Filmmakers don’t like the High Cost of Making Movies in California so they Film Elsewhere

Posted by PITHOCRATES - September 22nd, 2012

Week in Review

California provides a good example of what not to do.  That’s because they are a very liberal/progressive state.  Who like to live in a fantasyland of what could be.  Passing active, interventionist policies to try and change the way people think and act.  Unleashing a wave of unintended consequences.  And chasing filmmakers out from the film capital of the world (see California lost $3 billion in film crew wages from 2004 to 2011, report says by Richard Verrier posted 9/18/2012 on the Los Angeles Times).

California lost $3 billion in wages from 2004 to 2011 because of film and TV production flocking to other states and countries, a new study concludes.

Burbank-based Entertainment Partners, the industry’s largest payroll service company, which specializes in advising companies on how they can take advantage of film tax credits around the world, says its own research has found that California lost 90,000 jobs and saw its share of overall production wages in the U.S. decline 10% during the period as film producers took their business elsewhere.

About half the lost wages went to New York, Louisiana, New Mexico, North Carolina and other U.S. states that offer film tax credits and rebates — states that added 45,000 production jobs during the same period. The other half of the lost $3 billion went to Canada, Britain and other foreign countries, according to the report.

Wow.  They lost 90,000 jobs to states and countries that were more movie-making-friendly than California.  The movie-making capital of the world.  Which has cost the state of California taxes on $3 billion in wages.  No wonder California is going broke.  Their high taxes and high regulatory costs chase their own movie-making people out of their state.  So the very tax rates and regulatory policies that were supposed to increase tax revenue have decreased tax revenue.  Who’d a thunk it?  Well, pretty much everyone but a tax & spend, Keynesian, liberal Democrat.

They call these results unintended consequences despite having the best of intentions.  We simply call it causality.  If you implement anti-business policies you will get less business activity.  And filmmakers will go elsewhere to make their movies.

The findings were recently shared with representatives of the Motion Picture Assn. of America, the state’s finance department and the office of Gov. Jerry Brown, who is weighing whether to approve bills that would extend funding for California’s film program two more years. The state sets aside $100 million annually to qualified productions under a program that is due to expire next year.

Goldstein noted that his company’s research also shows the California tax credit has had some effect in slowing the job losses and migration of film work since it took effect in 2009 and that California would see an increase in employment if the credit was expanded.

“If California does not extend the credit, there will be more lost productions to other states and jurisdictions,” he said.

So some admit that California is not business-friendly.  That if they don’t offer special ways to avoid their punishing taxes and regulatory policies even more film business will leave the state.  Of course, if it’s happening in the film industry it’s happening in other businesses.  Which again explains why California is going bankrupt.  Their anti-business policies are chasing taxpayers (i.e., employees) out of the state.  By chasing business out of the state.

The MPAA, industry groups and labor unions have argued that tax credits should not be judged by short-term revenues alone, and that the state program is necessary to keep California competitive with at least 40 other states that offer incentives.

Vans Stevenson, senior vice president for state legislative affairs for the Motion Picture Assn. of America, said Entertainment Partners’ findings underscored the need for preserving California’s film incentive.

“Entertainment Partners’ data shows definitively that the production tax incentives have helped to stem the flow of jobs and wages out of California, and that the incentives are vital to California’s competitiveness,” he said.

Apparently it’s just not just the high taxes and high cost of regulatory policies chasing business out of the state.  It’s also the high cost of union labor.  For the unions are admitting that they make the state of California uncompetitive in the film industry.  And want tax credits to offset their high costs to bring the film business back.  That is, they want the taxpayers to subsidize that portion of their pay and benefits that chases business out of the state.  So they can keep their jobs.  They want taxpayers to take a pay cut (by paying higher taxes) so they don’t have to.  That’s fair, right?

California is a liberal state.  They like to run and regulate business the way they want to.  Not how business would like.  And when these policies chase business away they want higher taxes to subsidize the high cost of their anti-business policies.  To help business escape their punishing policies.  And bring that business back.  Which further raises taxes.  And chases more business away.  In effect killing the golden goose that pays for their generous public sector pay and benefits.  Which are currently bankrupting the state of California.

