What Is Wrong with "Trickle Down Economics"?

[Gaith]

I think people that know how to make money are going to use extra money they get to make more money.

Not "sock it away".

Or, by investing in dubiously-legal to flat-out illegal ponzi schemes like the subprime mortgage bubble, thereby stealing from the country as a whole (as opposed to the obviously illegal Madoff-style ponzi schemes which specifically target the rich), they "make" (read: suck up) more money and sock their money away at the same time.

On a smaller scale, this can also be done by keeping one's funds in credit and living off the interest writing bad novels or whatever else one most enjoys doing. Not everybody with money is interested in the competition and pressures of working for more money. If, like Ann Romney, you most enjoy being a supportive wife and mother, and making horses act like four-legged idiots, why would you?

 

[Robert Maxwell]

When choosing an economic policy for the US, you have to ask yourself one question: what kind of economic strata do you want to result from it?

The middle class didn't spring into existence out of nowhere. The government created it through tax policy and various other programs. It didn't emerge just by the government getting out of the way and allowing it to happen. This is a myth that free-marketeers love to trumpet, but it's just not true.

What ensures a healthy middle class is:

* Strong safety nets that do not allow people to fall too deeply into poverty from which they can't escape.
* Incentives and spending programs that encourage social mobility, e.g. tuition grants.
* Policies that make home ownership more accessible, e.g. low interest rates and deductible mortgage interest.
* Regulations on businesses to protect jobs from unfair foreign competition.
* Tax policies that prevent too much wealth from accumulating at the top. This money is used to pay for the things above.

No wealthy person is ever going to be made poor (or anywhere near poor) through tax policy. It's not "punishing success." It's building a stable society we can be proud of.

If one's attitude really is that people should be able to accumulate vast amounts of wealth and pay little or no taxes on it, at the expense of leaving the less fortunate to suffer and die, at least have the nerve to come out and say so, and expose yourself as the selfish worshipper of mammon that you are.

 

[Trekker4747]

[yt]http://www.youtube.com/watch?v=SGXTTCfn3-o&feature=related[/yt]

I'm no fan of Ed Schultz but he nails it in this video.

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.

I dunno, I find myself agreeing with Cenk a lot just the way he presents himself is often a bit strong and maybe with a bit much rhetoric. Sort of like a dumb-jock who peaked Freshman-year of college and crushed too many beer cans on his head.

I find Schultz to more often than not to be sort of the Liberal version of Bill O'Reilly and is just an asshat for the sake of being an asshat.

 

[gturner]

The middle class didn't spring into existence out of nowhere. The government created it through tax policy and various other programs. It didn't emerge just by the government getting out of the way and allowing it to happen. This is a myth that free-marketeers love to trumpet, but it's just not true.

Actually, it did just that. The middle class has been around since ancient times, under almost any definition of middle class. Merchants, traders, shopkeepers, doctors, and lawyers have been around about as long as agriculture.

They and the lower class were building their own houses before mortgages and universities were even invented, as evidenced by archeological digs and Roman ruins that indicate houses predated government-backed variable-rate low-interest tax-deductible mortgages.

Abe Lincoln was born in a log cabin. How would you even apply for a loan for one of those? Wouldn't you just take the free axe the bank gave you for opening an account and go chop down a cabin's worth of logs with it?

 

[{ Emilia }]

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.

Bullshit, the sinking oil price produced the first real prosperity the Western World had since the 1970s oil crisis.
It's funny how oblivious you are to this but the oil price dropped for years without end. That did way more to stabilize your economy than any of Reagan's policies.

And even that's a pretty simplified version. You might want to look into the fact that the world is more complex than American politics make you believe.

 

[Davros]

The middle class didn't spring into existence out of nowhere. The government created it through tax policy and various other programs. It didn't emerge just by the government getting out of the way and allowing it to happen. This is a myth that free-marketeers love to trumpet, but it's just not true.

Actually, it did just that. The middle class has been around since ancient times, under almost any definition of middle class. Merchants, traders, shopkeepers, doctors, and lawyers have been around about as long as agriculture.

So have tax policies.

 

[gturner]

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.

Bullshit, the sinking oil price produced the first real prosperity the Western World had since the 1970s oil crisis.
It's funny how oblivious you are to this but the oil price dropped for years without end. That did way more to stabilize your economy than any of Reagan's policies.

And even that's a pretty simplified version. You might want to look into the fact that the world is more complex than American politics make you believe.

