« Sebastian Mallaby And Trust | Main | Excuse Me? »

October 31, 2006

Comments

Slarti,

"Now, Phil, surely there may have been one or two other variables that are worthy of consideration in that period? Like population, per-capita GDP and suchlike?"

No doubt. Also on the list would be inflation. However, all of the same apply to OCSteve's equation.

Sure. But you can't just say that taxes went up, and that's what made revenues go up so much. I'd guess that a) revenues would have risen greatly without the upper-bracket rates Phil cites, and b) hardly anyone actually paid those rates anyway. Last is sheer guesswork, but those loopholes didn't get written into the tax code out of the sheer joy of screwing with tax law.

"have never, ever seen so much as a guess of what the Laffer curve looks like" ...Slart

"cactus" over at Angry Bear did some work. This is not the primary post, but a more technical piece explaining his methodology. He has links, and commenters.

Tax Rates Over Time

"...the top of the Laffer curve for the highest marginal personal income tax rate was probably in the neighborhood of between 42.4% and 51.4%." ...Cactus

Pardon me, but let me get this straight...

there are parameters on the Laffer Curve? And that there may be sweet spots? But we don't know what they are? Not even trained economists?

Um...why are people insisting that they know what they're talking about?

Um...why are people insisting that they know what they're talking about?

Because people are violently allergic to appearing ignorant?

But we don't know what they are? Not even trained economists?

The trouble with stuff like the Laffer Curve is that it's got to be incredibly difficult, verging on impossible, to control for all the potential variables in economics.

I have never, ever seen so much as a guess of what the Laffer curve looks like.

You might have, actually, since von and I did the rounds on the Laffer Curve last year.

You might have, actually, since von and I did the rounds on the Laffer Curve last year.

Yeah, a certain parable involving blind men and elephants springs to mind. I suspect that you and I are closer to agreement here than in most other places.

"Um...why are people insisting that they know what they're talking about?

Because people are violently allergic to appearing ignorant?"

Especially when it suits their pet political stands to claim absolute knowledge.

Slarti,

"Sure. But you can't just say that taxes went up, and that's what made revenues go up so much."

I agree with you. On the other hand, OCSteve appears to believe the opposite, that since taxes went down, that's what made revenues go up. That is what I am taking issue with.

"to control for all the potential variables in economics."

There is plenty of argument both within and outside of economics about the usefulness of modeling. Perhaps a lot more argument than, say, about the usefulness of war-gaming in military planning.
...
"Especially when it suits their pet political stands to claim absolute knowledge."

Few people are claiming absolute knowledge. Even our president only claims divine revelation. The numbers and modeling are simply sales tools. If the question is whether to raise or lower taxes, and how much, and what will happen, you got to have some kind of bull to justify the policy.

Sure, that's legitimate. I'd think it'd be MUCH more defensible to say, for instance, that lowering taxes stimulated the economy, resulting in growth that in turn resulted in increased revenue. I don't think that's particularly defensible, give the utter lack of an established causal chain of actual events and trends, but it's a sight better than pointing to some curve whose shape isn't known and claiming we're to one side or the other of the point that clearly maximizes revenue as a function of tax rates. And I think that such statements made by anyone for the purpose of moving taxation rates in one direction or another are roughly equivalent, especially when unaccompanied by anything resembling analytical support.

And I don't consider some economist or other's gut feeling for where that maximum lies to be "analytical support". As a guess, it might be better than mine, but how could one ever tell?

Slarti: I confess, I never really thought about Laffer curves that might be more complex than the simple bell curve favored in stupid discourse. :-) The idea of a curve with multiple local maxima, though, makes immediate intuitive sense to me. My health problems involve a lot of biochemical processes being knocked way out of alignment and then settling back into less-than-ideal local points of stability, so it's a concept near and dear to me, and one that I tend to bring up as an overlooked part of thinking about the world. Thank you for making the connection for me - definitely useful food for thought.

You're welcome, Bruce. Just don't mistake me for someone who knows what he's talking about in the realm of economics. Or math. Stability and control, and modeling, and related things I do know a little bit about, but I don't consider myself to be any kind of expert.

