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Sep 26, 2011



Just to put this into perspective I read a statistic from the (heavily subsidised) British film industry arguing that for every £1 of public money £30 is added to the size of the economy.

It's worth remembering that subsidies aren't necessarily a bad thing in these days of anti-tax, anti-stimulus rhetoric.


I'm sorry, but I really have never seen a reliable study come up
with that kind of number. I mean really. If you believe that number,
you believe the government could pump billions and billions into the
film industry and make the economy scream right along at 30x that
pace. No way.

On the contrary, the vast majority of public programs have costs
greater than benefits. I'm sorry. This is not a political or
ideological opinion. It's based on experience, from having studied
public policy economics and Benefit-Cost Analysis for more than a
decade, teaching the subject many years to graduate students who
went on to be civil servants, attending public policy conferences,
reviewing dozens of academic studies,
and reading mountains of government assessments.

There are no free lunches. Most government spending is just
transfer, not the creation of public benefits. Each transfer loses
some percentage to administration and inefficiency along the way.
The creation of public benefits is usually impossible to quantify
and is subject to opinion - for some, the protected wetlands are
worthless, for others, priceless.

From my experience, I tend to think that government action, at its
very best, takes 100 from Paul, gives 87 to Peter, and creates an
unknown benefit for the public at large. At its worst, it takes 100
from Paul, gives 15 to Peter, and creates an unknown cost for the
public at large.

Government is not the problem-solver everyone thinks it is. That's
one of the reasons I switched to games. Analyzing government
effectiveness became too demoralizing and made my work life look
meaningless. Video game economies seemed quite meaningful in


Ted, in your opinion, was the WPA a success? Just curious.


It's hard to say, and that's the problem. We don't have the counterfactual - what would the world have been like if there had not been a WPA? In lieu of that info, we're stuck with hard data that tell us almost nothing, and opinions that fill in the rest.

WPA is a great example. What do we know? The US debt was increased by $X. Those $X were given to people, mostly men, to do public works. For example, they planted trees around my Dad's house in Michigan (or was that the CCC?), and also dug up some kind of gravel for a concrete factory. The hole they dug is now called "Silver Lake." The concrete factory went out of business before I was born, but you can still see the building.

When the government borrowed $X, it entered the market for loanable funds with new demand. That's like the government entering the market for jellybeans and buying a bunch of jellybeans - it has some effect there. The debt, once acquired, was eventually retired, through taxes or new borrowing.

That's what we know. Here's what we don't know -

1. There's a claim that borrowing and spending like this can cause more than $X of economic activity. The original argument depends on psychology more than later treatments, which are built up from mathematical models of economies as systems. The historical record is, ah, spotty. All we know for certain is stimulus spending may or may not work, and seems to depend on circumstances, implementation, and public mood. Did WPA help get us out of the recession? Nobody knows.

2. There's a claim that entering borrowing markets crowds out borrowing of the private sector. This is a Chicago, free-marketeer thing. Maybe of the $X wasn't borrowed by the government, it would have been borrowed by Ford Motor Company. Very nice math models have been built to support this. It seems to depend on conditions. Did the WPA contribute to the depression? Nobody knows.

3. The WPA works were largely temporary, make-work programs. Today we would dismiss them as "McJobs." Some say that the merely having people working has important psychological and cultural effects that bleed over into economic effects. Others say that McJobs are demeaning and oppressive. Is a McJob better than leaving people unemployed? Nobody knows.

4. The things that WPA made cost us $X. But they were worth something in themselves. Trees and concrete are valuable. Of course, if the government prvides a bunch of concrete, that drives down the price of existing concrete, and might but existing concrete firms out of business. Trees are another matter. Is more trees always better? Some say yes, infinitely so. A tree is precious, they say. Other say, yes - it's more lumber. Adding lumber runs into the same issues of crowding out existing lumber companies, as in the concrete case. So, did WPA create more good than it cost? Nobody knows.

I could go on all day. The waters are muddy. The only way to get a direct causal estimate of the effect of a policy on a complex human system is to simulate that system in controlled experimental conditions. This is what game companies do when they test their policies. We do not do that in real life, and therefore, we really have no idea what we are doing. We have guesses, only, and guesses get wrapped up in our philosophical stances.

Since you asked, here's my guess about WPA: It was a smashing success, but not for any of the reasons given. I've developed this view that macroeconomic change is much the same as cultural change. The macroeconomy, like the culture, is a gigantic coordination system. It's log-rolling. It is hip to wear bell-bottoms when everyone thinks it is hip to wear bell-bottoms. Similarly, it is smart to grow your business when everyone thinks it is smart to grow your business. It is not smart to grow your business or wear bell-bottoms when everything thinks it is not smart to do that.

