Using the Laffer Curve for Life's Other Choices

By Leon Felkins

Written 21 Jul 1990

Revised 15 Jul 1996

"All extremes are error. The reverse of error is not truth, but error still. Truth lies between extremes. "
Cecil

Most of you are likely familiar with the concept promoted by Dr. Laffer with regard to the relation between income received by the government and its rate of taxation. Basically, the "Laffer" principle is that since zero tax rate would give zero income and 100% tax rate would also give zero income (imagine a parasite sucking all the blood from a host - the host couldn't survive), there must be at least one maximum tax rate somewhere in between. A reasonable assumption is that the curve would have a shape as follows (although, it is important to recognize that the point of the maximum is not generally known):

              |   
              |          **
              |        *    *
       Tax    |      *       *
     Revenue  |     *         *
              |    *            *
              |    *             *
              |  *                 *
              |________________________________
                       Tax Rate
                    

               Figure 1 - The Laffer Curve

The intent of this essay is to demonstrate that the concept of the "Laffer" curve has extended application to other fields of human endeavor - in particular, to moral choices.

Is such a curve applicable to moral choices?

"The general average of mankind are not only moderate in intellect, but also moderate in inclinations; they have no tastes or wishes strong enough to incline them to do anything unusual, and they consequently do not understand those who have, and class all such with the wild and intemperate who they are accustomed to look down upon."
- John Stuart Mill (1806-1873) _On Liberty_

J. S. Mill and a more recent political philosopher, Rush Limbaugh, would have you believe that moderation in action and beliefs is something to be despised. But before we follow their advise and start doing everything in the extreme, maybe we should ask Mr. Limbaugh (since Mr. Mill is not readily available) to confirm his convictions by taking this little test:

• How do your like your steak: raw or burnt to a crisp? Or somewhere in between?
• How much sexual activity would you prefer: none or continuous? Or somewhere in between?
• How do you discipline your children: none or constant beatings? Or somewhere in between?
• How many aspirins should you take for your headache: none or the whole bottle? Or somewhere in between?
• Etc.

It seems obvious in examining a few simple cases then that the Laffer curve also applies to most - if not all - moral issues, as well as other choices of life, when looked at in a utilitarian point of view. The following examples provide further confirmation:

• 1. Scope of government control

  Looking at the minimum (the Anarchy side) in which we have near zero government control, most of us would argue that this is not workable since we need some government for law and order, keeping free trade open, national defence, and the enforcement of contracts. Going to the maximum (the Communism side) in which there is total government control, there is ample evidence again for a non-functioning situation. The ideal must be somewhere in between (libertarianism?).

• 2. Assistance to the needy

  No care for the needy would seem to be too cruel for most people to be comfortable with. On the other hand, 100% assistance for every little problem tends to promote everyone to seek help for the smallest of problems and to destroy any incentive for self-help. After awhile, the providers would be unable to support those needing assistance. The ideal must be somewhere in between.

• 3. Eating

  Results are obvious.

• 5. Exercise

  Science and industry has managed to get most of us away from any manual labor. Unfortunately, it didn't take us long to realize that we need physical activity. So now we exercise - hopefully at or near the point of maximum return.

• 6. Freedom in the work place

  A work place in which there was no security, so rules and freely available supplies and petty cash, would not last long. On the other extreme, a "police state" environment in which every thing is controlled and everything is under lock and key and there are rules for every situation is intolerable also.

• 7. Maximizing your skills

  If you spend no time in studying what others have done, you are not likely to ever be proficient in any skill. On the other time if you spend all your time studying others, you may be moderately proficient but are not likely to be outstanding.

• 8. Other examples, briefly described:

  • Raising Children: Discipline from none to harsh
  • Sexual Freedom: From none to irresponsible promiscuity
  • Telling the Truth: From never to always
  • Saving Money: From none to all of your earnings
  • Freedom of the Press: From none to no restraint
  • Vitamin taking: From none to 1000 per day

What are the implications?

The immediate conclusion that one must come to when faced with this situation is that concepts of "right" and "wrong" or "good" and "bad" are meaningless, as many have already concluded for other reasons. They are meaningless because they assume a bipolar relationship: "good" is on one end and "bad" is on the other end. That is rarely true, if ever. The best is somewhere in the middle and since there will always be some judgement involved, the location of the best is likely not well known or agreed to. (Mark up one for the Catholic Church - they have always taught the "moderation" was the proper approach to life)

Consider the issue of "child abuse". Most would quickly proclaim that they are against child abuse. But the issue is not so clear. What may be child abuse to you may be deserved punishment in another's view. The issue gets really messy when you try to impose some sort of law. At the low end of the curve would be "no one can ever inflict any physical pain on a child". At the other end of the curve would be to allow anyone to beat a child at their pleasure. I am opposed to both of those extreme positions. So when you and I are trying to determine who is the most "moral" we have a problem in first agreeing where the maximum of the curve is and secondly determining where our particular attitude is located on the curve.

Interestingly, if the curve has a maximum there are at least two positions on the curve that would have the same value. A simple example should illustrate this: what speed limit is optimum? Near zero speed is obviously too costly for the economy and with a small amount of reflection it is obvious that unrestrained speed would also be very costly. Somewhere in between is best and lets say for argument, the true maximum is at 70 miles per hour. It is obvious that on each side of 70 there will be points that match in value. For example, 40 and 120 MPH might have the same value/cost to our economy. If I advocate 40 and you advocate 120 we are both promoting the same end result even though you may try to paint me as an extreme conservative and I may call you an irresponsible liberal.

The most fundamental conclusion is that the most "immoral" attitude of all is either extreme!

Improper Arguments:

The Necessity of Vagueness

The ramifications:

• Some Examples of the Application of Extremist Logic:

  Although most individuals, left to their own devices -- while preaching absolute extremism -- will actually take moderate positions, politicians and religious leaders tend to take extreme positions. This is due to a couple of reasons: 1) A moderate position ("Under certain circumstances it might be ok to kill") is difficult to explain in a few words (a "sound bite"), 2) Moderate positions are viewed as a sign of weakness by many people, and 3) The public wants simple rules from leaders -- moderation is far more complicated than extremism. Here are some recent examples of the trouble we get into when we take extreme positions.

  • Crime and the best interests of society:

    An argument is made that the criminal has or should have certain rights. When carried to the extreme, in either direction, this results in a net loss for society as a whole (which includes the criminal). Society would be best served if the criminal had _some_ rights - but not too many!

  • The Asbestos Issue:

    We are spending billions removing every last trace of asbestos from our buildings. Actually, the environment would be better off if much of it were left alone.

  • The drug Issue:

    We are spending billions trying to eliminate the use of recreational drugs by our society. A moderate solution (controlling drug use similar to the way we control alcohol use) would make far more sense and not cost nearly as much.

• Moral absolutes are easy:

  "Honor thy father and thy mother" doesn't seem to make sense if your father and mother were worse than Bonnie and Clyde and Jim and Tammy combined.

• Centuries of being taught Moral Absolutes = Total Chaos today:

  An examination of the media on any day will convince you that the majority of humanity can only think in terms of absolutes. There is no middle ground. We pay a dear price for these attitudes. I suspect that religion can be given credit for this mess. God did not say "Most of the time it is unwise to kill". As I mentioned above, most people -- while actually practicing moderation -- want to believe the simple moral absolutes. One thing is for sure, they do not trust their leaders to practice moderation. It is said that such a dichotomy exists in the human psyche as we all be so much better off if we faced up to the reality that, in real life, moderation is best -- just as it is with government tax rates!

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