Stage Doors and ‘Broken Windows’ in Michigan’s Film Credits Debate

Published June 18, 2011

Another day, another self-interested plea for more state film subsidies that ignores the “cost” side of the program’s balance sheet and sees only its purported “benefits.” The Detroit News recently 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 (R) would actually cap the previously unlimited film subsidies at $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.

Seen vs. Unseen
Unfortunately, the people who receive the takings refuse to consider those real but “unseen” costs.

That concept is effectively taught by a parable from the great Henry Hazlitt in his classic book Economics in One Lesson. Hazlitt learned the parable reading the great 19th century thinker Frederic Bastiat. 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 fail to see that if he didn’t now have to buy a new window, the baker would have made other purchases—ones that would create net additions to the economy rather than just replacing the loss of a broken window.

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.

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

It did not. The Michigan Film Office report says those productions spent $294 million. They did not generate anywhere near that amount in new tax revenue, only a 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 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 dubious methodology in other states as well as by a policy analyst with the Federal Reserve Bank of Boston.

$193,000 Per Job
Not mentioned in The News is a different film incentive critique in a 2010 study by the Anderson Economic Group, which found the film incentive was a net jobs loser for the state, possibly decreasing employment by more than 4,200 through 2009. Another Michigan-specific report came from the state Senate Fiscal Agency, which 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 the outlay was not reduced to zero.

Michael LaFaive ([email protected]) is director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy in Midland, Michigan.