What Is Wrong with "Trickle Down Economics"?

[Spock/Uhura Fan]

A criticism often leveled at the Republicans in particular and conservatives in general is that they believe in "trickle down economics".

The general idea being that the GOP supports cutting taxes for the wealthy mainly and hoping the benefits they received will "trickle down" to the people below them as the wealthy spend money and/or invest in new job creating opportunities.

It seems to be widely denigrated because to many it seems unfair. Why should a few wealthy people get to pay less in taxes while the rank in file only get benefits second hand?

But isn't this the way it should be? If some middle class person gets a $1,000 tax cut, are they really likely to invest it in some new technology or in starting a new business? I would say that chances are they'll use the money to retire some debt or by some creature comforts.

On the other hand, a wealthy person who gets a $500,000 tax break I woiuld say is far, far more likely to actually put the increased money to good use.

To answer the thread question: "What is wrong with "trickle down economics?"

In theory, nothing. In reality, everything. It's that simple.

Supply Side Economics is simply "the rich pissing on the poor"..

At this time, our wealthiest Americans have the lowest tax burden at any time since the income tax was implimented and so I ask you, where are the jobs these "creators" have made?

Overseas, in China and India ...

Thank you. I have nothing against people in other countries getting work. We're all trying to make it, but Americans are losing jobs that aren't coming back...

How do we best compete with those countries that are getting "our jobs"? Would threatening rich people with higher taxes make our country more comparative and encourage wealthy millionaires to leave those tax shelter countries so they can come back to the US and pay higher taxes. Tell me of one thing Obama's doing that makes millionaires and billionaires want to leave those other countries and come to the US to create more jobs, can you name a single thing? Democrats think raising taxes on the rich will bring in more jobs, so tell me how does that happen?

Let me give it a try, how about investing in Education?

Ok, suppose we invest in education and we get some results, we have some people who are educated, then some millionare calls them back and says something like this. "Well I have a job for you, and it looks like you have some valuable skills that our company could really use, but the thing is this job is in another country because of the favorable tax climate, so here's what I'll do, I'll purchase tickets for you and your family, cover all moving expenses so you can come to this country and work for me, how does that sound?"

Oh, no, no, no. I’m not saying that they are “our jobs.” That’s why I mentioned specifically that I don’t have anything against people, no matter who or where they are, getting work. My only point was that the “job creation” that’s supposed to be happening for Americans due to “trickle-down economics” is not what it seems. And as for my post, I didn’t mention “threatening” or “Obama,” so I’m not sure what you’re on about.

And as to your point about education fixing things, well, I’ve read and seen reports that mention this, and I agree to a certain extent. Here’s the issue that hasn’t been answered for me and which causes my agreement to be limited: I read about our engineering sector, and how jobs are being lost to immigrants brought over here (and I have no problem with immigrants, none at all) who’ll take, say, an engineering job that would normally pay $90,000 per year, but the immigrant worker will do it for $45-50,000 per year. So, that ends up driving down the pay scale that someone with an advanced education can count on. Meanwhile, the cost of living in America (and sending your kids to college) isn’t going down at all.

Theoretically hiring workers at a lower rate, domestically and overseas, is supposed to bring or keep the cost of goods down for Americans, but if Americans don’t have jobs anymore or jobs that pay as much anymore because they’ve gone overseas (think of the manufacturing sector), then we can’t buy as much anyway. It’s a real problem, and I don’t see any easy solutions. That’s the problem with globalization. All economies are not equal. This was true before Mr. Obama took office, btw.

 

[Mars]

After reading the posts from our resident "economists" , I decided to stick with the professional economists like Paul Krugman thank you.

(My God, I can't believe that gturner still think that he's an expert on economics )

Paul Krugman is a Democrat first and an economist second, I'd go with Milton Friedman, not Thomas Friedman. Generally speaking an economist that teaches students in school is not a practising economist, his theories only have to make sense on the chalkboard and often don't work in real life.

Paul Krugman also criticizies Democratic policies as well. I trust his credentials over yours anytime of the day.
Btw, are you an Economst?

