On how things don't necessarily turn out as planned


It's entirely common in economics for us to find that, when looking at a particular problem or change, we've actually got two different processes going on. Each working in different directions that is, meaning that the correct answer to most economic questions is in fact "it depends".

One example might be income tax rates: will the lower post tax income mean people will work longer to gain their desired post tax income or will the lower income from extra work mean that people will lower the hours they do in order to have more of that now cheaper leisure? The answer for different people will be different but in aggregate this is what gives us the Laffer Curve. The "it depends" depends upon the society, the people in it and the tax rates that we're discussing. We'd not be surprised to find that a tax change from 10% of marginal income to 20% has a different effect in aggregate from a move from 80% to 90% (and even less if we look at percentage changes, a doubling of rates from 10% to 20% or a doubling from 40% to 80%).

This failure to understand the "maybe" nature of many economic answers leads to problems far beyond tax rates of course. It's generally accepted that if we all had electricity monitoring meters, which told us how much that extra light bulb, leaving the standby on, computer and broadband 24/7, cost us, that we would all react with horror and reduce our electricity consumption immediately.

Well, mebbe:

Asda were flogging these off cheap at £10 (an electricity monitor-Ed), a great buy. I watch with glee the cost of my juice now.

It's peanuts. I no longer have to feel guilty about turning things off. 13p an hour it is reading at the moment and Mme Elle Gee is scrubbing my smalls, Herr Bosch is ensuring the cutlery is shining ready for the next feast of unseasonal food that is being kept safe in a permafrost.

Tonight the wine will be chilled and the table lit better than any was at Versailles in its heyday. Two computers provide access to educational, and other, delights beyond the dreams of any Victorian bibliophile. And the television, wireless and music boxes outshine any collection of opera houses, vaudeville stages and sweaty cellars.

We live better than royalty ever did, all for pence a day.

How many react that way and how many will keep a gimlet eye upon the meter for the extra pennies will determine whether meters do in fact reduce electricity consumption or not. And the truth is, we don't actually know, we won't in fact know until meters are installed and we find out.

You see, the answer to so many questions in economics is simply "it depends".