We are the authors of a new study of state-funded tourism promotion programs that found them to be largely a waste of taxpayer money. The findings were so stark that we felt compelled to bring them to the attention of our fellow citizens and Michigan taxpayers, who will pay $34 million for this state’s promotion campaign.
Specifically, we found that every $1 million increase in state tourism promotion spending generates just $20,000 in additional lodging industry business (not new tax revenue). Other sectors of the economy get back far less. In other words, spending on this state’s Pure Michigan ad campaign is a huge loss for taxpayers. This finding is also intuitively obvious, since Michigan’s tourism businesses have chosen not to make this marketing investment themselves — with their own money.
That is why in November, we challenged officials from the Michigan Economic Development Corporation — which gets annual appropriations to run Pure Michigan ads — and the Michigan Lodging and Tourism Association — which is supposed to benefit from the program — to a public debate.
They declined, which is no surprise because their claims that the program is worthwhile are based on studies purchased under no-bid contracts that use a “dark methodology” to generate incredible “return on investment” from this spending. Even though these taxpayer-funded studies are meant to inform public policy decisions, MEDC officials keep this methodology a secret.
We written before about this problematic scheme. A cottage industry of specialty consultants creates research products that purport to show that tourism ad spending more than pays for itself. The products mimic independent scholarly research, but are neither independent nor scholarly.
The vendor is not independent because the firm is paid by the agency seeking to justify this spending, almost always under single-source, no-bid contracts.
The research products violate the core canons of valid scientific research — transparency and replicability. Independent scholars are unable to “check the work” of the MEDC’s consultants because their methods are kept secret.
In other words, policymakers and the public are supposed to just take the word of officials and companies that directly benefit from state tourism ad spending that the spending is worthwhile. Trust, but don’t verify.
That would be a mistake, because claims that the state treasury gets back $7.67 for every $1 dollar spent on Pure Michigan ads are a scam. The figure was created by a vendor called Longwoods International, the recipient of multiple no-bid contracts from the MEDC, and whose current chair is a former MEDC official. When challenged on all this, the agency and its vendors respond with bold defiance.
In a news story about our debate challenge, reporter Justin Hinkley paraphrases the president of Longwoods as follows: “Mackinac Center’s analysis fails to account for other factors — the economy, bad weather, etc. — that can influence travel. The Longwoods study control for those factors to measure the effectiveness of the campaign.”
Siegel either doesn’t understand our model well enough to properly critique our effort or doesn’t care.[*] If he does understand econometric research methods then his response is at best disingenuous.
Moreover, until Siegel is willing to reveal Longwood’s own precise methodology he should recuse himself from commenting on the work of independent scholars who follow the canons of valid econometric research.
The contrast is almost amusing: The reason Siegel knows about our study’s methods is because we were 100 percent transparent about their underlying logic, construction and data sources. In contrast, the only reason the world knows that Longwoods did try to factor weather and state economic growth into its calculations is because Siegel revealed this in the media stories about our debate challenge!
The text of the Longwoods research product that generated the extraordinary “return on investment” figures revealed only that “we control for the effects of internal and external factors that could otherwise influence the result.”
In other words, they revealed nothing.
Our new study demonstrates how valid research should be done: It was published only after a thorough review of existing scholarly research on the issue; its statistical methods are both transparent and robust; and its data sources are publicly available and the results were peer-reviewed by other economists. Any competent and legitimate scholar can replicate the work. These are the hallmarks of valid scholarship.
MEDC officials have strong incentives to pretend that the Longwood’s products and claims are valid and to ignore or besmirch our research. Lawmakers are being bamboozled by this agency into wasting tens of millions of state taxpayer dollars every year on a worthless program.
Policymakers should not accept this, and taxpayers should insist on it.
[*] No key variables were excluded from the Mackinac Center study. It employed a “fixed effects” model and examined annual state-level data covering a 39-year period. Such models are explicitly designed to minimize or eliminate the risk of excluding vital variables. The study includes trend variables for weather and other factors, and controls for effects that are particular to states over time: annual rainfall, forest coverage, and miles of waterfront and average variations in temperature. Our model also controls for such things as economic differences between states and over time, including recessions.
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