Actually, the sinking oil prices were a direct result of Reagan's policies. He sent CIA director William Casey and senior defense officials to have long meetings with the Saudi rulers, convincing them of the imperative of dropping the bottom out of oil prices to protect their strategic interests. The threats to their state came from the Soviet Union and Iran, both of which greatly benefitted from high oil prices. Their allies in the West greatly benefitted from low oil prices. To secure their long-term security they dropped the price of oil to next to nothing.

Vice President George HW Bush hadn't been briefed on this policy direction and flew to Saudi Arabia on his own initiative to try and convince them to jack the price up again because it was wiping out the Texas oil producers. He failed, and when he got back Al Haig ripped him a new ass for contradicting and potentially undermining the US position.

Reagan did the same thing to get the South Africans to drastically cut the price of gold and diamonds, because along with oil exports, the Soviet Union depended on those for hard currency. (They were beset with Cubans in Angola and other communist threats)

This strategy was the result of a collaboration between Reagan and Casey in which Casey realized that the Soviet Union actually functioned as a criminal shake-down organization, almost entirely dependent on Western hard currency from mineral exports to sustain its power.

This policy was combined with a very elaborate sabotage campaign, in some cases supplying satellite intelligence to Muslim rebels inside the Soviet Union so they could destroy key pieces of Soviet industrial infrastructure. We even destroyed a key pumping station for the Soviet single-strand natural gas pipeline to Western Europe, setting that project back by almost a decade, by sabotaging the GE compressor plans that we passed to the KGB.

 

[gturner]

Actually, it did just that. The middle class has been around since ancient times, under almost any definition of middle class. Merchants, traders, shopkeepers, doctors, and lawyers have been around about as long as agriculture.

So have tax policies.

Yeah, you just stapled the clay Form 1040 tablets to the six sheep you owed and mailed them in.

 

[Knight Templar]

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.

Bullshit, the sinking oil price produced the first real prosperity the Western World had since the 1970s oil crisis.
It's funny how oblivious you are to this but the oil price dropped for years without end. That did way more to stabilize your economy than any of Reagan's policies.

And even that's a pretty simplified version. You might want to look into the fact that the world is more complex than American politics make you believe.

The U.S. economy began recovering near the end of 1982. Well before oil prices started coming down significantly.

 

[{ Emilia }]

Bullshit, the sinking oil price produced the first real prosperity the Western World had since the 1970s oil crisis.
It's funny how oblivious you are to this but the oil price dropped for years without end. That did way more to stabilize your economy than any of Reagan's policies.

Actually, the sinking oil prices were a direct result of Reagan's policies.

That's nonsense just like this:

The U.S. economy began recovering near the end of 1982. Well before oil prices started coming down significantly.

Do you guys just make this shit up?

The oil price began dropping in 1980. The significant drop started just before Reagan took over.

Stop pulling fake facts out of nowhere. It's annoying.

The oil price dropped by more than $20 per barrel between 1980 and 1982. ($95.89 in 1980, $73.3 in 1982.)

Reagan didn't just become president and magically drop the oil price within a couple of days. It had nothing to do with Reagan and everything to do with a country called Iran. The Islamic Revolution caused the 2nd Oil Crisis in 1979/1980. That's the crisis Carter had to deal with. Reagan was lucky enough that the immediate crisis was over by the time he became president.

 

[gturner]

^ Um, by 1986 Saudi production was so high that oil dropped to $9 a barrel. That's when Bush would've been bitching at them.

 

[Knight Templar]

Bullshit, the sinking oil price produced the first real prosperity the Western World had since the 1970s oil crisis.
It's funny how oblivious you are to this but the oil price dropped for years without end. That did way more to stabilize your economy than any of Reagan's policies.

Actually, the sinking oil prices were a direct result of Reagan's policies.

That's nonsense just like this:

The U.S. economy began recovering near the end of 1982. Well before oil prices started coming down significantly.

Do you guys just make this shit up?

The oil price began dropping in 1980. The significant drop started just before Reagan took over.

Stop pulling fake facts out of nowhere. It's annoying.

The oil price dropped by more than $20 per barrel between 1980 and 1982. ($95.89 in 1980, $73.3 in 1982.)

Reagan didn't just become president and magically drop the oil price within a couple of days. It had nothing to do with Reagan and everything to do with a country called Iran. The Islamic Revolution caused the 2nd Oil Crisis in 1979/1980. That's the crisis Carter had to deal with. Reagan was lucky enough that the immediate crisis was over by the time he became president.

Actually, there was both a U.S. and a global recession in 1981-82 that resulted in a sudden price drop from its overall highs.

But oil prices remained rather high until the mid to late 1980s when the so called "oil glut" caused a price collapse.

 

[gturner]

Actually, there was both a U.S. and a global recession in 1981-82 that resulted in a sudden price drop from its overall highs.

