London has been awarded the 2012 Summer Olympics, beating out Paris, New York, Madrid, and Moscow.

According to a report, “The victory means that London will play host to the world’s premier sporting event in seven years’ time with a specially-built stadium and village rising from what is now an urban wasteland in the east of the city.”

And PM Tony Blair pledged full support for the games, “My promise to you is we will be your very best partners,” Blair said. “The entire government are united behind this bid. … It is the nation’s bid.”

Clearly cities vie for the Olympic games as an attempt to inject some economic development into otherwise struggling urban settings. But just what is the economic benefit to a host city or nation (short-term and long-term)?

Being awarded the games is just the beginning of the process. As you might remember, Athens had a lot of work to do to get ready in time for the last summer’s games. Perhaps the benefit to a city might be related to the amount of work needed to be done prior to the games. Sydney hosted the games in 2000, and reports that the games delivered “substantial benefits.”

I’m not convinced that the games are really a panacea, at least not for everyone. I would liken the situation to that of a professional sports team, which clearly are huge players in local and regional economies. But at the same time, they very often hold local governments hostage, threatening to move unless new multi-billion dollar stadiums are built. So the taxpayers end up footing the majority of the bill. John Stossel in his book Give Me a Break has a section on this titled, “Sports Tycoon Freeloaders.”

He relates a conversation with Jerry Reinsdorf, owner of the Chicago White Sox, who says that the government “had to” fund his new stadium, but ends up admitting: “You mean, if somebody walks up to you and hands you money, you shouldn’t take it? The fact is–I was offered this stadium by elected officials.”

Stossel gets it right in his analysis of these situations:

Every scheme to create jobs through government spending means people who work and pay taxes have less money to spend on projects they would choose. But we in the media miss that. I can interview the people who got jobs or benefits from the government project, but I can’t find the people who didn’t get a job because money was diverted.