We need to learn from California even if California cannot learn from their own mistakes.  Anti-business policies are bad.  And will encourage businesses to leave the state.  Businesses hire people.  Who become taxpayers.  Taxpayers pay all the government’s bills.  Governments need to understand this connection between businesses and paying the bills.  For there is no other way to pay the bills without businesses and their private sector jobs.

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The Great Recession is Reducing Businesses’ Revenue and causing them to Default on their Debt

Posted by PITHOCRATES - July 28th, 2012

Week in Review

The Great Recession lingers on.  Because people don’t have jobs.  So they can’t spend money.  And when people aren’t spending money businesses can’t pay their bills.  Or service their debt (see More companies defaulting on their debt: 47 this year alone by Matt Krantz posted 7/24/2012 on USA Today).

This year, 47 global companies have been unable to keep paying the interest on their debt, which is more than double the levels a year ago, says Standard & Poor’s. A majority of those defaults, 25, are by U.S. companies…

This is happening despite record low interest rates that should allow companies to refinance and reduce their interest costs.

A long time ago an auditor once told me that bankruptcies rarely saved businesses.  For excessive debt at unattractive interest rates didn’t cause their problems.  It’s always insufficient revenue that couldn’t service their debt that caused their problems.  For if you have healthy revenue you’ll be able to service enormous amounts of debt at the worst interest rates.  Which is typically what happens during booming economic times.  Businesses take on debt at high rates.  Because they can then.  They take on debt based on what they can pay during the good times.  Not on what they can pay during the bad times that inevitably follow.

So excessive debt doesn’t cause their problems.  But excessive debt ultimately solves their problems.  Through bankruptcy.  And liquidation.  Unfortunately it comes with a rather unpleasant side affect.  The demise of the business.

So low interest rates aren’t the panacea the Keynesians think they are.  No matter how much faith our governments put into their Keynesian economists.  Who are constantly urging the government to lower interest rates.  But it doesn’t work.  Because borrowing money simply doesn’t increase sales revenue.  You need a healthier economy to do that.  One that is more business-friendly.  One that doesn’t kill economic activity with excessive regulation.  And one that doesn’t tax so much wealth out of the private sector.  So people can earn money and keep what they earn.  So they can spend it in the economy.  And businesses need a business-friendly environment with low regulatory costs.  So they can sell at prices low enough to encourage consumers to buy their goods and services.  This is how you generate real economic activity.  And until we have this environment the Great Recession will linger on.

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Carnegie, Rockefeller, Morgan, Interstate Commerce Act, Sherman Antitrust Act, Sherman Silver Purchase Act, Federal Reserve, Nixon and Reagan

Posted by PITHOCRATES - January 31st, 2012

History 101

Government Induced Inflation caused the Panic of 1893 and caused the Worst Depression until the Great Depression

Britain kicked off the Industrial Revolution.  Then handed off the baton to the United States in the latter half of the 19th century.  As American industry roared.  Great industrialists modernize America.  And the world.  Andrew Carnegie made steel inexpensive and plentiful.  He built railroad track and bridges.  And the steel-skeleton buildings of U.S. cities.  Including the skyscrapers.  John D. Rockefeller saved the whales.  By producing less expensive kerosene to burn in lamps instead of the more expensive whale oil.  He refined oil and brought it to market cheaper and more efficiently than anyone else.  Fueling industrial activity and expansion.  J.P. Morgan developed and financed railroads.  Made them more efficient.  Profitable.  And moved goods and people more efficiently than ever before.  Raising the standard of living to heights never seen before. 

The industrial economy was surging along.  And all of this without a central bank.  Credit was available.  So much so that it unleashed unprecedented economic growth.  That would have kept on going had government not stopped it.  With the Interstate Commerce Act in 1887 and the Sherman Antitrust Act of 1890.  Used by competitors who could not compete against the economy of scales of Carnegie, Rockefeller and Morgan and sell at their low prices.  So they used their friends in government to raise prices so they didn’t have to be as competitive and efficient as Carnegie, Rockefeller and Morgan.  This legislation restrained the great industrialists.  Which began the era of complying with great regulatory compliance costs.  And expending great effort to get around those great regulatory compliance costs.

