In reading a recent article in the “Economist” titled: Draw the curtain on filmmaker subsidies, it reminded me of the effort of our own Governor [Rick Snyder] efforts to curtail the same as it made no “cents” from a “common” or “economic” point of view. To share a little background on this for those who are may be wondering what this is all about, around a decade ago as the local economies of the “States” started to decline. Numerous State Governors started to offer tax breaks to the “film industry” to draw them to their “States” to ply their movie making magic.
The idea was these “subsidies” (tax credits) from the States to the film makers would draw in workers from other places (states) and they would spend their money locally, stay in hotels, pay airport taxes and so on. Thus creating a panacea of Win/Win goodness right? Well this is an excellent example of Zero Sum in action as the film industry in mass is not a large “staff” industry like say the auto manufacturing business. Therefore the causal actions are easier to see when viewed through our macroeconomic lens as its here that author Michael Kinsley writes of New Mexico Governor Bill Richardson:
“[Governor] Richardson says that the film and TV subsidy has brought “nearly $4 billion into our economy over eight years” and has created 10,000 jobs. By “our,” he means New Mexico. He says every state should emulate this success”
Good deal right, as in an economy the size of New Mexico, $4 Billion is a lot of capital verses their GDP, however this is where Kinsley invokes the “Zero Sum” game changer by writing:
“But of course every state cannot do that because it essentially is a “beggar thy neighbor” strategy. Some of the movies that have been bribed to locate in New Mexico would have been made in New Mexico anyway. That part of the subsidy is a total waste. Most of the movies that have come to New Mexico for the subsidy would otherwise have been made in other states. New Mexicans may not care if the citizens of those states lose out, but inevitably those other states respond with subsidies of their own and New Mexico gets beggared along with everybody else. In any event, Richardson’s statistical claims are suspect, to say the least. He would not win an Oscar for math”
In being a “beggar thy neighbor” proposition, each state increases its ante over the next, which in turn forces the next to offer even more which makes the only winners the “stakeholders” in the industry who need it the least. To make matters worse the false economy of this logic is that it is on the backs of tax payers with real dollars (in the form of tax Credits).
This also should not be viewed solely in the spot light of being just the film industry, as there is only so much of “everything” out there. Even in the case of the coveted auto manufacturing plants were states compete, there is a winner and there is a loser and any other concept is a false economy…