Summations Only

The graph that Straggler has been showing seems to indicate that the economy has done fine since the Reagan tax cuts as measured by GDP per capita growth (the green line): I think the major complaint in this thread is that the rich are hogging the majority of the benefit from the rising GDP.--Percy

The late 1990s were a period of very rapid GDP/capita growth, but so was the late 1980s, and whatever was happening in terms of trickle-down economics during those periods was also happening the rest of the time.Recessions indicated by gray shading are shown in this graph of the S&P since 1880. Note that beginning with the Reagan tax cuts in the 1980s the frequency of recessions declined: You're referring to Straggler's graph, and even that graph shows median household income rising, just not as fast as top 5% income. My graph more clearly shows rising incomes, just nowhere near as much as the rich: In real terms (meaning adjusted for inflation) all income groups have risen since the 1980s. The data can support a qualitative claim that trickle-down's impact is insufficient, but not that it isn't happening.--Percy

I was making a general qualitative statement, but spending by the rich contributes to the economy far out of proportion to their numbers. Yes. Invested money is a significant contributor to economic activity. After the 2008 financial collapse the rich (and many others) changed their investment strategies from growth to capital preservation. The unavailability of investment funds acts as a restraint on economic growth, though it is only one factor.--Percy

I chose the graph because it showed recessions further back in time than any other graph I found on the net. That the graph is of the S&P is irrelevant. Recessions were much more frequent before the Reagan tax cuts. Here's another graph, this one of private residential investment though not going back as far in time, showing that recessions were more frequent before the Reagan tax cuts: --PercyEdited by Percy, : Grammar.

Hi Hooah,I wasn't trying to introduce the S&P or private residential investments into the discussion. I was trying to show the frequency of recessions, and that information most often appears on graphs of other data. The S&P data and the private residential data is completely irrelevant to any point I was trying to make. Here's a Google link to a page of charts showing recessions. The charts are about employment, unemployment, inflation, industrial production, etc. I could have chosen any one of them, but I chose the one that went back the furthest in time, which was the S&P.The recession information was offered because you were arguing that since the Reagan tax cuts the economy has performed worse with only one boom. But there were two solid booms, long periods of economic growth, and many fewer recessions. To the extent that "only one boom since the Reagan tax cuts" was a factor in drawing your conclusions, they must now be reconsidered.To others who responded about about the recessions, I wasn't trying to make any specific point about trickle-down or anything else other than that Hooah had his data wrong.--PercyEdited by Percy, : Typo.

Now you're returning to the question of whether trickle-down works. If the criteria is that it must make some people rich who weren't already rich then it is an undoubted success, since that number is greater than zero, but I understand you were just engaging in hyperbole. It seems to me that the only meaningful criteria is whether a reduction in taxes for the rich would benefit or hurt the economy. This is a function of the effective tax rates. For example, reducing the top marginal rates from 70% to 30% should cause the rich to put more of their money to work in productive ways instead of tax avoidance, and it should encourage investment because the value of each dollar of return is much greater when much less of it is being taxed away. This is the story of the Reagan tax cuts.But if we're talking about reducing the top marginal rates from 35% to 30%, that seems to me to be just welfare for the rich. They're already not paying their fair share. Trickle-down is about consumption *and* investment. Ask yourself where the increasing income of the rich came from after the Reagan tax cuts as shown on Straggler's graph: Reduced tax rates do not increase income in any direct way. The increasing income of the top 5% came from moving income from categories not actually considered income by the tax codes back into taxable income categories, and from the income from increased business activity and investment engaged in because of the greater value of each marginal dollar. Are you actually arguing that investment and borrowing is bad for the economy?--PercyEdited by Percy, : Typo.

In the United States there's a group whose determinations about when recessions begin and end are generally accepted. This is from the Wikipedia article of RecessionsThe shaded regions in those charts are not just the slower periods of a normally fluctuating economy. Those regions are actual recessions.There is no doubt that the recent recession is the worst since the great depression. It began in December of 2007 and ended in June 2009. The subsequent recovery has been anemic. It has cause a great deal of pain worldwide, and many are still feeling the negative effects. But there were no trickle-down economic policies implemented in the year or two before this severe recession, and so it could not have been caused by trickle-down economic policies. It was caused by severe problems in the financial markets.Here's a chart of the unemployment rate with more recent data (the figures in your link only went up to 2010). Recessions are shown as gray shaded regions. Notice the rapid drop in unemployment after the Reagan tax cuts in 1982: The point I'm trying to make in this thread is that you can't hoist one chart up the flagpole, see that a lot of people are saluting it, and then conclude everyone must be right. Maybe trickle-down economics works, maybe it doesn't. I'm not claiming to have evidence either way. But I am presenting evidence inconsistent with the claim that trickle-down economics does not work, and I believe the claim that evidence has been presented in this thread showing it doesn't work is false.Economics is complicated. There's a reason it's called the dismal science. Unequivocally demonstrating almost anything in economics is impossibly difficult.--Percy