Economic growth is a self-confirming prophecy. The prophecy can be pointed in specific directions by the government, but only under certain conditions. The main condition is narrative: Can the government tell a credible story in which its actions lead to economic growth? In the early 1930s, conditions were ideal. The government had a story it could tell - "We will put people to work!" It had scope of action: Since it had not borrowed (thank you President Hoover), it could enter loan markets without much effect, and thereby get its hands on resources without raising taxes. Since there was lots of slack in the economy, it could do things like set up concrete factories without driving other concrete factories out of business. But to me, they key element in the story is FDR himself. Go back and look at the newspapers on inauguration day 1933. Everyone acted as though the change in politics meant a change in the country. FDR's inauguration was a signal for the change in direction. Things like the WPA were really kind of small, but they added some critical credibility to the story - "Hoover did nothing, FDR will do something!" And the country changed attitudes and slowly started crawling back.

Now, economic historians will tell you that the US economy didn't fully recover until World War II. In economic terms, a war is basically a process of building huge barges of steel, loading them up with young men, and sinking them all in the ocean. Talk about virtual goods - "We moved this purely notional geopolitical line, at a cost of only 600 trillion tons of steel and 4 million lives!" (I'm talking about war as a concept here. Once Hitler started doing his thing, more was at stake than lines on the map.)

Anyways, the whole thing - Depression, recovery, war, reward - was part of a narrative, an epic story, in which the WPA and similar programs were a timely and important chapter. Smashing success.

Today, we have a different story going on. It is vastly different in two ways. First, the government has a lot less cope, largely because of the Greatest Generation narrative: Those guys blew the bank. Specifically, they committed the government to constant spending, meaning, the government cannot now amp up spending the way FDR could. It can't change the story from "Government does nothing" to "Government does a lot".

Second, the government has low credibility. We are more sophisticated than people were in the 1930s. We are skeptical of government action. Again, it's a coordination issue: If we are all skeptics that government can do anything, then it is right to be skeptics, because without the faith of the people, government action is doomed to fail. Again, the greatest generation blew the account, it over-reached, made promises it could not keep.

WPA worked then and won't work now.


I think I agree with your argument that much of the WPA's success (if it was a success) was about culture & popular belief. And I also think it can't be replicated now -- even if it were, the result would be different just because our families and our economy are different. I guess, though, I'm not too adverse to seeing government engage in redistributive programs through employment measures at this point, if that were done right and the narrative were convincing. I doubt the private sector is going to help this country arrive at more equitable income distributions.


Heh, one of the most depressing opinions I took away from my time as a social policy economist was that inequality is almost impossible for the government to change. If anything's cultural, it's inequality.

I wrote a couple of years ago about the relative ease with which game developers dealt with inequality. It was in First Monday. The problem that so vexes the social theorist, game companies solve with a snap of their fingers!


I think that's right, and mostly due to the technology of games. Physical sports strive to make rules ensuring equality, but it doesn't work out, because we are physically different by design. But in digital games, you can do a lot more to create an equal playing field due to the disembodiment and the algorithmic nature of the interactions. It's curious, though, that the end point of MMOGs is actually inequality, right? And achieving the sought-after high status is tied to time investment, which flips the real world on its head. (As some person once told an audience in -- was that State of Play 2004?)

Culture defines inequality. Above, I was talking about economic inequality, which I think is a serious problem for us today, but at the same time I'm often bothered by those who think that the only metric of inequality is economic (I'm looking at you, Karl Marx!).

(Btw, on the point of the OP, I agree- I'm not sure why EA should get all of those tax breaks.)


The trick that the game designers have pulled off is not to eliminate inequality but rather to allow inequality to emerge in a way that bothers nobody. The players seem to view the inequalities in games as being fair, whereas those of reality are seen as not fair. This is consistent with some research arguing that inequality itself is not the issue, it's the fairness (or not) of systems that allocate happiness.


I should have done my homework before posting, at least to the extent of being able to provide a source.

This organisation was where I saw the 30x multiple when I did some research into UK film finance. I can't now find the quote but if you have a look at this pdf you should be able to see how they get a large multiple. They itemise every conceivable way a larger film industry might bring economic benefit including things like tourists deciding to visit England after watching an English period drama.

Because of the government the film was made which impressed Mr Patel who flew to England to visit our stately homes bringing his daughter who bought an ice cream paying 40p Value Added Tax the country wouldn't otherwise have received. How does one measure such things?


@Ted -- I agree, though with the qualifier that I'm pretty sure that happiness has certain baselines (e.g. health) that might make rule-based equality not promote happiness in some cases, even if the rules are fair. E.g. a coin toss making the loser a lifetime servant of the winner may be fair, but I don't think it would promote happiness.

@Stabs -- and I think, to the extent you might justify trade subsidies for the entertainment industry, some of this is about cultural issues as well, not just direct economic returns. If we're subsidizing the Voice of America, we should recognize that Hollywood and hiphop are the true voices of the US in many countries. And to the extent they make us look good, they probably do serve our economic interests.


Ah yes, now I see where this comes from. If you're only counting
benefit to England, then Mr. Patel's daughter's losses, and India's,
do not count. So yes, you can get large net benefits for a city,
county, or country by summing up the amount of in-bound trade that
results from a policy.

