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Economics is a science the same way climatology is a science, or ecology is a science. While you can fairly accurately determine what will happen on very small

Economics is a science the same way climatology is a science, or ecology is a science. While you can fairly accurately determine what will happen on very small scales on short time spans (microeconomics, in short), questions about what will happen on larger scales over longer time spans get exponentially more difficult as you scale up, since the system is so complex and so difficult to measure. It doesn't mean that it's not worth doing, it just means that there needs to be some epistemological humility there. And contrary to popular belief, economists would generally agree that certain facts have established themselves and been agreed upon. For example, subjective value: https://en.wikipedia.org/wiki/Subjective_theory_of_value https://en.wikipedia.org/wiki/Subjective_theory_of_value This is an essential insight of economics, and one that was not really systematically grasped until recently (and still not grasped by the majority of the public.) It is as close to true as a sociological/ecological thesis can be, and is almost universally accepted. But because it is so accepted, you don't hear much about it. What you're referring to is the Laffer curve - based on the observation that, at both 0% and 100% marginal tax rates, no tax revenue will be collected (none at 0% because no tax, essentially none at 100% because of disincentive.) That means that, in between those two end-points, there has to be a curve of some shape showing the total revenue collected, with a peak (or peaks) somewhere on it where revenue is maximized. The discussion is about where this peak is, and how the curve is shaped. To say "does lowering income taxes increase revenue" is an incomplete question: lower from what rate? Under what macroeconomic conditions? At what overall national wealth level? Interacting with what other taxes? Considering what conditions in capital markets? Etc, etc. Teasing out these huge numbers of other factors is the challenge of economic study, and why so many seemingly "simple questions" are unanswered: because they're not actually simple.

ghaff 10y ago
They're not actually simple and we don't actually get to play god with populations of actual people interacting in the real world under different conditions. We can devise experiments that (imperfectly) try to compare the results of different legal and other environments on outcomes. And some compelling results in economics come about from creating especially interesting "experiments" in this manner.
bjourne 10y ago
> That means that, in between those two end-points, there has to be a curve of some shape showing the total revenue collected, with a peak (or peaks) somewhere on it where revenue is maximized. The discussion is about where this peak is, and how the curve is shaped. To say "does lowering income taxes increase revenue" is an incomplete question: lower from what rate? That's the point. Assuming the Laffer curve theory is correct, the question should be "what is the optimal tax rate?" That would mean that economists should propagate for the tax rate to be increased in some countries because it is too low and decreased in others. That's not what economists have been doing (if I'm wrong can you show me an economist favoring increasing taxes using the Laffer curve theory?) and instead they have only asked "how much lower should the tax rate be?" Now the theory might be discredited, but I'm sure economists will come up with a new one to justify lowering taxes. :) > Etc, etc. Teasing out these huge numbers of other factors is the challenge of economic study, and why so many seemingly "simple questions" are unanswered: because they're not actually simple. But the questions aren't going unanswered. Politicians ask and economists do answer questions about tax rates, unemployment rates, interest rates, wage growth... In climatology, at least the basic principles have been tested in laboratories; higher concentration of CO2 in air -> less reflected sunlight -> higher temperature. The Laffer curve theory was never tested in a laboratory, yet it was for decades trotted out as the truth by economists.
- snrplfth 10y ago
  The disagreement is not whether Laffer curves exist, in a basic sense - nobody disagrees that there is some kind of revenue curve (and it changes over time in response to various factors.) However: the Laffer curve does not necessarily say what the optimal tax rate is, though - just what the revenue maximizing rates are. And these are not the same thing - do not conflate the two! The reason Laffer curves were considered significant was because some economists said that some marginal tax rates were on the right-hand side of the peak - that is, by lowering these high marginal tax rates, the incentive to avoid tax and minimize earnings would be reduced, and therefore the government would collect just as much or slightly more revenue total. What the optimal tax rate is, depends on a lot of other things - like the other economic factors I just mentioned, as well as what outcomes you want to encourage with a particular tax policy. The Laffer curve is just a particular technical description of the situation (and sometimes carelessly associated with Arthur Laffer's personal opinion of where on this curve current policy is located.) Here's a reasonably representative survey of US economists about the laffer curve: http://www.igmchicago.org/surveys/laffer-curve http://www.igmchicago.org/surveys/laffer-curve Note what's happening here: most economists either think that a cut in federal income tax rates would lead to higher GDP, or are uncertain/think there's no effect. However, almost all also think that such tax cuts would not increase revenue - so any argument for tax cuts, according to these economists, is not based on the Laffer curve. Indeed, because of where these economists think US income tax rates are on the Laffer curve, they would have to agree, to be consistent, that increasing tax rates would increase revenue, on the margin. Therefore, the "Laffer curve consensus" among US economists is in fact the opposite of what your impression is. > But the questions aren't going unanswered. Politicians ask and economists do answer questions about tax rates, unemployment rates, interest rates, wage growth... In climatology, at least the basic principles have been tested in laboratories; higher concentration of CO2 in air -> less reflected sunlight -> higher temperature. The Laffer curve theory was never tested in a laboratory, yet it was for decades trotted out as the truth by economists. Politicians get certain answers to these questions from different economists, but they're definitely live issues in the field itself. Don't confuse the theory that Laffer curves exist - which is not controversial - with the argument that a particular tax regime is on a particular point of the curve - which is more uncertain. Just because you get an answer does not mean the question is definitively concluded. And you can test the Laffer curve in a lab - but only with small numbers of people in a limited economic context. When you scale it up to a large number of people in a complex economy, the picture is much less clear and more complicated. (Likewise with climatology.) That's why it's hard! Also, consider the following paper, written around the same time that people first started calling it the Laffer Curve (though the basic idea had been understood well before.): https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1981/5/cj1n1-3.pdf https://object.cato.org/sites/cato.org/files/serials/files/c... It's by David Henderson for Cato, who's quite in favour of cutting taxes. But rather than jump on the argument as a useful "justification" for doing so, he points out the numerous limitations of the model, and the possibility of unusual Laffer Curve shapes that would mean tax cuts would not "pay for themselves." Again - don't confuse the non-controversiality of the existence of a Laffer curve, with the actual controversy over where, on what kind of a curve shape, current policy is located. (And whether maximizing tax revenue is even the correct policy.) You're acting as though "economists" are all of a mind on this issue - they aren't. They generally agree on some fundamental analytical tools, but come to a range of answers based on how they use them and what information they have.