One mistake I see people make when attemting to model or characterize complex systems is that they tend to not even acknowledge feedback paths that would change the behavior of the system quite a lot. So, consider "the market". One thing people tend to overlook in "the market" is that market regulation just might occur because it's what "the market" wants. By treating regulation as an external disturbance as opposed to an internal feedback loop, then, an error in perception is created; think of that as a modeling error. You could even look at government and taxation as a kind of market: people get taxed, and if the level of taxation becomes intolerable for some people, they just might try and do something about it, and that something will probably not be mindful of some wide definition of fairness. If you're feelthy rich and getting taxed at 91% (this goes to one of Phil's comments upstream) then some percentage of people are going to want to take steps avail themselves of existing tax sheltering provisions and even try and get new ones coded into law.

Another thing that gets overlooked is human perception itself. Human perception is absolutely a force in markets and politics; pretending that it isn't is a mistake; you've just created a model that ignores part of the measurement process. And now I feel myself being pulled to make some Vonnegut-esque observation of perception as it affects stock valuation, so: time to move on.

Moral of the story: if you want to try to figure out what's really happen from a bunch of indirect pieces of data, the accuracy of the estimation process is going to be a strong function of how well the measurement model and system model resemble the real system. Leave out some critical mechanism, and you're going to get a biased or wildly inconsistent picture of the world.

I wrote this great heaping pile of text about modeling and estimation as applied to, for instance, how we think of market economy, but the preview beast ate it. Boiled down: if your model ignores critical feedback mechanisms in the process (for example, regulation as a force the market emplaces on itself, rather than it being an external disturbance), then it's crap.

That, and all models are crap. They don't do what the real systems do, they do what they're programmed to do. They involve deliberate and unavoidable reductions in order of the model. Which is not to say models are worthless, just that they're limited. If you've got a model that's validated, on the other hand, you've reached a whole new level of credibility.

One last thing: I've never seen a satisfying explanation of what revenue the Laffer curve is supposed to represent. Instantaneous? Monthly? Yearly? Me, I think the Laffer curve would be much more useful as a discussion topic if it dealt with some long-term optimization. Clearly you can maximize weekly revenue by just taxing at 100%, and there's probably a much lower level that will get you good performance over a month, and lower still for a year, but how about a decade?

Anyway: way out of my league now.

Lesson: even if you've reloaded the page a few times, your comment might still be lost in the belly of the preview beast. Consider the last comment in light of that I thought the comment right before it had been lost.

Decided to stay away from the swamp for awhile but I just can't pass this one up.

I need some clarification, please.

I just hate this rancor.

Do you mean this kind of rancor?

As I see it, the Republican party has been hijacked by a group of corrupt and venal thugs.

Or maybe this kind of rancor?

I tend to view this particular period in our political life as one of those episodes, like the McCarthy era, that we will all look back on as a period in which the country went slightly mad, and did things we wish it had not done.

You hate it, but not enough to stop contributing your fair share. Good luck with resolving that internal contradiction.

"That being the case, I just wanted to say one thing right now, to any rank and file Republicans who might be reading this:

None of this is directed at you.

Yeah, you aren't directing it at us. It's more like you are talking about us behind my back. Hoping that we don't hear what you are really saying.

They have abused the trust of their supporters,, and gone a fair way towards wrecking party. They have maintained their hold on power by playing to people's fears,

-----

It has nothing to do with ordinary rank and file Republicans, most of whom are, I assume, decent people with conservative opinions.

You are only implying that we are not capable of determining who is deceiving us and who is not. Am we just too dumb or naive to do it for ourselves?

And now you ride in just like a cowboy to our rescue. Are you just so smart and knowledgeable that you know better than we do who is trustworthy and who is not? Please share your secret.

You think they have played on our fears to maintain control. We are driven by our fears. You however, in your wisdom and strength have not succumb to their fear-mongering. Should we go to the back of the bus and cower in the face of your braveness and intellect?

You assume we are decent, but not capable of determining who is trustworthy nor capable of recognizing when someone is playing on our fears. While of course you can do both.

No you aren't directing anything at us... just outright insulting us. Even while you claiming you aren't directing anything at us you just belittle our intelligence and wisdom.

We don't see what is happening to us, but you do. Yeah, right!

This election, much like the one in 2004 is a gimme for the Democrats. You and Kerry are doing your best to put Republicans back in office.

I don't have alot of confidence next week that we will hold on. History says we won't. But between you and Kerry I see a little ray of hope. Please keep talking to as many people as you possilby can.

Almost done:

And that means: trying to treat one another with the kind of decency and concern and generosity that citizens ought to show one another as a matter of course. This doesn't mean not advocating our positions passionately, but it does mean not doing anything that needlessly contributes to the general level of hatred.

Sage advice. Perhaps you can listen to it.

bril: "Yeah, you aren't directing it at us. It's more like you are talking about us behind my back. Hoping that we don't hear what you are really saying."