But oil prices remained rather high until the mid to late 1980s when the so called "oil glut" caused a price collapse.

Reagan and Casey were the reason behind the oil glut, which of course wouldn't have worked without the Saudis.

The logic we laid out to them was rather simple. The Soviets had a strategic interest in cutting off the West's oil, which would require taking down Saudi Arabia or cutting them off from the West. Iraq was a Soviet proxy on Saudi Arabia's border, and the Iranian regime would love to cross the Persian Gulf and run both Mecca and the Saudi's oil. Both Iraq and Iran massively outnumbered the Saudis, and though their conflict was stalemated, it would inevitably end, leaving them with millions of trained combat veterans, massive debts, and the world's largest oil field sitting right within reach.

If oil prices stayed high, Iraq and Iran would retain their massive numerical advantage in personnel and gain parity or even advantage in weapons purchased with petro-dollars. If oil prices were to become very low, Saudi Arabia would still have a huge monetary advantage (because their production costs are virtually nil), while Iraq and Iran would hardly break-even, make no profit, and thus couldn't maintain and upgrade their armies or extend their reach to a level that could take and hold Saudi Arabia against a hypothetical Western relief force.

Meanwhile, on the larger world stage, high oil prices benefited the Soviet Union (which was an oil exporter) and gave it the majority of its hard currency, which it desperately needed to purchase various strategic materials and buy influence around the world. High oil prices also had a crippling effect on Western economies, weakening both NATO and the US which kept Soviet ambitions in check, and making the US less able to defend Saudi Arabia in the event of an attack by the Soviets, their proxies, or Saudi Arabia's more nefarious and populous neighbors.

Interestingly, the point wasn't to boost the US economy, other than that was part of multiplying the West's advantage over the Soviets to win the Cold War, one of many pressures we were applying, like smuggling burst-mode radios and fax machines to Polish strikers, enlisting the help of the Pope, labor union leaders, and far-left European Prime Ministers who the Soviets wouldn't suspect.

This was in books by Reagan Administration officials and Cold War historians written after the collapse of the Soviet Union, when some of it could be declassified.

Here's just one I enjoyed reading:

http://www.amazon.com/We-Now-Know-Rethinking-Relations/dp/0198780710

I can't remember if Brent Scowcroft's book got into those operations, or whether his focused on changes that occured under GHW Bush. (However, I do remember Scowcroft's book as being quite long and boring).

 

[Robert Maxwell]

Actually, there was both a U.S. and a global recession in 1981-82 that resulted in a sudden price drop from its overall highs.

But oil prices remained rather high until the mid to late 1980s when the so called "oil glut" caused a price collapse.

Reagan and Casey were the reason behind the oil glut, which of course wouldn't have worked without the Saudis.

The logic we laid out to them was rather simple. The Soviets had a strategic interest in cutting off the West's oil, which would require taking down Saudi Arabia or cutting them off from the West. Iraq was a Soviet proxy on Saudi Arabia's border, and the Iranian regime would love to cross the Persian Gulf and run both Mecca and the Saudi's oil. Both Iraq and Iran massively outnumbered the Saudis, and though their conflict was stalemated, it would inevitably end, leaving them with millions of trained combat veterans, massive debts, and the world's largest oil field sitting right within reach.

If oil prices stayed high, Iraq and Iran would retain their massive numerical advantage in personnel and gain parity or even advantage in weapons purchased with petro-dollars. If oil prices were to become very low, Saudi Arabia would still have a huge monetary advantage (because their production costs are virtually nil), while Iraq and Iran would hardly break-even, make no profit, and thus couldn't maintain and upgrade their armies or extend their reach to a level that could take and hold Saudi Arabia against a hypothetical Western relief force.

Meanwhile, on the larger world stage, high oil prices benefited the Soviet Union (which was an oil exporter) and gave it the majority of its hard currency, which it desperately needed to purchase various strategic materials and buy influence around the world. High oil prices also had a crippling effect on Western economies, weakening both NATO and the US which kept Soviet ambitions in check, and making the US less able to defend Saudi Arabia in the event of an attack by the Soviets, their proxies, or Saudi Arabia's more nefarious and populous neighbors.

Interestingly, the point wasn't to boost the US economy, other than that was part of multiplying the West's advantage over the Soviets to win the Cold War, one of many pressures we were applying, like smuggling burst-mode radios and fax machines to Polish strikers, enlisting the help of the Pope, labor union leaders, and far-left European Prime Ministers who the Soviets wouldn't suspect.

This was in books by Reagan Administration officials and Cold War historians written after the collapse of the Soviet Union, when some of it could be declassified.