Yep he criticizes them for not spending enough, 1.2 trillion dollars per year is too little for him. This sort of reasoning leads to maxed out credit cards and bankruptcies. Take the company that sells $30,000 dollars and is losing market share to a company that is selling basically the same product for $25,000. Now a static analysis might suggest that since company A sells fewer cars than company B, they might raise the price of their cars from $30,000 to $40,000, and since the car still costs the same to make although there are fewer of them sold, the extra $10,000 in the price will make each unit sold more profitable. What static analysis does not take into account is that the higher price will deter still more buyers and the market share will drop even further. Company B makes up for the fact that it is earning $5,000 less on each car is sells by selling more of them. A tax is the price one pays for government, and the more efficient governments charge less in taxes, and millionaires and billionaires are highly mobile, they recognize the need for government, but they also like to shop around to find the best government and country to do business under. Entrepreneurs are no different from car buyers in this respect, they like to get a bargain, and they recognize the value of lower prices in products, will Democrats? Most Democrats I know would prefer to buy the $25,000 car over the $30,000 one, all they have to do is apply that same logic to government spending and taxation.

 

[Robert Maxwell]

Paul Krugman is a Democrat first and an economist second, I'd go with Milton Friedman, not Thomas Friedman. Generally speaking an economist that teaches students in school is not a practising economist, his theories only have to make sense on the chalkboard and often don't work in real life.

Paul Krugman also criticizies Democratic policies as well. I trust his credentials over yours anytime of the day.
Btw, are you an Economst?

Yep he criticizes them for not spending enough, 1.2 trillion dollars per year is too little for him. This sort of reasoning leads to maxed out credit cards and bankruptcies. Take the company that sells $30,000 dollars and is losing market share to a company that is selling basically the same product for $25,000. Now a static analysis might suggest that since company A sells fewer cars than company B, they might raise the price of their cars from $30,000 to $40,000, and since the car still costs the same to make although there are fewer of them sold, the extra $10,000 in the price will make each unit sold more profitable. What static analysis does not take into account is that the higher price will deter still more buyers and the market share will drop even further. Company B makes up for the fact that it is earning $5,000 less on each car is sells by selling more of them. A tax is the price one pays for government, and the more efficient governments charge less in taxes, and millionaires and billionaires are highly mobile, they recognize the need for government, but they also like to shop around to find the best government and country to do business under. Entrepreneurs are no different from car buyers in this respect, they like to get a bargain, and they recognize the value of lower prices in products, will Democrats? Most Democrats I know would prefer to buy the $25,000 car over the $30,000 one, all they have to do is apply that same logic to government spending and taxation.

Stop comparing individuals, families, and companies to sovereign governments. They aren't the same. The financials don't work the same. They don't work the same because of two basic facts:

1. Sovereign governments control their money supply (directly or indirectly.)
2. Sovereign governments guarantee their debts through the power to tax.

Private entities like corporations and families cannot do this, therefore their borrowing power and debt implications are much more severely constrained.

 

[Mars]

To answer the thread question: "What is wrong with "trickle down economics?"

In theory, nothing. In reality, everything. It's that simple.




Thank you. I have nothing against people in other countries getting work. We're all trying to make it, but Americans are losing jobs that aren't coming back...

How do we best compete with those countries that are getting "our jobs"? Would threatening rich people with higher taxes make our country more comparative and encourage wealthy millionaires to leave those tax shelter countries so they can come back to the US and pay higher taxes. Tell me of one thing Obama's doing that makes millionaires and billionaires want to leave those other countries and come to the US to create more jobs, can you name a single thing? Democrats think raising taxes on the rich will bring in more jobs, so tell me how does that happen?

Let me give it a try, how about investing in Education?

Ok, suppose we invest in education and we get some results, we have some people who are educated, then some millionare calls them back and says something like this. "Well I have a job for you, and it looks like you have some valuable skills that our company could really use, but the thing is this job is in another country because of the favorable tax climate, so here's what I'll do, I'll purchase tickets for you and your family, cover all moving expenses so you can come to this country and work for me, how does that sound?"

