Brad DeLong points us, with entirely appropriate added snark, at Mark Thoma’s destructo job on the WSJ’s lead editorial today and the truly historically nonsensical graphish thingy in it. It might be a good time to recall what the Laffer Curve is about, and its use to argue for tax cuts long ago and in another universe.
The curve relates tax revenue to some sort of average or example of tax rates (for example, corporate national rates) and it’s hat-shaped, with no revenue at a rate of zero (duh…) and very little or none when rates are 100% as in the old joke about the three line tax form (1. How much did you make? 2. Write it down. 3. Send it in). In between these extrema is a maximum. So far not much light shed; how could it be otherwise?
Someone drew the hat on a napkin in the Reagan Administration, as I recall, asserted that the US was to the right of the maximum, and “proved” that lower taxes would increase revenues. This event grew into “the Laffer curve proves that we should cut taxes” as a proposition advanced as always true, like “Now this!” or “Here we are!”. What I never understood was why it was attractive to small-government conservatives to increase government revenues at all; how did that become a goal of policy for those guys? Why wasn’t it “the Laffer curve proves we can only starve government into Norquist’s bathtub by raising taxes!” [Did a whiff of intellectual dishonesty just float through the room? Perhaps I imagined it, or someone stepped in a bovine poop on the way in…]
Happily piling on the WSJ, I wish to add that the graph they published substitutes government as a fraction of GDP for revenues on the vertical axis, and they say nothing about the switch. But this is not a Laffer curve, and must increase from zero to 1 along the tax rate scale despite the ridiculous fedora they drew through, um, around and about, the data (Thoma sketches an appropriate curve for this choice of variables; probably the truth isn’t a straight line but I bet it’s monotonic).
Could there be a publication whose intellectual respectability and argumentative honesty would increase under Murdoch oversight? Theory and most evidence says no, but it only takes one black swan, and I think one just flew by the window…
Author: Michael O'Hare
Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training.
He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management.
Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at UniversitÃ Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs.
At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4Ã—5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.
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