Hacker News Reader

"Trickle down stimulus" is not an economic theory. It's a criticism of supply side economics, equivalent to calling Keynesian economics "money printer go brrr" stimulus.

Arguably, corporate bailouts like we're seeing now ARE a Keynesian stimulus because they're meant to keep businesses afloat while consumer demand has fallen off a cliff so that they can continue to do business (i.e. maintain demand for business inputs). Few if any of these corporations are taking the bailout money and investing it in capital infrastructure.

The bigger issue is that the "current path" is to use both Keynesian stimulus and supply-side stimulus with no regard for the deficit. At some point, unless the US has another WWII-like economic expansion, all the debt we've created to fuel these policies will need to be paid back, either explicitly or implicitly through inflation.

> all the debt we've created to fuel these policies will need to be paid back, either explicitly or implicitly through inflation.

And if you've been watching prices for staples or the big mac index, prices have already reflected inflation from the last decade's worth of quantitative easing. I left a cushy fed job with a full secret clearance because of the TARP bailout back in 2008 and they are about to do the same thing in spades again, ugh. They should've just let Goldbag Sacks and the rest of their filthy lot fail, let the economy feel the recession pain like it's supposed to and let a reset happen. I don't really want to see the other side of this one. For sure I'm not saving too many USD in 0% interest accounts...

"trickle down" isn't a real thing, it's just a pejorative used against supply side economics, which is a mainstream economic view.

The basic account of "trickle-down economics", goes something like this. When you give a tax cut to a rich guy, he uses the money to buy party supplies for a celebratory yacht party. The guy who owns the yacht party supply store sees an influx of cash from rich guys spending their trickle down tax cuts on yacht party supplies and orders a pizza to celebrate, and gives the pizza guy a big fat trickle-down tip. As you can see, the tax cut started out at the rich guy, but before long even the lowly pizza delivery guy is getting a piece of that sweet trickle-down cheddar.

Notice an interesting thing about this account: it is fundamentally a _demand-side_ story. In this story, the trickling down happens as a result of people spending extra money on goods and services. It is not about creating supply. So it's _not even an accurate representation_ of supply-side economics. People rightly point out that it's a flawed story, because poorer people probably have a higher marginal propensity to consume than rich people, so you'd be better off giving the tax cut or equivalent transfer payments to poor people if you want to stimulate economic activity. Well, yeah, no shit, that's because this is a complete straw-man and no economist actually believes that this story is true.

What some economists actually do believe is that the path to prosperity is via the supply curve and not the demand curve. Making things cheaper to make and cheaper to buy makes people better off faster than just giving them money to buy things at existing levels of production. And the way to do that is investment—investment meaning, in the economics sense, spending on things like factories and equipment. There is a huge body of theory and evidence to support this idea—higher levels of investment do lead to faster growth. So supply siders believe that things like taxes on capital gains are harmful to the economy on the margin because they reduce spending on investment, and may even encourage spending on consumption, which is a bad outcome to the supply-sider. They also believe in reducing barriers on production—things like government regulation and income taxes. They also believe in, you guessed it, helping make sure that corporations don't go out of business amidst a once-in-a-century black swan event — call it a "corporate bailout".

For want of an equally familiar term, "trickle down" is all I had. Apologies if it is critical sounding.

The crisis will end with sky high unemployment, no consumer saving but massively increased personal debt. To raise the deficit solely so companies can make twice as many widgets with half the employees would be the worst possible response. And even this assumes supply side policies do what they claim.

> The crisis will end with sky high unemployment

Nobody knows this for sure.

At the moment, the official policy of the Federal (and most State) government is forced unemployment: a planned shutdown of the economy. To accommodate this, the CARES act includes $2400/month (on top of State UI) unemployment insurance, and that’s not even including the flat $1200 check. If you live in Minnesota, you’re looking at $5,360/month (!!!). The full state breakdown can be seen here [1]. In every state, the unemployment insurance is higher than the median wage. Businesses know this, and are proactively laying off their employees so that they may collect this benefit, with the intention of hiring them back once the planned shut-down ends. This can only happen if the businesses stay solvent, hence the corporate bridge loans.

[1] https://imgur.com/a/AifRmdD

ideally, there would be a 3rd path, which would be direct forgiveness of those debts for a small period. All creditors would take the haircut, instead of the debtors. this means that incoming money would go back into the productive economy.

The odd thing about bailouts is that if you bailout businesses, they can't really spur consumer demand, and if you give it to individuals it tends to end up re-concentrated in the financial economy. If you want to ensure cashflow into the open economy, you need to ensure that the money that people have gets spent on goods, not financing.

> ideally, there would be a 3rd path, which would be direct forgiveness of those debts for a small period. All creditors would take the haircut, instead of the debtors. this means that incoming money would go back into the productive economy.

Isn't bankruptcy exactly this, on a firm level?

In a bankruptcy, the stock-owners lose all their equity, and the bond-holders take a hit. The parent appears to be proposing that the bond-holders take a hit, in an attempt to preserve some equity for the stock-owners.

A ridiculously improbable thought here: What if, in some regime, interest, rent etc. accrued only on "business days", and business days could be cancelled in a crisis?? Jigger the time metric????

>Stated even more bluntly, it is essentially whether you believe customers or assets are most important for business.

No I think the last four words of this quote are the problem.

This needs to be more about humans and less about corporate entities. And I'm not talking socialism here. We just need to move away from economy = listed companies and more towards economy is the aggregate of people's actions.

>These two options for saving the economy: corporate bailout vs social safety net essentially correspond with belief in trickle down vs Keynesian stimulus.

What?

Social safety net: Here is a place to sleep tonight Mr Homeless

Keynesian stim:

>Keynesian fiscal stimulus is a decision by the government to increase government spending financed by government borrowing

Quite a far stretch equating those.

>>Keynesian fiscal stimulus is a decision by the government to increase government spending financed by government borrowing

>Quite a far stretch equating those.

In reality it really isn't.