Edward Castronova

Games, Technology, and Society

Professor of Telecommunications

Professor of Cognitive Science

Indiana University




Subsidies (or in this case, tax breaks) for video game production are very different from subsidies for an agricultural good. The latter can not really be differentiated (mohair is mohair), but the former are most definitely differentiated. Agricultural subsidies change the quantity produced, but video game subsidies change the quality as well as the quantity.

This makes me wonder the following:
1)Do we see a lot more lower quality game-makers than we might otherwise have under a less generous tax regime?

2)Do the tax breaks make getting into games easier for start ups, and therefore increase innovation, or do they disproportionately benefit large companies over small ones?
-from the article it sounds like big companies get greater benefit.

3) Are games cheaper than they should be as the result of these breaks?
-most definitely

4) Do video game companies create external goods for society, which would justify their tax breaks?
-Possibly. The hypothesis that video games reduce youth crime comes to mind here.


I think so, greglas, one could perhaps argue that it was the American entertainment industry, popularising jeans and coca cola that won the Cold War.


Well quite, the more I reflect on this the more embarrassed I am that I advanced this position. The pdf I linked is a very clever piece of political lobbying but it's not an economic analysis of any substance and is actually full of holes.

For a start the 40p the tax man gets could also be claimed by the stately home, by the ice cream shop and by the airline that flew the Patel family over.

So I'll just shut up and come back when I've put a bit more thought into this area.


>> I guess, though, I'm not too adverse to seeing government engage in redistributive programs through employment measures at this point, if that were done right and the narrative were convincing. I doubt the private sector is going to help this country arrive at more equitable income distributions.

greglas, I reach a different conclusion regarding government-forced redistribution -- I think it's usually counterproductive -- in part because I don't accept the premise that it is a proper goal of government to attempt to enforce a more equitable distribution of income. And while I give them more leeway for artistic reasons, I think the same should usually hold for MMORPG developers as well.

In both cases the reason is the same: the most functional economies are the least zero-sum. In other words, it simply *does not matter* if a few people do exceptionally well as most people are able to do reasonably well. No actual harm is done if a few people get relatively large slices of pie as long as the pie is growing.

>> The trick that the game designers have pulled off is not to eliminate inequality but rather to allow inequality to emerge in a way that bothers nobody.

Exactly. When I first saw the "Astromech Stats" graphic for player wealth ownership in SWG showing the dramatic Pareto effect, I thought, "Wow! That's not fair!" After giving it some thought, however, I realized that it didn't actually affect me at all. So what if a few players were crazy rich? I was perfectly able to satisfy my needs and wants through my own efforts. And I could see that the same was true for other players, especially those who voluntarily worked together in groups.

It wasn't necessary for SWG's developers to put their governmental thumb on the scales to attempt to force an equality of outcome when players could see equality of opportunity all around them. And that was for an extremely economically constricted gameworld where the invention of new intellectual capital was essentially impossible -- how much less necessary or productive is such redistributive interference in the physical world where the pie can be grown every day if private actors are permitted to retain the capital that allows them to do so?

Whether out of a zero-sum belief that forced redistribution is right (and that it would actually increase wealth overall), or the belief that some industries deserve to be subsidized at the expense of individual workers while others do not, I would suggest that the resulting behavior is a mistake: no government bureaucrat at any level should be able to forcibly extract money from working people to give it to favored groups. At the very best, it's economically inefficient.

The best (and most) a government should do under all but the most dire circumstances is set and enforce the laws already on the books that people and corporations are not permitted to lie, cheat, or steal, and otherwise leave them free to succeed based on how well they directly satisfy people's needs and wants. Governments (as Penn Gilette) aren't compassionate, nor are they good at picking the "right" industries -- they shouldn't be taking and giving away other people's money for either reason.

Not even for game developers.




I'm not arguing against any disparities in wealth. But we currently live in an economy that redistributes wealth quite a bit -- e.g, we've got a progressive tax system, property taxes, estate taxes, public roads, public schools, public police and military. Even the system of property itself -- where the state protects Person A against a theft by Person B, is a form of wealth redistribution. (Why should Person C, who has no property, have to pay for a police force who will protect A's property?)

Unless we want to get rid of those existing forms of wealth redistribution (and for the most part, I don't), the question isn't really whether we do or do not redistribute wealth, but how we do it and how much we do it. Part of that question is why we do it when we do it, and I think that's worth thinking about. Efficiency is a concern, but I'm willing to accept inefficiency in some cases if the result is that we live in a society with less human suffering.


Physical sports strive to make rules ensuring equality, but it doesn't work out, because we are physically different by design.. I was perfectly able to satisfy my needs and wants through my own efforts...Thanks..


Nice one..I like this..Well Agricultural subsidies change the quantity produced, but video game subsidies change the quality as well as the quantity...


lol funny post title


What is an angora rabbit picture doing in a post about mohair goats? :)

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