Message 46 of 404 (659250) 04-13-2012 5:26 PM

Reply to: Message 42 by Straggler 04-13-2012 2:06 PM

Well surely the fact that wealth does not actually trickle down refutes the trickle-down hypothesis.

For more data, I suppose one could graph disparities of wealth against mean or median GDP and see if the correlation is positive, negative, or non-existent.

But really, what we would need is for one of the proponents of the trickle-down "theory" to list some of its predictions. Note that "If you cut rich people's taxes this year we'll be better off next year than we would have been if you didn't" doesn't count, 'cos of the absence of a control group. That would be more in the nature of a dogmatic assertion.

Message 47 of 404 (659253) 04-13-2012 6:45 PM

Reply to: Message 29 by PaulK 04-13-2012 8:39 AM

The question that should be asked is whether it is better for the government to take Bill Gates $100,000 and decide what to do with it, or is it better for Bill Gates to decide what to do with it.

There are no simple answers to questions of this nature, but for your specific example one must recognize that Bill Gates has become a great philanthropist while the government has demonstrated great incompetence in a number of social and economic arenas.

--Percy

Message 48 of 404 (659258) 04-13-2012 8:29 PM

Reply to: Message 47 by Percy 04-13-2012 6:45 PM

That's an interesting claim. I've seen it plenty of times...it seems to have sunk into the level of "common knowledge."

Of course, so did the idea of "Welfare queens," which of course was a lie.

So I wonder - is the government generally incompetent?

People seem largely satisfied with Medicare, Medicaid, the interstate highway system, and the military. The only "incompetence" is really know about is that of funding - where some areas like the military receive far more than what I would ever allocate, and otehr programs utterly fail simply because their funding was crippled from the outset.

I initially agreed, Percy, on such a reflexive level that I think I should re-examine that belief and see if it's actually a reflection of reality; it's never good to have a belief and not actually know what evidence it's based on. I've decided that I no longer have an opinion on the matter - I do not know if the government is competent or incompetent, and will have to form a new conclusion based on an examination of evidence.

Do you have any specific examples where the government was more incompetent than the private sector at a specific task that was not a failure due to a lack of funding, but to real incompetence, inefficient management, or the like?

Message 49 of 404 (659260) 04-13-2012 10:06 PM

Reply to: Message 48 by Rahvin 04-13-2012 8:29 PM

Do you have any specific tasks where government and private sector performance can be compared?

The areas where government unambiguously demonstrates its incompetence are pretty much the sole domain of government. Last year's debt ceiling impasse comes to mind. Social security as a inter-generational Ponzi scheme does, too, as do Iraq and Afghanistan and our foreign policy in general. I haven't heard many express satisfaction with Medicare and Medicare - what I mostly hear is how difficult it is to find competent care because so my providers won't accept their fee schedule. The interstate highway system is a marvel, but maintaining it is another matter and we've inherited a crumbling infrastructure. Congress is at the mercy of special interests, so any tax bills on the rich will be shot full of holes before they ever come to a vote. They can raise taxes for one purpose and then devote the tax income to another. Where governments are concerned the law of unintended consequences is the rule.

But as bad as government is, it certainly beats the alternative, and we in western democracies are very fortunate to have governments that much more than other governments are servants of the people instead of the other way around. I'm not anti-government, but I'm very wary of it because it is so big and powerful it can squash without ill-intent or taking any notice.

So is government better at using your money for the benefit of all than you are? I don't know, and I don't think it is possible to know with any certainty. But I'd be very skeptical.

--Percy

Message 50 of 404 (659262) 04-13-2012 10:14 PM

Reply to: Message 30 by Straggler 04-13-2012 9:12 AM

I agree that detailed data is needed to have a better chance of answering the question, but I don't agree with this part:

It isn't a question of whether trickle down works or not. Of course it works. The question is whether it works better than government, and that's a function of tax rates, i.e., where you are on the Laffer curve. But it's also a function of many other factors.

