Tuesday, July 6, 2010
Which Pill Would You Take
Let's say you were sick, very very sick. The doctor had two different medications to choose from. Two almost opposite medications. He showed you the following graph of their effectiveness on various patients.
Which medication would you choose?
I think most sane people would choose Medication 1. It appears to be clearly more effective than Medication 2. After all, only one subject taking Medication1 did worse than the best one on Medication 2.
Now, let's look at an identical graph but instead of medications 1 or 2, we have an increase in tax burden or a decrease in tax burden. And instead of an increase in life, we have an increase in real GDP per capita.
Same figure, different labels. This figure is based on data from the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables. Both of these figures are from a post at Angry Bear. I recommend that you read it.
Clearly, raising the tax burden is more beneficial to the economy than reducing the tax burden.