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Very good sentences
...many of the same people who ridicule the idea that private-sector output is meaningfully reduced by higher taxes are convinced that private-sector output is meaningfully raised by higher subsidies.
That's from Don Boudreaux. You'll also find that many proponents of hiking the minimum wage think that subsidizing low-wage jobs will work. There are models where the relevant effects switch at just the right margins, of course; surely those models are true.
Posted by Tyler Cowen on June 30, 2008 at 12:54 PM in Economics | Permalink
Comments
On the other hand, there are many that aren't - how many proponents of taxing big business also think that all subsidies do are fatten the wallets of CEOs?
Posted by: DPT at Jun 30, 2008 1:04:55 PM
"You'll also find that many proponents of hiking the minimum wage think that subsidizing low-wage jobs will work."
Wait, why would you want to create more low-wage jobs (rather than high wage ones)? That is similar to subsidizing the poor (creating more poor). Presumably this is unintended.
So, maybe they aren't looking for a behavioral change there either, just a static aid for those in need. Perhaps they aren't contradicting themselves, but rather just disbelieving all economic theory.
Posted by: liberty at Jun 30, 2008 1:36:34 PM
I must be missing something. What are the taxes being spent on? What's being subsidized? What's our model of private sector output? If private sector output is increasing in the quality of 'institutions', broadly conceived, what is the relationship between taxation and institutional quality? (What does the correlation between size of government and measures of institutional quality tell us?) Presumably subsidy supporters are basing their argument on the existence of market failures, externalities and such like. In such a world, and crediting the government with more competence than DB is likely to, taxes are paying for complementary inputs for the private sector (rule of law, various risk coping mechanisms, etc.) and subsidies are overcoming decentralized production co-ordination problems, it makes perfect sense to see asymmetry in the effects of taxes and subsidies.
This is probably what you're getting at with: "There are models where the relevant effects switch at just the right margins, of course". I failed to understand that sentence.
But why is it clever of Don to point out an apparent contradiction in a position that, by construction, entails no such contradiction? It's like saying something dumb along the lines of 'many of the same people who think it's OK for US soldiers to kill people when they judge it necessary also think it's not OK for Al Qaeda to do the same'.
Posted by: Avery at Jun 30, 2008 1:42:56 PM
I think the link was left out of the original post.
Posted by: bobvis at Jun 30, 2008 3:00:05 PM
Avery, I don't like to get too deep into analogies, but I think it's closer to saying "many of the same people who think increasing the price of a product won't cause demand for it to decrease think that decreasing the price of the product *will* cause demand to increase."
In fact, it is almost exactly like that except you have to replace "product" with "labor".
Posted by: bobvis at Jun 30, 2008 3:05:04 PM
To put it another way, if you're going to argue that a demand curve has negative slope if you move along it in one direction, and also argue that it does NOT have negative slope if you move along it in the other direction, you MUST also argue that the curve has a sharp corner at the exact spot which represents present conditions.
Posted by: Noah Yetter at Jun 30, 2008 5:44:48 PM
The quote, at least as presented here, is misguided because it ignores the *incidence* of the the taxes. The notion is that the wealthy, whom these "same people" want to tax, have a lower marginal utility of income than those they want to subsidize.
Posted by: mike at Jun 30, 2008 9:50:37 PM
I suggest Don Boudreaux and Tyler Cowen are ignorant of economic theory.
Posted by: Robert at Jul 1, 2008 1:43:41 AM
Surely this particular apparent contradiction is more easily disproven (see Robert above), and inherently far less stupid, than believing that lowering taxes increases government revenues.
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Posted by: 租車 at Oct 2, 2008 10:14:14 PM
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Posted by: 機票 at Dec 8, 2008 10:19:32 PM
一個人背起行囊，離開喧囂的城市，走進清境民宿的懷抱。去體味大自然的清新的原汁原味。在臺灣，只要背離了川流不息的鬧市，到處都有花園般的宜蘭民宿歡迎您，她們就像是自己的家一樣溫馨、舒適。
Posted by: 機票 at Dec 8, 2008 10:24:35 PM
Posted by: 花蓮租車 at Feb 4, 2009 4:48:54 AM