--Percy

Message 51 of 404 (659265) 04-13-2012 10:27 PM

Reply to: Message 38 by Dr Adequate 04-13-2012 1:06 PM

The government's inability to hit what it aims at is well established. I'll take Adam Smith's invisible hand over government when it comes to economics.

You picked these at random?

Again, you picked these at random?

The rich generate economic activity by spending their money, which creates jobs. Even if they just bank their money they're helping the economy because unless they're keeping it in a mattress it funds other economic activity, which creates jobs. Governments need to provide social safety nets with programs for welfare and health care and retirement, but they do not do a good job of creating jobs.

--Percy

Message 52 of 404 (659266) 04-13-2012 10:35 PM

Reply to: Message 44 by Taq 04-13-2012 5:09 PM

How is this different from a tax cut?

Money does not accumulate at the top and stay there. If that were true everyone rich would stay rich. The rich are in all stages of life, from young to old, from wealth accumulation to wealth squandering. They own companies that are on the way up and companies that are on the way down.

--Percy

Message 53 of 404 (659267) 04-13-2012 11:24 PM

Reply to: Message 49 by Percy 04-13-2012 10:06 PM

When I came to America for graduate study, I discovered that the railroads were privately run, and were even more of a mess here than they were back in Australia. And the privately run telephone system was similarly efficient, but far more expensive.

Message 54 of 404 (659270) 04-14-2012 12:13 AM

Reply to: Message 51 by Percy 04-13-2012 10:27 PM

Well, it's widely asserted. But it's probably not true.

I don't even think that people who say it think it's true. I've said this before, and I'll say it again, please let me hear, just once, some conservative asserting that the Army should be disbanded and that national defense should be provided by hiring competing companies of private mercenaries in a free market.

Well, I'm still waiting. While I wait I have to conclude that their reasons for wanting defense in the hands of government but not (for example) healthcare is that they care about the former but not the latter. When they want something doing, and doing well, they turn as one man to the government. When they don't want something doing well, they will bang on about the virtues of free markets, the supposed inefficiency of government, and the evils of "socialism", but if they really believed the ideology by which they claim to be guided they'd want to privatize the Army.

Very little about my posts is random. And your point is?

Well, the government also spends money, which, as you say, create jobs. They aren't throwing money down a pit and burying it, it all gets back into the economy somehow. However, in addition to that they are contributing to the social good. They produce things such as federal highways, literate children, an absence of Chinese armies occupying California, etc, etc. The rich sometimes also act for the social good, as when they invest their money in building factories; but sometimes they don't. When a rich man pays for an oil-painting of his favorite poodle, then to be sure the painter gets paid, but it hasn't added value to the infrastructure so much as if the same money had been spent by the government on repairing pot-holes.

Message 55 of 404 (659271) 04-14-2012 12:17 AM

Reply to: Message 50 by Percy 04-13-2012 10:14 PM

In what sense does it work, and why "of course"?

Message 56 of 404 (659272) 04-14-2012 12:31 AM

Reply to: Message 54 by Dr Adequate 04-14-2012 12:13 AM

The Great War -- they didn't have the foresight then to call it World War One, foolishly thinking that it would be the last one. In the naval operations against Turkey who had mined the Dardanelles (Battle of Gallipoli), the British had hired civilian minesweepers (my emphasis added):

quote:

---

The French battleship Bouvet was sunk by a mine, causing it to capsize with its entire crew aboard. Minesweepers, manned by civilians and under constant fire of Ottoman shells, retreated leaving the minefields largely intact. HMS Irresistible and HMS Inflexible both sustained critical damage from mines, although there was confusion during the battle about the cause of the damage—some blamed torpedoes. HMS Ocean, sent to rescue the Irresistible, was itself struck by an explosion and both ships eventually sank. The French battleships Suffren and Gaulois were also damaged. All the ships had sailed through a new line of mines placed secretly by the Ottoman minelayer Nusret 10 days before.

