Article Image The Laffer Curve

Life's Other Laffer Curves

Written by Subject: Political Theory
Life's Other Laffer Curves

By: S. Leon Felkins

(This is a revision, written on 6/5/06, of the original essay written in 1990.)

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

A year or so ago while on a short trip by auto, I decided to tune in to ole' Rush Limbaugh just to hear his latest rants. Turns out he was blowing off about an issue that I heard him rant about many times before; his disgust with moderation and those who practise it, the "middle-of-the-roaders". It seems that Rush finds those who think that life is best lived "somewhere in the middle" -- and certainly not at the extremes -- to be despicable. Maybe even worse than one of the extremes, the "bed-wetting" liberal.

While his view may or may not be justified in the "left vs right" politics arena, I would bet that Rush does not apply this principle to the rest of his life.

So, I sent him an email in which I made the following points:

Dear Rush:

1. How do you like your steak -- raw or burnt to a crisp? Or somewhere in between?

2. How much sleep do you like -- 24 hrs a day or 0 hrs per day? Or somewhere in between?

3. How much should we help the poor and ill -- none or treatment as good as a king? Or somewhere in between?

4. How should children be disciplined -- No punishment or beat them to a pulp? Or somewhere in between?

5. How much government should we have -- None or Totalitarian? Or somewhere in between?

6. What kind of armament should citizens be allowed to have -- None or nuclear weapons? Or somewhere in between?

7. How much sexual activity do you like -- None or continuous? Or somewhere in between?

8. How do define a "speedy trial", guaranteed by the Constitution -- Within the next 24 hours or the next century? Or somewhere in between?

9. How much do you tip -- Zero or a week's salary? Or somewhere in between?

10. How many hours per day would you like to preach on you talk show -- Zero or 24 hours? Or somewhere in between?

11. How much sexual activity would you prefer: none or continuous? Or somewhere in between?

12. How many aspirins should you take for your headache: none or the whole bottle? Or somewhere in between? [Whoops, I'm in no way suggesting that you are a moderate on taking drugs.]

Sadly, I never heard back from Rush, so I will never know if he is a "middle-of-the-roader" on these and thousands of other daily life issues.

The point that I was trying to make with Limbaugh is that for almost all of life's problems and processes, there are choices that are nearly always better than the choices at either extreme -- just as Dr. Laffer has shown with his famous "Laffer Curve".

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 tax rate somewhere in between that is optimum and a range that is better than at the extremes. A reasonable assumption is that the curve would have a shape roughly as follows (although, it is important to recognize that the point of the maximum is not generally known):









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 -- and especially -- 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. The situations I named to Limbaugh, outlined above, demonstrate that this is not so.

In fact, almost every activity that we can think of seems to have a preferred level somewhere between the two extremes -- just like the economic "Laffer curve" for taxation.

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 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, the enforcement of contracts, and establishing toilet flush volumes. Going to the maximum (say 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, no 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 by Study

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 hand 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

The Necessity of Vagueness

"Every nation, in every region, now has a decision to make. Either you are with us, or you are with the terrorists." -- President George W. Bush, September 20, 2001

Since it seems that taking extreme positions is not very desirable, that means that some arbitrary point between the two extremes must be chosen. This brings up the problem of vagueness which I discuss in another essay, " Dilemmas of Ambiguity and Vagueness". Vagueness creates very serious problems for both politicians and religious leaders who tend to be dogmatic and who try to create definitive laws and rules.

Characteristics of the General Laffer Curve

"It is by now well understood that a successful system must trade off decision quality for deliberation cost." -- "Approximate Reasoning Using Anytime Algorithms" - Zilberstein, Russell (1995)

Unlike the typical graph of the Laffer Curve as it is defined for the maximization of tax revenue (see The Laffer Curve: Past, Present, and Future), the Curve for life's other activities, in general, I believe is broad and wide. There are a couple of reasons why this is the most likely case.

