Let’s hope these actors are acting!

Under the heading “British Film Industry in Peril”, 55 actors signed a letter of protest in The Daily Telegraph at the proposed abolition of the UK Film Council. Their motives may indeed be “not out of personal gratitude” but they are certainly out of this world.

We have here a classic case of the “broken window” fallacy, described by the economist Frederic Bastiat in 1850. A shopkeeper suffers a broken window and pays a glazier to fix it, and the glazier spends his fee on a new shirt (say). This sets in motion a whole new round of spending, kick-started by a broken window.

What is forgotten is the loss to the shopkeeper, which removes another round of spending which he would have started. Nor is the “equation” a balanced one; the broken window represents a net loss of wealth. Were this not so, we should be encouraging, or at least looking benignly upon, the activity of breaking windows.

This parable highlights what good economists call “the seen and the unseen.” What is unseen, or purports to be unseen, by our posse of actors? They have no difficulty with what is seen; the enhancement (yes we’ll accept enhancement for the sake of argument) of the film industry in the UK, which can therefore provide more jobs and more and better British films than would otherwise be the case.

The unseen is what has been displaced. Any industry (or any interest group) that you care to name could have had the leg-up instead, and claimed similar enhancements.

How do we assess the relative gains and losses? The actors are in no doubt: “For every pound it invests, the country gets £5 back.” A likely story; have 55 actors really researched such an incredible claim? Why shouldn’t all industries achieve such a result via similar subsidies? 

Unfortunately, we must start at the beginning – a very good place to start, as we learn in one of the greatest movies of all time. The beginning is that a government has no money of its own; it takes it from you and me, whether we are shopkeepers, glaziers or actors. At this point, we are all down as a result of the tax taken. Any of us can go cap in hand and try to get some of it back; and indeed try to get some of somebody else’s while we’re at it. That descends into lots of unedifying spectacles and squabbles – especially unedifying in this case, as I’m sure the likes of Emily Blunt and Bill Nighy aren’t short of a bob or two.

In fact, it’s far worse than this. As mentioned above, government takes its funds from you and me. Furthermore, whatever the name of a particular tax, they all come down to taxes on the exchange of goods and services. The greater are those exchanges, the greater can be the tax. But here lies the rub; the greater the overall tax, the smaller is the exchange of goods and services! At 100% tax, we all have to resort to DIY; nobody will exchange goods and services. At 50% we are halfway there – where we are now. By my calculations every marginal pound of extra tax results in a black hole of 70p – simply gone, as the division of labour silently unwinds. And this is net of any waste on the way through.

That is the bottom line. If some of you actors out there are prepared to finance me, I’ll prove it in a film. Or maybe I should ask the government to finance me directly. Perhaps I’ll call it “All the world’s a stage.” It’s a better motto than Secrets and Lies anyway.

Good article. The other day on Radio 4 a talking head from some obscure government department was defending the use of (very expensive) management consultants with the argument that consultants are very good value for money as consultants have calculated that they return 6 for every 1 pound invested.I can hear it now -department head to consultant: “Are you sure you’re good value for money?”
consultant: “Yes. In fact if you’ll fund a study we’ll show just how valuable we are!”
department head: “Good. Empirical research is what we need. How much will it cost?”
consultant: “What does it matter as we’ll return many multiples what it costs in ‘value’ anyway.”

Indeed – these actors are engaging in the false assumption of knowledge! They cannot KNOW that the money taken (forcibly) could not reap a 10:1 ROI if invested (privately) elsewhere. They think that this money, if not given to their pet project, would simply be ‘wasted’ otherwise. You see this fallacy in so many aspects of government expenditure facing ‘cuts’ and it’s rarely challenged.
PS Wasn’t that the same Bill Nighy who advocated a Tobin Tax (literally: tax on bank customers)? Sometimes I have to struggle hard to maintain my belief in the value of free speech!

‘This parable highlights what good economists call “the seen and the unseen.”’Interesting that you distinguish between good and bad economists in this way.

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