Oh, no, no, no. I’m not saying that they are “our jobs.” That’s why I mentioned specifically that I don’t have anything against people, no matter who or where they are, getting work. My only point was that the “job creation” that’s supposed to be happening for Americans due to “trickle-down economics” is not what it seems. And as for my post, I didn’t mention “threatening” or “Obama,” so I’m not sure what you’re on about.

And as to your point about education fixing things, well, I’ve read and seen reports that mention this, and I agree to a certain extent. Here’s the issue that hasn’t been answered for me and which causes my agreement to be limited: I read about our engineering sector, and how jobs are being lost to immigrants brought over here (and I have no problem with immigrants, none at all) who’ll take, say, an engineering job that would normally pay $90,000 per year, but the immigrant worker will do it for $45-50,000 per year. So, that ends up driving down the pay scale that someone with an advanced education can count on. Meanwhile, the cost of living in America (and sending your kids to college) isn’t going down at all.

Theoretically hiring workers at a lower rate, domestically and overseas, is supposed to bring or keep the cost of goods down for Americans, but if Americans don’t have jobs anymore or jobs that pay as much anymore because they’ve gone overseas (think of the manufacturing sector), then we can’t buy as much anyway. It’s a real problem, and I don’t see any easy solutions. That’s the problem with globalization. All economies are not equal. This was true before Mr. Obama took office, btw.

You can complain about foreign country's lower costs, but what can you do about them, raising taxes doesn't help, educating out children better will cause them to go where the jobs are. Protectionism won't make the US a more attractive place to invest, and it will hurt our exports due to our foreign competitors retaliating. I think the only practical remedy is lowering our costs so we can compete with them, we can train up and retain higher salaries by offering a higher quality product in our workers than our competitors can. If we can get a comparative cost advantage investors will flock to our shores and produce jobs.

 

[Mars]

Paul Krugman also criticizies Democratic policies as well. I trust his credentials over yours anytime of the day.
Btw, are you an Economst?

Yep he criticizes them for not spending enough, 1.2 trillion dollars per year is too little for him. This sort of reasoning leads to maxed out credit cards and bankruptcies. Take the company that sells $30,000 dollars and is losing market share to a company that is selling basically the same product for $25,000. Now a static analysis might suggest that since company A sells fewer cars than company B, they might raise the price of their cars from $30,000 to $40,000, and since the car still costs the same to make although there are fewer of them sold, the extra $10,000 in the price will make each unit sold more profitable. What static analysis does not take into account is that the higher price will deter still more buyers and the market share will drop even further. Company B makes up for the fact that it is earning $5,000 less on each car is sells by selling more of them. A tax is the price one pays for government, and the more efficient governments charge less in taxes, and millionaires and billionaires are highly mobile, they recognize the need for government, but they also like to shop around to find the best government and country to do business under. Entrepreneurs are no different from car buyers in this respect, they like to get a bargain, and they recognize the value of lower prices in products, will Democrats? Most Democrats I know would prefer to buy the $25,000 car over the $30,000 one, all they have to do is apply that same logic to government spending and taxation.

Stop comparing individuals, families, and companies to sovereign governments. They aren't the same. The financials don't work the same. They don't work the same because of two basic facts:

1. Sovereign governments control their money supply (directly or indirectly.)
2. Sovereign governments guarantee their debts through the power to tax.

Private entities like corporations and families cannot do this, therefore their borrowing power and debt implications are much more severely constrained.

Do you think printing money creates value? Yes governments can always steal from their citizens to cover unnecessary expenditures, and printing money is a form of stealing. if the government wrote everybody a check for one million dollars, we'd all be a lot poorer, as there is no value behind all this extra currency.

A direct tax is another form of theft, though sometimes justified because there are some things government needs to do and the only way to acquire the funds to do them is through taxation.

I really think we ought to go back on the gold standard so the government can't print money, and that way it can't steal from its citizens who hold currency.

I don't believe in government simply spending money to stimulate the economy, that is not the purpose of government. By that reasoning no money is every wasted by government even if it buys junk, and I don't accept that.

 

[datagal]

^ (To Mars' Long worded economic problem) Uh, yeah.
Btw Mars, you didn't answer my question.

Are you an Economst?