The losses prompted the Allies to cease any further attempts to force the straits by naval power alone. Losses had been anticipated during the planning of the campaign, so mainly obsolete battleships had been sent which were unfit to face the German fleet. However, many naval officers—including de Robeck and Fisher—did not consider the losses acceptable. The defeat of the British fleet had also given the Ottomans a morale boost, although their gunners had almost run out of ammunition before the British fleet retreated. The reasons for the decision to turn back are unclear.

---

Plus there was Haliburton in Iraq.

Message 57 of 404 (659280) 04-14-2012 4:45 AM

Reply to: Message 3 by Straggler 04-12-2012 9:37 AM

No. In fact, the evidence suggests that Laffer's crude curve resembles nothing like the actual curve.

In fact, the probably peak level lies somewhere around a 70-80% tax level - way above the taxes imposed in any developed nation. The evidence arising from tax increases supports this, where 1% increases in tax levels produce something like a .8-.99% increase in tax income, depending on the tax.

Note that this only applies to taxes applied over the longer term, avoidance in the short term is easy - q.v. the 50% tax rate in the UK.

It's generally accepted that there is a point at which increasing taxes no longer produces increases in tax income. And it's generally accepted that raising taxes has an effect on economic output. What's not at all agreed upon is how exactly these factors interact and at what levels.

Message 58 of 404 (659281) 04-14-2012 5:05 AM

Reply to: Message 1 by Straggler 04-12-2012 9:00 AM

The trouble with the question is how you want to look at it. It's likely that the majority of people receive a material uplift in their living standards through trickle down economics. However, there's two problems with this, firstly (a) the alternative is not stasis, it's a different model of economics - one that produces bigger uplifts, and (b) material increases aren't all that relevant to the more important question of quality of life and wellbeing.

Tackling (b) first, there is a massive (and growing) body of evidence that inequality is bad for society. It's especially bad for the people at the bottom, but it's bad for people in the middle and near the top too. Look at health outcomes, life expectancy, crime, teenage pregnancy, happiness, alcoholism, drug use, death by violent crime, domestic abuse - basically, you name a bad thing, it correlates positively with inequality. And, yes, correlation is not causation, but there's a decent (and growing) body of research that's demonstrating causal links between inequality and these effects. See The Spirit Level for a pop sci outline.

This all means that even if Trickle Down Economics works economically, it would still fail socially because it drives up inequality.

Onto (a), you can easily see the effects of the concentration fo wealth, look at London house prices and the toxic effect they've had on the UK's housing market as a whole. The large accumulation of wealth at the top drives up prices where they want to live, temporarily creating wealth for the current owners, who tend then to move away, taking their inflated house values with them to buy houses elsewhere and easily out-competing local buyers. This whole toxic cycle means that while incomes may go up in the middle, the value goes down as more money gets sucked into overpriced buildings and the lower paid are simply priced out.

Quite apart from toxic effects of the rich, such as these, the notion that the rich as "wealth creators" is utterly laughable. There was a study a while back that reckoned that for every pound they were paid, investments bankers destroyed eleven pounds of value in the economy, whilst every pound a cleaner was paid created seven. I can't find it right now, so I don't know how it was worked out. But it stands to reason. When someone goes to a factory and makes a nut, they create value. The nut is more valuable than raw metal. When someone sells a nut they create value by providing easy access to nuts to nut users. When someone takes that nut and uses it to make a chair, etc...

Notice how it's people doing things that are creating value, and they don't need to be making things, providing services also has value. The rich aren't the ones making the things, or providing the services; they're simply organising others to do this and taking a cut. That's not unreasonable, businesses need management, etc. - but it can be taken too far - and it's quickly obvious that the ones at the top aren't creating the wealth, it's their workers doing that.

