Taxes & Laffer Curves

I would like to expand slightly on my last post, with the following observation:

The purpose of taxes and tax policy should not be to "raise as much revenue as possible", i.e. to transfer as much money as possible from private individuals to the government.  Rather, the aim of tax policy should be to raise only the amount of tax necessary to fund the services which we collectively wish the government to supply.

This comes with additional caveats, such as publicly funded projects should be required to meet certain minimum criteria for funding, such as passing cost-benefit analyses.

Chris Dillow on Laffer Curves

Chris Dillow blogs on Laffer Curves over at Stumbling and Mumbling.

A slice:

"8. There are two contrary but tenable positions here.  One is "the revenue-maximizing tax rate might be high, but high taxes are undesirable because they infringe freedom."  The other is "The revenue-maximizing tax rate could be low, but high taxes are justified to reduce the adverse effects of inequality."  Both of these positions are rare - which makes me suspect that there's quite a lot of motivated reasoning on both sides."

My position is something akin to the former, i.e. "the revenue-maximizing tax rate might be high, but high taxes are undesirable because they infringe freedom."

Worthwhile reading the whole thing, it is short and contains a lot of clear insight.

Tyler Cowen's Three Laws

He posts them here.

The more I learn on any topic the more law #1 rings true:

"1. Cowen’s First Law: There is something wrong with everything (by which I mean there are few decisive or knockdown articles or arguments, and furthermore until you have found the major flaws in an argument, you do not understand it)."

Cheryl must be a politician as she can't answer a straight question

There's a little logic puzzle that's been doing the rounds on the internet for the past few days, that probably everyone has already seen by now.  Seemingly it's come from some Singaporean schoolchildren's homework.  It is a rather fiendish puzzle and seems to having been given a lot of adults difficulty.

Here is the question:

"Albert and Bernard just become friends with Cheryl, and they want to know when her birthday is.  Cheryl gives them a list of 10 possible dates.

May 15, May 16, May 19, June 17, June 18, July 14, July 16, August 14, August 15, August 17

Cheryl then tells Albert and Bernard separately the month and the day of her birthday respectively.

Albert: I don't know when Cheryl's birthday is, but I know that Bernard does not know too.
Bernard: At first I don't know when Cheryl's birthday is, but I know now.
Albert: Then I also know when Cheryl's birthday is.
So when is Cheryl's birthday?"

If you want to have a go at figuring this out for yourself and don't want to know the solution stop reading now.


There are loads of solutions to this problem posted all over the internet and in various news outlets now, but having seen a few of them and worked through the problem myself, none of the explanations I've seen seem particularly clear or well explained - the best one I've seen so far has been on the NY Times website.

Here is my attempt to explain the solution:

After giving her list of ten possible dates, Cheryl tells Albert the month and Bernard the day of her birthday.

Albert and Bernard both have more information than we have.  The key to figuring this out is to keep this in mind and to pay very close attention to the statements made by Albert and Bernard and the information that they (inadvertently) reveal.

Albert states that he doesn't know the exact date of Cheryl's birthday, but he knows that Bernard doesn't know it either.  However, Bernard could have known the exact date if it had been May 19 or June 18, as in our range of dates these are the sole occurrences of these specific days (18 & 19), therefore if it had been either of these dates Bernard would have known the exact date right away.  The fact that Albert is so confident that Bernard doesn't know the exact date of Cheryl’s birthday reveals (to us and to Bernard) that Albert knows the month isn't May or June (and therefore must be either July or August).

This leaves us with the following possibilities:

July 14, July 16

August 14, August 15, August 17

Bernard then declares that at first he didn't know, but now (following Albert’s first statement) he’s figured it out.  So, Cheryl’s birthday can’t be on the 14th of the month, otherwise Bernard wouldn't have been able to narrow down whether it was in July or August.

This leaves 3 possibilities:

July 16

August 15, August 17

Albert then claims to have figured it out as well, which means that it can’t be either of the dates in August, otherwise he wouldn’t have been able to narrow down the day.  This leaves July 16 as the only possible date of Cheryl’s birthday.

Meanwhile, in Norway...

Bastøy Prison in Norway is home to some 115 criminals, including the the country’s most dangerous, convicted of crimes such as murder, rape and drug dealing.  However, this is not your conventional prison:

"There are no barbed-wire-topped walls or electrified fences circle the island, nor do armed guards and attack dogs patrol the grounds. Prisoners live in brightly painted small wooden cottages, and tend to farm animals, grow crops and chop wood. For recreation, there's a beach where prisoners sunbathe in the summer, plenty of good fishing spots, horses for riding, a sauna and tennis courts."

They seem to be doing something right:

"Only 16% of prisoners who come out of Bastøy reoffend within two years of being released, compared to Norway's national average of 20 percent, and the European average of 70%."

"Arne Kvernvik Nilsen quotes several inmates saying “The time I have spent here has made me to realize that I’m not such a bad guy. And I have decided that I will change my way of living”.  "This is not something that we can punish them into discovering,” said Nilsen."