Curious Snippets

Following on from the postings at Freeborn John, on whether Economics is a science, I suggest that it is both a science and an art, like you give a damn.

Economics is most useful and most accurate when treated as an art - big picture economics, concepts and principles which help our understanding of the world. Common sense, logic and gut feeling, can guide decision making.

And Economics is at its most useless and dangerous when treated as a science.

Unfortunately Government is stuffed full of technocrats who love to analyse the hairs on a ducks arse and tell us something completely irrelevant. Treating economics as a science leads to fiddling.

For example, we know that high tax rates reduce incentives and that low rates boost incentives. Do we need to know exactly where the optimal and revenue maximising rates are? Or do we just need to understand the principle and make educated assumptions?

My feeling is that an income tax rate of 20% or so probably has negligible affect on work incentives. At 35% or so the disincentives creep in. At 50% a small trickle of mobile talent abroad starts to gush, and at 70% people begin to give up en masse because it's not worth it. These numbers might be a few % points out give or take, but do we gain anything from trying to calculate the exact numbers?

The people who believe economic science can allow us to hone policies are generally the same people who have fait in climate models. Economies, like the climate, are comprised of practically infinite variables and to think we understand either at a detailed level is absurd. However, at a broad level our grasp is sound.

The good economists are the ones who take a big picture view, who combine their experience and 'feel' of the real world and markets, to hone a gut instinct.