People are rational. No, no, really
One of the more idiot arguments against standard neoclassical economics is that it assumes that people are rational. Instead, runs the drivel, we should assume that people are irrational and that then allows us to insist that everyone should do as we say. Quite where the rationality of those who tell comes from in such a system is always left unsaid. Possibly they’re just the right kind of people?
But from one day of the newspapers:
The Deputy Prime Minister admitted on Friday night that she removed her name from the deeds of her family house before buying a seaside flat 250 miles away that saved her £40,000 in stamp duty.
At the same time, Ms Rayner, who is also Housing Secretary, insisted her old home in Greater Manchester remained her main residence. In doing so, she has been able to avoid paying £2,000 in council tax on a third property, a grace and favour flat in central London.
Whether these are the things that have been done we don’t know. We’re also entirely agnostic at this point over whether things being claimed are things that should have been done. But look at what the claim actually is - Ms. Rayner has organised her affairs so as to reduce her tax bill. Seems perfectly rational behaviour to us.
Bank tax fears wipe billions off Britain’s biggest lenders
Financial shares fall on concerns about a windfall levy to help chancellor Rachel Reeves plug a multibillion-pound hole in the public finances
At one set of tax rates the future income from banking is worth some amount. At some other level of taxation it’s all worth a different amount. When people start talking about changing the taxation from one level to another then the value of the banking system changes. Seems perfectly rational to us as well as forward looking.
State benefits above the minimum wage are paid to a million Britons increasingly being parked on welfare for mental health conditions, new analysis shows.
One million people are out of work and claiming a combination of sickness, disability and housing benefits worth at least £25,000 a year, according to the Centre for Social Justice, a think tank.
By comparison, a full-time worker on the national minimum wage will take home about £22,500 after income tax and National Insurance next year.
What would we expect rational and forward looking people to do in such circumstances? What do we actually see - a vast rise in those claiming sickness benefits.
Eh, we’re fine with the idea that people don’t have perfect information and that not all people are always wholly rational - see Mr. Ed - but it really is true that people will expend effort to understand the system and then order their lives to make the most of the main chance. Which is rational, right? Ministers - even if not all of them - show this to be true.
Tim Worstall