That $1000 for "creature comforts" does way more to stimulate the (American) economy than the $500K for buying a dancing horse and a fancy vacation in Saint-Tropez.
What Is Wrong with "Trickle Down Economics"?
- Thread starter Knight Templar
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That $1000 for "creature comforts" does way more to stimulate the (American) economy than the $500K for buying a dancing horse and a fancy vacation in Saint-Tropez.
A tax cut for a middle class person often means being able to pay for things that are needed, but not absolutely necessary for survival at that moment. Not waiting so long to buy new school clothes for the kids. Being able to finally afford purchasing a new car. Fixing some structural things around the house....
These are better uses, in my opinion, than what many a wealthy person would do with the money. I think it is a bunch of hooey that any significant proportion of wealthy people are going to take a tax cut & go out and "invest in a new business that will create new jobs for more workers".
Knight Templar
Commodore
That is beyond ridiculous.
If all it takes is to take the money from the wealthy and transfer it to the people on the bottom then why stop there?
Why not take 99% of the wealthy peoples incomes? Surely then the economy would boom even more would it not.
Consumer spending is not everything in an economy. You must have people with capital and willing to invest it. Because investment is as important as other factors.
Consumer speding accounts for 70% of the US economy. If consumers don't have money to spend then demand dries up. More importantly, there is no point in hiring or investing in a business if demand is flat or shrinking. As has been clearly illustrated already, the fastest way to boost the economy is to put money in the hands of ordinary Americans.
Indeed, the Republican talking points about taxation are totally bogus and proven wrong by every historical standard. Taxes on the wealthy were significantly higher in every economic boom the US has ever had. The only time you can cut taxes on the RIch and still have robust growth is if you are going to allow the government to deficit spend. THAT is precisely what Reagan did. The problem with Reagan was that he used all of his deficit on defense spending. Defense spending is the only spending that the GOP seems to recognize is good for the economy.
As it stands, the biggest problem in the US over the last decade has been largely stagnant wages. Simply put, even when times were a bit better people really did not have that much money to spend on consumption. The only thing that kept the economy humming along was the easy availability of credit, which helped to offset the lack of real wages. Thus people kept consuming primarily by using money that they never had to begin with. Consumption continued but the only people really benefitting from the wealth expansion were the rich. The wealth gap has been steadily getting worse for years but no one noticed since everyone could simply charge what they needed on the creditcard or borrow against their homes.
Now the credit has dried up and home values have crashed. Thus people are forced (for better or worse) to live off what they actually earn. The absence of credit means that people are starting to realise how little the had to begin with. This is why the wealth gap has suddenly become a larger issue. Demand is drying up...which is why the economy has been so sluggish. You simply cannot have a healthy growing economy if you concentrate wealth into the hands of a very few and then tie the hands oe everyone else with debt.
All that said, I'm curious how exactly you think the economy can grow with stagnant consumer demand?
Gotham Central said:
I am glad you brought up WWII, because I forgot to post this video.
http://www.youtube.com/watch?v=GTQnarzmTOc
This video and the previous one I linked show some criticism of Keynesian economics. I agree with Hayek more. There are supporters on both sides and they have been debating this forever.
I came up with ROE from a news segment called "Ripple effect of Obama's Stimulus". I like it because, like Trickle Down, it conveys imagery of how it spreads money.
Gotham Central said:
Many rich people don't pay a lot of taxes either because of tax loop holes. Much taxes are paid by businesses, especially small to mediums ones with employees. The idea is to lowering taxes on them to help them expand, give raises, and hire more people.
Gotham Central said:
This why people should be paid more. When Henry Ford paid his employees more, there was economic growth and bigger profits for his company.
Knight Templar said:
True. Taxes and stability also matter as well.
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The problem with "trickle down economics" is very simple: the term is incorrect. This is a derogatory class warfare term. The proper term is "supply side economics". There are two competing models of how the government can help in times of economic trouble: supply side and demand side.
Supply side economics think the best way to help the economy is through incentives to producers. Demand side economists think the best way to help is incentives to consumers.
For example, a supply side policy would give corporate tax breaks for investments in new facilities on the theory that a company will hire more workers in order to produce more goods.
An example of a demand side policy is one that would give bonus tax refunds to consumers on the theory their purchases will fuel business hiring to meet the demand.
Thus, supply side thus puts its faith in the actions of the producers while demand side puts its faith in the actions of the consumers. Since the producers tend to be wealthy already they are easy targets of envy politics.
One would think these two approaches could be debated on their merits. However, the term "trickle down" is used by proponents of demand side in order to stir up strong emotions, especially resentfulness. I advise you beware any economic argument that resorts to base emotions.
Supply side economics think the best way to help the economy is through incentives to producers. Demand side economists think the best way to help is incentives to consumers.
For example, a supply side policy would give corporate tax breaks for investments in new facilities on the theory that a company will hire more workers in order to produce more goods.
An example of a demand side policy is one that would give bonus tax refunds to consumers on the theory their purchases will fuel business hiring to meet the demand.
Thus, supply side thus puts its faith in the actions of the producers while demand side puts its faith in the actions of the consumers. Since the producers tend to be wealthy already they are easy targets of envy politics.
One would think these two approaches could be debated on their merits. However, the term "trickle down" is used by proponents of demand side in order to stir up strong emotions, especially resentfulness. I advise you beware any economic argument that resorts to base emotions.
