I recall a discussion I had with a fellow econ student on the effects of higher taxes. He said something to the effect of, “Higher taxes are inefficient, and all you need to do to prove that is to draw the graph.” (Unfortunately the topic changed before I could point out the problems with this statement.)
This (rather common) view reflects two major problems with modeling (particularly in economics): an amoral value (economic efficiency) becomes a normative value because it’s relatively easy to understand and (in theory) measure, and, more relevant as an example for this post, the model is seen as demonstrating reality, rather than vice versa. The model thus becomes a complete way of looking at the world, as it is both normative and the world is supposed to conform to it.
I think a lot of scientists see theory as the highest good: reality is defective insofar as it fails to conform to an elegant theory, rather than the other way around. When expressed this way, it’s obviously a foolish idea, but it’s an insidious one nonetheless. “I’d be right if it weren’t for all those confounding variables!” may be true, but you’re still wrong.
If something complicated is obvious, such as anything that anybody seriously studies, then for it to be simple you must be abstracting it a lot. When people find such things obvious, what they often mean is that the abstraction is so clear and simple its implications are unarguable. This is answering the wrong question. Most of the reasons such conclusions might be false are hidden in what you abstracted away. The question is whether you have the right abstraction for reality, not whether the abstraction has the implications it seems to.
I would bet that your fellow econ student became a Republican or Libertarian before convincing himself that higher taxes are provably inefficient. (Higher than what? Failing to have an answer to that proves irrationality.) Confusion induced by ideology is different from confusion induced by math.
Most Democratic academic economists agree with the claim that higher taxes are inefficient (“deadweight loss”). That inefficiency is the main cost of taxation, which must be balanced against the good that can be accomplished by the government using the revenue. (“Higher than what” you ask? Almost any increase in tax is inefficient. But DeLong and Mankiw certainly agree that a height tax is efficient.)
Well, the key is “what kind of taxes, and on what?”
Taxes that distort incentives away from the no-externality, no-taxes perfect competition equilibrium, do create econ-101-style inefficiency, but not all possible taxes distort incentives, not all possible taxes are on things that have no negative externalities, and not all markets are in a perfect competition equilibrium.
I recall a discussion I had with a fellow econ student on the effects of higher taxes. He said something to the effect of, “Higher taxes are inefficient, and all you need to do to prove that is to draw the graph.” (Unfortunately the topic changed before I could point out the problems with this statement.)
This (rather common) view reflects two major problems with modeling (particularly in economics): an amoral value (economic efficiency) becomes a normative value because it’s relatively easy to understand and (in theory) measure, and, more relevant as an example for this post, the model is seen as demonstrating reality, rather than vice versa. The model thus becomes a complete way of looking at the world, as it is both normative and the world is supposed to conform to it.
I think a lot of scientists see theory as the highest good: reality is defective insofar as it fails to conform to an elegant theory, rather than the other way around. When expressed this way, it’s obviously a foolish idea, but it’s an insidious one nonetheless. “I’d be right if it weren’t for all those confounding variables!” may be true, but you’re still wrong.
This is related to this post by Katja Grace:
I would bet that your fellow econ student became a Republican or Libertarian before convincing himself that higher taxes are provably inefficient. (Higher than what? Failing to have an answer to that proves irrationality.) Confusion induced by ideology is different from confusion induced by math.
Most Democratic academic economists agree with the claim that higher taxes are inefficient (“deadweight loss”). That inefficiency is the main cost of taxation, which must be balanced against the good that can be accomplished by the government using the revenue. (“Higher than what” you ask? Almost any increase in tax is inefficient. But DeLong and Mankiw certainly agree that a height tax is efficient.)
Well, the key is “what kind of taxes, and on what?”
Taxes that distort incentives away from the no-externality, no-taxes perfect competition equilibrium, do create econ-101-style inefficiency, but not all possible taxes distort incentives, not all possible taxes are on things that have no negative externalities, and not all markets are in a perfect competition equilibrium.
In the real world, all else is never equal.