...if the Olympics were guaranteed to lose money, how come any city would bid on them? My response was that bidding for the Olympics highlights the conflict between rulers and subjects, or "politicians" and "taxpayers" as we might refer to these groups in the U.S. The mayor of a U.S. city wants to get the Olympics so that he or she can be in the national and international spotlight for a few months, which might result in being able to obtain a more powerful job. The mayor has the ability to spend taxpayer's money, and borrow billions more on their behalf through construction bonds, for personal advancement.That's fine as far as it goes. But it doesn't go far enough. In general, leaders can't lead without the support of a significant fraction of the led. In Chicago, somewhere betten 45% and 75% of the population was in favor of hosting the Olympics. Would this be the case if it was really so inimical to their interests? Are people simply easily conned by their leaders?
I submit that the purpose of the Olympics (or indeed any other sports event or public spectacle) needs to be understood as symbol and ritual -- an occasion for the expression of the People's Romance, aka civic and national pride. It's a chance for ordinary people to feel like they are part of something larger than themselves. This is something people seem to want desperately. It's delivered most explicitly by religion but the rituals of civic life seem to offer the same thing in alternate forms. Sports fandom (entirely foreign to me) in particular seems to engender deep emotions, attachments, and occasional violence. The Olympics melds this with nationalism and the powerful echo of pagan rites to produce a pompous spectacle of ritualized warfare -- which at least has going for it that it is far preferable to actual warfare.
Historically, religion organizes a certain set of inchoate and irrational impulses to form the core of culture, and government was not separate from religion. Today we have, in theory, split off the religious functions into their own sphere and government is supposed to represent a set of common rational interests, but this Enlightenment surgery was only partially successful.
What Phil is asking for, that societies make their choices on an economically rational basis, is simply missing the point. Government combines the ceremonial with the functional, resulting in the peculiarities of architecture that seem to run from the grandiose (the US Capitol) to the stripped-down functional (your local DMV) without much in-between. But without the ritual and spectacle the state is nothing. And most people do not want to face the spectre of anarchy so are all too willing to support the state's ritual celebrations of itself.
What is the message of the above ritual? Any force capable of organizing that many people into synchrony is something that you better damn well pay attention to, whether or not you approve of such things. And going back to the original economic argument -- the apparent wastefulness and irrationality of such rituals is part of their demonstrative power. A country that hosts the Olympics is showing that it can afford to blow a few billion dollars on spectacle. It is, in short, a sacrifice, a public, hard to fake indicator of commitment. It's not supposed to be economically rational. And it is certainly true that political leaders get more out of it than the citizenry, but if they couldn't get people to join into these massive displays, they wouldn't be leaders.
[*] not sure if I've ever addressed it explicitly, but the idea is implicit in some pieces on polarization and violence entrepreneurs.