What's more, money held by the Rich is just plain less valuable. The economic value in money is unlocked only when it is used. Fundamentally, value can only be created when a transaction occurs: someone has to buy something. Give a pound to a poor person and they'll probably spend it straight away. Moreover, they'll likely spend it in a local shop (or pub or whatever) where it'll be spent by the shopkeeper soon after. The money has a high work rate because it's rapidly passing through multiple transactions. The rich man, on the other hand, isn't as likely to spend the money straightaway but rather to invest it. Investment is important, of course, but it isn't as important to the economy as actual transactions where value is created. The work rate of the money of the rich is lower, and thus it creates less wealth.

Message 59 of 404 (659282) 04-14-2012 5:07 AM

Reply to: Message 50 by Percy 04-13-2012 10:14 PM

Does it? How do you know it works?

You seem to be conflating the simple fact that rich people spend money in the local economy with the claim of trickle down theory that tax cuts for the richest rather than anyone else is an effective method of creating new wealth for all.

Unless cutting taxes for the richest (rather than cutting taxes for the not-so-rich or instead of increased public spending) demonstrably results in raising the wealth level for all - trickle down doesn't work.

That really isn't the question here. Trickle down theory isn't just about whether money is better spent by government than individuals. Trickle down theory stipulates that an even greater share of the money available placed in the hands of the richest is a superior method of spurring growth and creating new wealth than either placing this same money in the hands of the not-so-rich or investing in public infrastructure programmes.

There has been a bit of a lack of data in this thread. But I have posted this:

http://www.calamitiesofnature.com/archive/?c=590

This seems to suggest that over the last 30 years the dramatic increases in the incomes of the wealthiest have actually had little positive effect (if any at all) on the rest of society.

This graph seems to support the idea that trickle down doesn't work.

Message 60 of 404 (659289) 04-14-2012 8:29 AM

Reply to: Message 23 by Percy 04-13-2012 7:08 AM

Problems I have with it are:

(1) What is the percentage of the increased wealth of the rich that gets disbursed in such trickle down expenditures, compared to the percentage of disbursement of an equal amount in the hands of the poor? -- if the disbursement is less, then it is a less efficient method of increasing the economy (which is based on transactions not hold wealth).

(2) Is this a net increase or just a local disturbance? ie - is this like the energy distribution in thermodynamics. If it is just a local disturbance and doesn't affect the overall picture then this is not an efficient method of increasing the economy (the purported goal of the tax cut)

(3) Is there similar trickle down from the first generation beneficiaries, or does the process get sucked up into debt repayments etc (sending money back up instead of further down)? How many "generations" of beneficiaries actually see a significant increase in annual income? If the benefit only extends to a local effect then this is not an efficient means to benefit the general economy.

I disagree, so can you show that it does or is this just an assertion? If anything, the people that are locally benefited by trickle down may buy a few more burgers - how does this increase the wages for the flipper?

What has been the average wage of a burger flipper before the tax cuts and now and how do you control for other effects on the economy?

But should they be taxed at a lower rate than other income groups?

Nor should anyone argue that the rich spend more on international economies or open foreign accounts - which doesn't improve the general economy of the US at all.

No, the question is that, IF you are going to take $100,000 our of general tax revenues and return it to tax payers, where and how is that money most efficiently distributed to benefit the general economy, as this is the purpose espoused for the tax cut.

The evidence against the trickle down theory having any real general effect is the collapse of the housing mortgage market. Mortgages were issued on the basis that things would improve for the mortgagees -- that their personal economies would improve. When it didn't, and the defaults exploded in a vicious feedback of increasing defaults, this shows that trickle up is much more powerful than trickle down. It took just days for the effects of failure at the bottom of the economic pile to be felt at the top.

If the government had bailed out the people instead of the banks with the same amount of money there would have been no collapse.

The economic failure of piling money into the top of the system in stemming the failure is also evidence of the failure of trickle down.

Enjoy.

Edited by RAZD, : engls