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Author Topic:   Trickle Down Economics - Does It Work?
nwr
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Posts: 5160
From: Geneva, Illinois
Joined: 08-08-2005


(1)
Message 31 of 404 (659192)
04-13-2012 10:30 AM
Reply to: Message 30 by Straggler
04-13-2012 9:12 AM


I am asking if cutting the taxes of the richest demonstrably improves the living standards and wealth of society as a whole.

I think the evidence is quite clear that it does.

That is to say, cutting the taxes of Wealthy Americans demonstrably improves the living standards of Chinese society as a whole.


Jesus was a liberal hippie

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Jon
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Posts: 4062
From: Minnesota, U.S.A.
Joined: 12-29-2005
Member Rating: 1.2


Message 32 of 404 (659199)
04-13-2012 11:32 AM
Reply to: Message 22 by Straggler
04-13-2012 5:59 AM


The problem is that you are crediting the wrong people with all that increased prosperity.

The wealthy don't install indoor plumbing.

The wealthy don't grow food.

The wealthy don't build schools and hospitals.

All this prosperity is created by the activities of the poor and middle class. It is all this stuff that drives prosperity; and it's the poor and middle class that make that stuff.

Jon


Love your enemies!

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Straggler
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Posts: 9960
From: London England
Joined: 09-30-2006
Member Rating: 2.4


Message 33 of 404 (659202)
04-13-2012 11:58 AM
Reply to: Message 32 by Jon
04-13-2012 11:32 AM


Evidence Please
Now we are just trading assertions.

Cutting taxes for the wealthiest either demonstrably results in increased wealth and living standards for the majority or it doesn't. This is an empirical question and we need empirical evidence to answer it.

I was kinda hoping my devils advocacy would inspire those who know more about the facts of this than I to present some evidence.

So far we seem to have established that a few people (yourself included) are adamant that trickle down economics definitely doesn't work. This seems to be based on finding the arguments for it unconvincing rather than any actual evidence that it doesn't work. And we have one person (Percy) who seems to think trickle down economics does work (although I'm not entirely sure he was talking about the same economic theory as the rest of us).

I remain skeptical about the claimed benefits of trickle down theory. But I would like to see some economic evidence either way.


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Dr Adequate
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Posts: 12776
Joined: 07-20-2006
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(1)
Message 34 of 404 (659207)
04-13-2012 12:35 PM
Reply to: Message 24 by Percy
04-13-2012 7:39 AM


Re: Milton Friedman
One other misleading thing about the Laffer curve is that many interpret the right side of the curve as indicating declining economic activity. While that is one of the possibilities, another is increasing tax avoidance through bookkeeping arrangements or influencing tax legislation or shifting into untaxed or less taxed economic activities.

True, but in that case there is more than one solution to being on the right of the Laffer curve --- for example, instead of reducing taxes one could pass legislation stopping the loopholes by which tax avoidance is achieved. Or one could raise the taxes on these "untaxed or less taxed economic activities". The existence of these possibilities actually shows that even if we were on the right of the Laffer curve, we could shift to the left-hand side (to be more precise, to change the shape of the Laffer curve so that we were on the left-hand side of it) not by cutting taxes but by increasing them.

jar writes:

No he doesn't.

I'd go beyond making this claim only to be in principle and possible. There isn't any doubt in my mind that taxes can be sufficiently high to dampen economic activity ...

Then I don't see why you think you're disagreeing with me. You say that taxes "can be sufficiently high to dampen economic activity"; I say that in principle it is possible for taxes to be sufficiently high to dampen economic activity. The only distinction between us is that I have used more words.

Edited by Dr Adequate, : No reason given.


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Replies to this message:
 Message 35 by Straggler, posted 04-13-2012 12:42 PM Dr Adequate has responded

  
Straggler
Member
Posts: 9960
From: London England
Joined: 09-30-2006
Member Rating: 2.4


(1)
Message 35 of 404 (659210)
04-13-2012 12:42 PM
Reply to: Message 34 by Dr Adequate
04-13-2012 12:35 PM


Re: Milton Friedman
Dr A writes:

You say that taxes "can be sufficiently high to dampen economic activity"; I say that in principle it is possible for taxes to be sufficiently high to dampen economic activity. The only distinction between us is that I have used more words.

Your additional word(s) make your argument sound more theoretical than practical.

Are there any examples of taxes being so high as to have definitively caused a dampening in economic activity? If so what tax rates induced this situation?

More generally.... I have stolen a graph that RAZD posted elsewhere:

http://www.calamitiesofnature.com/archive/?c=590

This seems to suggest that dramatic increases in the incomes of the wealthiest have actually had little positive effect (if any) on the rest of society. This graph seems to support the idea that trickle down doesn't work.

Is that a reasonable interpretation? Or is this the wrong evidence/interpretation on which to draw that conclusion?

Edited by Straggler, : Spelling


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Dr Adequate
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Posts: 12776
Joined: 07-20-2006
Member Rating: 2.3


Message 36 of 404 (659212)
04-13-2012 12:49 PM
Reply to: Message 35 by Straggler
04-13-2012 12:42 PM


Evidence
Is that a reasonable interpretation? Or is this the wrong evidence/interpretation on which to draw that conclusion?

Well, we can only go by the evidence we have. We can't construct randomized double-blind experiments. On the basis of the evidence we have, I would say that trickle-down is a failure.

Edited by Dr Adequate, : No reason given.


This message is a reply to:
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Replies to this message:
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Straggler
Member
Posts: 9960
From: London England
Joined: 09-30-2006
Member Rating: 2.4


Message 37 of 404 (659214)
04-13-2012 12:58 PM
Reply to: Message 36 by Dr Adequate
04-13-2012 12:49 PM


Re: Evidence
Pardon my ignorance (and I mean that genuinely here) but what evidence do you mean?

What exactly is the evidence available? And how does it point to trickle down as a failure?


This message is a reply to:
 Message 36 by Dr Adequate, posted 04-13-2012 12:49 PM Dr Adequate has responded

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 Message 39 by Dr Adequate, posted 04-13-2012 1:28 PM Straggler has responded

  
Dr Adequate
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Posts: 12776
Joined: 07-20-2006
Member Rating: 2.3


(2)
Message 38 of 404 (659216)
04-13-2012 1:06 PM
Reply to: Message 28 by Percy
04-13-2012 8:30 AM


What I think the question about whether it works is really asking is, "In terms of the greater good, who is better able to decide what the rich should do with their money, the rich or the government?"

Then I think that short of actual evidence, we must suppose that the answer is "the government".

Because "in terms of the greater good", the greater good is a goal that the government actually aims at, unlike rich people.

Now, there are some rich people, from Andrew Carnegie through to Bill Gates, who have given their money to the greater good. I do not dispute that.

But that aside, which is more likely to contribute to the greater good of the American people: Rush Limbaugh spending his money on French wine and Cuban cigars, or the federal government spending the same money on the upkeep of federal highways, which both employs American citizens and improves American infrastructure.?

If you have data, then now is the time to unleash it. If you don't have data, then it seems much more likely that the latter does more for the general good.

If we're talking about social and economic programs, I don't see where the government has ever demonstrated that they're very good at it.

I don't think that they are very good at it. But I suppose that they are the people who are actually doing it.

You're making a comparison of apples and oranges. The government is not very good at social and economic programs. Whereas Paris Hilton is very efficient at snorting Colombian cocaine. Now, clearly our national wealth should be distributed so as to use it most efficiently ...

... oh, wait. The government may not be very good at social and economic programs, but at least it is instituting them. We need such programs, whereas our need for cocaine consumption is not so clear.


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Replies to this message:
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Dr Adequate
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Posts: 12776
Joined: 07-20-2006
Member Rating: 2.3


(3)
Message 39 of 404 (659219)
04-13-2012 1:28 PM
Reply to: Message 37 by Straggler
04-13-2012 12:58 PM


Re: Evidence
Pardon my ignorance (and I mean that genuinely here) but what evidence do you mean?

What exactly is the evidence available? And how does it point to trickle down as a failure?

Well, I was thinking of the evidence that you yourself just supplied.

Average GDP/population has risen. And yet most of that has gone into the pockets of the rich. It has scarcely become easier for the poor to buy food and heat; it has not become easier for the average family to buy health insurance or to send their kids to college. Making the rich richer has not made everyone richer, it has left many people just the same --- or worse. So much for "trickle down". We have made the rich richer, but without making the poor richer --- or the middle classes, if it comes to that. What, precisely, has trickled down?

Now, as I say, we do not have enough evidence to draw a completely satisfactory conclusion. We can certainly imagine that if taxes on the rich had been just a little higher in order to defray middle-class expenditure on college fees, then civilization would have collapsed and you and I would both have resorted to cannibalism. But the evidence that we have is that the increasing wealth of the rich does not bring about universal bliss through the magic of "trickle down".

And there is no reason why it should. Money, after all, is money. If I had another $100/week I can guarantee you that I would spend it. No-one has given me a reason why this money would better stimulate the economy if it was spent by Ms. Hilton.


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Replies to this message:
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Straggler
Member
Posts: 9960
From: London England
Joined: 09-30-2006
Member Rating: 2.4


Message 40 of 404 (659224)
04-13-2012 1:44 PM
Reply to: Message 39 by Dr Adequate
04-13-2012 1:28 PM


Data Data Data....
Well I agree.

All the evidence I am aware of says that the very rich have got very much richer as a result of 30 years of neo-liberal economic policy whilst the rest have experienced stagnation or falls in their economic circumstance.

The majority of people work longer for less or the same income, have less job security, less benefits, reduced public services and increasingly worthless pensions.

National GDP (I am thinking of the US and UK here) increases but the dividends of that increased national wealth are distributed almost exclusively amongst the very top percentiles.

That is my anecdotal experience. That is what I believe. That is the (limited) evidence I am aware of.

But surely, if this picture is true, we can point to more concrete evidence of this than my one simple (stolen - Thanks RAZ) graph?

Surely if this is true there is a whole heap of economic data that supports this view? If so where is it?

What am I missing?


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Dr Adequate
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Posts: 12776
Joined: 07-20-2006
Member Rating: 2.3


Message 41 of 404 (659226)
04-13-2012 1:52 PM
Reply to: Message 40 by Straggler
04-13-2012 1:44 PM


Re: Data Data Data....
Surely if this is true there is a whole heap of economic data that supports this view? If so where is it?

What am I missing?

Well, we could compare a lot of different countries, and see if (for example) socialized healthcare invariably leads to ruin.

What we can't do is take a statistically significant number (say, 1000) of Americas, divide these Americas into two randomly selected groups, govern one group one way and the other group another way, and then have someone blinded as to the precondition decide which of them is doing better. We have to make do with what we have.


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Replies to this message:
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Straggler
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Posts: 9960
From: London England
Joined: 09-30-2006
Member Rating: 2.4


Message 42 of 404 (659228)
04-13-2012 2:06 PM
Reply to: Message 41 by Dr Adequate
04-13-2012 1:52 PM


Re: Data Data Data....
I'm happy to consider what we have.

What I am genuinely less sure about is what relevant data we do indeed have.

Is the graph I stole from RAZ the be-all-and-end-all of evidence against trickle down theory? Or is there more?

If so what is the core evidence that refutes trickle down economic theory?


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Huntard
Member (Idle past 139 days)
Posts: 2854
From: Limburg, The Netherlands
Joined: 09-02-2008


Message 43 of 404 (659243)
04-13-2012 4:40 PM
Reply to: Message 42 by Straggler
04-13-2012 2:06 PM


Re: Data Data Data....
Straggler writes:

Is the graph I stole from RAZ the be-all-and-end-all of evidence against trickle down theory? Or is there more?


There is more.

If so what is the core evidence that refutes trickle down economic theory?

Most people are selfish fucking idiots.

Elaboration: Were people not selfish fucking idiots, "trickle down economics" would indeed mean that rich bastards wouldn't order 7 more houses with 23 bathrooms (you being English, can perhaps explain this, why does having one bathroom per bedchamber matter? I ask this because of all the "buying a new house in the UK" shows I've seen on the telly, most people are like "ooh, this one's got 3 bathrooms! LIKE!"), they build an entire block of new houses, renting them out. That's investment.


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Taq
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Joined: 03-06-2009
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Message 44 of 404 (659248)
04-13-2012 5:09 PM
Reply to: Message 26 by Percy
04-13-2012 8:00 AM


You said, "I don't think that anyone argues that rich people don't spend money in the local economy," so we agree that trickle down happens. The question I think you're raising is who can best decide how to dispose of the money of the rich, the rich themselves or the government through tax and spend programs.

If we are focusing purely on economic growth, it doesn't matter how the government spends it, as long as they do spend it. In another thread a while back someone said that it would be sound economic policy for the government to take tax revenue and just dump it out of an airplane onto the population below.

The idea, if I understand it correctly, is that money accumulates at the top and then stays there. The wealthy are wealthy because they keep their money, not because they spend all of their money. For example, we could compare Bill Gates who makes 1 million a year and 20 people who make 50k a year. At the end of the year, who is probably going to have more money in the bank? Bill Gates or all of the money that those 20 people have left? Probably Bill Gates. From the statistics I have seen, more and more money is being concentrated at the top. Whatever down trickle there is it is not as fast as the rush of money upwards.

Or to put it another way, if a small business pulls in a large profit are they going to hire someone even if demand does not dictate it? No. That would be bad business. You don't purposefully increase your labor costs for the same demand. The idea that companies will just automatically start hiring people because they have more money after taxes doesn't make sense, at least to an economic tyro like myself.

Edited by Taq, : No reason given.


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Taq
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Posts: 5230
Joined: 03-06-2009
Member Rating: 2.7


(1)
Message 45 of 404 (659249)
04-13-2012 5:13 PM
Reply to: Message 41 by Dr Adequate
04-13-2012 1:52 PM


Re: Data Data Data....
What we can't do is take a statistically significant number (say, 1000) of Americas, divide these Americas into two randomly selected groups, govern one group one way and the other group another way, and then have someone blinded as to the precondition decide which of them is doing better. We have to make do with what we have.

I think that experiment has already been done. It's called Canada.


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