Tuesday, November 30, 2010

If You Subsidize Something with Tax Dollars, You Get More Of It, Even If Costs Far Exceed Benefits

Nov. 23 (Bloomberg) -- "Michigan taxpayers foot the bill for the most generous movie subsidies in the U.S. Since 2008, the state has allotted $282 million to lure the filming of Hilary Swank’s “Conviction,” Clint Eastwood’s “Gran Torino,” George Clooney’s “Up In The Air” and more than 120 other productions.

Now the governor-elect, Republican Rick Snyder, wants to curb the largesse. A state agency found the price of the program -- which covers as much as 42 percent of local expenses -- exceeds the economic activity generated. Jobs created in 2009 cost the state about $193,000 each, the agency estimated."

MP: Economic lessons to be learned here:

1. From Thomas Sowell: "The first lesson of economics is that we live in a world of scarcity. There is never enough of anything to satisfy all those who want it.  The first lesson of politics is to ignore the first lesson of economics."

2. Public Choice Economics: In their short-sighted self-interest to get re-elected, politicians will always favor programs that have immediate benefits that are easily identifiable, even if the long run costs are much greater than the benefits, especially when the costs are hard to identify.  Film subsidies are a perfect example. It would have been cheaper for the state of Michigan to simply pay people in the film industry salaries of $50,000 per year not to work, than to fleece taxpayers almost $200,000 per job in the film industry.  But there's no political payoff to pay people $50,000 not to work, compared to the huge political payoff, though illusory, of "putting people to work in the Michigan film industry" at a cost of almost $200,000 per job. 

HT: Tom Hemphill

34 Comments:

At 11/30/2010 11:34 PM, Blogger QT said...

...YEP, politics as usual

So when are we going to see an economist run for president (other than Paul Krugman)

 
At 11/30/2010 11:58 PM, Blogger Ron H. said...

"So when are we going to see an economist run for president (other than Paul Krugman)"

QT, are you referring to the former economist Paul Krugman? he gave up that title a long time ago, and is now known as Political Hack Paul Krugman.

 
At 12/01/2010 5:05 AM, Blogger bob wright said...

The convoluted thinking that comes out of Lansing never ceases to amaze me.

On the one hand, in the name of economic development, Lansing pols hand out multi-million dollar tax credits to Hollywood actors.

On the other hand, Lansing pols increased the business taxes I pay to the state and pretend this won't adversely affect business in Michigan.

If I pay more money in taxes to Michigan, I have less money in my pocket. If I have less money in my pocket, I have less money to give my employees raises, give them better benefits, hire more people or buy more equipment.

So, which is it? How can tax breaks and tax increases both be good for Michigan's economy?

Don't even ask me how I feel about Lansing pols giving tax breaks to the new-comers from Hollywood while sticking it to us businesses that have been operating and employing people in Michigan for more than 30 years.

If tax credits are good for Hollywood, than they're good for my business also.

 
At 12/01/2010 7:21 AM, Blogger juandos said...

"If tax credits are good for Hollywood, than they're good for my business also"...

Ahhhh bob wright, you're thinking is far to logical...

Shame on you...

Speaking of taxes and how they can subsidize something a friend of mine who's a graphic artist working out of Seattle is taking advantage of the tax dollars indirectly, the tax dollars that float the TSA...

 
At 12/01/2010 9:02 AM, Blogger W.E. Heasley said...

"So when are we going to see an economist run for president (other than Paul Krugman)"

“QT, are you referring to the former economist Paul Krugman? he gave up that title a long time ago, and is now known as Political Hack Paul Krugman.”

Thomas Sowell for President! That would be fun. Eight years of Sowell exposing politicos for exactly who they are. Washington D.C. would be a ghost town when Sowell was done. Wonder if Sowell would start each of his presidential work weeks by wearing his Krugman Truth Squad t-shirt?

 
At 12/01/2010 9:44 AM, Blogger Hydra said...

Yes, but the costs don't ALWAYS exceed the benefits. Also, the calculations themselves are often political.