-- No. When I'm talking about Limbaigh, I'm talking about Limbaugh. I am not talking about you at all.

"You are only implying that we are not capable of determining who is deceiving us and who is not. Am we just too dumb or naive to do it for ourselves?"

-- This would follow only on the assumption that all Republicans (members of the party) are going to vote for Republican candidates, and still support the party's leadership. I do not believe that this is true. I think that Republicans are capable of figuring out what to make of their party's leadership. That's why Republicans will lose a lot of ground in a week.

"And now you ride in just like a cowboy to our rescue. Are you just so smart and knowledgeable that you know better than we do who is trustworthy and who is not?"

I have no idea what gave you the idea that I'm trying to ride in and rescue anyone. And, as I said above, I don't particularly think that Republicans can't figure things out for themselves. For the same reason, I don't think the various other parts of what you wrote that go on about how I am insulting you, expecting you to go to the back of the bus, etc., have much to do with what I actually wrote:

I mean: you and I disagree. It follows from that that there are some points on which you think that you're right and I'm wrong, and I think that I'm right and you're wrong. But it doesn't follow that I think I'm better or smarter or anything. It could just be that I got lucky one day and stumbled on the right answer through no virtue of mine. And of course it's always possible that I'm wrong.

I don't normally think I have to say this -- to go around adding "but of course, I could be wrong" to everything I say. I tend to assume that it goes without saying. But of course, I could be wrong -- and in this case apparently I was.

Now, Phil, surely there may have been one or two other variables that are worthy of consideration in that period? Like population, per-capita GDP and suchlike?

I doubt it.

Seriously, though. Did I imply otherwise?

I'm trying to wean OCSteve off of categorical statements. Not that he was necessarily implying the converse of "Tax cuts = more revenue. It has been true forever," but he sure seemed to be, so it was just some food for thought.

Bril, it seems to me that the suggestion that a single person would vote for a candidate for the House of reprtesentatives, for the US Senate, for governor of their state, or even for dogcatcher because they are offended by some utterance of John Kerry or Hilzoy is far more insulting than anything you can find between the lines of anything either of them has said about anyone.

Your position, it seems to me, is that supporters of the governing party are not only stupid, but are also vindictive.

A syllogism, based on Slart's 11:25 AM:

1) "all models are crap"
2) "not to say [that] models are worthless"

ergo: crap is not worthless

Oh, and re Sebastian's 4:37 yesterday:

Unfortunately the number of people who realize and vote as if increased programs means increased expenditures and increased taxes seems to be less than 50%.

Actually, it only takes a relatively few simpletons to make the entire electorate look stupid. Imagine that 40% of the people will vote for lower taxes and lower spending, 40% will vote for higher taxes and higher spending, and 20% will vote for lower taxes and higher spending -- this will give you a 60% majority for both lower taxes and higher spending.

Ken, you are totally right about how it could work, but my feel (very subjective of course) is that there are more than a few simpletons who will vote for both lower taxes and higher spending.

I agree with SH's 2;19, especially if we say lower taxes on them* and higher spending on them.

* WRT taxes it isn't just 'on them' in reality, but 'on them' considering both probable or improbable circumstances. I might have a solution to the 'hey, who knows, I might be a millionaire some day' voter: adopting the same kind of temporal logic as the tax cutters, that is, only talking about the period of time defined in the statute as relevant. Example: instead of suggesting a slightly higher tax rate on people who make over $300,000, one might suggest a slightly higher tax rate on people who make over $300,000 in 2007 or 2008. I'd guess that very few people are deluding themselves about whether they'd fall into that latter group.

That's not bad, Charley, but you've still got the "The fact that they're millionaires shows they're blessed by God" voters to deal with.

Seb: It was a sad, sad day for me when GHWBush won the NH primary over Bob Dole in 1988. Why? Not because I had any great big Views about which candidate was best, but because the main issue of that primary was taxes, and whereas Bush had said "read my lips...", Dole had said: I can't rule out tax increases; it would be irresponsible. (True enough.) And while a majority of NH Republicans voted for Bush, hence his victory, a majority had also said, to pollsters, that they believed tax increases were necessary and inevitable. Which meant that some number of them had to think that Bush had lied to them, and voted for him on that basis, and tipped the election.

Ironically, the last comment sounds a bit strange next to the primary post.

The rancor, maybe, though many voters have hateful passions. But, the basic corrupt hypocrisy? Well ...

The comments to this entry are closed.