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Author Topic:   Trickle Down Economics - Does It Work?
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 23 of 404 (659170)
04-13-2012 7:08 AM


I don't know if trickle down economics works, whatever that means, but it certainly happens. There's a whole industry catering to the needs and wants of the rich, from homes to furnishings to boats to vacations to art and so on. Those who cater to the rich have their needs and wants, and so forth on down through the economic layers. The rich create money, and money circulating in an economy creates demand, and even if it isn't demand for a burger flipper at McDonalds, it does eventually trickle down to that level.

Here's an old joke that's been told here before, I cut-n-pasted it from the first website where Google found it:

There are these two Russian serfs Igor and Ivan. One day Ivan goes out into the forest and finds a wood fairy. The wood fairy tells Ivan she will grant him any one wish. Ivan thinks for a moment. With my own goat, I can have milk for my family, he thinks. So he wishes for a goat andpoof a goat appears. Happy, Ivan goes back to the village where Igor, seeing Ivan and his new goat, becomes enraged. Now Ivan has a goat he will sell me the milk and take all my money, Igor thinks. Where did you get the goat? he yells at Ivan. Ivan explains to Igor about the fairy and the goat and Igor storms off into the forest to find the fairy. When he does, the fairy tells Igor that she will grant him any one wish. Without blinking an eye, Igor says, Kill Ivans goat!

An economy built upon egalitarian ideals with constraints against wealth attainment will be poor and stagnant. The answer to the problems of those at normal income levels is not to get rid of or penalize the rich. It would only make things worse.

--Percy

Edited by Percy, : Clarify last two sentences.


Replies to this message:
 Message 25 by PaulK, posted 04-13-2012 7:39 AM Percy has responded
 Message 27 by Straggler, posted 04-13-2012 8:10 AM Percy has responded
 Message 60 by RAZD, posted 04-14-2012 8:29 AM Percy has acknowledged this reply

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 24 of 404 (659172)
04-13-2012 7:39 AM
Reply to: Message 16 by Dr Adequate
04-12-2012 2:04 PM


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.

Dr Adequate writes:

All the Laffer curve tells us is that in principle it is possible for some taxes to be too high.

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, but I agree with you that empirical data is necessary for establishing cause/effect details.

--Percy

Edited by Percy, : jar => Dr Adequate


This message is a reply to:
 Message 16 by Dr Adequate, posted 04-12-2012 2:04 PM Dr Adequate has responded

Replies to this message:
 Message 34 by Dr Adequate, posted 04-13-2012 12:35 PM Percy has acknowledged this reply

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


(1)
Message 26 of 404 (659176)
04-13-2012 8:00 AM
Reply to: Message 25 by PaulK
04-13-2012 7:39 AM


PaulK writes:

Would giving $100,000 to Bill Gates result in more economic stimulus than giving $100 each to 1000 poor families?

The right question to ask is if Bill Gates has $100,000, who should decide what he does with that money?

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.

--Percy


This message is a reply to:
 Message 25 by PaulK, posted 04-13-2012 7:39 AM PaulK has responded

Replies to this message:
 Message 29 by PaulK, posted 04-13-2012 8:39 AM Percy has responded
 Message 44 by Taq, posted 04-13-2012 5:09 PM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 28 of 404 (659180)
04-13-2012 8:30 AM
Reply to: Message 27 by Straggler
04-13-2012 8:10 AM


Straggler writes:

Is the answer to cut their taxes and wait for the positive effects to filter through?

If trickle down economics works - The answer to this would would be "yes".

What does it mean to ask if trickle down economics works? Clearly trickle down happens, and I think the word "trickle" trivializes the magnitude of the effect.

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?"

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.

--Percy

Edited by Percy, : . => ?


This message is a reply to:
 Message 27 by Straggler, posted 04-13-2012 8:10 AM Straggler has responded

Replies to this message:
 Message 30 by Straggler, posted 04-13-2012 9:12 AM Percy has responded
 Message 38 by Dr Adequate, posted 04-13-2012 1:06 PM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 47 of 404 (659253)
04-13-2012 6:45 PM
Reply to: Message 29 by PaulK
04-13-2012 8:39 AM


I think we have a difference in terminology. For you a tax cut is giving someone money. For me a tax cut is letting someone keep more of their money. The $100,000 you gave Bill Gates in your example is actually his money. You can't give someone money that is already theirs.

