Summations Only

The Reagan tax cuts were passed by Congress in the summer of 1981 and took effect on October 1 of the same year, so the Reagan tax cuts affected the last quarter of 1981 and all of 1982. Changes in financial behavior of those in the top 5% income category would have commenced as soon as the law was passed, and planning even earlier, and would have been reflected in that year's figures. The tax cuts began in 1981, and the rise in the top 5% line began in 1981. Except that the slope doesn't rise consistently "thoughout the entire range of the graph." Here's the graph again: Now, click on the graph to blow it up to full size and put a ruler on the part of the line that begins in 1977 and ends in 1983. The ruler is horizontal. What restrictions are you imagining were lifted?Summarizing the problems with your position:

1. The rise in top 5% income began during a period when productivity was flat.
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2. There was nothing to prevent top 5% incomes from taking advantage of productivity gains prior to the Reagan tax cuts.
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3. Productivity gains are the result of investment in technology improvements, process improvements, etc., not commonly of workers working harder because that's not sustainable. When companies benefit from productivity gains it is not something that they're taking away from employees.

--Percy

Try a region that ends at the beginning of 1983, not the end. The flat region under your red line is readily apparent anyway.But even taking the chart as you prefer to see it as a continuously rising line argues against your interpretation. Productivity was rising before top 5% income began rising, and it was rising after. What caused the top 5% income line to take off when it did? What was keeping the rich from appropriating the productivity gains to themselves before? Gee, what could it be? Was there some big repeal of the law against false appropriation of productivity?Or could it be due to something significant economically that happened around that time, like, oh, I don't know, the Reagan tax cuts? Workers just doing their jobs, not working harder, is what produces the improvements. The workers producing the first generation of computers worked no less hard than those producing the 2nd generation who worked no less hard than those producing the 3rd generation and so forth. Productivity gains cannot come from workers working increasingly hard because that is simply not sustainable. According to the chart workers today are a couple hundred percent more productive than they were 30 years ago, and it obviously can't be because they're working 200% harder. I'm sure the previous generation was just as hardworking as we are. You make it sound like sociologists and economists believe that productivity gains belong to the workers. Are you really saying that that's what they think, because that would surprise me a great deal.In any event, it isn't true. Productivity is a measure of output per dollar. Workers can increase output by working harder, but only for so long. An auto plant, just for example, can increase productivity in a number of ways. Time/motion studies were very popular in the 1950s and 1960s as a way to improve productivity with no increased investment in technology or infrastructure simply by improving efficiency and teamwork.So if a worker becomes more productive because his company has him doing things in a different order, who owns the benefit from this increased productivity?Or if the auto company does invest in infrastructure and installs automatic welding machines and begins turning out twice as many cars with half the people, who owns the benefit from this increased productivity?Workers who improve their personal productivity get raises.--PercyEdited by Percy, : Typo.

Hi Straggler,Your ideas about how wealth is created are upside-down. The worker's contributions to wealth creation is in their wages and other compensation because the value of anything is what is willing to be paid for it. The value the company derives from their contributions belongs to the company, not to the worker.If the worker wants to participate in his company's contribution to wealth creation then he should buy stock.--PercyEdited by Percy, : Grammar.Edited by Percy, : Grammar again.

Hi Mr Jack,Like most in this thread I agree that the concentration of wealth at the top is a very serious problem, but blaming convenient scapegoats while ignoring simple, even foundational, economic principles won't lead to rational discussions or the exploration of practical solutions.Probably the most serious misunderstanding I see in this thread is that workers should share in the wealth created by the companies they work for. The misunderstanding is even worse than this, for many appear to believe that the wealth created by companies is actually created by their workers.The reason the wealth a company creates belongs to the company and not to workers is because the company takes on all the risk to capital. It would be nice if the workers' wealth increased at a company on its way up, but the flip side to this is that their wealth would decrease at a company on its way down. Workers risk only their jobs and salary, not their wealth.If one wants to participate in the success (and failure) of a company then one must risk capital. That means buying stock.--PercyEdited by Percy, : Punctuation.Edited by Percy, : Typo.