 

[datagal]

Yep he criticizes them for not spending enough, 1.2 trillion dollars per year is too little for him. This sort of reasoning leads to maxed out credit cards and bankruptcies. Take the company that sells $30,000 dollars and is losing market share to a company that is selling basically the same product for $25,000. Now a static analysis might suggest that since company A sells fewer cars than company B, they might raise the price of their cars from $30,000 to $40,000, and since the car still costs the same to make although there are fewer of them sold, the extra $10,000 in the price will make each unit sold more profitable. What static analysis does not take into account is that the higher price will deter still more buyers and the market share will drop even further. Company B makes up for the fact that it is earning $5,000 less on each car is sells by selling more of them. A tax is the price one pays for government, and the more efficient governments charge less in taxes, and millionaires and billionaires are highly mobile, they recognize the need for government, but they also like to shop around to find the best government and country to do business under. Entrepreneurs are no different from car buyers in this respect, they like to get a bargain, and they recognize the value of lower prices in products, will Democrats? Most Democrats I know would prefer to buy the $25,000 car over the $30,000 one, all they have to do is apply that same logic to government spending and taxation.

Stop comparing individuals, families, and companies to sovereign governments. They aren't the same. The financials don't work the same. They don't work the same because of two basic facts:

1. Sovereign governments control their money supply (directly or indirectly.)
2. Sovereign governments guarantee their debts through the power to tax.

Private entities like corporations and families cannot do this, therefore their borrowing power and debt implications are much more severely constrained.

Do you think printing money creates value? Yes governments can always steal from their citizens to cover unnecessary expenditures, and printing money is a form of stealing. if the government wrote everybody a check for one million dollars, we'd all be a lot poorer, as there is no value behind all this extra currency.

A direct tax is another form of theft, though sometimes justified because there are some things government needs to do and the only way to acquire the funds to do them is through taxation.

I really think we ought to go back on the gold standard so the government can't print money, and that way it can't steal from its citizens who hold currency.

I don't believe in government simply spending money to stimulate the economy, that is not the purpose of government. By that reasoning no money is every wasted by government even if it buys junk, and I don't accept that.

Do you even know the basic concept of both Micro-economics and Macro-economics?
Robert is right on this one.
Also, how would gold standard currency work in the 21th century for the U.S?

 

[Robert Maxwell]

Yep he criticizes them for not spending enough, 1.2 trillion dollars per year is too little for him. This sort of reasoning leads to maxed out credit cards and bankruptcies. Take the company that sells $30,000 dollars and is losing market share to a company that is selling basically the same product for $25,000. Now a static analysis might suggest that since company A sells fewer cars than company B, they might raise the price of their cars from $30,000 to $40,000, and since the car still costs the same to make although there are fewer of them sold, the extra $10,000 in the price will make each unit sold more profitable. What static analysis does not take into account is that the higher price will deter still more buyers and the market share will drop even further. Company B makes up for the fact that it is earning $5,000 less on each car is sells by selling more of them. A tax is the price one pays for government, and the more efficient governments charge less in taxes, and millionaires and billionaires are highly mobile, they recognize the need for government, but they also like to shop around to find the best government and country to do business under. Entrepreneurs are no different from car buyers in this respect, they like to get a bargain, and they recognize the value of lower prices in products, will Democrats? Most Democrats I know would prefer to buy the $25,000 car over the $30,000 one, all they have to do is apply that same logic to government spending and taxation.

Stop comparing individuals, families, and companies to sovereign governments. They aren't the same. The financials don't work the same. They don't work the same because of two basic facts:

1. Sovereign governments control their money supply (directly or indirectly.)
2. Sovereign governments guarantee their debts through the power to tax.

Private entities like corporations and families cannot do this, therefore their borrowing power and debt implications are much more severely constrained.

Do you think printing money creates value? Yes governments can always steal from their citizens to cover unnecessary expenditures, and printing money is a form of stealing. if the government wrote everybody a check for one million dollars, we'd all be a lot poorer, as there is no value behind all this extra currency.

A direct tax is another form of theft, though sometimes justified because there are some things government needs to do and the only way to acquire the funds to do them is through taxation.

I really think we ought to go back on the gold standard so the government can't print money, and that way it can't steal from its citizens who hold currency.

