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Author Topic:   Trickle Down Economics - Does It Work?
Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 1 of 404 (659049)
04-12-2012 9:00 AM


Unleash the wealth of the wealthiest by cutting their taxes and removing any regulations that might stifle their entrepreneurial activity and we will all be better off as a result. If we stop taking away the wealth of those who are wealth creators they will put their superior wealth generating talents to use through investment and the result will be jobs, economic growth, innovation and raised living standards for all.
That is the theory.
Does it work? What does the evidence say? I'm not interested in left-wing arguments about what is "fair" here. Nor am I interested in right-wing arguments proclaiming that tax is "theft" and suchlike.
What I want to know is what does the evidence say about trickle-down economics and it's effect on living standards for the workforce as a whole. Does it benefit the majority (as it's advocates suggest) or does it benefit the wealthy minority at the expense of the majority (as it's detractors suggest)?
What evidence is there and what does this evidence tell us?

Replies to this message:
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 Message 7 by Jon, posted 04-12-2012 10:08 AM Straggler has replied
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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


(2)
Message 2 of 404 (659051)
04-12-2012 9:20 AM
Reply to: Message 1 by Straggler
04-12-2012 9:00 AM


Milton Friedman
I am not an economist, nor do I understand economics all that much...but what I DO know is that the Laffer Curve has something to do with this Trickle Down stuff, as did Milton Friedman. (supply-side economics )
If the tax rates are too low, no revenue comes into the government and they make no money. If the tax rates are too high, why work at all?

This message is a reply to:
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Replies to this message:
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Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 3 of 404 (659052)
04-12-2012 9:37 AM
Reply to: Message 2 by Phat
04-12-2012 9:20 AM


Re: Milton Friedman
The Laffer curve is a very good starting point for this discussion.
Phat writes:
If the tax rates are too low, no revenue comes into the government and they make no money. If the tax rates are too high, why work at all?
I think those of all economic persuasions would agree that the two extremes are basically accurate.
What I am less sure of with regard to the Laffer curve is:
1) Is the shape of the curve simply an extrapolation of reasoning regarding the two extremes or something that is empirically evidenced?
2) If the Laffer curve is accurate where does the tipping point lie and what factors might affect this?
3) Is the Laffer curve generally accepted as accurate by economists?

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frako
Member (Idle past 305 days)
Posts: 2932
From: slovenija
Joined: 09-04-2010


(1)
Message 4 of 404 (659054)
04-12-2012 9:45 AM
Reply to: Message 1 by Straggler
04-12-2012 9:00 AM


What evidence is there and what does this evidence tell us?
The extreme of this was feudalism The king at the top who appointed lords who had knights who controlled the serfs who payed the taxes. Technically all except the serfs where exempt from tax and all except the serfs had good quality of life. At some points in time peasants had to pay over 75% of their income as tax. Merchants usually payed less % then the peasants.

Christianity, One woman's lie about an affair that got seriously out of hand
Click if you dare!

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 5 of 404 (659055)
04-12-2012 9:45 AM
Reply to: Message 3 by Straggler
04-12-2012 9:37 AM


Reaganomics Failed
There has never been an agreement between economists...some believe one theory and some another. I might say that whether coincidentally or not, the national debt shot up to historic levels since Reagan and is in an uncontrollable upward course (like a hockey stick graph) ever since. Im not sure if that had anything to do with supply side economics or not, but the other guy, John Maynard Keynes, was popular during the Great Depression. The government had no huge debt back then, either.

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Taz
Member (Idle past 3291 days)
Posts: 5069
From: Zerus
Joined: 07-18-2006


(1)
Message 6 of 404 (659057)
04-12-2012 10:07 AM
Reply to: Message 1 by Straggler
04-12-2012 9:00 AM


I'd say too often people ignore the trickle up economics. Everything in life must have a balance. My grandfather used to say, and I still believe this, is too much of anything always result in something bad.
I often makes a double facepalm when I hear either side of the argument. On the one hand, conservatives only think about the trick down effect. Empower wealthy people so they can create more jobs. Put money in their pocket and they'll have more table scraps for the rest of us to pick off of.
Then on the other hand, like my socialist friend Rine, the argument goes something like completely regulate trade and business so they can't take advantage of the less fortunate. Tax the hell out of them to expand the public sector. He doesn't know it, but he's actually talking about the trickle up economics. Put money in the pocket of the wealthy and he either chooses to spend it on investments or he might just put it in a bank. But put money in the pocket of a poor man and we know with absolute certainty that he will spend it right away, if for nothing else, on daily life necessessities. (too many 's'?)
The fact of the matter is the best approach is somewhere in between. I'm sure everyone has seen my other thread where I got acused of being all kinds of things. My point in the other thread is we need to step beyond our ideologies and look at what the best approaches are and not what our ideology tells us.
We need to let businesses do their thing because most innovations in the last century, the last milennium, the last forever came from the private sector. At the same time, we saw great strives in progress in the public sector as well. And I'm not just talking about this country.
We need to have a balance of trickle down AND trickle up economics. Let businesses do their thing. Let the wealthy make their investments. At the same time, tax them to maintain public works (like the transportation department).
This is why all the republican candidates scare the hell out of me. Some democratic candidates scare the hell out of me also.
Anyway, to tackle the main topic of the thread directly. Society did try to go all out on trickle down economics in the past. What resulted was some of the worst working and living conditions in human history.