Also during the late 19th century there was a silver boom.  This dumped so much silver on the market that miners soon were spending more in mining it than they were selling it for.  Also, farmers were using the latest in technology to mechanize their farms.  They put more land under cultivation and increased farm yields.  So much so that prices fell.  They fell so far that farmers were struggling to pay their debts.  So the silver miners used their friends in government to solve the problems of both miners and farmers.  The government passed the Sherman Silver Purchase Act which increased the amount of silver the government purchased.  Issuing new treasury notes.  Redeemable in both gold and silver.  The idea was to create inflation to raise prices and help those farmers.  By allowing them to repay old debt easier with a depreciated currency.  And how did that work?  Investors took those new bank notes and exchanged them for gold.  And caused a run on U.S. gold reserves that nearly destroyed the banking system.  Plunging the nation in crisis.  The Panic of 1893.  The worst depression until the Great Depression.

Richard Nixon Decoupled the Dollar from Gold and the Keynesians Cheered 

J.P. Morgan stepped in and loaned the government gold to stabilize the banking system.  He would do it again in the Panic of 1907.  The great industrialists created unprecedented economic activity during the latter half of the 19th century.  Only to see poor government policies bring on the worst depression until the Great Depression.  A crisis one of the great industrialists, J.P. Morgan, rescued the country from.  But great capitalists like Morgan wouldn’t always be there to save the country.  Especially the way new legislation was attacking them.  So the U.S. created a central bank.  The Federal Reserve System.  Which was in place and ready to respond to the banking crisis following the stock market crash of 1929.  And did such a horrible job that they gave us the worst depression since the Panic of 1893.  The Great Depression.  Where we saw the greatest bank failures in U.S. history.  Failures the Federal Reserve was specifically set up to prevent.

The 1930s was a lost decade thanks to even more bad government policy.  FDR’s New Deal programs did nothing to end the Great Depression.  Only capitalism did.  And a new bunch of great industrialists.  Who were allowed to tool up and make their factories hum again.  Without having to deal with costly regulatory compliance.  Thanks to Adolf Hitler.  And the war he started.  World War II.  The urgency of the times repealed governmental nonsense.  And the industrialists responded.  Building the planes, tanks and trucks that defeated Hitler.  The Arsenal of Democracy.  And following the war with the world’s industrial centers devastated by war, these industrialists rebuilt the devastated countries.  The fifties boomed thanks to a booming export economy.  But it wouldn’t last.  Eventually those war-torn countries rebuilt themselves.  And LBJ would become president.

The Sixties saw a surge in government spending.  The U.S. space program was trying to put a man on the moon.  The Vietnam War escalated.  And LBJ introduced us to massive new government spending.  The Great Society.  The war to end poverty.  And racial injustice.  It failed.  At least, based on ever more federal spending and legislation to end poverty and racial injustice.  But that government spending was good.  At least the Keynesians thought so.  Richard Nixon, too.  Because he was inflating the currency to keep that spending going.  But the U.S. dollar was pegged to gold.  And this devaluation of the dollar was causing another run on U.S. gold reserves.  But Nixon responded like a true Keynesian.  And broke free from the shackles of gold.  By decoupling the dollar from gold.  And the Keynesians cheered.  Because the government could now use the full power of monetary policy to make recessions and unemployment a thing of the past.

Activist, Interventionist Government have brought Great Economic Booms to Collapse 

The Seventies was a decade of pure Keynesian economics.  It was also the decade that gave us double digit interest rates.  And double digit inflation rates.  It was the decade that gave us the misery index (the inflation rate plus the unemployment rate).  And stagflation.  The combination of a high inflation rate you normally only saw in boom times coupled with a high unemployment rate you only saw during recessionary times.  Something that just doesn’t happen.  But it did.  Thanks to Keynesian economics.  And bad monetary policy.