I don't believe in government simply spending money to stimulate the economy, that is not the purpose of government. By that reasoning no money is every wasted by government even if it buys junk, and I don't accept that.

Well, there we go. Money is theft. Taxation is theft. Civilization is theft. I think we've established that your beliefs are totally divorced from what all credible economists believe.

 

[cooleddie74]

A Ron Paul-style embrace of the gold standard(a limited commodity that can't even come close to being worth as much as the current size of the U.S. economy and thus would require a massive, devastating contraction and shrinking of the economy in order to switch over to that standard) and a denial that Keynesian economics can and often does work in times of economic downturn or crisis are not the basis for any sort of sound, sane economic policy for the United States in the 21st century.

Even if the United States had access to and bought every scrap and ounce of gold on the face of the planet we'd barely be able to reach the $2 trillion mark in USD value. Our current GDP even under present conditions is about $15 trillion. You and others who clammor for the gold standard want us to convert to gold but there simply isn't anywhere close to enough of it on the earth to allow for a one-to-one conversion of Federal Reserve notes to gold.

I'm not an economist by a longshot and I get some details wrong from time to time, but a number of months back Squiggy and one or two other posters thoughtfully crunched the numbers and demonstrated that even if the United States had possession of all of the planet's gold as well as proven reserves our economy would have to experience a dreadful contraction and become a shell of its former size in order to convert our currency to the gold standard. It won't work. It's absolutely, completely impractical. Give up on the dreams of this nation embracing it.

 

[Robert Maxwell]

Going back to a gold standard makes no sense given our understanding of economics now.

You cannot use a finite resource whose grows unreliably as a store of value for something which grows much more quickly: that is, the supply of human labor. Ultimately, that is where our money's value comes from. By that token, it would then make the most sense to argue that the money supply should more or less keep pace with population, but expanding and contracting as inflationary and unemployment circumstances require.

 

[Spock/Uhura Fan]

You can complain about foreign country's lower costs, but what can you do about them, raising taxes doesn't help, educating out children better will cause them to go where the jobs are.

The complaint isn't about foreign countries having lower costs; the complaint is about how globalization has thrown entire economies off, including ours. Educating our children better may cause them to go where the jobs are--IF there are jobs there and that country (and its companies) isn't intent on hiring "their own." Some people will be able to take work for an American company that has a job posting in another country, but I fear that number will not be nearly enough.

Protectionism won't make the US a more attractive place to invest, and it will hurt our exports due to our foreign competitors retaliating. I think the only practical remedy is lowering our costs so we can compete with them, we can train up and retain higher salaries by offering a higher quality product in our workers than our competitors can. If we can get a comparative cost advantage investors will flock to our shores and produce jobs.

Let's hope that you're right.

 

[Robert Maxwell]

This is where I would point out that the US should try to emulate Germany, and nurture a vast category of small-to-medium-sized businesses producing specialty goods, rather than try to compete with China on making the cheapest mundane widgets with slave labor.

 

[cooleddie74]

We'll never be able to successfully compete with any nation of 1.3 billion people that uses dirt cheap or even free prison and slave labor to make popular consumer goods for mere pennies on the dollar...not unless we want to erradicate federal minimum wage and workplace safety laws and start paying well educated American college graduates a pittance per hour to put together plastic crap for the shelves of a Walmart or dollar store.

 

[Spock/Uhura Fan]

This is where I would point out that the US should try to emulate Germany, and nurture a vast category of small-to-medium-sized businesses producing specialty goods, rather than try to compete with China on making the cheapest mundane widgets with slave labor.

Because we would never win that one. They've got a billion person head-start on us. You've gotta know when to hold 'em and when to fold 'em.

 

[Spock/Uhura Fan]

We'll never be able to successfully compete with any nation of 1.3 billion people that uses dirt cheap or even free prison and slave labor to make popular consumer goods for mere pennies on the dollar...not unless we want to erradicate federal minimum wage and workplace safety laws and start paying well educated American college graduates a pittance per hour to put together plastic crap for the shelves of a Walmart or dollar store.

Sometimes I think that's what we're coming to.