Hi Rahvin,That's an interesting way of defining trickle-down economics. It sort of lumps everything that is claimed to be stimulative under one roof. I try to stick to generally accepted definitions.If was the subprime mortgage crisis (click for Wikipedia article) that caused the recent recession. Financial regulations did play a role, but I thought it was absence of regulatory coverage for the types of financial institutions that were involved in this new type of security, not because existing regulations were removed. But whichever way it actually was, it wasn't trickle-down economics.--Percy

If we can't agree on a definition then what is there to talk about? Actually what I said appears to be correct. This is from the Wikipedia article on the Shadow Banking System, which means financial institutions like Bear Stearns and Lehman Brothers: Reducing the top marginal tax rates from 90% to 70% (Kennedy) and then to 30% (Reagan) were good ideas because the higher rates tied up capital in unproductive tax avoidance activities and reduced incentives to make productive use of capital, and these tax rate reductions on higher incomes served as a spur to the economy. In an environment of prohibitively high marginal tax rates trickle-down economics works. But we're not in that kind of environment now and haven't been for 30 years.--Percy

Rahvin attempted to redefine trickle down economics to include financial deregulation so that he could indict it for missteps by financial regulatory agencies and Congress. I agree that some here do not have a good grasp of what trickle down economics means.In my early posts in this thread I wrote a great deal about the ability of the rich to influence legislation for their own benefit. We can talk about raising taxes on the rich, but it's not going to work because they will shoot the legislation full of holes (as in loopholes) before it's passed. I'm not guessing about this, I'm just assuming that what's happened before will happen again.I don't know how we're going to extract ourselves from this mess, but anyone making blanket statements like "trickle down economics doesn't work" is wrong. When marginal tax rates are 70% and above then trickle down economics can clearly work as it did in the 1980s, but that's not the situation now.Anyone who's been sold on current tax policy on high incomes because the benefit will trickle down has been sold a bill of goods, but blame gullibility, not trickle down economics. It would be like blaming the paper that counterfeit money is printed on for what the counterfeiter did.--Percy

What's wrong with the Wikipedia description?--Percy

Why don't you just straightforwardly state the point you're trying to make?--Percy

Yes, absolutely, it could be argued that growth was due to a tech boom. Or to globalization. Or to declining energy prices. Or to something else. And Rahvin says we should consider that the Reagan tax cuts should be considered as a meaningful factor in the recent financial meltdown. So if anything that happened in the last 30 years has to be considered a factor, how are you ever going to conclusively sort out cause and effect?This is where I come back to the point about the incredible complexity of economics. There are many, many variables. Determining cause and effect is extremely difficult. That's why I don't claim to have conclusive evidence for any particular position. I'm positive that trickle down happens (and trickle up and trickle sideways), because that's just the nature of an economy. But whether it works or not? I believe that in 1981 when marginal tax rates were high it worked. But today? We don't have 70% marginal tax rates anymore, I don't believe it would work.--Percy

Hi Hooah,The evidence showing unemployment plummeting and GDP rising in the early 1980's after the Reagan tax cuts is consistent with trickle down economics working, but it doesn't conclusively prove it. There are too many variables.I don't believe cutting the top marginal tax rates today when they're 35% instead of 70% would have the same effect.We know trickle down happens (and as I said before, trickle up and trickle sideways) because that is the nature of an economy. Only if the rich spent no money at all could no money trickle down.--Percy

As I just said again to Hooah, we know trickle down happens because that is the nature of an economy. Everyone spends money, the money trickles everywhere in all directions, everyone benefits.The question that is unanswered is whether trickle down economics works. I define trickle down economics working when a cut in top marginal tax rates results in an improvement in the economy. The Reagan tax cuts in the early 1980s caused a turnabout in the declining GDP and a dramatic decline in unemployment, and this evidence is consistent with trickle down economics working. It isn't conclusive evidence because there are too many variables. This is true, of course, but it's being applied selectively. One can't reasonably claim the Reagan tax cuts played a role in some things and not others, in the 2007 financial crisis but not in the economic boom of the late 1990s. Personally I don't see much of a connection to either one.--PercyEdited by Percy, : Clarify my second paragraph.