A lesson in economics- corporate welfare

The No 2 “TOP STORIES OF 2014” published in the Wilmington StarNews was titled, “N. C. lawmakers gut film tax incentive program”—clearly showing editorial bias. People at this paper have been heavily invested in promoting film-fun activities during the past year. In addition, the editorial “board” has frequently criticized North Carolina legislators (newly elected and more fiscally responsible as a group than past legislatures) who question the value of corporate welfare.

The euphemism incentive implies some legitimate offer to encourage production. In private matters this is ethical, but when government is involved everyone is scammed. Many people recognize this scheme as a bribe in the current political frenzy to “create jobs”—an illegitimate use of government power.

In addition to the StarNews editorial board and film employees, some politicians and several State and local government film bureaucracies agitate to shift tax burden from the film industry to others (little has been reported about reducing this burden on all of us).

StarNews reporter, Hunter Ingram, writes: the “N. C. General Assembly opted to dissolve the current tax incentive program benefiting the state’s film and television projects…the current program shelled out $61 million in tax refunds in 2013.” In 2015 film benefits will be implemented in a $10 million grant program with a $5 million cap per-project.

http://www.starnewsonline.com/article/20141230/ARTICLES/141239995&tc=ix

Predictably, film people pleaded and held public demonstrations to pressure the legislature for the larger benefits. Some film promoters warn that the industry may leave North Carolina for States offering larger subsidies.

During the past year, politics and pandering have been in the film spotlight. Creating “jobs” and temporary benefits to some old downtown Wilmington businesses seem to be the primary justifications for subsidizing local film productions.

Full employment, according to economist Henry Hazlitt, has become a political “fetish,” but our goals (personal and political) should be to “get the greatest results with the least effort.” That result is called production; employment is the means to that end if we want to increase wealth and our purchasing power. What other economic lessons can we learn from this misguided “incentive” scheme?

Hazlitt in his book “Economics in One Lesson,” gives us some clear thinking on that subject. The “lesson” relates to what Hazlitt calls “economic fallacies”—of which there are many based on “the pleading of selfish interests.” In addition economic fallacies are spawned by “the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group.”

In later chapters Hazlitt applies this lesson to various political schemes, as relevant today as in 1946 when he wrote about them. In a chapter titled “Saving the X Industry,” the author discusses economic truths that apply to a case here in North Carolina: politicians and other supporters claim “(the film industry) needs to be supported by a direct subsidy from the government.”

Hazlitt observes that this is simply a transfer of wealth or income to the industry. Taxpayers lose as much as the industry gains. In addition, subsidies result in other industries losing what industry X (film) gains. Worse, these business people are taxed to support subsidies for film people. The result: other industries “must be smaller than otherwise in order that the (film) industry may be larger.” And, consumers, also taxed to support film, will have that much less income with which to purchase things of their choosing.

Overall, in this scheme, capital and labor will be “driven out of industries in which they are more efficiently employed (e.g. manufacturing cement) to be diverted to an industry in which they are less efficiently employed (making films).”

While our political class and its cronies chase elusive jobs and other illusionary goals, Hazlitt focuses on economic truths: “The real question is not how many…jobs there will be…but how much shall we produce, and what, in consequence, will be our standard of living.”

Some of our North Carolina legislators appear to understand this lesson. Let’s hope they have the courage to stand against the pleading selfish interests and get State government out of corporate welfare.

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About R. E. Smith Jr.

Mr. Smith writes essays and commentary on politics, American history, environment, higher education and culture. He's been published in print media and at blog sites for about 25 years. Smith's formal education includes B.S. and M.S. degrees from the State University of New York and Syracuse University. He has earned a 21-credit hour Certificate in Professional Writing from the University of North Carolina-Wilmington. Training/work experience: NYS Ranger School; U. S. Army, Corp of Engineers; soil scientist and forester with USDA; Assoc. Professor at SUNY; real estate agent; small business owner.
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