One thing that would eliminate a lot of arguing back and forth AND prevent a lot of waste, would be to have better agreement on how such costs and benefits are to be calculated.

 
At 12/01/2010 10:00 AM, Blogger Walt G. said...

We get the representation we deserve. Since I have been of voting age, 3 of the five U.S. Presidents have been reelected and served all the time they constitutionally could (Carter no, Reagan yes, Bush I no, Clinton yes, Bush II yes). That's a 60% rate. We historically reelect U.S. Senators at a 70-80% rate and Congressman at a 80-90% rate. We sure must like what we are getting because the evidence indicates that we do.

It's the same thing with entitlements. Everyone wants theirs, but they don't want to pay for them. You know, with a mentality like that, it would seem that we would run a huge deficit, so it should be no surprise at all that we are.

Maybe Social Security and Medicare should mail out opt-out cards to every U.S. citizen (and illegal alien :)) and see how many they get returned. Does anyone want to guess what the opt-out rate would be? I'll take a guess at way, way less than 5%.

Hydra, you'll have a helluva time winning an argument here using a c/b analysis because people use vastly different numbers for that which cannot be easily quantified. In addition, conclusions are drawn before any analysis is performed. That does not mean I won't keep trying :)

By the way, yes, politics have a bad name, but in reality they determine how well we live, and they will be around as long as we both are. So, you have two choices: 1) work with them, or 2) work against them.

 
At 12/01/2010 10:06 AM, Blogger Junkyard_hawg1985 said...

"So when are we going to see an economist run for president (other than Paul Krugman"

Answer:

1996: Phil Gramm

 
At 12/01/2010 10:30 AM, Blogger juandos said...

"Yes, but the costs don't ALWAYS exceed the benefits. Also, the calculations themselves are often political"...

Yes they ALWAYS do...

When the government has to steal the wealth of one group of individuals (remember that persnickety little Art. 1, Sec. 8 of the Constitution) so as to redistribute to others, its for political reasons...

There is nothing that politicians like better than handing out benefits to be paid for by someone else...

 
At 12/01/2010 11:10 AM, Blogger Buddy R Pacifico said...

From Washington Film Works:

"FILM IN WASHINGTON STATE

Get way more than you bargained for.

Like 30% Cash Back in 30 Days"

 
At 12/01/2010 12:08 PM, Blogger Jason said...

Juandos gets a point for the use if the nearly antiquated word "persnickety!"

Juandos, Hydra and Walt G, there are additional benefits that are really impossible to measure. For instance, the reputation of Michigan is and had been very poor. So any way to get good press is good. Really. It helps if some stuck up narcissists talk well of your state.

Now can I justify $200k per job for good press and bluster? No I cannot. But then I never liked the idea Michigan lawmakers had of replacing a $400 billion dollar industry (automotive) with a piece of a $20 billion dollar one.

This whole program is and has been about Granholm trying to look good fiddling while Lansing burned. And it did work, the sheeple of Michigan did reelect her.

 
At 12/01/2010 12:28 PM, Blogger Walt G. said...

"juandos, Hydra and Walt G, there are additional benefits that are really impossible to measure."

Jason: Impossible? Not really. That's why you estimate and build models. Of course the accuracy of the analysis and the credibility of the researcher can be questioned by those who can show they have a better or more accurate analysis using an accepted methodology.

Additionally, any data-driven analysis is still just one of the many factors employed in the decision-making process, but it can be powerfully persuasive and convincing if performed and presented correctly.

 
At 12/01/2010 12:32 PM, Blogger juandos said...

"So any way to get good press is good. Really..."...

O.K. jason, let the state use YOUR money but there's no reason the state should steal from others who don't believe or don't care...

Now IF Granholm really believed in the program how come she doesn't use her own resources to finance it?

 
At 12/01/2010 1:03 PM, Blogger geoih said...

Quote from Walt G.: "Maybe Social Security and Medicare should mail out opt-out cards to every U.S. citizen (and illegal alien :)) and see how many they get returned. Does anyone want to guess what the opt-out rate would be?"