 

[Mars]

A Ron Paul-style embrace of the gold standard(a limited commodity that can't even come close to being worth as much as the current size of the U.S. economy and thus would require a massive, devastating contraction and shrinking of the economy in order to switch over to that standard) and a denial that Keynesian economics can and often does work in times of economic downturn or crisis are not the basis for any sort of sound, sane economic policy for the United States in the 21st century.

The dirty little secret is that Keynesian economics didn't even work during the Great Depression, it prolonged it in fact. That is why it lasted over a decade rather than less than four years, Because first Hoover did his own meddling and it didn't work, then FDR claimed that he wasn't meddling enough, and the public believed and elected him, Then by 1936, he said he was still trying hard, and buy 1940 he said he needed another 4 years to get the job done. All call these excuses, what he was trying just made things worse, it was World War II that got us out of the Depression and this wasn't Keynes it was Hitler! War forces governments to work efficiently otherwise they lose the way and don't survive, Germany had a knife to America's throat, which under normal circumstances isn't there when government wastes money.

Even if the United States had access to and bought every scrap and ounce of gold on the face of the planet we'd barely be able to reach the $2 trillion mark in USD value. Our current GDP even under present conditions is about $15 trillion. You and others who clammor for the gold standard want us to convert to gold but there simply isn't anywhere close to enough of it on the earth to allow for a one-to-one conversion of Federal Reserve notes to gold.

I don't care what the value of gold is, if its $10,000 that's fine with me. I think the dollar should be revalued anyway, the government should issue a new currency backed by gold and perhaps exchanged for the old currency at the rate of one old dollar per new penny. cut off two zeros off the price of everything you see in the store, and that will give you an idea what the new price structure would be. how about 2 cents for a 20 oz bottle of soda instead of two dollars, is that sound better? Governments instead of spending trillions of dollars annually would now be spending only tens of billions of dollars.

I'm not an economist by a longshot and I get some details wrong from time to time, but a number of months back Squiggy and one or two other posters thoughtfully crunched the numbers and demonstrated that even if the United States had possession of all of the planet's gold as well as proven reserves our economy would have to experience a dreadful contraction and become a shell of its former size in order to convert our currency to the gold standard. It won't work. It's absolutely, completely impractical. Give up on the dreams of this nation embracing it.

Don't get distracted by the currency, the value of an economy is by the goods and services that it produces, gold is only worth what someone is willing to pay for it. A gold standard could be maintained through monetary policy targeting gold to remain fixed, a small reserve of gold would be kept to maintain the value of the dollar in relation to gold. A good exchange rate would be 1 dollar for one hundredth of a troy oz of gold, that sounds reasonable. I don't suggest we go through a period of deflation to get there, we simply issue a new currency and exchange it for the old one.

 

[Mars]

Going back to a gold standard makes no sense given our understanding of economics now.

You cannot use a finite resource whose grows unreliably as a store of value for something which grows much more quickly: that is, the supply of human labor. Ultimately, that is where our money's value comes from. By that token, it would then make the most sense to argue that the money supply should more or less keep pace with population, but expanding and contracting as inflationary and unemployment circumstances require.

We could mine the asteroids for more gold and so expand the money supply.

 

[Robert Maxwell]

Going back to a gold standard makes no sense given our understanding of economics now.

You cannot use a finite resource whose grows unreliably as a store of value for something which grows much more quickly: that is, the supply of human labor. Ultimately, that is where our money's value comes from. By that token, it would then make the most sense to argue that the money supply should more or less keep pace with population, but expanding and contracting as inflationary and unemployment circumstances require.

We could mine the asteroids for more gold and so expand the money supply.

 

[Mars]

We'll never be able to successfully compete with any nation of 1.3 billion people that uses dirt cheap or even free prison and slave labor to make popular consumer goods for mere pennies on the dollar...not unless we want to erradicate federal minimum wage and workplace safety laws and start paying well educated American college graduates a pittance per hour to put together plastic crap for the shelves of a Walmart or dollar store.

We competed successfully with a nation that used slave labor in the 1860s. We don't know we can't compete with China until we really try, defeatism never works.

 

[cooleddie74]

We could mine the asteroids for more gold and so expand the money supply.

Not sure if serious.



Okay. Not.