Sure, that's another way of saying the same thing, though a bit indirect. You see something in a store, you look at the money in your wallet and think about how hard you had to work to earn that money, and based on that you make your purchasing decision.--Percy

No, of course not, but you have to understand how wealth is created before you understand why that isn't a valid conclusion.When a company sells a widget for $1000 they haven't created wealth of $1000. They've created wealth of $1000 minus the expenses they incurred to design, manufacture, market and sell the widget. One of those expenses is worker salaries and benefits, and this comprises the wealth created by workers. It's a direct one-to-one relationship. The workers' salaries and benefits that are provided as compensation for the value they have contributed to the widget is exactly equal to the wealth they have created.If total widget expenses are $800 then the company has created wealth in the amount of $200. This wealth belongs to the company, or more properly, to the company's shareholders. If the company devises a way to reduce widget expenses to $700 then that represents a productivity improvement of $100/widget and it belongs to the company, not to the workers in general or even to those personally responsible for implementing the productivity improvements. Their compensation comes in the form of salaries and benefits rather than in terms of equity in the company, though it isn't uncommon for companies to issue stock grants or options for jobs well done on a project important to the company's success.The advantage of companies is that they can mobilize and focus the effort of many workers so that the end result is much greater than just the sum of the contributions of the individual workers. Tax policies that discourage risk and investment act as a damper on the economic activity upon which we all depend for our jobs. Capitalism isn't a magic fountain, it requires capital, and devaluing that capital by putting a high tax burden on it is counterproductive. The key question concerns what level of taxation is optimal, and therein lies a truly debatable issue.--Percy

I'm sorry, Rahvin, I sympathize, but it's just business. Living paycheck to paycheck is a grindingly hard road, I know, but building economic fantasies isn't the answer. A glaringly objective understanding of reality will serve you much better. The sooner you stop thinking that your company should treat you like family and start seeing the world the way it really is the better off you'll be, especially since it will allow you to much more meaningfully examine your options. Whining that the world isn't as nice a place as it should be is pointless.--Percy

Hi Dronester,A litany of complaints can't rebut the simple mechanics of how capitalism actually works. It's no secret that there's abuse out there, but the general reality is that companies do go bankrupt and stockholders do lose their money. It is the companies, or more accurately the owners of the companies (usually the stockholders), who risk their capital. Employees are not risking their capital.--Percy

The phrasing is irrelevant. Capitalism works the way it works regardless of the words used to describe it. If you feel there's something lacking in my description then point it out. 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.--Percy

Not that I can see. If you see a chain of cause/effect whereby the effect of productivity gains on salaries is influenced by tax policy then please share it.--Percy

I don't understand it either, although in the current job market there's not much opportunity. My company doesn't have to worry how badly they treat employees because there's nowhere for us to go (comparatively tiny specialized software market niche), and most of us are just happy to be employed.Anyway, sometimes there's nothing to be done except vote with your feet, and if you can get a 50% salary bump then stop posting messages to me and get crackin'!--PercyEdited by Percy, : Prudence dictated removal of substantial content. Apologies, but it wasn't germane to the topic and shouldn't hurt the thread.

As I explained before, value is what someone is willing to pay, so your work is worth what someone is willing to pay. You can increase your wealth by working, and you increase your wealth by the amount of the value of your work.This definition works anywhere in an economy, not just for employees like us or like CEOs. For example, someone finds a nice piece of wood in the woods. They take it home, dry it out, then from it whittle a handsome duck. They take it to a craft show and sell the duck for $20. The person's labor was worth $20, and his wealth has increased by $20 (minus expenses, of course). The GDP of the nation has just risen by $20, as has the total wealth of the nation.That governments in some cases decide that a business must be bailed out because its failure would have too severe an impact on the economy does not nullify simple economic principles. Wealth is still created by labor, and labor is still worth what someone is willing to pay.Maybe you could consider postponing the bald assertions about trickle down economics until we've reached some common ground on wealth creation.--Percy

In reality the rich pay a greater share of taxes than ever before, see Why the Rich Pay 40% of Taxes. However, their income has grown faster than their taxes, which isn't fair. How do you know what proportion of any group's increased income in real terms is due to productivity gains so that you can make this comparison? So true, so true. If I had $2 million I would put it into very low-risk bonds and retire. I'd never have to worry about money again. Trickle down economics isn't about concentrating wealth. It's about using tax policy to encourage investment and other productive uses of capital. That's because you keep asking me to provide reasons for claims I never made.--Percy

How are you thinking about this? Are you imagining that if you have $10,000 in an interest bearing account somewhere that the government can just somehow tax it away? I can see them taxing the interest on the $10,000, but not the capital itself. If you give me the details of the scenario you have in mind I can comment better.--Percy

Hi Dronester,What you called a hypothesis is just definitions from economics 101, though stated informally in my own words. That the rich have the ability to influence legislation, much more so than your average person anyway, doesn't really bear on those definitions at all.I do agree with you in a sense, though, that trickle-down economics is a misnomer. The Laffer curve is much more relevant if we're talking about the effect of marginal tax rates on economic activity.--Percy