So, your plan is to allow people to opt out of a mandatory welfare program after the government has confiscated and spent all their money?

Let's try your plan, only now immediately stop taking (and taxing) all the social security and medicare payrole taxes from all the people who opt out, and I'll bet the opt out rate is more like 80%.

We could do a poll right here. How many people would rather stay in the social security and medicare programs, or opt out and keep all of their cooresponding taxes?

 
At 12/01/2010 1:08 PM, Blogger Benjamin said...

Why do we subsidize farmers, 80 years after the Dust Bowl? Why are homebuyers subsidized?

Why do we subsidize the retirement of fedferal employees, some of whom are eligible for retirement in their early 40s?

 
At 12/01/2010 1:55 PM, Blogger juandos said...

"How many people would rather stay in the social security and medicare programs, or opt out and keep all of their cooresponding taxes?"...

In a heartbeat jason I'd hop out of those Ponzi schemes...

 
At 12/01/2010 2:04 PM, Blogger juandos said...

"Why do we subsidize farmers, 80 years after the Dust Bowl?"...

Ask your buddy Obama and his fellow travelers about Pigford...

 
At 12/01/2010 2:58 PM, Blogger Junkyard_hawg1985 said...

"How many people would rather stay in the social security and medicare programs, or opt out and keep all of their cooresponding taxes?"

At age 43, I would eat the loss of all past contributions and opt out to avoid future payments.

 
At 12/01/2010 3:55 PM, Blogger Walt G. said...

"So, your plan is to allow people to opt out of a mandatory welfare program after the government has confiscated and spent all their money?"

Yes, geoih, it is a thought for serious consideration. You paid for those already on S.S. in hope that those in future would pay for yours. Maybe they don't want to do that.

It is a misconception that S.S. is a savings plan because it is more like an insurance plan that you pay for our people's coverage.

Does the thought of no S.S. bother you? It's like I said, everyone wants their entitlements from their special interests supported by their re-elected officals. We all complain, but we are in fact enablers. I could support actions such as the Bowles/Simpson plan.

 
At 12/01/2010 4:27 PM, Blogger juandos said...

"It is a misconception that S.S. is a savings plan because it is more like an insurance plan that you pay for our people's coverage"...

Well Walt G I think its also a misconception to consider some sort of insurance plan unless plan is spelled 's-c-a-m'...

 
At 12/01/2010 5:05 PM, Blogger juandos said...

More of that inane nanny state nonsense courtesy of the clown Michael Bloomberg and the overtaxed citizens of New York...

 
At 12/01/2010 5:27 PM, Blogger Ron H. said...

"It is a misconception that S.S. is a savings plan because it is more like an insurance plan that you pay for our people's coverage."

It would be even more accurate to call it a Ponzi scheme as the money collected has been spent, and only a box of IOUs remain. Until recently the money collected exceeded the money paid out, but those days are over. The jig is up, as they say, and now the taxpayer is on the hook to start making up the difference.

Rose Wilder Lane described Social security as a Ponzi scheme as early as the 1950s.

"Her prescience regarding the instability of that system was astonishing: throughout the 1950s she would describe it as unstable and a "Ponzi fraud." Lane told friends that it would be immoral of her to take part in a system that would predictably collapse so catastrophically..."

 
At 12/01/2010 5:32 PM, Blogger Walt G. said...

juandos,

Anything you have to pay for and hope to not use or need is a scam almost be definition. That's the case for insurance. I hope no one ever collects on my term life innsurance.

I agree Ron H. And I hope they end the program as soon as I have collected all of mine :)

 
At 12/01/2010 5:32 PM, Blogger Paul said...

Wow, Ron H, haven't hear Rose Wilder Lane's name lately. She was a pretty cool lady, from what I remember.

 
At 12/01/2010 5:48 PM, Blogger juandos said...

"Anything you have to pay for and hope to not use or need is a scam almost by definition"...

Oh so true Walt G!...:-)

RE: 'Rose Wilder Lane', yes indeed, a real blast from the past...

Last time her name surfaced with any regularity was back in high school ('65 - '69)...

