Why Government Subsidies Won’t Save Michigan’s Economy

There are many explanations for why government has a difficult time creating net new jobs with targeted subsidies like the Michigan Film Incentive. First, government must tax Peter to pay Paul. This creates an inherent risk of creating no new jobs, but rather just shifting them around.

Second, redistributing tax revenues costs money. The officials who run these programs don't work for free. For example, Michigan Film Office Director Janet Lockwood alone makes more than $95,000 annually plus benefits,[20] and members of the MEDC who work with the film program are well-compensated, too. One published report indicates that the Michigan Film Office also received $2 million for "marketing efforts."[21] This is money taken first from Michigan employers who might otherwise use it to create jobs.

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Third, Lansing civil servants and political appointees are unlikely to possess special talents when it comes to picking winners and losers in the marketplace. Even Wall Street experts have a checkered record when it comes to outguessing the market as a whole. There is no reason for taxpayers to think that political appointees who have no money of their own at risk will do better than Wall Street.

Lastly, bureaucrats may be inclined to make political decisions, rather than economic ones. This political incentive will tend to lower the return on a public "investment" made with tax dollars.

Hard empirical evidence suggests that these and other factors hobble government economic development programs of every sort. In their 2004 literature review of economic development programs, University of Iowa economists Alan Peters and Peter Fisher note that states spend about $48 billion to $50 billion annually on state and local incentive programs with little to show for it. Their article, "The Failure of Economic Development Programs," concludes in part:

The upshot of all of this is that on this most basic question of all — whether incentives induce significant new investment or jobs — we simply do not know the answer. Since these programs probably cost state and local governments about $40-$50 billion a year, one would expect some clear and undisputed evidence of their success. This is not the case. In fact, there are very good reasons - theoretical, empirical, and practical — to believe that economic development incentives have little or no impact on firm location and investment decisions.[22]


We need to begin by lowering [policymakers'] expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.[23]