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The 2020 Olympics: Is it worth it?

By Brenna Fisher
web posted September 30, 2013    

The Olympics is naturally the highest profile sporting event in the world. Every four years, countries vie for a chance to host the games on their land. The 2020 Olympics venue was recently announced as Tokyo, Japan, an honor to be sure, but can they really afford it? Opportunity cost may lie elsewhere for the economically struggling country, whose Olympic budged is $4.1 million, and statistics have shown that the event is not always as prosperous as originally thought.

A recent article from Business Insider chronicled the economic problems in Japan. Currently, they government is running a 10% deficit, which doesn't appear to be slowing down anytime soon, despite the central bank governor saying that the current rate of debt is "not sustainable". Top that with a declining population which makes it impossible for any real financial growth, a current rate or steadying growth (see graph below), and the country is undergoing intense financial turmoil. The only way to steady itself would be nominal growth, making high inflation rates crucial to economic survival. To tame the deficit, the government will be increasing the sales tax to 10% by 2015, inevitably lowering quantity demanded. The income effect will very likely come into play here, when citizens are no longer to afford all the luxuries they used to. On top of that, prices of well-known Japanese products will be affected all around the world, such as Hyundai and Panasonic, as the price will naturally have to go up at some point for Japan to maintain or decrease its debt. Globally, they will be less profitable. To sum it up, Japan's current economic state is risky at best, and does not appear to be looking up anytime in the near future. 

Chart

Examining past Olympic hosts long term gain based on the games, it is clear that the Olympics does not always mean immense prosperity. While the hosts of the 1992 and 1996 games were able to put into use the new stadiums built and had proper financial support from the beginning, Athens and Sydney were a different story. The arenas built are abandoned and dilapidated, and tourism did not increase by a profitable percentage as planned. The debt is still looming almost 10 years later for Athens and over 13 years later for Sydney, and the current budget overrun for countries is 179%. When compared, both of these locations were more in line with Tokyo's state than that of Barcelona or Atlanta. 

Financial instability runs rampant with the short term excitement of hosting the Olympics, that much is clear. Each country wants to have the biggest and best venues, performances, and overall ambiance. It is easy to ignore financial downfalls to irresponsibility when a country is in charge of a major event. The opportunity cost is working to stabilize Japan's economy, including not having to raise taxes exponentially or attempting to decrease the monstrous deficit. While turning down such an opportunity is never easy or even profitable in the beginning, in Japan's case, it would have been a smarter decision and the country will most likely be paying dearly for what they have chosen. ESR

This is Brenna Fisher's first contribution to Enter Stage Right. © 2013 Brenna Fisher.

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