From a recent article (Obama’s Math Works Only in BizzaroEcon World) by Dr. Don Boudreaux at Cafe Hayek:

Last night on “60 Minutes” (HT IndianaJim) President Obama said to interviewer Steve Croft about tax cuts:

Steve, the math is the math. You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else.

This answer reveals a deplorable understanding of either economics or math or both.

His logic is simple and quite correct: lowering taxes has the same effect as giving out discounts at the local shopping mall. Each item costs less (and hence provides less profit for each item sold), but more people buy it (which increases overall revenue). The mall owners are hoping that the loss in profit on each item is offset (and indeed, outweighed) by the increase in revenue by more items sold.

However, Dr. Boudreaux misses (or ignores) two points.

One, there is no guarantee. What happens to the shopkeepers if the increase in items sold does not lead to enough profits to balance the lower profits on each item? Simple: they take a overall hit in earnings. More, can the shopkeeper afford to take this risk when he *already* has sky-high debts against his name? *Should* he?

Two, Obama’s quote is at an interview on 60 minutes, which is a very well regarded, national-level, widely watched program. Is Obama, on this show, trying to reach out only to the Economists that view the show? How complicated would it be to explain to the population at large (given the time constraints of the interview and attention constraints of viewers in general) to explain the logic in detail? If his idea is to reach out to the largest possible fraction of viewers, is it wrong on his part to keep the math simple and unambiguous?

The second point above is—well, secondary. The first point, however, is paramount, and something that Dr. Boudreaux simply does not mention in his post.

See, for example, this post from Squashed, which summarizes the incomes and expenditures (again in a simplified manner) of the US economy.

Can Dr. Boudreaux *guarantee* that such a large deficit can be overcome by not increasing taxes? If he can’t, should be blame Obama for simplifying matters for the benefit of his audience?

(**P.S.**: I don’t care much for politics in general; I am only miffed at Dr. Boudreaux for glossing over details—while shaming someone else for glossing over details.)

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