Ronald Reagan was no Keynesian.  He was an Austrian school supply-sider.  He and his treasury secretary, Paul Volcker, attacked inflation.  The hard way.  The only way.  Through a painful recession.  They stopped depreciating the dollar.  And after killing the inflation monster they lowered interest rates.  Cut tax rates.  And made the business climate business-friendly.  Capitalists took notice.  New entrepreneurs rose.  Innovated.  Created new technologies.  The Eighties was the decade of Silicon Valley.  And the electronics boom.  Powering new computers.  Electronic devices.  And software.  Businesses computerized and became more efficient.  Machine tools became computer-controlled.  The economy went high-tech.  Efficient.  And cool.  Music videos, CD players, VCRs, cable TV, satellite TV, cell phones, etc.  It was a brave new world.  Driven by technology.  And a business-friendly environment.  Where risk takers took risks.  And created great things.

History has shown that capitalists bring great things to market when government doesn’t get in the way.  With their punishing fiscal policies.  And inept monetary policies.  Activist, interventionist government have brought great economic booms to collapse.  Who meddle and turn robust economic activity into recessions.  And recessions into depressions.  The central bank being one of their greatest tools of destruction.  Because policy is too often driven by Big Government idealism.  And not the proven track record of capitalism.  As proven by the great industrialists.  And high-tech entrepreneurs.  Time and time again.

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The State of the Union Address Ignores the 800 Pound Gorilla in the Room: Old People.

Posted by PITHOCRATES - January 26th, 2011

Old People:  God Love them but they’re Killing Us

The State of the Union Address was very similar to the one last year.  And a lot of Obama’s campaign speeches.  He still wants to invest (i.e., spend).  Even though record spending to date hasn’t helped anything.  We have record debt.  And deficits.  The nation is broke.  And yet he still wants to spend.  I mean, ‘invest’.

But we can’t ‘invest’ anymore.  We don’t have the money.  We can’t borrow anymore.  Or print anymore.  Without creating problems we can’t walk away from.  We have to reduce the deficit.  For real.  Can’t just talk about it.  And we can’t keep raising taxes.  Because that would stall the economic recovery.  If there was any economic recovery to stall.  No, we can’t indulge in these fantasies anymore (see How Obama’s speech muddied the budget debate by Robert J. Samuelson posted 1/27/2011 on The Washington Post).

What we got were empty platitudes. We won’t be “buried under a mountain of debt,” Obama declared. Heck, we’re already buried. We will “win the future.” Not by deluding ourselves, we won’t. Americans think deficits are someone else’s problem that can be cured by taxing the rich (say liberals) or ending wasteful spending (conservatives). Obama indulged these fantasies.

If deficits stemmed mainly from the recession, this wouldn’t matter. They would shrink as the economy recovered; tax collections would rise and spending (on unemployment insurance, food stamps) would fall. Unfortunately, this isn’t the case. In fiscal 2010, the deficit – the gap between government spending and revenue – was $1.3 trillion. Of that, about $725 billion was a “structural” deficit, says Mark Zandi of Moody’s Analytics. That is, it would exist even if the economy were at full employment (5.75 percent by Zandi’s estimate).

Ouch.  Even Reagan’s tax cuts of the Eighties couldn’t fix this.  There’s a problem on the spending side.  A huge problem.  We have to address this problem.  If we don’t, nothing we do on the revenue side will amount to a hill of beans.

The real issue isn’t the deficit. It’s the exploding spending on the elderly – for Social Security, Medicare and Medicaid – which automatically expands the size of government. If we ended deficits with tax increases, we would simply exchange one problem (high deficits) for another (high taxes). Either would weaken the economy, and sharply higher taxes would represent an undesirable transfer to retirees from younger taxpayers.

And there it is.  Old people.  God love them but they’re killing us. 

So How do we Reduce the Deficit and Care for the Elderly?

Old people are killing us.  There’s no getting around that.  But we just can’t abandon them in their retirement.  But we have to do something with Social Security and Medicare before they bankrupt the country.

The first thing we need to do is the easiest thing.  Repeal Obamacare.  If we don’t, it’s just going to be Medicare writ large.  We haven’t suckered anyone into dependence yet.  So just end it.  Before we do.  This will eliminate a future problem.  So we can address the current ones.

