Failure by Hayek is no better than failure by Laffer

A new extra tax on the really rich b’stards seems to have failed:

Emmanuel Macron’s tax on the rich has backfired after raising less than a quarter of what was expected.

France’s finance ministry said that the “differential contribution” – a tax targeting those earning more than €250,000 (£217,000) a year – raised just €400m last year, far less than the €1.9bn initially projected, the newspaper Le Monde reported.

The ministry blamed the reduced tax take on a change to the policy design that meant it could not be applied retrospectively.

Well, yes, they would say that, wouldn’t they?

At which point we could just invoke Laffer and point out that sometimes - note sometimes - tax rises produce less revenue as people change their behaviour.

This might though not be wholly accurate. Dan Neidle:

The French Treasury just messed up. Their estimate of the number of taxpayers/households affected was very wrong, and that blew out the numbers.

That is, the initial numbers used to show how much the tax would raise were wrong. Wrong simply because the Treasury didn’t know how many people there were with how much of which type of income would be affected by the new tax. That is, this is failure by Hayek, not failure by Laffer.

Recall the Nobel lecture, The Pretence of Knowledge. The core lesson of which is that the centre, government, never does know enough about something as complex as the economy to be able to plan in detail. It’s not just wishes and all get to be an autocrat for a day, it’s not intentions, it’s simply the lack of that detailed knowledge that makes it all so difficult. There is also no cure for this - the Hayekian contention is that the centre will never, cannot, have the knowledge in the necessary detail.

Failure by Hayek is indeed different from failure by Laffer. Even if the end result is much the same, the plans of ants and autocrats gang aft agley….

Tim Worstall