The question that should be asked is whether it is better for the government to take Bill Gates $100,000 and decide what to do with it, or is it better for Bill Gates to decide what to do with it.

There are no simple answers to questions of this nature, but for your specific example one must recognize that Bill Gates has become a great philanthropist while the government has demonstrated great incompetence in a number of social and economic arenas.

--Percy


This message is a reply to:
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Replies to this message:
 Message 48 by Rahvin, posted 04-13-2012 8:29 PM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 49 of 404 (659260)
04-13-2012 10:06 PM
Reply to: Message 48 by Rahvin
04-13-2012 8:29 PM


Rahvin writes:

Do you have any specific examples where the government was more incompetent than the private sector at a specific task that was not a failure due to a lack of funding, but to real incompetence, inefficient management, or the like?

Do you have any specific tasks where government and private sector performance can be compared?

The areas where government unambiguously demonstrates its incompetence are pretty much the sole domain of government. Last year's debt ceiling impasse comes to mind. Social security as a inter-generational Ponzi scheme does, too, as do Iraq and Afghanistan and our foreign policy in general. I haven't heard many express satisfaction with Medicare and Medicare - what I mostly hear is how difficult it is to find competent care because so my providers won't accept their fee schedule. The interstate highway system is a marvel, but maintaining it is another matter and we've inherited a crumbling infrastructure. Congress is at the mercy of special interests, so any tax bills on the rich will be shot full of holes before they ever come to a vote. They can raise taxes for one purpose and then devote the tax income to another. Where governments are concerned the law of unintended consequences is the rule.

But as bad as government is, it certainly beats the alternative, and we in western democracies are very fortunate to have governments that much more than other governments are servants of the people instead of the other way around. I'm not anti-government, but I'm very wary of it because it is so big and powerful it can squash without ill-intent or taking any notice.

So is government better at using your money for the benefit of all than you are? I don't know, and I don't think it is possible to know with any certainty. But I'd be very skeptical.

--Percy


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Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 50 of 404 (659262)
04-13-2012 10:14 PM
Reply to: Message 30 by Straggler
04-13-2012 9:12 AM


Hi Straggler,

I agree that detailed data is needed to have a better chance of answering the question, but I don't agree with this part:

Straggler writes:

If cutting taxes for the richest is the most effective means of generating wealth then trickle down economics works. If it doesn't do this it doesn't work.

It isn't a question of whether trickle down works or not. Of course it works. The question is whether it works better than government, and that's a function of tax rates, i.e., where you are on the Laffer curve. But it's also a function of many other factors.

--Percy


This message is a reply to:
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Replies to this message:
 Message 55 by Dr Adequate, posted 04-14-2012 12:17 AM Percy has acknowledged this reply
 Message 59 by Straggler, posted 04-14-2012 5:07 AM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 51 of 404 (659265)
04-13-2012 10:27 PM
Reply to: Message 38 by Dr Adequate
04-13-2012 1:06 PM


nwr writes:

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

The government's inability to hit what it aims at is well established. I'll take Adam Smith's invisible hand over government when it comes to economics.

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.?

You picked these at random?

The government is not very good at social and economic programs. Whereas Paris Hilton is very efficient at snorting Colombian cocaine.

Again, you picked these at random?

The rich generate economic activity by spending their money, which creates jobs. Even if they just bank their money they're helping the economy because unless they're keeping it in a mattress it funds other economic activity, which creates jobs. Governments need to provide social safety nets with programs for welfare and health care and retirement, but they do not do a good job of creating jobs.

--Percy


This message is a reply to:
 Message 38 by Dr Adequate, posted 04-13-2012 1:06 PM Dr Adequate has responded

Replies to this message:
 Message 54 by Dr Adequate, posted 04-14-2012 12:13 AM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 52 of 404 (659266)
04-13-2012 10:35 PM
Reply to: Message 44 by Taq
04-13-2012 5:09 PM


Taq writes:

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.

How is this different from a tax cut?

Money does not accumulate at the top and stay there. If that were true everyone rich would stay rich. The rich are in all stages of life, from young to old, from wealth accumulation to wealth squandering. They own companies that are on the way up and companies that are on the way down.

--Percy


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 Message 44 by Taq, posted 04-13-2012 5:09 PM Taq has responded

Replies to this message:
 Message 88 by Taq, posted 04-16-2012 12:53 PM Percy has acknowledged this reply

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


(1)
Message 62 of 404 (659292)
04-14-2012 9:18 AM
Reply to: Message 54 by Dr Adequate
04-14-2012 12:13 AM


Hi Dr A,

You're right, people do have different expectations of government. Probably most agree that government should be responsible for national defense, foreign policy, foreign trade, and should have the power to tax. Beyond that I guess it's open for debate.

I doubt we'll ever agree about whether government competence has a checkered history, but in my own opinion those willing to cede it increasing power need to recognize that voting is not the best way to influence government, money is, and the rich have more of it than anyone else. Probably the biggest industry in Washington is lobbying.

Very little about my posts is random. And your point is?

That was sarcasm. Of course choosing as items for comparison the worst examples of the rich to the best examples of government wasn't random. You just do it again here:

Dr Adequate writes:

The rich sometimes also act for the social good, as when they invest their money in building factories; but sometimes they don't. When a rich man pays for an oil-painting of his favorite poodle, then to be sure the painter gets paid, but it hasn't added value to the infrastructure so much as if the same money had been spent by the government on repairing pot-holes.

How about doing a flip comparison of the recently in the news GSA conference with the Bill and Melinda Gates foundation? But let's not do that, because I don't think toting up the number of examples of bad performance by the rich and by government is useful. The examples are endless, it would never end, and it would prove nothing.

But the principles involved are very clear. Government is supposed to be the servant of the people, but government can be subverted to other purposes. The more powerful the government the more dangerous this possibility looms, and the rich are much better at subverting government to their purposes than voters. When it comes to looking out for their own interests the rich are much better at it than anyone else. You should be able to tell that I'm no friend of the rich, but demonizing them for not taking on the responsibilities that properly belong to government makes no sense, and raising their tax rates will not actually result in their paying higher taxes. Tax rates on the rich have risen consistently since Reagan, yet Romney paid only 15.4% on his $20 million income, Obama only 20.5% on his $800,000. I paid more than either last year, by a healthy margin.

The solution is to get the government out of the business of trying to legislate fairness through the tax code. Our tax code might be the best illustration we have of government incompetence.

The question we're addressing is whether the government is better at allocating the money of the rich than are the rich themselves where the goal is the greater good. Yes, you're right, both the government and the rich spend money, I've been saying the same thing. The question is who spends it to greater benefit. There are innumerable examples of good and bad spending on the part of both, you're not going to get answers by comparing lists. I think you have to look at the underlying principles.

--Percy

Edited by Percy, : Get figures right for Romney and Obama tax rates.


This message is a reply to:
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Replies to this message:
 Message 64 by Dr Adequate, posted 04-14-2012 9:42 AM Percy has responded
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Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 63 of 404 (659294)
04-14-2012 9:34 AM
Reply to: Message 59 by Straggler
04-14-2012 5:07 AM


Re: Doesn't Work....?
Hi Straggler,

The public sector is not better at wealth creation than the private sector. It isn't even a close comparison. The more money you take from those best at wealth creation to give to those worst at wealth creation, the less wealth you'll have.

And because of the vulnerability of government to the influence of wealth, the greater the efforts at social engineering in terms of income redistribution the less effective they will become.

--Percy


This message is a reply to:
 Message 59 by Straggler, posted 04-14-2012 5:07 AM Straggler has responded

Replies to this message:
 Message 65 by Straggler, posted 04-14-2012 9:57 AM Percy has responded
 Message 91 by Mr Jack, posted 04-16-2012 4:08 PM Percy has acknowledged this reply

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 66 of 404 (659297)
04-14-2012 9:59 AM
Reply to: Message 64 by Dr Adequate
04-14-2012 9:42 AM


Dr Adequate writes:

Tax rates on the rich have risen consistently since Reagan ...

I have no idea why people believe this.

The top marginal rate is not synonymous with effective tax rate. The reduction in the top marginal rates in the 2000's were justified by closing loopholes, in effect raising the effective tax rates on the rich. Of course, lobbyists influenced the legislation to minimize the impact on loopholes, and after the top marginal rates were reduced the rich also sought other loopholes or had legislation passed to create new ones.

We have to stop looking at the rich as a resource to be increasingly taxed. It isn't going to work. They'll win every time.

--Percy


This message is a reply to:
 Message 64 by Dr Adequate, posted 04-14-2012 9:42 AM Dr Adequate has responded

Replies to this message:
 Message 69 by Phat, posted 04-14-2012 10:09 AM Percy has responded
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Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 68 of 404 (659299)
04-14-2012 10:08 AM
Reply to: Message 65 by Straggler
04-14-2012 9:57 AM


Re: Doesn't Work....?
Straggler writes:

I would suggest that the ability of the private sector to flourish at creating new wealth is in large part dependent on the environment created by the public sector. Justice, the rule or law, a healthy and well educated workforce, research institutions, transport infrastructure etc. etc. etc are all essential components for a wealth creating private sector to flourish. So there is an inter-relatedness between the public and private sectors and a balance to be found between the two.

YES YES YES! Outstanding! Well said.

But what does this have to do explicitly with whether the proclaimed benefits of trickle down economics are real or not?

You concede that the rich do indeed create wealth but dispute whether that wealth creation produces any overall economic benefit? I think that by slicing your definitions exceptionally fine you've arrived at nonsensical conclusions, and I'm not entering your labyrinth.

--Percy


This message is a reply to:
 Message 65 by Straggler, posted 04-14-2012 9:57 AM Straggler has responded

Replies to this message:
 Message 73 by Straggler, posted 04-14-2012 6:56 PM Percy has responded

    
Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 72 of 404 (659313)
04-14-2012 4:03 PM
Reply to: Message 69 by Phat
04-14-2012 10:09 AM


Re: Sad But True
Phat writes:

Percy writes:

We have to stop looking at the rich as a resource to be increasingly taxed. It isn't going to work. They'll win every time.


Yes, this is true. But since they have most of the money, and money is needed to fix the problem, what else are we gonna do?

My advice would be to not let our frustration cause us to act against our own self interest. In the absence of viable alternatives to raising taxes on the rich that would suggest doing nothing.

--Percy

Edited by Percy, : Wordsmithing.


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Percy
Member
Posts: 12821
From: New Hampshire
Joined: 12-23-2000
Member Rating: 4.3


Message 77 of 404 (659322)
04-14-2012 8:24 PM
Reply to: Message 73 by Straggler
04-14-2012 6:56 PM


Re: Doesn't Work....?
Straggler writes:

If trickle down economics works then increased income of the wealthiest would result in increased income for everybody else too.

Yet the data for the US and the UK for the past few decades shows the incomes of the wealthiest rocketing whilst the incomes of everybody else remain stagnant.

Your graph doesn't show what you think it does. Here it is again:

First, median household income rises and falls in rough sync with top 5% income, just at a lesser slope, but more importantly, look at this other graph conveniently provided by Dr Adequate:

Top 5% incomes begins taking off in the early 1980's because the drop in tax rates reduced incentives to invest in tax-free securities like munical bonds and to defer income into investment vehicles like trusts. Actual top 5% income didn't take off. All that changed was the amount of income that people were willing to expose to the income tax.

I do agree with the distinction you draw between wealth creation and wealth accumulation, but it isn't really that simple. Even accumulated wealth creates wealth, because as I said before unless they keep it in a mattress it gets reinvested.

I also agree with you when you say that it is the private sector that creates wealth, not necessarily just the rich, but the rich can do it on a much larger scale.

Furthermore many of the wealthiest simply inherited their wealth. And increasingly many of the very wealthiest have done nothing other than play the financial system at the expense of everyone else. These people are extraordinarily wealthy but have arguably destroyed far more wealth recently than they have ever created.

Yes, I know that you would prefer that the government squander their wealth for them.

--Percy

Edited by Percy, : jar => Dr Adequate


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 Message 78 by jar, posted 04-14-2012 8:56 PM Percy has acknowledged this reply
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