Defined benefit pension plans are a thing of the past.  They’re chronically underfunded.  And mismanaged.  Just look at our biggest cities.  Those public sector pension plans are bankrupting them.  Meanwhile, most businesses have moved away from them.  Instead, they use 401(k) plans.  Or other plans where the employee is in charge.  Not the employer.  Best thing about these?  They’re portable.  You contribute.  And the money is yours.  No matter how long you work at a company.  The government needs to move in this direction.  They need to make a transition from a defined benefit pension plan (i.e., Social Security) to a personal retirement plan (i.e., a 401(k), an IRA, etc.).  The oldest people will be more in the Social Security system as we know it.  The younger people will be in a personal retirement plan.  And don’t start bitching about the risk of putting our retirement money into the stock market.  First of all, stocks are cyclical.  They usually climb after they fall.  Second, Social Security is going belly up.  Once it does, you ain’t getting anything out of it anyway.  So it’s a moot point.  At least with the stock market, we have a chance to retire.

The government has to get out of health care.  It’s a very complex thing.  And the most unqualified people shouldn’t run complex things.  Like pensions, we need to put people in charge of their health care.  We need to transition to private health insurance.  And remove the obstacles in the health insurance industry (restriction of competing across state lines, tort reform, etc.).  We have to move away from Medicare.  People need to buy their own private health insurance policies.  The oldest people in the system can get vouchers to help them.  The younger ones just need to learn NOW that they will have to take care of themselves.  The best thing about this?  Your health insurance will be portable.  You’ll never have to work again at a place you hate because of their health insurance benefit.  You can do whatever the hell you want to.  Because you will be paying for your own health insurance.  And you’ll take the same insurance with you no matter how many times you change your job.  Your days of bitching about a change in your prescription coverage will be over.  Because you will be getting exactly what you choose to buy.

Now, doing the above is going to cost.  Because there is no such thing as a Social Security trust fund.  Or Medicare insurance.  It’s all pay as you go.  Today’s taxes pay for today’s beneficiaries.  So when the young transfer out of the existing systems, there will be a huge funding shortfall for these systems.  We will have to borrow to cover this transition period.  But we will have to show that this borrowing is a temporary thing.  So that our creditors won’t fear that we’ll be dancing with default.  And how do we do that?  By making huge tax cuts. And by making sweeping rollbacks in regulation.  You make the United States so business friendly that jobs come running back to this country.  Because business owners will see that if you want to be profitable in business, you have to locate your business in the United States.  Sure, there will be some revenue shortfalls in the beginning of the transition.  But in the long run, the economic expansion will shower Washington in tax revenue.  Even at lower tax rates.  And because businesses are being so profitable, they’ll be bidding up labor rates to get the best employees.  Because they’ll have to.  You see, in a bustling economy with portable retirement and health insurance plans, no one will have to work where they don’t want to.  Everybody wins.  Employers.  Employees.  Even government.  Because they will finally escape the huge costs of Social Security and Medicare.

Getting back to the Founding Fathers

So there you have it.  A simple and doable plan.  In bullet form, the plan is:

  • Repeal Obamacare
  • Privatize Social Security
  • Privatize Medicare
  • Cut taxes and rollback regulation
  • Live happily ever after

Simple.  And the transition pains will hurt far less than bankruptcy.  Of course, there is a downside to this simple plan.  At least for Big Government liberals.  Because this plan gives us limited government.  Like the Founding Fathers wanted.  Which isn’t all that bad for liberals.  Because in this plan they’ll lose their jobs in a booming economy where there will be other jobs available for them.  Unlike being laid off when the Great Recession turns into another Great Depression.

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The Fed to Buy $600 Billion in Government Bonds

Posted by PITHOCRATES - November 5th, 2010

The Fed’s $600 billion government bond Purchase may Worsen the Recession

The Fed is preparing to buy some $600 billion in government bonds.  They call it quantitative easing (QE).  The goal is to stimulate the economy by making more money available.  The problem is, though, we don’t have a lack of money problem.  We have a lack of jobs problem.  Unemployed people can’t go to the store and buy stuff.  So businesses aren’t looking to make more stuff.  They don’t need more money to borrow.  They need people to go back to work.  And until they do, they’re not going to borrow money to expand production.  No matter how cheap that money is to borrow.

