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Author Topic:   Trickle Down Economics - Does It Work?
Dr Jack
Member
Posts: 3514
From: Immigrant in the land of Deutsch
Joined: 07-14-2003
Member Rating: 8.7


(2)
Message 391 of 404 (660670)
04-28-2012 8:32 AM
Reply to: Message 390 by Percy
04-28-2012 8:27 AM


Wealth is created by actions, not ownership.
Probably you wrote this before reading my later messages where I go into more detail. People receive compensation equal to the wealth they create. If you create a chair in your workshop and then sell it at a flea market for $50 then you've created wealth equal to $50. If you create a chair at your place of employment for which you receive $50 in compensation, then you've created wealth equal to $50.
But if the company sells the chair for $100, that additional $50 is not wealth that you created. That is wealth that the company created, and it does not belong to you. It belongs to the company, or more accurately, to the company's owners, usually the shareholders.
Still wrong. The company does not create any wealth. You're misattributing it again. The wealth I'm paid is not equal to the wealth I've created. It can't be if the company is to make any profit.
You're right that the additional $50 is not created by me; but you're wrong in thinking it was created by the company. No, it was created by the people who took it to the store, who organised the marketing, who negotiated with the distributers and shopkeeper and so on.
The wealth creation happens, and can only, happen when people take actions. The wealth is created by those actions. Now, the wealth created is owned by the company - and may only be possible within the context of the company - but that isn't the same thing as the company creating that wealth. At most, it enables the wealth to be created.
Any money the company pays me is not created, but instead passed on from the creation of wealth I've achieved, or enabled, in working for the company.
(Please, see also Message 393 before replying to this message)
Edited by Mr Jack, : Added link to 393.

This message is a reply to:
 Message 390 by Percy, posted 04-28-2012 8:27 AM Percy has seen this message but not replied

  
Percy
Member
Posts: 22394
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 392 of 404 (660671)
04-28-2012 8:53 AM
Reply to: Message 383 by Dr Adequate
04-28-2012 3:20 AM


Hi Dr Adequate,
Since the thread is closing soon I should mention that I've changed my mind about whether financial regulations play a role in trickle-down economics. I think it might have been Rahvin who first suggested this (apologies if I've got the attribution wrong), and I now agree that financial regulations should be included as having an influence, and it can be a significant one. It was the lack of sufficient regulations concerning mortgage reserve requirements for non-banks that brought down Lehman Brothers.
--Percy

This message is a reply to:
 Message 383 by Dr Adequate, posted 04-28-2012 3:20 AM Dr Adequate has not replied

  
Dr Jack
Member
Posts: 3514
From: Immigrant in the land of Deutsch
Joined: 07-14-2003
Member Rating: 8.7


Message 393 of 404 (660672)
04-28-2012 9:01 AM
Reply to: Message 390 by Percy
04-28-2012 8:27 AM


Valid but not useful
Hi Percy,
After further consideration I've come to the conclusion that your view is valid. You can validly view the wealth creation of workers as their selling their time to the employer, and that act being the one that creates wealth. This is, from an economic accounting point of view, an equally correct analysis.
However, I still consider such a view to be inferior to the more materially accurate view that considers the work done to be the wealth creation step and the salary to be paid from the proceeds of that wealth creation. It is more useful because it models more accurately how the company makes money, and where that money is made.

This message is a reply to:
 Message 390 by Percy, posted 04-28-2012 8:27 AM Percy has seen this message but not replied

  
jar
Member (Idle past 394 days)
Posts: 34026
From: Texas!!
Joined: 04-20-2004


Message 394 of 404 (660674)
04-28-2012 10:20 AM
Reply to: Message 383 by Dr Adequate
04-28-2012 3:20 AM


However deregulation can also be marketed as providing increased competition and thus good for the consumer.
The fact is that how something is marketed does not make two things synonymous.

Anyone so limited that they can only spell a word one way is severely handicapped!

This message is a reply to:
 Message 383 by Dr Adequate, posted 04-28-2012 3:20 AM Dr Adequate has not replied

Replies to this message:
 Message 395 by NoNukes, posted 04-28-2012 10:39 AM jar has replied

  
NoNukes
Inactive Member


(1)
Message 395 of 404 (660677)
04-28-2012 10:39 AM
Reply to: Message 394 by jar
04-28-2012 10:20 AM


Not on point...again...
However deregulation can also be marketed as providing increased competition and thus good for the consumer.
Yes, it could. And such a marketing plan would be a 'trickle down' marketing plan because the deregulation itself would be a benefit given directly to business and not to the consumer. In essense the marketing would suggest that the resulting effect of deregulation to reduce the corporations costs of doing business would be to the consumer's ultimate benefit.
Exactly what do you mean your argument to accomplish? Shouldn't you have proposed an argument that cannot be cast as "trickle down" because the benefit to consumers is direct? Are you having a problem coming up with such examples?
Edited by NoNukes, : No reason given.

Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846)
The apathy of the people is enough to make every statue leap from its pedestal and hasten the resurrection of the dead. William Lloyd Garrison

This message is a reply to:
 Message 394 by jar, posted 04-28-2012 10:20 AM jar has replied

Replies to this message:
 Message 396 by jar, posted 04-28-2012 10:49 AM NoNukes has replied

  
jar
Member (Idle past 394 days)
Posts: 34026
From: Texas!!
Joined: 04-20-2004


Message 396 of 404 (660678)
04-28-2012 10:49 AM
Reply to: Message 395 by NoNukes
04-28-2012 10:39 AM


Re: Not on point...again...
Actually, no. In the increased competition argument the benefit is given directly to the consumer. It is the consumer that benefits directly from being able to buy from multiple sources.
The whole problem as I stated above is that concentrating on the words diverts attention from the problem itself.
It is not deregulation that is the issue, but rather what specifically is deregulated and how it is done.

Anyone so limited that they can only spell a word one way is severely handicapped!

This message is a reply to:
 Message 395 by NoNukes, posted 04-28-2012 10:39 AM NoNukes has replied

Replies to this message:
 Message 397 by NoNukes, posted 04-28-2012 11:00 AM jar has replied

  
NoNukes
Inactive Member


(1)
Message 397 of 404 (660680)
04-28-2012 11:00 AM
Reply to: Message 396 by jar
04-28-2012 10:49 AM


Re: Not on point...again...
In the increased competition argument the benefit is given directly to the consumer. It is the consumer that benefits directly from being able to buy from multiple sources.
Yes, but the benefit given by the government, as you cast it in your post, comes from deregulation. It is deregulation that is the direct government action, and increased competition that is the indirect result.
It is not deregulation that is the issue, but rather what specifically is deregulated and how it is done.
You don't really seem to have a point or an issue. Unless you can come up with a deregulation action that directly creates a competitor, then "increased competition" is an indirect result of a government action that directly lowers the cost of doing business for corporations.
And in any event, we can best probe your argument by coming up with a specific deregulation that directly innures to consumers without first filtering through banks, corps, etc. Did you have one in mind?
Edited by NoNukes, : No reason given.

Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846)
The apathy of the people is enough to make every statue leap from its pedestal and hasten the resurrection of the dead. William Lloyd Garrison

This message is a reply to:
 Message 396 by jar, posted 04-28-2012 10:49 AM jar has replied

Replies to this message:
 Message 398 by jar, posted 04-28-2012 11:05 AM NoNukes has replied

  
jar
Member (Idle past 394 days)
Posts: 34026
From: Texas!!
Joined: 04-20-2004


Message 398 of 404 (660682)
04-28-2012 11:05 AM
Reply to: Message 397 by NoNukes
04-28-2012 11:00 AM


Re: Not on point...again...
When as a consumer I can buy a sim card that works on any manufacturers phone on any network, that is a direct benefit to the consumer, not a reduction of cost to the corporations.

Anyone so limited that they can only spell a word one way is severely handicapped!

This message is a reply to:
 Message 397 by NoNukes, posted 04-28-2012 11:00 AM NoNukes has replied

Replies to this message:
 Message 399 by NoNukes, posted 04-28-2012 11:13 AM jar has replied

  
NoNukes
Inactive Member


Message 399 of 404 (660684)
04-28-2012 11:13 AM
Reply to: Message 398 by jar
04-28-2012 11:05 AM


Re: Not on point...again...
When as a consumer I can buy a sim card that works on any manufacturers phone on any network, that is a direct benefit to the consumer, not a reduction of cost to the corporations
Yes, you are right. That would not be a reduction of corporate cost.
You are also being obtuse. No one is arguing that increased competition is not a consumer benefit. What is being said is that government deregulations designed to create competition do so by reducing the cost to business.
Now if the government created a regulation that forced manufacturers to create a common sim card, that wouldn't be deregulation, would it?
Edited by NoNukes, : No reason given.
Edited by NoNukes, : Grrr. add clarity.
Edited by NoNukes, : No reason given.

Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846)
The apathy of the people is enough to make every statue leap from its pedestal and hasten the resurrection of the dead. William Lloyd Garrison

This message is a reply to:
 Message 398 by jar, posted 04-28-2012 11:05 AM jar has replied

Replies to this message:
 Message 400 by jar, posted 04-28-2012 11:17 AM NoNukes has seen this message but not replied

  
jar
Member (Idle past 394 days)
Posts: 34026
From: Texas!!
Joined: 04-20-2004


Message 400 of 404 (660685)
04-28-2012 11:17 AM
Reply to: Message 399 by NoNukes
04-28-2012 11:13 AM


Re: Not on point...again...
Again, how does increasing corporate competition reduce corporate costs.

Anyone so limited that they can only spell a word one way is severely handicapped!

This message is a reply to:
 Message 399 by NoNukes, posted 04-28-2012 11:13 AM NoNukes has seen this message but not replied

  
jar
Member (Idle past 394 days)
Posts: 34026
From: Texas!!
Joined: 04-20-2004


(1)
Message 401 of 404 (660686)
04-28-2012 11:22 AM


Summation.
As I said back in Message 78 (All the wrong questions so all the wrong answers), asking if Trickle Down economics works is starting at the wrong end with the wrong question which means we will always get wrong answers.
I think that all the talk about stuff like Trickle Down or Surge Up simply directs attention away from the real issues and allows avoiding the problems just as all the nonsense about whether or not global warming is natural or man caused allows that issue to be ignored.
The goal of Government is not "wealth Creation", it is "the Common Weal".
The goal of Government is providing services and creating social policy.
What really should be discussed and debated is "What services should be available to citizens?"
"What type of society do we want?"
"Do we want to see a 'hereditary moneyed class' created?"
"Do we want to minimize the gap between the rich and poor?"
After those questions are debated, the tools government uses are laws, regulations and taxes.
If we decide that we do not want to create a 'hereditary moneyed class' then tax estates.
If you want to fund services, tax business and individuals.
Tax where the money is regardless of the philosophy or method that got the money there.

Anyone so limited that they can only spell a word one way is severely handicapped!

  
Percy
Member
Posts: 22394
From: New Hampshire
Joined: 12-23-2000
Member Rating: 5.2


Message 402 of 404 (660765)
04-29-2012 7:57 AM


My Summation
The discussion forced upon me the realization that my ideas about trickle-down economics were frozen in the 1980s. I lived through the whole debate about the Laffer curve, supply side economics, and tax code simplification, and it all took place in the context of a top marginal tax rate of 70%. The argument was that lowering the top marginal rates would have two results:
  1. Capital would be shifted away from tax avoidance activity to productive investment.
  2. The motivation to invest capital would increase because of the greater value of each dollar of return, and this should spur the economic by encouraging new businesses to form and existing businesses to expand.
This was disparagingly characterized by the Democrats as trickle-down economics, and so in my mind trickle-down economics is associated with the Reagan tax cuts, but it's really not the right term. The Reagan tax cuts were about making the most productive use of capital in order to spur the economy and provide jobs, not about giving money to rich. True, it let the rich keep more of their money, but it also provided motivation to make productive use of the money rather than doing unproductive things with it, such as stockpiling it offshore.
Did it work? Who knows for sure? Teasing out cause and effect is impossibly difficult in economics. The economy certainly took off after the tax cuts, but energy prices that had been so high during the Carter years (some might remember the Arab oil embargo and long gas lines) dropped, and international tensions eased after Iran released the hostages during Reagan's inauguration speech.
So does trickle-down economics work? Is giving money to the rich the best way to stimulate a sluggish economy? Sounds pretty stupid to me, but it does make sense in very limited contexts. If the rich are hiding large proportions of income from the tax codes because of high tax rates, and if capital is languishing unused because risk outweighs reward due to the same high tax rates, then cutting taxes should be highly stimulative. This was the situation in the early 1980s.
But it is not the situation today. The financial rewards from the investment of capital are substantial and the risks are low. Dropping top marginal tax rates now would be like welfare for the rich. Given that we're much less socialistic than European countries I think our tax rates should be lower than Europe's, and somewhere in the neighborhood of where they are now seems fine.
The problem is with all the loopholes, especially the ones that allow people like Romney to classify nearly all their income as long term capital gains and therefore subject to the 15% tax rate.
--Percy

  
RAZD
Member (Idle past 1405 days)
Posts: 20714
From: the other end of the sidewalk
Joined: 03-14-2004


