Over the Thanksgiving holiday, Economic Growth DC stumbled upon what could be the greatest website ever created: The Economics of Seinfeld. These are basic economic concepts illustrated through the magic of Seinfeld. This first clip addresses incentives. Newman wants the post office to transfer him to Hawaii because the air is so dewey sweet you don’t even have to lick the stamps. Jerry wants Newman out of his life, so he is incentivized to join forces with Newman and help Newman get his transfer.

We all respond to both economic and non-economic incentives every day. Most people want to get paid and so they get up and go to work every day. That’s the most basic economic incentive there is. Making a higher salary and having fun are the economic and non-economic incentives to attend college.

Governments have decided that one of the best ways to get people to stop smoking is to raise the cost of smoking by applying punitive tax rates to a pack of cigarettes. Forget about whether this encourages the creation of a black market for cigarettes, high taxes serve as a disincentive to smoke. This is the Laffer curve at work. The same priniciple applies to income tax rates. If you want less work, attach a high tax rate to it and you’ll get less of it. If you want more work to be performed, provide incentives to work by lowering the tax on it.

We never really imagined we would have a good reason to post Seinfeld clips on our website, but those reasons have arrived:

 

  • http://cultofsundries.com SK ๐Ÿ”Ž๐Ÿ‘ฝ๐Ÿ”

    This is the Laffer curve at work. The same priniciple applies to income tax rates. If you want less work, attach a high tax rate to it and youโ€™ll get less of it. If you want more work to be performed, provide incentives to work by lowering the tax on it.

    Idiotic simplification. This is like saying that if you can hold your breath for two seconds, you can, then next hold it for four. And that if you continue, you’ll be able to hold it for hours.

    If you pay people more, do they work more? Sure. To some extent. But there are constraints you run into where you get diminishing returns. Sometime, people work less because they are happy when so few taxes are taken out that they enjoy what they have

    The Laffer curve is one of the most misrepresented principles around, no thanks to the guy who suggested it.

    There is not necessarily one maxima (or minima) either. It could well be that at 2% taxation you have enough workers working and employers happy. And it could be at 71% that such happens as well.

    Cutting taxes is fine. As long as you do not spend on what the taxes go to. Cut down on defense, medicare, medicaid, and other endeavors that we all benefit from, and see what happens.