A friend of mine ran a search for the terms “real gdp per capita” and “tax rates” on google. He wanted to find out what tax rates lead to fastest real economic growth. The top two hits were this and this, two posts I wrote. And when he saw those, he remembered that I’ve had a few others along the way.
So he called me up, congratulated on my status as a minor authority, and then noted that this speaks poorly of the field of economics. I tend to agree.
I’m not an academic, nor am I with a think tank, nor do I advise any politician or party or whatever. I am trained as an economist, but I haven’t yet done any consulting work of a political or macro-economic nature. (Note – I’d love to get involved with political consulting, but I haven’t figured out how to market myself to those who hire people for that sort of work.) My work, if you want it call it that, on Angry Bear, is a hobby, done in what little spare time I have.
And this issue, the issue of how high taxes should be, is potentially the most important one in macroeconomics. Taxes are a necessary evil – they fund government. Government, in turn, isn’t important for its own sake – its just a social construct after all, but it is important for what it can do for society. Someone has to build bridges, provide a legal system, and keep the damn Canadian hordes at bay. All of these things, and more, are necessary to a well-functioning society, not to mention a well-functioning economy, and all of them cost money. And that money comes from one of three places: its either taken from the citizenry in the form of taxes, its taken from the future citizenry in the form of futures taxes (i.e., its borrowed), or (God help us), its printed. (Since the latter is such a bad option, I’m going to disregard it for the rest of this post.) Each of these options slows down the economy to some extent. Thus, it is vital to find the optimal balance – that level of government (and of taxation – today or tomorrow) that is best at making us all collectively better off.
To some extent, that translates to… at this point in time, given current conditions, is the government more or less efficient than the private sector at producing growth from a marginal dollar? For a lot of people, the answer to that question is a reflexive one – at any level of taxation, cutting taxes produces faster growth. And like all reflexive answers, its mostly wrong. But like many reflexive answers, its an attractive one – its easy (“of course the private sector is more efficient than the DMV”), and it provides a convenient excuse for one’s own failings (“I would be doing so much better if only the gubmint stayed out of business”). But it doesn’t fit the facts. If it did, the many very well funded right wing think tanks would be pumping out study at study showing precisely that – not that they aren’t already – but those studies wouldn’t be so carefully parsed and shaded.
All of which raises the question… where is everyone else? Where is the left, and more importantly, where is the middle? Why have the professionals ignored one of the most important questions in society, leaving it to the crackpots, the nutjobs, and bloggers (of course, there is some overlap between the three groups)?
BTW… my friend points to this study (similar to another blog post of mine, in fact) as one of the few examples of professional quality research that he’s managed to find. What else is out there? Anyone have suggestions?