(4)
Message 403 of 404 (660766)
04-29-2012 8:27 AM


Trickle down is only a small localised portion of the economy ... at best

TRICKLE DOWN

Trickle down is only a small portion of the economy
This should be self-evident
What happens when you spend money is that it "trickles away" -- it goes from your pocket to somebody else's pocket/s.
When the very rich spend money it is more likely to go down than up or sideways, although that still happens (stock investments, etc) to an appreciable degree.
When the very poor spend money it is more likely to go up than down or sideways.
This too should be self-evident.
There is no guarantee that the effect of one person spending money travels very far, and certainly no reason to think that everyone would receive a penny of benefit from any transaction.
If the money is channeled (not divided up) in one direction (say to pay off debts, from poor to rich) then it does not benefit anyone outside the channels.
If the money is not channeled (divided up) in one direction, then the ripple effect will spread out to lower and lower benefits. A $3.11 million dollar expenditure spread to every one in the US (311 million population) results in a 1¢ benefit to everyone.
This should be self-evident as well.
If one wants to look at the end destination of trickle away money from spending, then one needs to look at where money is accumulated. Money that is not accumulated is still in the process of trickling away (up, down and sideways), and this only stops when it is taken out of circulation.
Money is only accumulated by people that get more money than they spend.
Accumulated money takes money out of circulation, and this actually harms the economy.
Giving money to people that accumulate wealth means that only part of that money will enter the economy and the rest will be added to the accumulation pile. The accumulated funds only benefit the holders and not the economy.
Giving money to people that do not accumulate wealth means that all of that money will enter the economy. Money that continues to be circulated, by trickle away (up, down and sideways), benefits the economy: the economy is the exchange of money for goods and services, not the accumulation of wealth.
Thus if you want to stimulate the economy the money - dollar invested for dollar returned to the economy - would be better spent on the lower income brackets than on the top income brackets.
And this should be blindingly self-evident.

TRICKLE DOWN "THEORY"

(Properly speaking this is not a theory, but an unsubstantiated hypothesis).
The "theory" of trickle-down economics is that spending by the rich benefits everyone.
This is based on the assumption that money only and always trickles down, which we saw above is just not true.
Thus trickle down obviously cannot happen in any substantial way to benefit everyone in the economy, and the graphs we have seen on this thread show unequivocally that the very poor have not benefited from any of the trickle down policies that have been enacted, even if the benefits were on a slow boat to china.
We see that the mortgage failures began because trickle down did not provide any significant benefit to lower income people, as was promised by the trickle-down proponents. The boat never came in. Those mortgage failures however trickled UP in a fast freight train.
We also see that the massive bailout of the top income sector of the economy did not stop any of the foreclosures and continued failure of money to trickle down to the lower incomes.
Billions of dollars have been invested in the trickle-down policies, and there is absolutely no visible benefit for the lower incomes. If anything the lower income brackets are worse off than they were before those policies were implemented.
Trickle-down economics is a failed policy based on a false hypothesis, poor logic, and willful ignorance, delusion, or intentional misinformation.
Enjoy.
Edited by RAZD, : clrty

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Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


(3)
Message 404 of 404 (660911)
04-30-2012 3:02 PM


How Much Received Vs How Much Created
Percy writes:
By definition people receive compensation equal to the wealth they created. If a company is willing to pay a CEO $20 million in salary then that's what he's worth, because the value of something is what someone is willing to pay. His salary is equal to the wealth he created just as your salary is equal to the wealth you create.
A relatively lowly paid publicly funded research scientist facilitating technological progress has very arguably contributed more to increasing the nation's wealth than a team of highly paid stock-brokers whose average performance is indistinguishable from that of random chance. And A burger flipper on minimum wage has definitely contributed more to the economy than a millionaire banker who has played an active role in actually reducing the wealth of the nation. Simply by not having a negative effect.
So this notion that one's salary or wealth is by definition indicative of ones contribution to increased national wealth is just risible.
So we are back to my main point. If the wealthiest at the top are receiving more wealth than they are creating then we do not have trickle down. We have trickle up.
The data clearly shows that the wealthiest at the top have received nearly all of increased national wealth over the last 30 years. But are they responsible for creating nearly all of this national wealth? If they are not then trickle-down economics does not work. Because it has had the very opposite effect to that claimed by it's proponents.
Earlier in this thread the following exchange was had:
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.
Percy writes:
YES YES YES! Outstanding! Well said.
But later it seemed to be forgotten. Here:
Percy writes:
If the worker wants to participate in his company's contribution to wealth creation then he should buy stock.
We ALL financially contribute to the environment in which wealth is created. Without this environment stocks would be worthless and wealth creation would be all but impossible on the sort of scale we are talking about here. So (with reference to our much cited graph) the idea that 95% of the population can claim responsibility for a sub 20% share of wealth creation over the last 30 years is simply absurd. How productive would the nation be without 95% of it's workforce?
Answer - Not very.
So - No trickle-down hasn't worked. Because of the simple fact that wealth isn't trickling down. In terms of wealth received against wealth created all the data strongly suggests that wealth is trickling up.

  
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