At the margin

Last weekend, Martin Johnson said that 'International rugby is all about fine margins' after our depressing loss to South Africa. He is of course right: though there were times when the gap looked a little bigger than that, the reality is that minor changes appear large when played the game is played at that level - small differences matter.

This is hardly news to any economist. The reason demand curves look like they do is because marginal changes to feed through to behaviour overall even if they individually appear to be negligible. Of course this is slightly counterintuitive because no one wants to admit that they might be influenced by 1 or 2% at the margin, but at some point price changes mean behaviour changes, so that margin works somewhere. You would have thought from the coverage of the various economic discussion that people had fogotten this essential fact. Labour has long been guilty of this - I remember Adair Turner's Just Capital which claimed that the difference in incentives didn't change at low increases in income tax - rubbish - and a general heavy handedness on economic policy. Now we're at too: John Redwood may have a point about income tax being a better cut than VAT, but not that 2.5% doesn't matter when goods have been reduced by 10-20% so it won't matter.

I'm not a professional economist; I haven't done this formally for over 10 years, and then hardly to a high level, but I know that we need to stop pretending that the only change that counts is a big bang. Small percentages always matter.