Thursday, May 29, 2003

Castrating Prosperity

I don’t entirely agree with this article by John Bolt -- indeed, I’m not sure I entirely understand it -- but I appreciate his coining of a new term in political economy: “the gelded worldview,” meaning “a worldview that is incapable of conceiving the very idea of being fruitful and multiplying.”

Economists usually call this the “fixed-pie fallacy” -- an inability or unwillingness to recognize that trade and free markets are not zero-sum games, but games in which it’s possible for the size of the pie to grow. But invoking the notion of sterility is so much more… evocative.

My complaint with the article (aside from my confusion about the more oblique religious references) is that Bolt ties the idea of fruitfulness too closely to the Laffer Curve, although he doesn’t call it that. The Laffer Curve is a graphical representation of the notion that, since both a zero-percent and one-hundred-percent tax rate would produce no government revenue (the former for obvious reasons, the latter because no one would be willing to work), there must be a tipping point beyond which increases in tax rates actually lead to decreases in government revenue. While this is certainly true, there’s really no great evidence that the U.S. currently resides on the right (decreasing revenues) portion of the Laffer Curve; and in any case, I wouldn’t rest the case for low taxes on a reed that weak. Even on the left side of the Laffer Curve (where higher tax rates lead to higher revenues), it’s still the case that taxes create dead-weight losses and inefficiency. This is true first because taxes distort incentives to be work and be productive, and second because the tax dollars are highly unlikely to be used on projects that actually satisfy the real needs and wants of the taxpayers they are taken from. (As an aside, I should also point out that tax cuts aren’t really tax cuts if they’re not accompanied by reductions in spending, because the resulting debts must eventually be paid off by future taxpayers. Alex Tabarrok has a nice article on this point.)

Still, Bolt makes some good points, and “the gelded worldview” has now entered my personal lexicon.

No comments: