Summations Only

The top would be gaining at the expense of the median rather than pulling them along for the ride. How so? Yeah, and then when the top 5% starts taking off, the median goes up along with it. Isn't that Trickle Down Economics working? How so? If it continues, I'd see the median (which means everybody) keep on going up as long as the top does. Where have I advocated anything?

Not necessarily. The median is not completely insensitive to changes at the extremes. The median is less sensitive to those changes than is the mean. But the median is more sensitive to changes at the upper and lower ends of a population than is the mode. It is possible that most or all of the increase in the median is due to the top few percent doing extremely well.Of course it does follow that if there is an increase in the media, we have to do a bit more analysis in order to rule out trickle down to the middle class.That said it does seem quite clear from the graphs presented that the lowest classes are not seeing any benefit of trickle down. The graphs in fact suggest that most of the increase is almost exclusively shared by the uppermost classes. I don't see how people are able to deny this. Hopefully I've debunked the idea that the median means everybody.Edited by NoNukes, : No reason given.

I don't see the lower class represented in the graph at all. The minimum wage is not the lower class. The only thing that could represent them in the graph would be the fact that they're included in figuring the median. And if it was at the expense of the poor, then wouldn't that bring it back down to a neutral change? The fact that the median continues to rise suggests the wealth could be benefitting everyone, doesn't it? I don't trust the graph at all. I think they threw the minimum wage in there just to trick people, by them assuming it represent the lowest class, into thinking that the gain at the top is at the expense of the bottom. If everyone rises, then the median must rise. But you're correct that an increase in the median could be due to the increase in the top alone. But, if that increase in the top was at the expense of the low, then we wouldn't expect the median to rise as it has.

I don't think anyone is arguing that some of that wealth does trickle down. The argument behind tax cuts for the rich is that the extra money will by and large work its way back down. It doesn't. Only a small portion of that money finds its way back down to the middle class. What we are seeing is a surge upwards that dwarfs the trickle down, if I understand it correctly.To use an analogy, trickle down views the rich as a coffee cup with the saucer being the middle class. Once the coffee cup is filled to the brim all of that extra will spill down to the middle class. By giving tax cuts to the rich it is thought that the coffee cup will fill faster and increase the amount of coffee spilling into the saucer. This isn't what happened. Instead, the rich just got a bigger coffee cup.

No, because the median is the value at the middle of the range. If the incomes at the top 5% increased while everyone else's remained the same, the median would increase because of growth at the top end. But that wouldn't be an example of a rising tide lifting all boats, but merely a statistical artifact of the increase in range of incomes. That's almost exactly what we should expect based on the model that the spending of the rich is income for everybody else, which for the most part it is; the problem is that the economy (and wage levels) are based on the spending of the middle class, not the rich. There's simply not enough rich people to base an economy on.

There's more than one way to ask a question. You naturally prefer your own phrasing, but the way I phrased it is not different in any meaningful way. It all boils down to the same fundamental issues. You're going to have to get used to the fact that people who aren't you aren't going to express things the way you do. In short, your graph is insufficient for drawing such a conclusion. What happened to earlier in the thread where the search was on for more data?--Percy

No, it does not.First, nobody is saying that the rich are getting richer at the expense of the poor. People are saying that giving more money to rich people does not help the poor. People are also complaining about trickle down policies that include tax cuts for the reach funded by cuts in social services under a theory that such is the way to help out the poor and middle class.The graphs do not say anything about social services provide to help the poor funded by taxes. It appears that if we benefit the rich by cutting social services to give the rich money, as best as I can tell, the poor never see any benefit and are worse off.

This gets back to the question I asked earlier: What does it mean to say that trickle-down economics works?Clearly trickle-down happens, but what we're debating is whether the government could take some of the money of the top 5% and use it to better economic advantage. A lot of our attention has focused on Straggler's graph. Claims that his graph settles the issue are greatly exaggerated. Sorry if my choice of words led you to think I was making the correlation/causation mistake. I still believe what I said in Message 115: "Cause and effect is much more difficult to establish." But it is right there in the graph. Median income is not a flat line, it just has smaller slopes than for top 5% income. How ironic! You begin with a denial that anyone here has ever said anything like they have less because the rich have more, then you make a comment exactly along these lines yourself: "The wealth of the rich actually impoverishes everyone else over time as they loan it out."You're exactly right about the long term capital gains tax being only 15% and therefore the likely explanation for Romney's low effective tax rate. But while of course I can't know this, my bet is that Romney has an effective tax rate of roughly 15% every year. How is he making most of his income come out as long term capital gains year after year? You don't think there's some special provisions in the tax code that allow him to funnel his income, huge proportions of which just have to be interest and dividends taxed at the top marginal rate, into investment vehicles that magically transform it into long term capital gains? It's the loopholes that are the problem, not the tax rates. Nobody gets everything they want, even the rich. What I was saying before is that the higher the marginal tax rates on income the higher the motivation to employ tax avoidance strategies. In the years before the Reagan tax cuts such strategies included not only trusts, but also many types of payment in kind that weren't taxed back then, such as a company car, an apartment in Manhattan, free use of the company jet, etc. And who knows what other avenues were employed, I'm not an expert on the history of tax shelters. In this era of a lower top marginal rate the motivation for tax avoidance is less and the rich are willing to expose more of their income to the tax code.What we as a people do not want to do is act against our own best interests because a graph just looks so convincing. It's like the shells on mountaintops for creationists: it just looks so convincing that a flood did it until you dig (literally) a little deeper.--Percy

I last said this in Message 50, quite a while back, and realized shortly thereafter that it would be more clear in this thread to say that trickle-down happens, and I've been saying it this way ever since. Why do you keep quoting from Message 50? Also notice that I said "trickle-down", not "trickle-down economics".So to say it again the way that should be less open to misinterpretation: "It isn't a question of whether trickle down happens or not. Of course it happens."I don't know the details of the economic situation in the UK, but your analysis is flawed. First, you don't say what you're comparing to. Doing nothing? Raising taxes? Increasing public spending? Lowering VAT? Some combination?Second, whether it works or not isn't whether you end up with "prosperity for all" or not. It's whether the outcome is better than it would have been had they taken the actions you preferred, whatever those might be, and that's a much tougher question to answer. It's one of the reasons economics is called the dismal science.--PercyEdited by Percy, : Typo.

As I explained earlier, top 5% income didn't actually begin a dramatic rise after the Reagan tax cuts. What began rising was the amount of their income they were willing to expose to the tax code. Lower marginal rates decreased the motivation for tax avoidance strategies. We haven't yet come to any consensus in this thread abou the criteria for measuring whether trickle-down economics works, but I personally am not at the moment in possession of any evidence that makes a strong case that trickle-down economics "works", whatever that means. I'm only claiming that no one here has presented any evidence that it doesn't work.--Percy

"The poor" is a fairly diverse group, cutting across multiple categories. Some poor work but have low incomes. Some poor are disabled and can't work to earn enough money or can't even work at all. Some poor are elderly. Some poor have too many children or live in a region too expensive for their income. Some poor have debts. Some poor have expensive medical issues. Some have legal issues.Cutting social services to that portion of the poor who require those services is counterproductive. Desperate circumstances breed a continuing cycle of desperate circumstances that cause crime, drug dependency, poverty, and a host of other social problems.But on the slip side (and there's always a flip side when it comes to government), once you define a set of qualifying criteria for government services you create motivation for meeting those criteria. In other words, once you begin providing government services the ranks of those receiving those services will only grow. I forget who the famous British advocate for "the dole" was, but once the second generation began hitting the dole he changed his mind.When it comes to government, never forget the law of unintended consequences. Many of the poor don't even work. Non-participants in the economy cannot benefit from an improving economy, regardless of whether rising or falling tax rates were the cause. Sacrificing social programs in the name of tax cuts would be very shortsighted. I hope that's not what's really happening in the UK and that it's just a claim that, because money is fungible, while not false is exactly true, either.--Percy

Hi PercyOne minor point Everybody participates in the economy whether they work or not -- they are CONSUMERS or they are DEAD.Enjoy.

And clearly that's the case, since the vast wealth of the rich has not improved conditions for anybody else. Then again, we're back to how we're seeing completely different graphs, since the one I'm seeing shows a median income all but insensitive to the income of the top 5%. But that comment is not in any way along the lines of "kill Ivan's goat." It is not that the wealthy have wealth that is impoverishing others; it's that they have wealth that they cannot spend, that at best their significant income far in excess of consumption is like Silas Marner's buried bag of gold, a kind of deflation; at worst, as an interest-bearing tool of finance, it is lent out only to return with even more unspendable dollars in tow.It's not about "killing Ivan's goat", it's about the incredibly minuscule marginal utility of a dollar beyond that which you can consume. We know that in such a case the government can derive more utility from that dollar than the rich person can, because any expenditure of that dollar would be more utility than the rich person could derive. The point here is not to attack the consumption of the rich, but to recognize that the consumption of the rich has a practical upper bound that is exceeded, in many cases, by their income.And moreover - what possible reason could a rich person have to expend Herculean effort to protect money they'll never even be able to spend? At that point it's just scorekeeping, gamesmanship, putting up bigger numbers than the other guys at the club. Again, you fly in the face of relatively simple economics. The marginal value of these dollars to the wealthy are near zero because they can't be spent, but the number of hours in the day never increases for anybody - why spend that kind of time and effort to protect worthless money?You're not making any sense. The reason Romney doesn't get his taxes any lower than about 15% is that it's not worth it to him to spend the time to get them any lower, because he already has more than he can spend; his Presidential campaign hasn't even made a dent. It's not even his effort that has made his taxes so low. That's all the result of lobbying by people a lot less rich than he is, trying to protect their consumption from the confiscatory tax rates that might actually impact it. There's zero reason to suspect that the rich are going to spend valuable time mounting a concerted defense of money they can't even spend. It's nothing to do with being convinced by graphs, but by sound reasoning, and the abundant evidence that the declining marginal value of a dollar justifies confiscatory tax rates on super-incomes. Hell, the mega-rich don't even object - it's their less-wealthy sycophants with the misguided objections on their behalf.

Why should that amount ever be higher than zero? Oh, right, because: Because there's a non-zero amount of time and effort needed to protect income from taxation, and that cost-benefit calculation doesn't justify Herculean efforts to protect income well in excess of consumption.So we're in agreement. You can raise taxes on the rich, because what they care about is their level of consumption. The income after that is just putting up big numbers on the scoreboard. The evidence that it doesn't work is the evidence I've presented that the rich can't possibly spend enough to make it work.

There is a different word for poor people who don't work: destitute or perhaps homeless, just not simply poor.