This message is a reply to:
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Replies to this message:
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Jon
Inactive Member


(1)
Message 7 of 404 (659059)
04-12-2012 10:08 AM
Reply to: Message 1 by Straggler
04-12-2012 9:00 AM


Unleash the wealth of the wealthiest by cutting their taxes and removing any regulations that might stifle their entrepreneurial activity and we will all be better off as a result. If we stop taking away the wealth of those who are wealth creators they will put their superior wealth generating talents to use through investment and the result will be jobs, economic growth, innovation and raised living standards for all.
That is the theory.
Does it work? What does the evidence say? I'm not interested in left-wing arguments about what is "fair" here. Nor am I interested in right-wing arguments proclaiming that tax is "theft" and suchlike.
What I want to know is what does the evidence say about trickle-down economics and it's effect on living standards for the workforce as a whole. Does it benefit the majority (as it's advocates suggest) or does it benefit the wealthy minority at the expense of the majority (as it's detractors suggest)?
What evidence is there and what does this evidence tell us?
If there's any truth to it, then it should have been working long ago, since even after taxes the wealthy are still very wealthy.
The rich have always had substantial wealth. So far the notion that they will voluntarily start unleashing loads of it if their taxes are lower has proven to be little more than a Reaganomic dream.
Because the truth is that wealth trickles up. People who are wealth creators are only good at creating wealth for themselves, which they do in large part by siphoning it out of the rest of society (I mean, it has to come from somewhere, right?).
Jon

Love your enemies!

This message is a reply to:
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Taz
Member (Idle past 3291 days)
Posts: 5069
From: Zerus
Joined: 07-18-2006


Message 8 of 404 (659061)
04-12-2012 10:12 AM
Reply to: Message 5 by Phat
04-12-2012 9:45 AM


Re: Reaganomics Failed
Allow me to add that historically it's always a pattern that a ruling entity always end up in more debt than it could handle. All governments run into financial trouble eventually. I believe the reason is it always cost more to maintain a civilization's infrastructure than the GDP of that civilization.

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Phat
Member
Posts: 18262
From: Denver,Colorado USA
Joined: 12-30-2003
Member Rating: 1.1


Message 9 of 404 (659064)
04-12-2012 10:24 AM
Reply to: Message 7 by Jon
04-12-2012 10:08 AM


Human Nature
Two quick points:
1) If someone has the ability to vote themselves a raise (as Congress) or improve their standard of living for life(Like a CEO) whats to prevent them from taking it from the lower economic classes in order to do so? Jobs may be created to run the business, but the evidence shows that these jobs are usually low wage jobs, at least in the industry that I work in. This of course addresses a micro economy, that of the business itself, and does not address macro economic concerns, such as what is good for the country.
2) Labor Unions are historically in favor of Keynesian Economics. They love to complain about how much more the CEO makes than the workers, but, again, what does human nature tell us? If upper management was allowed to make more, would they then help the employees? That does seem to be their philosophy...though they would argue that if the businessmakes more, then all of the employees would also make more.

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


Message 10 of 404 (659070)
04-12-2012 10:53 AM
Reply to: Message 6 by Taz
04-12-2012 10:07 AM


Taz writes:
Society did try to go all out on trickle down economics in the past. What resulted was some of the worst working and living conditions in human history.
As stipulated in the OP I'm interested in evidence in this thread.
What are the examples you are thinking of and what evidence is there on which to base your conclusion?

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


Message 11 of 404 (659071)
04-12-2012 10:59 AM
Reply to: Message 9 by Phat
04-12-2012 10:24 AM


Re: Human Nature
Phat writes:
That does seem to be their philosophy...though they would argue that if the business makes more, then all of the employees would also make more.
Is that how it works in practise?
Do the businesses that make most profits share the profits? Or do the most profitable companies lower wages, reduce employment rights and generally siphon off the benefits to the bosses at the expense of the workers?
No doubt there are examples of both sides of the coin. But is there a definitive trend in there at all?

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


Message 12 of 404 (659073)
04-12-2012 11:04 AM
Reply to: Message 7 by Jon
04-12-2012 10:08 AM


Jon writes:
If there's any truth to it, then it should have been working long ago, since even after taxes the wealthy are still very wealthy.
Advocates of trickle down do not think that the wealthy should get less wealthy. They think that making the wealthy wealthier makes us all wealthier in turn.
Jon writes:
(I mean, it has to come from somewhere, right?).
In theory it is new wealth. New wealth created as a result of the entrepreneurial endevours of those whose investment wealth has been unleashed.

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


Message 13 of 404 (659079)
04-12-2012 11:34 AM
Reply to: Message 4 by frako
04-12-2012 9:45 AM


Ah - The good old days.....

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Taz
Member (Idle past 3291 days)
Posts: 5069
From: Zerus
Joined: 07-18-2006


Message 14 of 404 (659112)
04-12-2012 1:49 PM
Reply to: Message 10 by Straggler
04-12-2012 10:53 AM


The industrial revolution in England, for example, saw some of this. What ended up happening was the nation's wealth ending up in the hands of a few. Children worked night and day in coal mines and factories. Workers had no right.
Some would argue that going all out on trickle down economics brought on the great depression.

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Taq
Member
Posts: 9970
Joined: 03-06-2009
Member Rating: 5.6


(1)
Message 15 of 404 (659114)
04-12-2012 2:01 PM


I am not an expert in economics, so a grain of salt is highly recommended . . .
New jobs are created by an increase in demand. You could reduce the top tax rate to 0% and this would not increase demand for basic consumer products. Why hire more people when the people you have can meet the current demand? Why pay them more when they are meeting current demand at the current pay rate?
I agree with Jon. Wealth trickles up, not down.

  
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