Calculus Saves the Economy!

I’m taking a bit of flak in comments to my silly Bob Dylan post from Sunday, with various right-wingers spontaneously popping in to tell me that JFK cut taxes. My initial reaction to this is to think that supposing a perfect equivalence between JFK cutting the top rate from 90% to 70% during a time of relative peace and prosperity and our current economic scenario is yet another demonstration of the fine grasp of historical and mathematical reasoning that makes the Tea Party crowd such a treat.

But, then, it occurred to me that maybe their claim is that it’s the act of cutting taxes that spurs economic growth, and that the initial and final tax rates are not important in and of themselves. In which case, I think I see a foolproof plan to achieve infinite economic growth.

See, if it’s the act of cutting taxes that matters, not the start and end points, then clearly, you don’t want to move from the current economic hellscape of a 35% top rate (according to Wikipedia, anyway) to whatever the optimum tax rate would be– not zero, because if we had zero taxes, we wouldn’t have the money to fund futile foreign wars, and we couldn’t have that, but some very small rate that we’ll call ε– in a single step. Clearly, you would be better off splitting that cut into two smaller cuts, each of:

K=(R-ε)/2

(where K is the amount you reduce the tax rate and R is the current rate). Cut taxes once this year, and reap the benefits of magic economic growth, and again next year, and you’ll get twice the growth. It’s a win-win.

But it gets better…

If two cuts are good, then three would be even better. Cut the rate by

K=(R-ε)/3

for each of the next three years, and you get three years of economic growth. And, of course, being savvy math-capable types, you can immediately see where this is going. If each tax cut gives you economic growth, than you can guarantee N years of increased growth by cutting the rate by:

K=(R-ε)/N

each year for the next N years.

Like a good physicist, of course, I immediately recognize that that N in the denominator gives us the opportunity to take the limit as N goes to infinity, effectively turning the sum of cuts into an integral. In which case, we can generate infinite economic growth. The tax rate will asymptotically approach ε, but the economy will increase without limit. Soon, we’ll control the economic resources of the entire Virgo cluster, and we’ll be able to build particle accelerators to probe the Planck scale using change found in the couch.

You know, I’ve more or less resigned myself to the fact that I’ll never win a Nobel Prize in Physics, but the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel may yet be mine!

Or, you know, the “Kennedy was in favor of cutting taxes!” argument is a bunch of crap generated by people with a grasp of historical context that would embarrass the average ornamental carp. I know which one I think is more likely.

Comments

  1. #1 Eric Lund
    November 9, 2010

    A rising tide lifts all yachts. Cutting marginal tax rates will stimulate the wealthy to, um…pay an even more outrageous price for that 100 footer or that 8 bed/9 bath Hamptons cottage or that Van Gogh original. Your mistake is in assuming that their plan is designed to stimulate the economy for ordinary people. In truth, if you have to ask the price of a piece of real estate in the Hamptons, you are considered irrelevant.

    (do I really need a snark tag for this?)

  2. #2 Bob O'H
    November 9, 2010

    (do I really need a snark tag for this?)

    Yes, as long as you can close it properly (unlike some people, hint hint).

  3. #3 Blatty Teilhard
    November 9, 2010

    It is possible to have low taxes, low debt and surplus.

    Singapore is an example of a successful state with low taxes even with no natural resources- they even import their drinking water.

    What we need here is hard real data from trials.

    Lets take the country, chop it into ten different economic zones, with different taxrates and lets collect that data.

  4. #4 Wilson
    November 9, 2010

    Oh, Chad, you make me laugh. (With you, not at you, lest that not be clear.)

  5. #5 Vicki
    November 9, 2010

    It gets better.

    If all that matters is the act of cutting taxes, we can get magic economic growth and collect more money: First, we cut taxes by, say, .1%. Then we raise them by 5%. Then we cut them three times, by .2% each time. Then raise by another 3%, followed by 3 more .5% cuts. And so on, similarly, until we get the rates up to whatever’s needed to pay for Dubya’s wars and tax cuts, and maybe even create some jobs. But we’ve had seventeen, or 359, tax cuts, so all should be peachy-keen.

  6. #6 Bill K
    November 10, 2010

    “In the fall of 1972 President Nixon announced that the rate of increase of inflation was decreasing. This was the first time a sitting president used the third derivative to advance his case for reelection.”

  7. #7 Ian Kemmish
    November 10, 2010

    At risk of being too serious, I’ll just point out that after inventing calculus (well, depending on your loyalties), Isaac Newton went on to reform the coinage, crack down on counterfeiters, and put Britain on the gold standard.

    At risk being a nasty pinko foreigner, I’ll just point out that the original Tea Party was held because the New England smugglers were so inefficient that their contraband tea actually had a higher retail price than the genuine, duty-paid stuff.

  8. #8 Eiswein
    November 10, 2010

    I have to go with the carp. That’s the level of IQ that screams about “tax and spend” liberals (TM) but suffers brain death when presented with “spend and spend and spend and, oh, here’s a ginormous tax cut for you rich and corporate types”, which brilliant mathematical model landed us in the hopper where every state is bleeding from the withdrawal of federal funds (and, you know, raising your taxes locally…hello, dimwits), and two wars just sailed along unpaid for as the price tag grew till it was as dense as the average neutron star. And now the purveyors of this method of governing are back to do it again. I’ll be in the koi pond till this is over.

  9. #9 Eric Lund
    November 10, 2010

    “spend and spend and spend and, oh, here’s a ginormous tax cut for you rich and corporate types”

    Otherwise known as “borrow and spend”.

    Of the two, I also prefer “tax and spend”, which at least acknowledges that the money being spent has to come from somewhere.

  10. #10 IBY
    November 10, 2010

    @Chad
    It is more likely for you to win the nobel prize than for the Tea Partiers to be right because at least winning a nobel prize is not an impossibility, just extremely unlikely.

  11. #11 CCPhysicist
    November 14, 2010

    The biggest flaw in this discussion is that it is based on the Tea Party Lie that we haven’t had a tax cut or that Obama increased taxes. The reality is that he cut taxes, significantly, as part of the stimulus bill … and this tax cut might be part of the reason for the creation of a million jobs in the past year.

    It also ignores the fact that the best economy in recent memory followed a tax increase in the early 1990s.