Good find Ron H!

 
At 12/01/2010 6:11 PM, Blogger Ron H. said...

"Wow, Ron H, haven't hear Rose Wilder Lane's name lately. She was a pretty cool lady, from what I remember.

VangelV mentioned her on the "Rapacious Income inequality?" thread. My recollection was a little hazy also, so I refreshed my memory a little. She was one sharp lady, all right.

 
At 12/01/2010 6:35 PM, Blogger Ron H. said...

"Last time her name surfaced with any regularity was back in high school ('65 - '69)..."

juandos, she died in 1968. The news media usually wrings something like that for all it's worth, so that might explain the exposure at that time.

I wish I could take credit, but VangelV mentioned her on another thread.

 
At 12/01/2010 8:56 PM, Blogger Jason said...

Juandos, originally I thought this wouldn't too bad a program. However, as I said, I was skeptical of the claims of the main proponents of the legislation.

Given the costs outlined in Prof. Perry's post, my tacit support is, uh, waning.

These corporate welfare programs just never seem to add up...

 
At 12/02/2010 6:41 AM, Blogger geoih said...

Quote rom Walt G.: "Does the thought of no S.S. bother you?"

No, it doesn't bother me at all. What bothers me is that I will continue to be taxed to support it even if I opt out.

Social security is welfare. It is welfare for the wealthiest demographic in the country.

 
At 12/02/2010 10:35 AM, Blogger Walt G. said...

geoih,

Both the Bowles/Simpson and Rivlin/Domenici deficit reduction plans state that the current condition of S.S. favors the low-wage earner and their proposals would, too. That information is the same as what is widely reported.

I'm not sure how you can state that S.S. is welfare for the wealthiest demographic. How are you determining that?

Yes, opting out of S.S. would still have you paying for those on S.S now, but would eliminate those in the future from having to pay yours. And, no, it is not a fair system. Do you know what sunk costs are?

Any real change to reduce the deficit will require uncomfortable changes such as S.S./Medicare reductions/eliminations, tax increases though elimination of mortgage deductions and other tax credits, and elimination of the corporate tax so capital will invest in the U.S. I can support those changes because they will make a real difference in our future prosperity. People need to understand that delayed gratification is not a sexual term.

Remember what I said earlier about people and their entitlements? We bitch about paying but we love to collect on them, and we keep voting in the same people to make sure that happens. Would you run for office or try to get re-elected on a get rid of S.S. platform? Fat chance.

A true economist cannot win a political popularity contest, but that is the system we will have for the foreseeable future. So, the question is this: How are you going to operate using those given parameters?

 
At 12/02/2010 1:24 PM, Blogger Ron H. said...

"Social security is welfare. It is welfare for the wealthiest demographic in the country."

Geoih, How do you figure? There's no question it's welfare, but there's a cap on contributions and a cap on benefits. Wealthy people pay up to the same maximum and get the same maximum benefit.

We will all pay for some amount of future social security benefits whether we get them or not, either through payroll taxes or some other form such as income taxes, as the so called trust fund contains only IOUs that must be paid back from the Treasury.

 
At 12/02/2010 4:08 PM, Blogger juandos said...

"These corporate welfare programs just never seem to add up..."...

Yes sir jason, truer words were never spoken especially when there's more to it than was initially shown...

Have you checked out the Drudge Report today?

Here's just three of the headlines:

From the WaPo: Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms


From Bloomberg: Federal Reserve Withholds Collateral Data, Denying Taxpayers Gauge of Risk

From Yahoo news: Fed ID's companies that used crisis aid programs

 
At 12/07/2010 12:31 AM, Blogger khani said...

I like this blog, good luck ..! also visit hotel in bandung or nikon digital camera cases

 
At 2/06/2011 5:21 AM, Blogger Ian Random said...

"Ronald Reagan graduated in 1932 with a Bachelor of Arts degree in social science and economics"

http://www.eureka.edu/discover/reaganinflu.htm

As for SS, my mom is buying an extra house just to avoid taxes on her SS.

 

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