One, there is what appears to be a fundamental law of nature, the problem of "unintended consequences" (A great book on this subject is Why Things Bite Back: Technology and the Revenge of Unintended Consequences by Edward Tenner). For almost every endeavor with have consequences that are opposite or at least detract from the intended results. In fact, in many cases, the unintended consequences may exceed the intended results!

A great example is the so-called "War on Poverty". Let us assume for the moment that the politicians that initiated this "war" actually intended to reduce poverty -- which may not be true at all as most of us would conclude now. However, the politicians found to their dismay (maybe, who knows) that the actual amount of poverty increased as a result of these tremendously expensive efforts. One major reason why this monstrous unintended consequence came to be was that when you give people, that seem to need help, handouts you give them a great incentive to appear to be poor and in particular to not try to correct their poor condition.

The second reason why the curve is likely to be broad in nature is due to the complexity of most of life's activities and problems. The best I can do to make my point is to give a couple of related examples.

Simon's Satisficing Theory

"Evidently, organisms adapt well enough to ‘satisfice’; they do not, in general, ‘optimize.’" -- Simon, Herbert A. (1956): “Rational Choice and the Structure of the Environment”, Psychological Review 63(2), pp. 129–138.

The Nobel Prize winning economist, Herbert A. Simon, put forth the idea of "satisficing" as opposed to "maximizing" of life's processes. He claimed that "bounded rationality" was good enough for most decision making. Why would this be so? While I an not an economist or a whiz at mathematics, I suspect it is because the performance curve is very broad and that it doesn't matter too much where you might decide to stake your claim.

A Computer Science Example, "First Fit is Best Fit"

Or something like that. In computer science, the professor teaches you that when a computer needs to store some data and it is looking for a hole to put it in, a damn good algorithm to follow is just stick the data in the first empty slot big enough to hold it! To do otherwise is too costly. To me, this sounds very much like Simon's theory and further, a good strategy for other decisions in life. By the way, this algorithm does have more general application and is used in other fields such as shipping and storing inventory in warehouses.

Another characteristic of the Laffer Curve is that it could have more than one peak. I understand that marketing of software could have at least two maximums for profit return. You could set the price high, like say the price for Adobe's Photoshop, and make a nice profit just by selling relatively few. Or you could go low and hope to sell millions and only make a buck or two off of each. The price is quite arbitrary, for the CDs that contain the software really only cost a few pennies each to produce.

How to determine that a given process might have more than one peak is beyond the scope of this article -- or my abilities.

But let us get back to the more basic conclusions that come from the realization that decisions should in general not be at the extremes.

What are the implications?

[Virtually all problems presented to problem solvers are, from the outset,] … "best regarded as ill structured problems. They become well structured problems only in the process of being prepared for the problem solvers. It is not exaggerating much to say that there are no well structured problems, only ill-structured problems that have been formalized for problem solvers." -- Simon, Herbert A. 1973. “The Structure of Ill-Structured Problems,” Artificial Intelligence 4: 181-201.

There are serious implications to the realization that for any activity, taking an extreme position is not desirable.

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 that "moderation" was the proper approach to life. Even more profound and clearly expressed is the Eastern philosophy of the "Middle Way".)

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 for open highways. 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 total value/cost to our economy and society. 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!

In Conclusion, Some Ramifications:

"Doubt is not a pleasant condition, but certainty is absurd." -- Voltaire

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 -- at least for other people. 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 are 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.

Abusive Regimes

When should other countries step in to a situation where one country is brutally abusing its citizens? (when should you step in when you notice that a neighbor is, in your opinion, brutally treating his children?) Should we have moved in to stop the slaughter in Rwanda? On the other extreme, should we insist -- backed up by force if necessary -- that every country in the world be "democratic"?

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. Maybe in some cases, we ought to back off from such moral absolutes?

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 (at least in the U.S.A.) has somehow evolved such that it can only think in terms of absolutes. Rarely is there a middle ground. We pay a dear price for these attitudes. I suspect that religion and politics can be given credit for this mess. 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 continues to exist in the human psyche even though we know we would 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!

My Web page on Political Philosophy.