Interesting but the economics were not sound. The Laffer curve is a holdover from Regonomics and not taken seriously anymore if it ever was.

December 8, 2005 @ 1:22 pm | Comment

Horseshit, gw. First, I only mentioned the Laffer curve, not described how it’s working. Second, if you can prove it’s unsound, I’ll listen: The Chinese are quite fond of it, and it’s working well for them.

Thanks for the link, Martyn. As much as we focus on the ugly, stupid things that BJ sanctions, it’s easy to forget that there ARE some positive factors. It makes a really slanted picture if you only consider the tremendous dangers and risks in China, without noticing the opportunities and possibilities as well. That’s just a thumbnail review on my site, but I’m hoping for more discussion on the subject.

December 8, 2005 @ 7:11 pm | Comment

Can’t comment on the Laffer curve but I look forward to any subsequent debate as I know GWBH and he’s a bit of an expert on such topics.

Sam

It’s nice to see someone thinking out of the box on issues like this one. It’s a topic that includes much speculation so the more thinking the better I reckon. Imagethief penned a particularly good comment over at Shenzhen Ren which I would advise readers to, er, read.

December 9, 2005 @ 6:26 am | Comment

Horseshit? A very constructive comment. Cheers.

The Laffer Curve was developed by an Economist named Art Laffer who is the founder of Laffer Associates in San Diego.

The Laffer curve is a theory that relates tax rates to aggregate tax revenue received. It is usually graphically represented by a semi-circle curve with Y Axis zeros at hte origin and at x = 100% Unfortunately I can’t post graphics here.

The Y axis represents revenue received by government, x axis represents tax rates. Obviously if tax rates are 0% the government receives nothing. If Tax rates are 100%, i.e. nobody will bother working since 100% of their earnings go to the governemt. Those are the two endpoints. At any point between the two Y axis zeros the citizen’s earning are divided between the government and the citizen in hte following manner: Citizen takes home Earnings*(1-Tax Rate) Goverment receives revenue = Earnings*Tax Rate.

The government revenues will continue to increase as long as slope of the curve remains positive, i.e. we are on the upward portion of hte semi circle. As soon as the slope changes to negative the government starts to receive less revenue. This is assumed to be the downward portion of the semi circle.

The theory assumes for no good reason other than simplicity in explaining it to non-economists that the progression is linear and smooth. There is no evidence to back this up and generally linear relationships are the exception rather than the norm.

It is also very difficult to determing where an economy is on the Laffer Curve. Regan assumed that the US was on the downward slope so he advocated reducing taxes thus moving the US economy postion on the LC to the left which would increase the gov’s revenue.

This theory has never been proven so there is no need for me to disprove it.

It is an very simple two factor model that is supposed to explain very complex human behavior.

I’ve never met any Chinese person that has heard of the LC much less support it, having said that given it’s naive simplicity and ease of use I wouldn’t be surprised if it was popular with government officials in the PRC.

December 9, 2005 @ 1:35 pm | Comment

Sounds like the tax version of the kuznets/environmental kuznets curve. The problem I have with a lot of these graphs (and I will, admit, this is from a rather economically naive perspective) is that they are taken uncritically as predictive models that apply to any society/context.

Particularly for the environmental kuznets curve, which supposedly indicates that environmental degradation goes down eventually as income grows. This is particularly attractive to governments that (ahem) want to believe that concentrating on economic growth without any regard for environmental consequences is a sound path (ie “oh, that probably will just solve itself automatically, look what the chart says”).

Of course the problem with this is that the environmental kuznets curve shows that in some instances there has been rising income and lowering environmental damage, but this should not be taken as a sign of causality of the former on the latter (in fact, many would argue that it is more factors like civil liberties and political participation which drive the downward trend in pollution, not the rising incomes themselves).

Which leads me to my fundamentally point: why are we always taking models that might describe some particular historical development in a particular place and assuming these are somehow good predictive models for every case and society? (ie the “when income hits this level, this will happen, when GDP hits this level, this will happen…).

Sorry for getting so off-topic, but just reading about those econ-type curves got me going. : )

And yes, obviously, econ drove me pretty nuts in undergrad.

December 9, 2005 @ 2:18 pm | Comment

GWBH, ALL economic models are oversimplified representations of very complex behavior. Whether I had said “low on the Laffer curve by design” or “on the tax curve” wouldn’t matter to the meat of the thumbnail sketch. The idea that “the economics are unsound” is still a horseshit comment, since there is really no “economics” in the article, other than that the CCP is keeping tax rates low for a reason. They have realized, and announced, that too-high rates would be counter-productive, and that if aggregate taxes ever get to 25% that they will reduce rates. Whatever they call their model, they’re operating on a very similar principle, i.e., optimizing the benefit to both the state sector and the growth-generating private sector.

December 9, 2005 @ 8:02 pm | Comment

Thanks for the blinding insight into the obvious that models are a simplification of reality. There are a plethora of far better models to use than the Laffer curve. APT being just one.

I commented on the economics in the article which I found to be unsound not the whole article => “horseshit from you.

25% aggregate taxes? 25% of what? Not providing the base makes the comment meaningless.

December 10, 2005 @ 5:57 pm | Comment