The story of rent controls has been the same everywhere they have been tried. Until they were abandoned, rent controls in Seventies Britain led to a catastrophic fall in the number of rented properties available, and they did nothing to stop unscrupulous Rachmanite landlords. Rent controls accelerated the woeful degradation of much of New York’s housing stock, and in so far as there has been a boom in New York property, it has taken place in housing not subject to rent controls.The Swedish economist Assar Lindbeck has said that rent control is “the most effective technique presently known to destroy a city – except for bombing”; and the reason he has come to that conclusion is that experience has shown that it is an idiotic way to tackle the problem of high rents.
– Boris Johnson, Mayor of London, and newspaper columnist.
I should add that one of the things I notice about Ed Miliband, the Labour leader – and many others who share Miliband’s views – is not so much ignorance of economics, as hostility to the idea that humans act as they do. The assumption seems to be that to bring about desirable objective X, one should pass a law to ensure X happens, and if it doesn’t, then evil intent has caused it. So, if you want to raise pay, you pass a minimum wage law decreeing that employers must pay staff so much money; if you want to hold down the cost of rentals, you pass a law banning landlords from pushing up rents above that level, and so on. And the fact that landlords and employees might alter their behaviour as a result or that unemployment and crap rental housing might ensue is the fault of evil people, not the forseeable result of interfering in the market. And on housing prices, as Boris mentions, the main problem is that supply in the UK is artificially suppressed by planning laws. (It should be noted that people of all political persuasions favour these, either for aesthetic or more narrowly self interested reasons.) But to admit that is, for the Miliband mindset, unthinkable: the State cannot have caused a shortage of something, surely! It must be because bad, uncaring people have somehow failed to provide enough housing!
To put it even more simply, with the Milibands of this world, we are dealing with the mentality of a child. Now, I don’t care whether Miliband looks or sounds odd, or is a tosser who knifed his brother in the back, so to speak, although I suppose these things do matter. What, at root, terrifies me about the idea of this fuckwit taking power is that he is a fuckwit, and alas, insufficiently self aware of his fuckwittery and inability to deal with reality. Or perhaps another way of seeing this is that he is an example of a mindset that goes back to JJ Rousseau and further back: the idea that what matters is that one is sincere, one cares, rather than reflect on the actual results of what one does.
This is the standard Progressive mindset. They come up with all sorts of solutions for situations that cause them to feel uneasy – the solutions are not effective, so they conclude that failure of the solution can only be attributed to evil people wrecking the beautiful plan.
If they wish something to happen, then it MUST happen, or else it MUST only be due to fault of evil people.
Bizarre, but that is the way that they think. One wonders when they are going to decide that unicorns must be provided to everyone who feels bad about themselves.
But if rent controls don’t work, because landlords change their behaviour, all you need to do is pass additional measures that punish their revised behaviour. Such as discouraging them from leaving their properties unoccupied by tenants – eg by adding extra taxes for unoccupied property, compulsorily purchasing property (at 30% of MV) whatever. Landlords are, in substance, rats. You just keep on blocking up the holes until there’s no holes left.
The idea that socialism is not creative and does not learn by trial and error is quite wrong. If your first effort at control fails, it just means you’re not trying hard enough. You extend your controls until they work.
Besides which rent controls are absolutely brilliant for acquiring additional voters. If you rent a really nice London flat, which the government makes the landlord let to you at half the market price AND you have security of tenure so you basically have the flat in perpetuity, are you really going to vote Labour out just because you understand microeconomics ?
Silly ideas like rent control have natural appeal for people who don’t bother with thinking about consequences. The advantage for low-income households looks clear and straightforward, whereas the downside of controlled rents is less obvious and somewhat counter-intuitive.
When you think what an economy is, in the UK, it is hundreds of transactions taking place between millions of individuals on a daily basis. It is astounding that there are still those who think they can control this.
Well if you describe the end-state as ‘working’ (i.e. Venezuela), then yeah. But I would not describe that as ‘working’.
Its a result of too many lawyers and professional politicians in politics.
Lawyers believe that with the right combination of laws society can be managed, hence the increasing use of criminal law to punish people who hold “nasty” opinions.
The stupidity of on the one hand decrying the demise of small business/shops, while at the same time piling on more and more OH&S, “compliance” and inspections. Huge companies thrive on this, to add one more person “back office” in a business employing thousands is easy, the local deli or restaurant, not so much.
I honestly dont understand the UK housing situation, how can the government, which controls most aspects of building (release of land/rates/planning etc) not be able to sell existing “social housing” stock at enough of a profit to fund a new tranche of buildings?
With his strange ideas Ed Miliband could well be renamed Ed Moribund.
Glad he’s yours as we have too many of his ilk of our own “Down Under”
What absolutely confounds the collectivist faithful is the painful fact that rule by good intentions simply doesn’t work, and, even worse, makes the problem addressed more severe instead of better.
This is where it helps the non-statist to understand the religious nature of collectivist ideologies, and the faith-based demand that believing in the proposed collectivist solution to any problem is of paramount importance.
Without total belief in the party line, you see, bad vibes can obstruct the magical unicorns who bring about the desired utopian state.
That’s why opposition to collectivist proposals is always caused by evil intentions, and why opponents are, themselves, evil. Even worse are the heretics and apostates, as the viciousness of collectivist in-fighting always demonstrates.
But, of course, in the final analysis, those in the collectivist elite know how poorly their schemes work in terms of solving the alleged problem—they just don’t care.
Getting control of the resources, and acquiring the power to continue to make policy in this, and every, area, are the only parts of the deal that really matter.
Those kulaks out there starving in the villages, or the minority students being pushed through the educational deserts they call ” school”, well, that’s tough, but what can the merciful and compassionate do when they’re just never given enough money and power to get the job done?
Never, ever, ever. It’s just never enough, ever.
Perry : Well if you describe the end-state as ‘working’ (i.e. Venezuela), then yeah. But I would not describe that as ‘working’.
Veryretired has explained what “working” means – Getting control of the resources, and acquiring the power to continue to make policy in this, and every, area, are the only parts of the deal that really matter.
Who’s in power in Venezuela right now ? So it’s working.
Combining what Veryretired said and what Westbourne said I come up with the following: a small number of power-obsessed people gain power in democracies because of a much larger number of people who are sufficiently un-insightful that obvious unintended consequences of certain policies are counterintuitive to them. If we could get a the root of why easily understood ideas are counterintuitive to so many people we might make progress.
This is a non-partisan problem, though. Conservatives have their own shibboleths — drug prohibition, for example, or the idea that reducing tax rates is likely to lead to more tax revenue. As Johnathan said, really crappy ideas are strangely durable.
It’s not so much the persistence of bad ideas – it’s the primacy of emotional impulse.
What feels right will usually trump what we reason to be right.
Kahnemann’s Thinking Fast and Slow explains much, including the nugget that thinking logically is actually quite taxing in terms of energy consumed by the brain.
To be logical is to counter millennia of evolutionary selection for reacting impulsively to patterns while husbanding precious calories.
Here we need to hope that politicians are all blather. Maybe they’ll win by campaigning on rent controls, and then wisely leave well enough alone.
Rent control makes perfect sense if you assume, axiomatically, that you know, just know, the correct rents for the properties in your city.
That’s true for price controls in general, as well. If you magically know the correct, true, moral prices of goods and services, why not impose them upon the market?
Your definition fits the Athenian demos as much as the Roman mob.
It’s a basic failing of many people, but the left seems to be particularly vulnerable to it, and that’s the belief that good intent will overrule the mechanics of human actions.
@rxc – Only the malign workings of neoliberals and the patriarchy are preventing unicorns for all.
Another consequence of this interference is a decline in the number of houses with spare rooms being used to offer living space to others. It was once common for lone females left with a large house and no family to provide a living for themselves by letting off one or more spare rooms. I lived with others in large house in Ashford (Middlesex) many years ago in exactly that scenario. The owner lived in the back and rest of use shared the various floors etc. I understand that legal restraints on tossing out poor tenants as well as rent control has shrunk this market.
Tedd said:
“or the idea that reducing tax rates is likely to lead to more tax revenue.”
There is substance to this ‘Tedd’ as George Laffer helped define. In essence there comes a point where increasing taxes reverses the revenue gained. It is a complex mechanism with no single element, but includes active attempts to avoid being taxed, moving investment and so on. We have recent example of the effect during the last parliament.
In a sense Laffer is a shibboleth, i.e. a tribal indicator, as denial or acceptance of it is a pretty good predictor of where you sit on the political spectrum.
Does everyone know about MINDSPACE? It would seem that ALL Governments try to change the behaviour of the electorate by the policies they introduce.
Through out history, including the Christian age, there has been a conflict over the concepts of the “fair price” and the “just wage”.
For example in the time of the Charles the Great First “Holy Roman Emperor”, some theologians (the legal thinkers of the time) held that a “just price” was what the state and church thought was “fair” – and some other theologians (who influenced Bavarian law in this period) argued that the “just price” was the freely determined price, by supply and demand (sellers and buyers).
Charles the Great backed the first school – after all he liked power (he dreamed of being like the like the Roman Emperors of old) and setting prices and wages and so on via his own whims (and the whims of his “expert advisers”) of “fairness” appealed to him.
Just as it appeals to “Red Ed” Miliband (another person who would see nothing wrong with the insane policies of the Emperor Diocletian and so on – as long as they were dressed up in the mathematics of modern phony “economics”).
How can one reason with people (such as “Nobel” winners Krugman and Stiglitz) who deny the importance of supply and demand in wages and prices – and support “rent control” or higher wages (by government “minimum wage” edicts) denying that housing shortages and mass unemployment will be the result?
I am about 50 years of age now and I have been dealing with these people all my life, and I say they can NOT be reasoned with – there is no way to reason with them (they reject basic reason – hiding behind mathematics and technical jargon instead, as well as appeals to GOOD INTENTIONS).
But nor can such people be ignored – as they cause terrible damage (indeed would destroy civilisation – totally and absolutely).
If these people can not be reasoned with, and can not be ignored (without allowing them to win and destroy civilisation), this leaves but one alternative.
These people, the people who deny the importance of the free interplay of supply and demand, must be fought.
They must be fought in all fields – including in politics.
Want lower rents?
Then stop the “easy money” policy of the Bank of England – which has created a property bubble (in rented property – as well as property to buy).
And stop the policy of subsidising rents (“housing benefit”) – which massively increases rents (via a process that even David Ricardo would have understood – centuries ago).
When the taxpayer is paying the bills the prices go up and up……
Sadly even efforts to limit Housing Benefit (is it really sensible for taxpayers to pay hundreds of Pounds a week so that people can live in central London – where most taxpayers could NOT afford to live themselves?) are met with screams of outrage from the left.
Instead we get demands for price controls – the “economics” of the advisers of King Canute (whom he mocked by leaving them to get soaked as the tide rose).
None of the intelligentsia who support those noxious ideas make minimum wage, or live in rent-controlled apartments. They are advocating controls on other people’s behavior in the market. To assume that they are unaware of the consequences of what they advocate is like assuming that the shoplifter is unaware that they are stealing.
Increasingly, I find myself wondering if putting the agreed f-wit Ed M in power at this election wouldn’t, long-term, give the best outcome for England. Just hear me out:
Labour would indeed totally bring the nascent upturn in the economy to a shuddering halt, introduce rent and price controls and all the other socialist rubbish. It would, however, be evident to all but the thickest statists that bringing the UK back to the 70’s was what caused the otherwise inexplicable UK economic crash of 2016, in a world of otherwise rapidly developing economies.
Next, Ms Sturgeon will wipe the floor with Red Ed and Scotland will break out of the UK following a new referendum in 2017. This is in fact likely to happen anyway, regardless of who’s in power. And would you like to be the PM having to go to Her Maj and explain the loss of Scotland?
But after this, there will have to be a new General Election, in 2018 probably. From that point on, England will be free of Labour because (a) they will truly have proven the idiocy of socialism and (b) they have lost their in-built advantage in number of seats, partly through the secession of Scotland, partly through the prompt revision of constituency boundaries so that they are again fair, which will immediately follow.
So, I do feel sorry for the many people who will become unemployed and the businesses that will go under during the 2015-18 economic disaster, as well as for the many decent Scots who will suffer under permanent statism. But they can always move to England, and the misrule will only last for three years – England can pick itself up again, as it has done so many times after being ruined, whether by Luftwaffe or Labour. And then she will be free to develop a sensible, fully market-based economy, based on the will of the decent majority.
PS And won’t it be fun when Scotland comes knocking on the door to be let back in after a total economic collapse in about 2022?
By the way….
Very good post J.P. (and good quite from Mr Boris Johnson also) – you have captured the leftist mindset – Rousseau and so on.
They react to reason, such as Edmund Burke’s “Thoughts and Details on Scarcity” by screaming that reason is “inhumane” and lacks “compassion”.
Whether it is the French Revolution (hundreds of thousands of mostly quite ordinary people murdered – mainly in rural areas), or the Killing Fields of Pol Pot’s Cambodia – we all know what leftist “compassion” looks like.
What is strange is how many more pixels Samizdatistas routinely devote to critiquing professional fuckwits than to the system that produces said fuckwits so dependably.
The fundamental problem with the political paradigm of the modern West is not so much the Ed Milibands as the office that he seeks to hold.
Please stop tilting at windmills.
So long as power is seized by amassing ballots, Progressivism will eventually prevail in every major dimension of public policy.
Insofar as liberty is experienced in the real world, it is not a definition but a consequence – a consequence proportionate to the security and stability of sovereign power.
Power is secure and stable roughly insofar as authority, responsibility and incentive are aligned.
Whereas authority, responsibility, and incentive are dispersed (and, therefore, rapidly grossly misaligned) in republics insofar as they are democratic, they are not only aligned but inherently so – constituting one (sovereignty) – in the case of hereditary monarchy. Nothing renders the authority, responsibility, and incentive of power so congruent as creation itself, since creation renders power in only one form – its original form, which is sovereignty wherein authority, responsibility, and incentive flow from that which created it.
There is no sovereignty so secure and stable as that achieved solely by birthright.
Toute nation a le gouvernement qu’elle mérite.
The modern West does not deserve Kingship at the moment; until that moment comes I’m afraid the Ed Milibands ruling the West will become ever more fuckwitted. Enjoy the ride!
The system that produces Red Ed is millions of government dependents voting for more taxpayers cash.
Incidentally, if Ed is Wallace, shouldn’t Sturgeon be Gromit?
Works like a charm until the King’s oldest son or daughter is a brutal fuckwit themselves (c.f. any of hundreds of examples throughout human history). Then that system tends to either (1) result in a nightmarish and brutal autocracy; or (2) break down into violent anarchy and destruction, laying waste to the society and covering fields with the enemy dead.
Some form of representative government, limited by law to the point where no self-respecting power hungry oligarch would want the job, is still probably the best idea long-term.
Far be it from me to castigate those writing in defense of the virtue and/or utility of liberty for doing so, but I can’t help but notice how precisely this diagnoses the most obvious trait of every populist libertarian movement in every democracy in all of recorded history: they eventually failed.
It is ironic, of course, that Johnathan Pearce appears to have stumbled upon the truth of the futility of advancing libertarian views in a democratic society in critiquing those most effective in eradicating liberty in England.
A truth can be disorienting as one first acquaints himself with it and the truth is that libertarianism is INHERENTLY not a viable policy prescription in democracy.
Consider the USA. The Tea Party wave of 2010, Contract with America in 1994, Reagan Revolution of 1980, etc. have achieved virtually nothing of lasting consequence with respect to federal governmental policy. In its entire lifetime the Libertarian Party has achieved no major and lasting policy changes with the possible exception of normalizing pot consumption. This is not a coincidence.
Good intentions mean nothing. I’m all for blabbing our mouths to get our feelings out, but lets not imply we’re making a material long-term difference. We live in democracies: where liberty goes to die.
Nope.
I could try to explain to you how hereditary monarchy actually used to work (King’s court, centralized aristocracy, the vices of one vs. the vices of society, etc). But honestly that’s a hopeless endeavor.
Instead I’ll just humor myself by pointing you in the direction of the track records. King George III (who the Americans hilariously rebelled against) is not 1% of the tyrant any modern American president is. The taxes he levied on the colonists (eminently sensible and entirely warranted, by the way) are, even in relative terms, minuscule compared to the monstrous goliath of the Internal Revenue Service, which is to say nothing of the myriad other federal and state agencies that tax everything from land ownership to sins.
Nothing is limited by law. Repeat after me: nothing is limited by law. It’s just not how the world works. I know that’s how you think things are intended to work – but intentions, as we have seen, mean shit.
Only men (or women) rule men.
Ink blots on paper mean what those appointed to interpret them say they mean.
This link might help you realize how incredibly wrong you are.
http://www.reddit.com/r/monarchism/comments/2dldcu/a_timeline_of_france_ask_yourself_are_republics/
I think this is wrong.
The belief that, almost uniquely, politicians don’t understand that actions have consequences seems rather outlandish. It’s much more reasonable to believe that they promise these sorts of things not because they think they’ll work, but because they have to promise these sorts of things if they want to keep/win power.
Neither is there any necessity to say that, if it’s not the politicians who are stupid, then it’s the voters who are. All that is required is that they are self-interested and that they value a good thing now more than a bad thing way off in the future.
So take rent control. I am paying a certain amount, but I would like to pay less of course. A politician promises that he will cut the amount of rent I have to pay. He does this because he thinks that being nice to me will get me to vote for him; the costs of the policy are some way off in the future and may even be borne by some other politician. I accept his offer because I want more money in my pocket right now; voting takes no effort, and the costs (less/lower quality housing) of the policy being introduced will take a good while to materialise – and by then I may not even be renting. In any case, the negative effects may be offset by some future policy innovation (and the same reasoning would apply to these).
In short, it’s not just politicians for whom a week is a long time in politics.
Does a list of rulers of one dynasty disprove the idea that there is a fatal flaw in the hereditary succession of power?
How about:
Edward II
Ivan the Terrible
Vlad the Impaler
Aethelred the Unready
Ludwig II
George III
Just off the top of my head. And that is just European dynasties – I feel quite certain that the Chinese, Indians, Arabs, Africans, and Steppe peoples have had their own abundance of brutal and/or incompetent rulers.
So no, that link doesn’t make me realize just how incredibly wrong I am.
I didn’t read your link carefully enough. It’s a list of republics, and how brief they were. Fair enough.
But again, not dispositive of anything at all. There are many many monarchies that lasted a brief time. And some republics that have lasted for a reasonably long time.
At any rate, its not the length of government’s history that matters, but the way in which it governs. The Egyptian dynasties lasted for thousands of years, but I don’t think many people would argue for them as models of good governance.
It’s remarkable how readily one can dismiss a millennium of history when he has his mind made up already.
To your list.
George III? What about him? His taxes were very reasonable and certainly warranted. If anything he was way too lenient on the colonists.
Ludwig II? What’s your point? His lavish expenditures (which wikipedia notes were drawn from his personal funds) are exceptionally prudent by the standards of America under President Reagan, which is to say nothing of the Presidents we have had since. He was a great patron of the arts. There were financial problems caused by his spending, but were America to face proportional financial troubles in place of the current democratic madness Americans would be facing a MUCH smaller national debt.
Aethelred the Unready I don’t know much about, but according to wiki he basically created the modern jury. His government created a lot of legislation that was very detailed. He ordered a massacre one day that was sort of, partially carried out. So what? This pales in comparison to the enormity of human misery and total destruction that has continuously plagued the region formerly governed by the Austro-Hungarian empire since the end of WWI. Creating new governments based around ethnicities instead of Kings is a messy business and over quite a few decades there have been many genocides – any ONE of which would make Aethelred blush.
Ivan The Terrible according to wiki: Ivan’s legacy is complex: he was an able diplomat, a patron of arts and trade, founder of Russia’s first Print Yard, a leader highly popular among the common people of Russia, but he is also remembered for his paranoia and arguably harsh treatment of the nobility. He committed a massacre. America starved 500,000 Iraqi children to death in the 1990s.
I’m sure there have been terrible monarchs.
The point is that monarchs’ interests are aligned with the long-term interests of their nations, while those of Presidents/Prime Ministers are not and so most of the time monarchs do a mediocre, middling job of not screwing everything up, while Presidents and Prime Ministers by design must bankrupt their nations in order to serve myriad cancerous special interests.
Kings do not have to pay off interest groups for campaign funding. There’s no campaigning for birth right, which is kinda handy.
The conceit of the modern, enlightened republican (as opposed to monarchist) astounds! Talk about Monday morning quarterbacking!
I’ll happily admit I don’t know much about the Egyptian pharaohs, but lets not mistake the liberating consequences of massive technological advances for anything but.
With all the slaves there are in the world today, it’s amazing that there weren’t even more slaves back then considering the technology they had by comparison!
Please feel free to enlighten me as to why it would have been better for the ancient Egyptians to be ruled by a so-called “representative” government instead of Pharaohs (which on a brief read seems rather like a form of monarchy). By the way, I’d be curious to know what percentage of that society was literate – might be a neat detail to helpfully “paint a picture”.
If Ed is Wallace, then Sturgeon is King Edward.
Red Ed’s rent control idea, and all his other crap ideas, all derive ultimately from the really, really crap idea that you can get a better society by taking money from some people, and giving it to others, whom you call your voters, but who are really your clients.
At least in ancient Rome, an aspiring politician had to bribe voters with his own money, rather than offering them the prospect of taking it from another citizen who had done them no harm. But that is how the staggeringly crap idea of socialism works: it is, in essence, a cargo cult, and Ed Miliband is a North London intellectual version of a shaman in a penis gourd waiting for the planes to arrive by magic with the good stuff, whilst his people wonder whatever happened to toilet paper?
Sorry Shlomo, but the link that you provided is farcical: the Kingdom of France is said to be “stable” in spite of the Hundred Years’ War, not to mention relatively minor incidents such as trouble with the Huguenots, the murder of Henri iv, etc. (I don’t know much more than that about French history.)
Meanwhile, the transition from 4th to 5th republic is assumed to be as big a change as the French Revolution!
The Republic of Venice seems to me much more stable than the Kingdom of France. As an institution, the monarchy has been more stable in England, Denmark, and Japan than in France … mostly by being only one element in mixed constitutions, which constitutions have changed with the times.
Other stable institutions that come to mind: the Catholic and Orthodox churches, and the Imperial Chinese civil service. Not Imperial China itself, mind you: just the civil service.
Going around with a relation about Obamacare, I mentioned I knew some doctors who were going to retire early. Their retirement income was sufficient that what they expected to earn working under the hassle of Obamacare was not attractive.
I suggested we’d be seeing fewer doctors.
“That’s the problem,” she said,”we’re greedy.” After some discussion, I discovered that the accusation of greed was as far as her thinking had gotten. “You called them a name. How do you get them back to work?” Blank expression.
Calling the retired docs greedy was an adequate answer to the induced shortage of doctors. What would happen to health care if a significant proportion of experienced physicians quit working had not occurred to her, and when I mentioned it, she didn’t think it was relevant. She called them a name and that was all that was necessary. She voted for Obama.
“the hassle of Obamacare”
Yup – not just money at all. I don’t even live in the US by I know two (60-ish) US doctors who have decided to retire rather than go through the hassle of compulsory electronic medical records. And I know a third (40-ish) who treats me occasionally, who is continuing to work, and who says that in order to see her usual number of patients, she has to type her notes into the computer as she’s listening to the patient. But is she able to listen and type at the same time ? No, you always have to repeat yourself. I’ve asked her about it – the same information has to be entered in about three different places !
“…tackle the problem of high rents.”
Lee Moore, yes, you can have a london flat into purpetuity with rent controls…a flat where the landlord cannot make a profit and will, by necessity, do as little as is legally possible to maintain said property, including necessary structual maintenance. This is not merely a matter of economics, this is a matter of dealing with reality.
Richard Aubrey, yes, the left have it all figured out (or so they think). That some doctors are not willing to be slaves to the state and choose to retire instead is thought to be “selfish”. The more we see how the far left operate, the more one is apt to understand the terminology used by Ayn Rand and why she considered these points pivital issues.
Westbourne,
“…for people who don’t think about consequences”
Far leftists tend to be deep feelers instead of deep thinkers. But the irony is that if it’s a choice between the leftist narrative (which is a form of mystisism) and the real people suffering the unintentional consequences, they’ll support the narrative every time. That there are people who still support marxism and neo-marxism is, in retrospect and in this day and age, mindboggling.
Barry:
I’m well aware of Laffer’s theory. It depends on the relationship between tax rate and tax revenue being a mathematical function (i.e., one output for each input), which is highly unlikely. Much more likely is that the relationship is a complex dynamical system, in which case there is no reason whatsoever to expect that Laffer’s prediction will work. And, not surprisingly, it rarely does. The “Laffer curve” fails on both theoretical and empirical grounds.
Thailover : “a flat where the landlord cannot make a profit and will, by necessity, do as little as is legally possible to maintain said property, including necessary structual maintenance”
A lot of weight is being carried by “legally” in that sentence. If I get the merest hint that cutting back on maintenance may be turning into a hole that any of the rats may try to escape through, then obviously I’ll be round with some quick dry cement.
I don’t agree with Tedd’s conclusion. Of course the tax rate is not the only variable that affects willingness to work etc, but it must be one of them. The fact that there may be a complex dynamic system doesn’t mean that tax revenues are independent of tax rates, it just means that it’s very hard – perhaps impossible – to work out the effect on tax revenues from raising or lowering the rate of this or that tax. But conceptually the problem is no harder or easier than that facing a business when it decides to raise or lower its prices. And businesses have to make a judgement on the shape of their profit function all the time.
In any event, Laffer’s curve does not suggest that tax revenues will always and necessarily increase if tax rates are cut. It merely notes that at a tax rate of zero, no taxes are likely to be collected. And at a tax rate of 100% no taxes are likely to be collected. And yet, with tax rates between 0% and 100%, some taxes are collected. It follows therefore that there must be some rate of tax between 0% and 100% which maximises tax revenue. We may not know what it is, but it must be there somewhere. It may change, of course, as fast as a business’s optimum price may change, but that doesn’t make the idea fail on theoretical grounds.
My main problem with the Laffer curve is not that it is theoretically flawed, it is that it appears to cede all sorts of turf to the commies that I don’t want to cede. Specifically it implies – though to be fair it doesn’t actually state – that the optimum tax rate is the one that maximises tax revenues. Which is wrong wrong wrong. A tax rate that maximises tax revenues will be much higher than one which maximises total income.
Thailover:
I beg to disagree. What you describe as reality is actually only part of it.
In central London, of course, real estate is a limited resource in high demand; but what about the rest of the UK? why are there such high prices for crappy* housing, when an even more crowded country such as the Netherlands has better housing at lower prices? may i suggest that it’s because the resources are artificially limited (to adopt your terminology) by means of zoning restrictions? may i further suggest that the political class sees this as a necessity, because so many UK voters have put their life savings into real estate, and therefore would be severely affected by a collapse in house prices?
* can i say “crappy” on Samizdata?
Lee Moore @6:39 said pretty much all what i wanted to say about the Laffer curve; pretty much, but not quite.
One important thing to note is that the Laffer curve also predicts that an increase of X % in tax *rates* will always lead to an increase in tax *revenues* smaller than X %, even when there is in fact an increase (rather than a decrease) in revenues.
(Vice versa, a decrease in tax rates will lead to a proportionally smaller decrease in tax revenues, even when there is not an actual increase.)
This is crucial when a country is close to bankrupcy; and while there is a specific country that comes to mind, almost all Western countries are at risk in the longer term. The implication of the Laffer curve, then, is that cutting public spending is preferable to increasing tax *rates*.
(Of course, maximizing tax revenues, maximizing incomes, and maximizing growth are more than just a matter of fiddling with tax rates, but that is beyond the Laffer curve.)
Well if “nothing is limited by law” and “only men, or women, rule others – not ink blots on paper”.
Then we can give up the discussion of political philosophy and just submit to the local warlord (called a “King” perhaps) or seek to become the warlord one’s self.
This is not serious thought it is “Game of Thrones”.
Actually many things that rulers would like to do are “limited by law”.
For example when the Crown (not quite the same thing as the person of George III) sought to steal land of “doubtful title” that had belonged to the family of the Duke of Portland for many generations, Parliament stepped in to stop the attack.
The American colonists had no members of Parliament – they had no way of protecting themselves a Crown (again not the same thing as the person of George III) who might seek to order them about or just steal their land.
Either the British government had to make clear that it had no right to intervene in the affairs of the colonists (a step it was not willing to take), or grant Parliamentary seats to the colonists (also a step that they were not willing to make).
And it was “necessary” for London to levy taxes on the colonists without granting them representation in Parliament (to say nothing of the REGULATIONS, such as the forced taking of timber, and the threat to the LAND of the colonists) why was it not “necessary” for London to take tax money from Canada or Australia or New Zealand in the 19th century?
Nor should Parliament be above the law (contrary to the Blackstone heresy).
As every school boy used to know – Chief Justice Sir Edward Cook (a man – not an inkblot) ruled to the contrary in Dr Bonham’s case – the idea that people have no legal rights and that everything is just up to the WILL of those in power is the doctrine of a beast.
Chief Justice Sir John Holt (he of 1688 and all that) ruled on these matters repeatedly.
Both Protestant and Catholic (Scholastic) thinkers repeatedly pointed out that that traditional European monarchies are LIMITED not ABSOLUTE.
For S.M. to say that rule of law is just “ink blots on paper” is obscene – it is the doctrine of a Turkish Sultan not a “feudal” Western King.
Even Charles the Bald (“Holy Roman Emperor” in the late 800s) agreed that there were things he could NOT do – things the RULE OF LAW prevented him from doing.
For example even he (King of France and Holy Roman Emperor) could NOT take land from family and give it to another family – THE LAW forbad him from doing this.
Otherwise he was no lawful King – he was a despot.
And someone who does not know the difference between a King under the law and a Warlord bound by no law, has no place discussing this matter (or any other matter).
Shlomo may say that I have violated his freedom of speech – but according to him there is no such thing as freedom of speech, and CAN BE NO freedom of speech.
After all the First Amendment (indeed the Bill of Rights in general) is part of that “rule of law” that Shlomo says CAN NOT EXIST.
If everything is just the will of the warlord – then …..
“I Paul Marks, first of his name, proclaim myself the Warlord. And I order that Shlomo have his head cut off if every he disagrees with me – on any question whatever”.
People, such Joseph De Maistre, who think they are arguing against the French Revolution when they say there can be no such thing as the “Rule of Law” – i.e. that a limited Constitutional Monarchy (under the law) is “impossible” – that the only “possible” system is the rule of a man (or woman) with absolute (lawless) power, are actually arguing IN FAVOUR of the French Revolution.
For if the only possible system is someone with absolute (lawless – arbitrary) power, it is certainly not going to be some fat weakling like Louis XVI who is going to be the Warlord ruling according to his “will”.
Those who reject the Rule of Law thinking they are supporting the monarchy, are in fact utterly undermining it.
The philosophy to Thomas Hobbes or a Turkish Sultan should have place in the West.
We stand for the Rule of Law (law that government does NOT make – see the Ninth Amendment) – or we stand for nothing, and would be better off dead.
Natural law (natural justice) is the law of God – but if God did not exist, natural justice would be exactly the same.
That is the law – Bastiat (“The Law”) not the lawless arbitrary will of a ruler – which does not close the door to the French Revolution.
It OPENS the door to the French Revolution – and al the rest of Hell.
Lee:
If the relationship is a dynamical system then this conclusion can’t be drawn because there could be no such curve as the one Laffer described. If you tried to depict tax rate versus tax revenue as a two-dimensional plot, not only would you get loops and spirals (indicating numerous possible revenue outcomes from any given change in rate), but those loops and spirals would be constantly in flux due to factors not included in the plot that are actually driving the relationship. In short, you would be just as well off flipping a coin to decide which way to move the tax rate.
I wouldn’t make such a big deal about it if the Laffer curve were merely wrong. But it’s used to justify a tax-cuts-first approach to government that is foolish and, perhaps more importantly, damaging to the project of reduced government. For forty years we have seen repeated examples, justified in part by the Laffer curve, of ostensible tax cuts leading to increased debt (i.e., a different kind of tax) and no reduction in actual government. Not all voters are as gullible as people who believe in the Laffer curve. They see these results and it casts doubt on the whole project of reducing the cost of government. I know, I was one of the people who used to promote the Laffer curve thirty-odd years ago. But then I saw the effects and started to think about it in a bit more depth.
If you want smaller or less expensive government, push for that. Don’t fall prey to the shell game of the Laffer curve.
Tedd: if you want to argue against deficit spending, you have my full support; but if you think that the Laffer curve is to blame for it, then it seems to me that you are on shaky ground.
Tedd, you completely misunderstand the Laffer Curve (of course, you’re far from alone in this). It by no means “depends on the relationship between tax rate and tax revenue being a mathematical function”, let alone postulating that that function is a two-dimensional curve. It is merely an explanatory device to demonstrate, in very simple and easily understood graphic form, that there exists a necessary relationship between the rate of taxation and the amount of revenues produced by that tax. It is no more a “mathematical function” than is a supply/demand curve. You can’t use it to model anything.
You are certainly correct that it is improper to use the Laffer Curve to justify cutting every sort of tax, or to justify cutting taxes in every situation. It does no such thing, if only because there is no way of knowing which side of the inflection point you’re on (and, as you point out, there are other factors which will affect the outcome). But it makes perfect sense to make an a priori assumption that, absent some evidence to the contrary, at any given point in time we are on the “wrong” side of the curve. And it must be noted that in modern times whenever tax cuts have been tried they have always resulted in higher gross tax revenues (viz the Kennedy cuts and the Reagan cuts). The problem in both cases was that government spending increased even more, which was what lead to the higher deficits. The tax cuts were not to blame; in fact, they served to mitigate the effects of higher spending.
Personally, I don’t like the “utilitarian” argument for tax cuts which “Lafferites” (is there such a word?) often make. I agree with Lee Moore that maximizing governmental revenues is not in itself a desirable goal. But I’ll use whatever argument works to shrink government. That is the goal, and I think on that point we’re agreed.
Paul: Very well said indeed, all of it.
I think Boris is wrong. I think rent controls really are particularly effective. However, the purpose of rent control laws is not, as is claimed, to provide affordable housing. It is entirely antithetical to that goal. However its purpose is to boost the credibility of the person getting the law passed. It is terrible at the former, and really rather good at the latter. Especially so since the consequence is not only that they get to puff about their compassion, they also get to puff about how the evil capitalists are showing their usual selfishness in not providing cable TV and new washer and dryers in their now underwater rental properties.
Of course rent control violates one of the few reliable principles of microeconomics, that is to say the law of supply and demand, but it is the political economy that is is primarily designed to serve. I don’t think all politicians do so knowingly, after all most politicians are kind of stupid, but that is the reality of why the idea doesn’t die. It is a memetically strong idea.
It is kind of like those birds that grow ridiculously over the top plumage. Really counterproductive if you measure it in the ability to move, fight and gather food. But very useful if you measure it in terms of getting laid. And evolution is kind of horny.
Paul- I think you forgot a ‘not’ in there- the sentence about Thomas Hobbes and the Sultan of Turkey should NOT be a part of our legal system.
“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” — Thomas Sowell
Laird:
I understand completely that the Laffer curve was meant by Laffer as merely a rhetorical device to explain the concept that reduced rates could, under the right circumstances, result in greater tax revenue. As I pointed out in my post above, I was once a keen promoter of the idea, back around the time that people first started to popularize it. But it remains a fact that the Laffer curve, as described by Laffer himself, depends on it being a mathematical function. As soon as you depict any rate/revenue relationship that has more than one rate value for a given revenue value (i.e., no longer a function) its rhetorical value is lost. I frankly don’t understand why you and Lee won’t accept this. All you have to do is scratch it out on a napkin, like Laffer originally did, to see that I’m right. (Since we’re getting technical, I should also point out that more than a few functions would also not work as Laffer curves. Strictly speaking, I think it would have to be both a function and not have any inflection points between 0 and 100, to work. But I’m not as certain about that last point.)
The Laffer curve is useful as the starting point of a discussion about tax rates. But as an argument in itself (which I have seen far too often) it is worse than a failure. It is unconvincing to those who are not already predisposed to the conclusion that lower tax rates are better. And, when it is too successful as a rhetorical device, it helps lead to poor tax policy decisions. Perhaps where Snorri lives this is not a problem, but I have lived in several jurisdictions now where lower tax rates were proposed on the argument they would result in higher (or at least equal) tax revenue, and in each case the Laffer curve was sighted as a supporting argument. In every case except one this resulted in higher deficits. (In the case where it did not there was also not higher revenue, but the tax cuts were combined with actual spending cuts. That worked.)
Laird:
I realize that some of my points were already partly addressed in your previous post. I morphed from a reply directly to you to a more general comment on the Laffer curve, party way through. Sorry about that.
Tedd: my point was simply that the theory of the Laffer curve* does NOT predict an increase in tax revenue for every decrease in tax rates. Therefore, anybody trying to justify cuts in tax rates by a glib prediction that they will bring in more revenues, is a fool. (NB: a non-glib prediction is not the mark of a fool.) Therefore, you are shooting at the wrong target if you attack the Laffer curve.
As for the relationship between tax rate and tax revenue not being a function, i think that Lee Moore said it best: conceptually the problem is no harder or easier than that facing a business when it decides to raise or lower its prices.
Let me attempt to expand on that: the demand curves for central heating and air conditioning are not the same in Saskatchewan and in Arizona; similarly, the tax rate maximizing tax revenue is not the same in Denmark as it is in Greece. But decision makers know whether they are making decisions for Denmark or for Greece, so they know that they are dealing with a function, even though they don’t know the function.
* which in fact goes back to Ibn Khaldun — and note that it was formulated as part of a theory of economic+social collapse, not as a justification for cutting taxes.
Snorri- yes, you can say ‘crappy’. You can even use the new modern four-letter curseword ‘c-o-a-l’, but not in front of the kids. Baby goats are very sensitive.
As soon as you depict any rate/revenue relationship that has more than one rate value for a given revenue value
1. I think you have your inputs and outputs round the wrong way here. So long as each input (rate) has a unique output (revenue) you still have a function. It doesn’t matter if an output value (revenue) can be arrived at from multiple input values (rate.)
2. But assuming you meant it the other way round – ie more than one revenue value for each rate value, the question is – why do you think there are such multiple revenue values ? The mere fact that there may be feedback, so that y is a function of x to the power of something, or log x or sin x or whatever, doesn’t automatically generate multiple output values. Sure there may be other independent input variables, but that doesn’t prevent you having a perfectly good function y (revenue) of x (rate) for constant z (other independent variables.) Of course if x affects z then z isn’t an independent variable, and you need to do more math to separate out the x components of z.
3. If all you’re saying is that we could never in reality compute the full effects of a change in tax rates, because we don’t really know what the function looks like, or even whether it is a function at all, fine. But then you can say that about anything in the real world.
4. But if you’re going to decide whether or not to increase tax rates, or reduce public spending, or print a few trillion in paper money, you can either have a wild guess, or you can try to generate a simplified model of the real world to guide your judgement, informed by common sense. I’m for judgement based on common sense. In which the idea that tax rate increases produce less than proportionate tax revenue increases, and sometimes tax revenue decreases, plays a part.
There are several problems with the Laffer curve, the most important of which is that it focuses in revenue rather than spending. Money, and hence revenue is just accounting. Spending is the government allocating resources from the economy to its own purposes, making those resources unavailable to others. The private sector (and by which I include private sector employees) must provide for those resources somehow and hence, taxes, debt and/or inflation. All of these provide a similar drain on the economy just in different manners.
Laffer was an employee of Reagan’s and they used the curve to reduce taxes but could not really get a handle on spending. They assumed (or presented that they did) that the economy would grow to cover that shortfall but there is not justification behind that. Numbers are just symbols we use to represent things but if those things (such as allocating resources from the economy) go unchanged, you’re just changing the symbols, not the actuality.
No that is not quite right. It would be wrong to say could not get a handle on spending, but rather they decided that spending what it took to crush the Soviet Union without WWIII (which is to say rather by drawing them into an economic content they could not win), was worth the expense and in the long run cheap at the price. Any understanding of Reagan (or Laffer) needs to keep that in mind.
I was more referring to entitlement programs and suchlike. I’m on the fence on the soviet stuff.
Besides, the Soviet stuff probably cost a fraction of the rest anyway.
The entitlement spending problem in the 1980s was primarily due to blatant dishonesty by the Democrats, who controlled the Senate and almost 50% of the House throughout most of Reagan’s terms. Reagan had the moral authority to force them to accept tax cuts, and the deal was there would be corresponding spending cuts. The Democrats reneged on that promise. Of course, there was also the massive defense spending buildup which Caspar Weinberger insisted on, to which Reagan acquiesced (and which I think was largely unnecessary; the Soviet Union was already collapsing, but our CIA lied about its intelligence), so he does bear some of the responsibility for the deficits. But not all of it.
And in any event, the Laffer Curve has nothing to do with spending, and never pretended to. It was always and only about revenues. To say that spending is somehow a “problem” with the Laffer Curve is completely incorrect.
I beg to differ with Richard Thomas. It is of course true that whatever resources the government decides to “spend” have to be got from somewhere, somehow. But the details of the somewhere and the somehow are not just accounting. Taxes are destructive of economic activity – which is one of the points of the Laffer curve – but the details of which ones, how much of them, and how levied are very important indeed. It’s perfectly possible to levy a tax that is enormously destructive without it succeeding in raising any revenue at all.
Laird, I’m not seeking to place blame. I’m simply saying that tax cuts without spending cuts is ineffective.
Truly, taxes are destructive of economic activity but so are stealth taxes like debt and inflation (and, indeed “fees” and fines, regulatory burden and minimum wage laws).
So perhaps it would be fairer to say that the Laffer curve is incomplete in that it specifies taxes when it should also include other drags on the economy. It is handy in an off-hand kind of way but more thought and care is needed when implementing policy