Here's just one I enjoyed reading:

http://www.amazon.com/We-Now-Know-Rethinking-Relations/dp/0198780710

I can't remember if Brent Scowcroft's book got into those operations, or whether his focused on changes that occured under GHW Bush. (However, I do remember Scowcroft's book as being quite long and boring).

That is some astonishing revisionism, basically giving Reagan credit for everything that contributed to the collapse of the Soviet Union (so that we can then, of course, make the claim that Reagan brought down the USSR.)

About the only part of the oil glut Reagan can take credit for is ending price controls in the US--a process which Carter started, by the way.

 

[{ Emilia }]

What does influencing the oil price have to do with trickle-down economics anyway? Nothing.

My point is that the dropping oil price has caused the economy to recover. Not Reagan's horrible neo-liberal policies. Whether Reagan influenced the oil price or not (and that's debatable) makes no difference at all.

It doesn't change the fact that "trickle-down economics" isn't what fixes an economy. Reagan was lucky.

 

[Robert Maxwell]

What does influencing the oil price have to do with trickle-down economics anyway? Nothing.

My point is that the dropping oil price has caused the economy to recover. Whether Reagan had a hand in that or not (and that's debatable) makes no difference at all.

It doesn't change the fact that "trickle-down economics" isn't what fixes an economy.

Quite true. Whatever Reagan did or didn't do with oil prices has nothing to do with the validity of trickle-down economics as a policy for prosperity.

 

[gturner]

This isn't new information, so it's hardly revisionism. These events have been known publically since shortly after the Soviet Union collapsed.

Reagan viewed his primary purpose as ending the specter of Communism and freeing people from it. Every president since Truman had tacitly conceeded that the Soviet Union had a sphere of influence where they would rule, and that we'd respect that (This was called the Truman Doctrine). Reagan rejected it and held that communism was a monstrous and evil system that didn't have the right to rule anyone.

Casey was also key. Most CIA directors, like George HW Bush, focused on running the CIA well and making sure it produced lots of intelligence products like tank and missile counts. To Casey, those numbers were irrelevant. He wanted to find out what kept the Soviet Union functioning, and then use the CIA to kill it. He and Reagan worked closely on it, and Reagan would read every report Casey gave him. Reagan was always reading, always studying the enemy. Casey didn't want to "manage" the CIA, he wanted to use it as his weapon.

When Reagan was first campaigning for President, the CIA found out that top Soviet generals were afraid of Reagan because they thought he was an unpredictable cowboy, and they liked stability. Reagan found out and consciously played to that image throughout his entire presidency to keep them scared. The press was generally too dumb to suspect that the actor was acting.

Later, when the Soviets offered the plan to run a two-strand natural gas pipeline to Western Europe which would both give them massive hard currency revenues (extending their viability as a superpower by perhaps decades), while making the population of Western Europe dependent on the Soviet Union (which could cut off their heat in the winter), Reagan vowed to stop it.

He put enormous diplomatic pressure on the NATO countries to eliminate one of the strands, which was successful. He then prohibited any US company from taking part in the project, and without US technology the pipeline wouldn't work. But a French company was licensed to make the GE compressors that the project required, and the French balked. Reagan kept applying more pressure to them, but they were still going ahead, so Reagan said that no company with access to US technology could take part. The French rebeled and said he couldn't do that. He stood by his guns and said that they would not get any access to any US technology if they continued. They French worked the diplomatic channels as hard as they could and NATO nearly broke apart, but Reagan would not be swayed.

Then, knowing that the Soviets would be forced to come up with a compressor equivalent to the GE design, the CIA and GE modified the plans to their compressor so that it could hit full speed, or full load, but would fly apart at full speed and full load, rupturing the casing and releasing very high pressure natural gas in a huge explosion. The CIA made sure the KGB agents got hold of the plans through their massive industrial espionage network. The Soviets built it, it blew up, and set their project back many years, so the pipeline was completed after they'd collapsed. Now they make a ton of money from supplying Western Europe with natural gas, but it doesn't matter to us.

We were doing a lot of that. They build a duplicate of a GE appliance plant and tried for years to get it to work. Then they realized they'd been had and just locked the doors on it. We could watch what they needed by watching what their espionage targeted, and we'd sabotage what they were after whenever we could, such as altering schematics to mainframe computers and other electronics.

The Saudi policy was a mirror of the natural gas effort. Blaming it on a "glut" doesn't answer why the Saudi upped their production from around 17 million barrels a day before the glut to 21 million barrels a day during the long glut. They are plenty smart enough to know they were causing the glut, and they caused it anyway. They made sure OPEC talks kept failing, and kept the oil price well below even their own prefered targets for strategic security reasons. Once the Soviet threat was gone, they let the price go back up.

