the past, less scrupulous researchers have been known to use misleading or loaded surveys to generate data that suited their desired outcomes. Word to the wise: Always question the way data is collected and presented before accepting the results of a study!

Costs, Benefits, and the Input-Output Model



Once economists have managed to collect data, the next step is to analyze that data in order to assess impacts. The short clip on the right-hand side of the page is a powerful example of the process of economic analysis at work. In order to figure out how these analyses proceed, we need to first think about costs and benefits.

Estimated Local Costs of a Hippie Jam Fest


When it comes to events such as concerts, festivals, and other one-off items, the immediate costs are usually the easiest impact to estimate. For the Grateful Dead concert, the basic costs were $33,000 for cleanup, $134,250 for police protection, and $186,000 for parking and restoration of the grounds. However, these costs were borne solely by the promoters of the concert. As a result, these represent monetary inputs into the local economy. In some cases there are additional costs in the form of externalities (such as a lingering cloud of patchouli oil which might result in public health issues).

In order to fully understand how these costs and others affect the economy, we'll need to sidetrack for a moment to discuss input-output models.

Input-Output Models


There are many types of model that economists use to evaluate economic impacts and try to understand the way an economy works. These models often range from complex computational models to simple "thought experiment" types of models. An input-output model is simply a model that tries to evaluate the inputs and outputs of an economy in order to determine the overall impact. While specific input-output models can be very complex, the general idea is actually quite simple.

In our earlier discussion of multipliers, we made clear that within the economy we could think of cash flows as a series of pipes and channels. By that same analogy, some pipes and channels are capable of moving more money, while others move less. Depending upon where the money is spent in an economy, the multiplier can vary. For instance, spending money on local police, who are likely to spend their money at the local grocery, etc. might carry a higher multiplier than spending money at a big box retailer that will spend the majority of that money to restock from non-local distributors.

To deal with these complexities, our economist heroes used an input-output modeling system called RIMS. RIMS is a very complex piece of software that is programmed with monetary expenditures (inputs) in various areas of the economy and their estimated multipliers and indirect spending (outputs) based on region, demography, and various other factors. An economist can then use data collected to estimate the likely economic impacts of events such as our Grateful Dead concert.

So, through all of this data collection and research, our economist heroes were finally ready to get to the real question - What are all these hippies really worth?

Breakdown of Monetary Impacts


In order to determine the inputs and outputs, Gazel and Schwer broke the impacts into four basic components:
  1. Expenditures of non-resident Grateful Dead fans (hippies) who came exclusively for the show.
  2. Tax revenues received by the government as a result of fan expenditures into the economy.
  3. The cost to coordinate and run the show.
  4. Expenditures that resident attendees would have made elsewhere has they not attended the show.

As we can see, items 1 and 4 came from the survey data that was collected. Item 2 could be discovered through analysis of the sales tax generated during the event. Finally, item 3 could be got by querying the show promoters.

Through painstaking research into local tax records, Gazel and Schwer calculated the approximate expenditures of the 45,722 "Grateful tourists." While their official research paper goes into extensive details about every area of expense, the net estimate was in excess of $7 million dollars. By putting these expenditures into the model as inputs (based on the exact part of the economy where the expense occurred), the economists could estimate that the $7 million initial expense had a multiplier close to 95%, meaning that for every initial dollar spent, about $.95 more would be spent indirectly. This means that the initial $7 million expense had an additional $5 million (conservative) in impact, for a total of $12.5 million dollars in revenue injected into the local economy. A more optimistic estimate predicts as much as $23 million dollars in direct impacts.

More straightforward, perhaps, were the tax revenues generated for the state and local governments. The total tax revenue generated was calculated to be $522,950, 76.5% of which ($399,787) went to the local government. This revenue also has a multiplier, as the local government puts that tax money back to work repairing roads, hiring firemen and police, etc. Calculating based on a 150% multiplier, the projected economic impact was $599,444 (conservative) up to as much as $1,151,847. The variation in tax revenues is primarily based on possible differences in the attribution of certain revenues generated - i.e. Were rooms rented and meals bought by deadheads or other types of tourist?

The costs to coordinate and run the show, discussed in part earlier, also included a large number of staff, stadium rents, ticket fees, catering, and a large number of other items. The total cost to produce the show was $926,545, and because of the nature of these expenses (most of which were in labor) there was a higher than normal multiplier of 1.728. This means that the total impact to the local economy was 1,601,070!

Finally, our weary economist heroes had to consider the money that resident attendees spent at the show that might otherwise have been spent elsewhere. Through careful valuation, the estimate impact of these residents was $2,529,792.

Conclusion


So, after all of that work, our economist heroes could simply add things together, and finally come to an answer. That one Grateful Dead show's likely economic impact was somewhere between $16,913,656 and $28,187,527. But that isn't the only thing that the input-output model showed them. In fact, RIMS is quite thorough, and suggested that the increase in demand resulted in between 345.6 and 589.5 sustained jobs across various sectors of the economy (from transportation to public safety to service workers). Additionally, a large percentage of those surveyed indicated that they were more likely to come back to Las Vegas after this experience, meaning that future beneficial expenses into the local economy, while not calculable, were more likely.

In closing, it's important not just to note the implications of this specific case, but to consider the larger case as well. Gazel and Schwer's study was not intended to justify the presence of crazed stoners - it was an attempt to address the decline of artistic events of all types in the United States. In the name of austerity, communities are often driven to cut spendings on artistic and community events that are seen as "non-crucial." Gazel and Schwer's study should give us pause, at least, to wonder what the real impacts of these events are.

For instance, in 2011, the Sundance Film Festival in Utah was calculated to have had a $70 million dollar impact on the local economy. Despite the economic recession, regions that can maintain events such as these often have significant advantages over other areas in the competition for jobs, dollars, and sustainability.

A Musical Interlude: