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OSD 232: The gun control Laffer curve
And how individual incentives make it hard for gun control groups to achieve their goals.
In December 1974, a 38-year-old Donald Rumsfeld and a 33-year-old Dick Cheney sat down for dinner at a restaurant two blocks from the White House.
Joining them were an editor at the Wall Street Journal, and a young economics professor named Arthur Laffer. Then-President Gerald Ford had put forth a proposal to raise taxes, and Rumsfeld and Cheney — at the time Ford’s chief of staff and deputy chief of staff, respectively — had some say in the matter.
Laffer was there to convince them to kill the tax hike.
He did so, the story goes, by reaching for a napkin and drawing something like this:
An aspiring totalitarian who sees the role of government as maximizing its rake might take the naive view that the higher the tax rate, the more tax revenue the government will collect.
Laffer argues that that’s wrong. At a tax rate of 0, tax revenue will of course be 0. And tax revenues will rise as the rate begins to rise. But after an inflection point, the distortive effects and disincentives to work created by taxes will begin to outpace the tax revenue gains — so much so that increasing the tax rate will decrease tax revenue.
At a tax rate of 0 percent, the government would collect no tax revenues, no matter how large the tax base. Likewise, at a tax rate of 100 percent, the government would also collect no tax revenues because no one would willingly work for an after-tax wage of zero (i.e., there would be no tax base). Between these two extremes there are two tax rates that will collect the same amount of revenue: a high tax rate on a small tax base and a low tax rate on a large tax base.
This isn’t an exact science. While the theory of the Laffer curve is reasonable, nobody knows its exact shape. It’s a postulate that if you’re interested in maximizing tax revenue, the optimal intensity with which to chase that money is less than 100%. Crucially, this applies even if your goal is to be maximally draconian — it is in a tyrant’s own interests to remember the Laffer curve.
In our Discord last week, a subscriber posted a 2011 article about how video game piracy is really a user experience issue. (Per Gabe Newell: “The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates.”) The subscriber then said:
There wouldn’t be as much interest in printing funny bottle openers if certain NFA items weren’t such a giant pain in the ass to get they’re effectively banned... So now people make their own
So a perfectly rational gun control group’s optimal strategy would be to strike a conciliatory tone, only go for ideas that are popular with a broad base of people, and coax people into compliance. To an extent, that is what they try to do with things like the “common sense gun safety” branding and polls about universal background checks.
But that rational strategy falls apart when it contacts the real world. The gun control groups might start there, but they quickly slide into imprisoning people for having a wrongly-shaped piece of plastic.
Why is that?
What’s rational for the group isn’t always what’s rational for the individuals. Any one individual will have almost no effect on the ultimate outcome, but by publicly staking out an extreme position can have a large effect on their own personal brand. So their incentive is to pursue what’s best for them. Everybody rationally does that, and the group overall becomes less effective.
The economist David Friedman has a hypothetical story to illustrate this concept, which he tells in this video at the Oxford Union:
Imagine that you are part of a line of about 10,000 men with spears, and the spears are pointing that direction. And the reason they’re pointing that direction is that there are another 10,000 men with spears coming at you on horseback.
You do a very quick cost-benefit calculation, and you say, “If all of us stand and keep our spears planted, with luck we can break their charge. And if we break their charge, some of us will die but most of us will live. If we run, horses run faster than we do. I should stand.”
I’m sorry, I made a mistake. I said “we”. I don’t control him and him [the guys to either side] I only control me.
If everybody else stands and I run, one person out of 10,000 will have almost no effect on our chance of breaking the charge, and I won’t be one of the ones killed doing it. If everybody else runs and I stand, I’m dead. Whatever everyone else is doing, I’m better off running.
Everybody makes this calculation, we all run, and most of us die.
This is the story of the recent history of gun control. The more losses that project racks up, the more extreme its ideas get. That’s not the result the intuitive view would predict, but it’s exactly the behavior you’d predict from individuals acting in their own self-interest — but to the detriment of their movement.
In his own explanation of the Laffer curve, Keynes gave an example of exactly this sort of behavior:
Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more — and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.
That’s the way the gun control project has gone, and it’s a useful cautionary tale if you’re interested in gun rights. Gun rights groups aren’t immune to this effect — individual incentives don’t always align with the group’s incentives. The best thing to do is to set a good example and coach people up when they’re falling short.
This week’s links
A long and interesting history of how the NRA built its legislative influence starting in the 1970s.
From a Discord subscriber: “This article begs the question: are the American people and local governments being sold and buying into a fear culture that the next school shooting is coming to a campus near you, and the only way to prevent it is to buy our product?”
The ATF revoked three times as many FFLs in 2022 as it did in 2021.
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Gun apparel you’ll want to wear out of the house.
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