“Count yer coins! An’ there’s no point in tryin’ to steal any, Goyle,” he added, his beetle-black eyes narrowed. “It’s leprechaun gold. Vanishes after a few hours.”
The speaker is the character of Rubeus Hagrid from J.K. Rowling’s Harry Potter series. If the “Harry Potter Wikia” page is to be trusted, the concept of vanishing leprechaun gold hails from Welsh mythology.
Which means it doesn’t hail from inferred North Carolina folklore about incentive funds. That must be surprising since there is such a dedicated effort to prove that the happy recipients of incentives actually spend the money. This fact is studied and reported about frequently, with each new “discovery” used to declare that the incentives “work,” they really work!
They also don’t bury the funds in mason jars under trees. No, in the course of conducting their subsidized business, they spend the funds on employees, contractors, goods, and services, and those recipients use the funds, too.
Those subsequent uses are studied and amplified to try to prove the effectiveness of the incentives. Without the incentives, the argument invariably goes, all these economic activities would not take place.
The argument holds a measure of truth. Certainly the activities would not take place to as great an extent as they do with the additional support. Economically speaking, the more the business or industry needs the funds to survive, the more that investors and consumers making decisions with their own financial resources have chosen more profitable ventures.
Having the state intervene to take some of those resources and force them into the less profitable venture would, it is true, produce direct and subsequent economic activity where it wasn’t. But it also takes away from greater direct and subsequent economic activity where it was.
The loss of economic activity from areas where investors and consumers would have directed resources is not studied or reported on as frequently.
If a study intends to prove that an incentive is attractive to the favored industry, it will focus just on the direct and subsequent benefits of the industry. The study will rely on an input/output model such as IMPLAN that doesn’t account for opportunity costs and doesn’t require an economist to conduct.
If a study intends to test whether an incentive is good for the overall economy of the state, it will weigh the direct and subsequent industry benefits against the direct and subsequent lost economic activities overall. It will use a cost/benefit framework and will most likely be conducted by an economist.
This distinction is important to keep in mind as state officials await a study of film incentives, to be done, apparently, from a perspective of supply chain management.
Proper analysis of state policy absolutely must take into account costs as well as benefits. State resources should not go into proving the patently obvious, such as that people and businesses like free money. Or, for goodness’ sake, that they prefer to spend free money after getting it.
Epilogue: Nobody here but us budjiterry chikins
A previous foray into this subject matter said studying incentives from just the benefits side of the equation “amounts to being pleasantly surprised that dogs like dog food.” To elaborate on such a meaty analogy, a benefits-only study promoting the policy would be more advertisement for the industry than analysis of the policy’s effects for everyone.
Purina Alpo promotes its “Prime Cuts in Gravy Homestyle with Beef” dog food by promising “your dog will love the taste of beef in delicious gravy.” And he sure will. The cows, on the other hand, cannot be said to favor it, but Alpo does not include the cost to cows in promoting its benefits to dogs.
There is, however, a very successful advertising campaign based upon bovine comprehension of costs and benefits. Regrettably, it relies on cows spelling as poorly as teacher union activists, but, setting that aside, we see that the “cows, acting in enlightened self-interest, realized that when people eat chicken, they don’t eat them.”
Jon Sanders (@jonpsanders) is Director of Regulatory Studies at the John Locke Foundation.