Reagan and Casey also came to realize that though the Soviets were very good at turning out thousands of simple things like tanks and rifles, they were horribly bad at rapid innovation and high-tech, because their system wasn't flexible like entrepreunerial capitalism. So Reagan shifted the focus of his military buildup to emphasize high-technology over numbers, which would be far more expensive to them. So he was squeezing their hard currency income and trying to drive their costs up. Then he started pushing missile defense, and realm so difficult that we're only now getting the capability. At that point big cracks started to appear, and Gorbachev kept meeting with Reagan. At one point he angrily said, "You are trying to destroy us!" Reagan replied, "Yes. I am."

Reagan and Casey's plan was quite simple. Cut off their income and up their spending to bankrupt them, while stirring up unrest throughout their empire.

Of course some historians, desperate not to give a Republican like Reagan praise for anything, give Gorbachev credit for ending the Cold War, as if any leader would plan to go bankrupt and collapse in the face of revolts. They might as well praise Hitler for ending WW-II by losing all his armies. What Gorbachev did was try to loosen their economic system to make it more productive and flexible so they could compete in the high-tech arms arena that Reagan was confronting them with, and he lost control to the forces that the Soviets had kept suppressed. He didn't intend for that to happen.

The War on Terror largely copies Reagan's model for the Cold War. Cut off the terrorists' funding, force them to spend in the face of military pressure and direct action, collect immense amounts of intelligence on them so we can best understand how they operate, and conduct an information campaign to morally discredit them.

I know it's been a while since foreign policy seemed to have a plan or direction, but at one time it actually did, a huge one that involved much of the world.

 

[Robert Maxwell]

None of this matters to the thesis of the thread, which is that trickle-down economics is good policy.

It's not. It never was, it never will be.

 

[Ian Keldon]

Logically, T-D makes as much sense as attempting to build a house starting from the roof down.

Morally, T-D is the equivalent of asking the dogs to pile more meat on the Master's table in hopes that he will let more scraps fall to the floor for them.

 

[gturner]

What does influencing the oil price have to do with trickle-down economics anyway? Nothing.

Well, historically nothing. If the Soviets had depened on oil imports to keep going, Reagan would've been trying to jack the oil prices up because we could afford expensive oil more than they could have. We were richer.

It doesn't change the fact that "trickle-down economics" isn't what fixes an economy. Reagan was lucky.

But letting people keep more of what they earned gives them an incentive to work harder and smarter, and leaves them with more disposable income to start businesses, or buy products from newly created businesses. It's the flip side of the aborted "luxury tax" that threw all the boat builders and jewelers out of work. It's not horribly efficient at trickling, but some trickling does occur.

If you want to see Trickle Down Economics writ large (as opposed to the benefits of lower tax rates in general), go to Hollywood. The economy there is like a complex upside-down ecosystem that feeds off stars and moguls. It builds houses for the people who sell mansions, and fast food franchises to feed the tourists and the people who wait tables at the four-star restaurants the stars actually visit. Remove the stars and their TV and movie money, or tax them till their incomes are just average, and the Hollywood area would fade back into the surroundings, becoming just another part of LA. Most of the high-end stores would close, and there would be a ripple effect that extended for miles, from luxury car lots to gated enclaves, to the restaurants where the Ferrari salesmen used to eat.

Reagan, having been president of the Screen Actors Guild, was very familiar with this upside-down ecosystem, where ordinary people make money serving people who work for the personal assistant of some starlet, etc. When top-end income taxes are very high, the stars still live comfortably, but everyone else in Hollywood suffers. It's understandable that someone from Hollywood would see how high tax rates on top earners could negatively affect lower income earners.

The problem with Hollywood as an economic model is that the stars don't really spend that much on burgers, most working people don't make designer shoes, and Hollywood isn't a closed system. It depends on a massive influx of money from all the people across the world who watch TV and go to movies. But thankfully Reagan didn't depend on the trickle effect, he depended on the Laffer Curve, first described by Ibn Kuldun in Persia.

The Laffer Curve (and Ibn Kuldun) holds that when the tax rates are too high, people quit working, or at least quit reporting taxable income, and government revenues drop. Economic activity slows to a crawl, because there's no reason to make any money if someone else is just going to loot it. In Ibn Kuldun's day, the king took a percentage of the food the farmer's grew to feed his army. Ibn Kuldun advised future kings that when those taxes were too high, the farmers quit farming and the soldiers starve. Most civilization simulation games include some version of the effect, with peasants wandering off or abandoning villages if you tax them too much.