Stage Doors and Broken Windows

Another day, another self-interested plea for more state film subsidies that ignores the “cost” side of the program’s balance sheet and only sees its purported “benefits." This latest iteration appeared in The Detroit News and carried a typical woe-is-us title, “State door shuts on Michigan’s actors.”

The News apparently brought in actors for a roundtable discussion and they expressed “dismay” that Gov. Rick Snyder would actually cap the previously unlimited film subsidies at only $25 million. According to The News, “The actors say they don’t understand how something that helped put folks to work during a sluggish economy and brought a bit of glam to Michigan now faces such a drastic scale back.”

Allow me to explain. Government has nothing to give one person that it doesn’t first take from someone else. “Take from someone else” is the cost side of this equation that the film subsidy beneficiaries and proponents somehow never count. In this case, it means money stripped from other job providers and families, the loss of which diminishes their own ability to contribute to the economy.

Unfortunately, the people who receive the takings refuse to consider those real but “unseen” costs (or un-scene as the case may be).

That concept is effectively taught by a parable from great Henry Hazlitt in his classic “Economics in One Lesson”: A hoodlum heaves a brick through a baker’s window and runs off. The baker is angry, but a gathering crowd determines the brick thrower is actually a “public benefactor” who has generated revenue for a glass maker, who will then buy things from others “in ever-widening circles.”

Alas, those townspeople failed to see that that, if he didn’t now have to buy a new window, the baker himself would have made other purchases — ones that would create net additions to the economy rather than just replacing the loss of a broken window.

Yet the misguided conclusion of those townspeople is precisely the refrain of film giveaway advocates when they point to all the hoteliers, carpenters, muffin makers and coffee brewers now working on sets associated with subsidized film projects. Completely ignored are the jobs lost elsewhere due to the government redistribution.

Compounding the conceptual errors, The News article also made a common factual error. It repeats the Michigan Film Office claim that in 2010 “58 projects filmed in Michigan last year generated $294 million and created 5,310 production jobs,” and notes that the incentives cost the state $115 million, suggesting the program paid for itself.

It did not. What the Michigan Film Office report actually says is that those 58 productions spent $294 million. They did not generate anywhere near that amount in new tax revenue, but only a very small fraction of it.

Worse, the story compounds the misinformation by referencing a consultant’s report claiming that every $1 spent on tax breaks results in $6 in economic activity. Not disclosed is that — using methodology no more rigorous than the townspeople’s in the broken window parable — this particular consultant has been operating a cottage industry of churning film subsidy “success story” reports from other states.

The consultancy has been called out for its methedology in other states. Here’s one critique by a policy analyst with the Federal Reserve Bank of Boston.

Not mentioned in The News is a different film incentive critique contained in a 2010 study by the Anderson Economic Group, which found that the film incentive was a net jobs loser for the state, possibly decreasing employment by more than 4,200 through 2009. Still another Michigan-specific report came from the Senate Fiscal Agency that estimated the film incentive program cost as much as $193,000 per direct job created. This and other film subsidy work by Mackinac Center analysts suggests a rap sheet that seems awfully lengthy to be ignored by reporters in stories like this.

The Snyder administration did the right thing by taxpayers and job providers by reducing this program to a $25 million grant item. The only fault of this change is that it was not reduced to zero.

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Michael LaFaive is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.