There is no need to resort to emotional appeals when the simple fact that supply side economics doesn't work is enough. You give the rich more money they keep it. It is demand that creates jobs not surplus profits.
Knight Templar
Commodore
Well, given that the Reagan Admin. produced the first real prosperity the U.S. had in more than 15 years using supply side economics would seem to indicate that it does in fact work.
Knight Templar
Commodore
You assume that reducing income disparity is a valid goal of an economic policy.
It is not an inherently bad thing. Wages flatlined for many reasons over the years. One being contraction of the number employed in manufacturing where productivity is highly measurable and the potential for wage increases are better.
Because it is if you want to have things like domestic tranquility. Why do you think events like the French Revolution happened?
Not at the levels supply side economic theory produces.
Had we not outsourced those jobs in the name of increasing company profits the loss in wages would never have been as severe. But as the workers wages flatlined, executive compensation increased hundreds of times in comparison. Wealth concentration leads to ownership consolidation that further leads to more unemployment. Making the rich richer only benefits the rich.
And Keynesian economics is why the third world could be so freakin' rich that they can burn money as cooking fuel, if only their dictators would realize that unlimited government spending on statues of the glorious leader was the recipe for prosperity!
If blowing other people's money on massive vanity projects worked, every country would be rich,
One of the problems with Keynes is that our government is made up mostly of former state government officials whose accepted wisdom is that road projects provide an economic boon, which may have actually been true in Keynes day, but no longer.
In the early days of road travel, there weren't many good roads, and each one built brought more people and products into the larger economy, with goods shipped longer distances (where price differences could be greater), along with creating new businesses, tourism, gas stations, and changing how our communities were structured and operated. No longer tied to wagons, things changed. The effect was so profound that it's still burned into the brains of every politician, half a century after the secondary effects dwindled, and they still think road projects are the answer to every question.
There are serious flaws in such thinking. The first roads free you from local conditions, and traffic and economic activity boom. Subsequent roads and improvements are required to handle the increased traffic from the boom. It's similar to getting the first water line, gas line, sewer line, and electric line run to your house, profoundly changing your life forever.
But once they're run, then upgraded to handle all the appliances you bought, you don't need more gas lines, sewer lines, and electric lines. Your first water line frees you from going to the well. The second water line just kind of sits there, an utterly useless and expensive addition that will never pay for itself. The first route to work, or Best Buy or Walmart, was a boon. Now the government is billing you for a fifth route to Best Buy and patting themselves on the back, as if you weren't buying a new DVD player because you only had four ways to drive to Best Buy.
On top of that, building roads hasn't seen many big efficiency improvements since the 1950's (road graders, bulldozers, and dump trucks haven't gotten a whole lot better at the task), while other investable sectors of the economy have seen massive efficiency gains. If you wanted a real return on investment that didn't depend on kickbacks, would you put your money in networking, biotech, robotics, or grading and paving?
Finally, if infrastructure investment is so important, how come nobody in the government ever talks about upgrading our electric utilities, our private water utilities, our gas utilities, or any other private utility? They're all more important than roads, because you can drive a vehicle without a freshly paved new road, but without gas its going to take a lot of horses or sled dogs to haul semi-trailers to restock the stores.
Actually Reagan produced "prosperity" through MASSIVE deficit spending on defense. All he did was cut taxes for the wealthy while spending billions on military hardware and personel...thus blowing a huge hole in the budget. The national debt ballooned under Reagan. He is the one responsible for planting the idea in the Republican consciousness that you can stimulate the economy without having to pay for it. We've been doing that ever since.
I'm no fan of Ed Schultz but he nails it in this video.
Knight Templar
Commodore
Defense spending is not very stimulative for the economy overall.
If we want to encourage the start-up of small businesses and job creation, why not simply focus on giving tax breaks to those who can PROVE that this how they are using their money?
This would encouraging the behavior that everyone claims that they want to see to help strengthen the economy.
I just do not buy that simply giving greater tax breaks to everyone in the top 1% will necessarily lead to job creation.
SHOW that you are creating jobs, THEN you get the tax benefits. If you are actually creating jobs, THEN you get the breaks.
It should be no problems if you are actually creating jobs, rather than just having it assumed (incorrectly) that you are creating jobs.
This would encouraging the behavior that everyone claims that they want to see to help strengthen the economy.
I just do not buy that simply giving greater tax breaks to everyone in the top 1% will necessarily lead to job creation.
SHOW that you are creating jobs, THEN you get the tax benefits. If you are actually creating jobs, THEN you get the breaks.
It should be no problems if you are actually creating jobs, rather than just having it assumed (incorrectly) that you are creating jobs.
Knight Templar
Commodore
I'm not completely adverse to that idea. A complete tax break on money spent on investment domestically.
I don't like him a whole lot either...in some ways he's just one or two small steps above that asshat Cenk on The Young Turks. But sometimes Ed lays the smack down and you've got to give him credit.
During the George W. Bush administration, corporations where give a tax amnesty to allow them to bring funds back into the U.S at half he normal rate.
The idea was it would help encourage job creation.
Research afterwards showed it did fuck all because the money was spent on profits and executive bonuses - just like the money to the airlines post 9/11.
You don't appear to know what you're talking about. Show your work - don't just make a comment and expect everyone to take it as gospel.
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