ghaff 10y ago

They're not actually simple and we don't actually get to play god with populations of actual people interacting in the real world under different conditions. We can devise experiments that (imperfectly) try to compare the results of different legal and other environments on outcomes. And some compelling results in economics come about from creating especially interesting "experiments" in this manner.

bjourne 10y ago

> That means that, in between those two end-points, there has to be a curve of some shape showing the total revenue collected, with a peak (or peaks) somewhere on it where revenue is maximized. The discussion is about where this peak is, and how the curve is shaped. To say "does lowering income taxes increase revenue" is an incomplete question: lower from what rate? That's the point. Assuming the Laffer curve theory is correct, the question should be "what is the optimal tax rate?" That would mean that economists should propagate for the tax rate to be increased in some countries because it is too low and decreased in others. That's not what economists have been doing (if I'm wrong can you show me an economist favoring increasing taxes using the Laffer curve theory?) and instead they have only asked "how much lower should the tax rate be?" Now the theory might be discredited, but I'm sure economists will come up with a new one to justify lowering taxes. :) > Etc, etc. Teasing out these huge numbers of other factors is the challenge of economic study, and why so many seemingly "simple questions" are unanswered: because they're not actually simple. But the questions aren't going unanswered. Politicians ask and economists do answer questions about tax rates, unemployment rates, interest rates, wage growth... In climatology, at least the basic principles have been tested in laboratories; higher concentration of CO2 in air -> less reflected sunlight -> higher temperature. The Laffer curve theory was never tested in a laboratory, yet it was for decades trotted out as the truth by economists.

snrplfth 10y ago
The disagreement is not whether Laffer curves exist, in a basic sense - nobody disagrees that there is some kind of revenue curve (and it changes over time in response to various factors.) However: the Laffer curve does not necessarily say what the optimal tax rate is, though - just what the revenue maximizing rates are. And these are not the same thing - do not conflate the two! The reason Laffer curves were considered significant was because some economists said that some marginal tax rates were on the right-hand side of the peak - that is, by lowering these high marginal tax rates, the incentive to avoid tax and minimize earnings would be reduced, and therefore the government would collect just as much or slightly more revenue total. What the optimal tax rate is, depends on a lot of other things - like the other economic factors I just mentioned, as well as what outcomes you want to encourage with a particular tax policy. The Laffer curve is just a particular technical description of the situation (and sometimes carelessly associated with Arthur Laffer's personal opinion of where on this curve current policy is located.) Here's a reasonably representative survey of US economists about the laffer curve: http://www.igmchicago.org/surveys/laffer-curve http://www.igmchicago.org/surveys/laffer-curve Note what's happening here: most economists either think that a cut in federal income tax rates would lead to higher GDP, or are uncertain/think there's no effect. However, almost all also think that such tax cuts would not increase revenue - so any argument for tax cuts, according to these economists, is not based on the Laffer curve. Indeed, because of where these economists think US income tax rates are on the Laffer curve, they would have to agree, to be consistent, that increasing tax rates would increase revenue, on the margin. Therefore, the "Laffer curve consensus" among US economists is in fact the opposite of what your impression is. > But the questions aren't going unanswered. Politicians ask and economists do answer questions about tax rates, unemployment rates, interest rates, wage growth... In climatology, at least the basic principles have been tested in laboratories; higher concentration of CO2 in air -> less reflected sunlight -> higher temperature. The Laffer curve theory was never tested in a laboratory, yet it was for decades trotted out as the truth by economists. Politicians get certain answers to these questions from different economists, but they're definitely live issues in the field itself. Don't confuse the theory that Laffer curves exist - which is not controversial - with the argument that a particular tax regime is on a particular point of the curve - which is more uncertain. Just because you get an answer does not mean the question is definitively concluded. And you can test the Laffer curve in a lab - but only with small numbers of people in a limited economic context. When you scale it up to a large number of people in a complex economy, the picture is much less clear and more complicated. (Likewise with climatology.) That's why it's hard! Also, consider the following paper, written around the same time that people first started calling it the Laffer Curve (though the basic idea had been understood well before.): https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1981/5/cj1n1-3.pdf https://object.cato.org/sites/cato.org/files/serials/files/c... It's by David Henderson for Cato, who's quite in favour of cutting taxes. But rather than jump on the argument as a useful "justification" for doing so, he points out the numerous limitations of the model, and the possibility of unusual Laffer Curve shapes that would mean tax cuts would not "pay for themselves." Again - don't confuse the non-controversiality of the existence of a Laffer curve, with the actual controversy over where, on what kind of a curve shape, current policy is located. (And whether maximizing tax revenue is even the correct policy.) You're acting as though "economists" are all of a mind on this issue - they aren't. They generally agree on some fundamental analytical tools, but come to a range of answers based on how they use them and what information they have.