This isn’t hard to understand.  We all get it.  If we lose our job we don’t go out and buy stuff.  Instead, we sit on our money.  For as long as we can.  Spend it very carefully and only on the bare necessities.  To make that money last as long as possible to carry us through this period of unemployment.  And the last thing we’re going to do is borrow money to make a big purchase.  Even if the interest rates are zero.  Because without a job, any new debt will require payments that we can’t afford.  That money we saved for this rainy ‘day’ will disappear quicker the more debt we try to service.  Which is the opposite of what we want during a period of unemployment.

Incidentally, do you know how the Fed will buy those bonds?  Where they’re going to get the $600 billion?  They going to print it.  Make it out of nothing.  They will inflate the money supply.  Which will depreciate our currency.  Prices will go up.  And our money will be worth less.  Put the two together and the people who have jobs won’t be able to buy as much as they did before.  This will only worsen the recession.  So why do they do it?

Quantitative Easing May Ease the Global Economy into a Trade War

A couple of reasons.  First of all, this administration clings to outdated Keynesian economics that says when times are bad the government should spend money.  Print it.  As much as possible.  For the economic stimulus will offset the ‘negligible’ inflation the dollar printing creates.  The only problem with this is that it doesn’t work.  It didn’t work the last time the Obama administration tried quantitative easing.  As it didn’t work for Jimmy Carter.  Of course, when it comes to Big Government policies, when they fail the answer is always to try again.  Their reason?  They say that the government’s actions that failed simply weren’t bold enough.

Another reason is trade.  A cheaper dollar makes our exports cheaper.  When the exchange rates give you bushels full of U.S. dollars for foreign currency, those foreign nations can buy container ships worth of exported goods.  It’s not playing fair, though.  Because every nation wants to sell their exports.  When we devalue the dollar, it hurts the domestic economies of our trading partners.  Which they want to protect as much as we want to protect ours.  So what do they do?  They fight back.  They will use capital controls to increase the cost of those cheap dollars.  This will increase the cost of those imports and dissuade their people from buying them.  They may impose import tariffs.  This is basically a tax added to the price of imported goods.  When a nation turns to these trade barriers, other nations fight back.  They do the same.  As this goes back and forth between nations, international trade declines.  This degenerates into a full-blown trade war.  Sort of like in the late 1920s.  Which was a major factor that caused the worldwide Great Depression.

Will there be a trade war?  Well, the Germans are warning this action may result in a currency war (see Germany Concerned About US Stimulus Moves by Reuters).  The Chinese warn about the ‘unbridle printing’ of money as the biggest risk to the global economy (see U.S. dollar printing is huge risk -China c.bank adviser by Reuters’ Langi Chiang and Simon Rabinovitch).  Even Brazil is looking at defensive measures to protect their economy from this easing (see Backlash against Fed’s $600bn easing by the Financial Times).  The international community is circling the wagons.  This easing may only result in trade wars and inflation.  With nothing to show for it.  Except a worse recession.

Businesses Create Jobs in a Business Friendly Environment

We need jobs.  We need real stimulus.  We need to do what JFK did.  What Reagan did.  Make the U.S. business friendly.  Cut taxes.  Cut regulation.  Cut government.  And get the hell out of the way. 

Rich people are sitting on excess cash.  Make the business environment so enticing to them that they can’t sit on their cash any longer.  If the opportunity is there to make a favorable return on their investment, guess what?  They’ll invest.  They’ll take a risk.  Create jobs.  Even if the return on their investment won’t be in the short term.  If the business environment will reward those willing to take a long-term risk, they will.  And the more investors do this the more jobs will be created.  And the more people are working the more stuff they can buy.  They may even borrow some of that cheap money for a big purchase.  If they feel their job will be there for awhile.  And they will if a lot of investors are risking their money.  Creating jobs.  For transient, make-work government jobs just don’t breed a whole lot of confidence in long term employment.  Which is what Keynesian government-stimulus jobs typically are.

We may argue about which came first, the chicken or the egg.  But here is one thing that is indisputable.  Jobs come before spending.  Always have.  Always will.  And quantitative easing can’t change that.

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