Horses and Sparrows: The myth of 'trickle down' economics
newmainetimes.org
newmainetimes.org
Did this model really arose ? Did anyone really create a document arguing for this "model" or was this just a theory, a lame excuse thrown on TV (and reverberated to heavens and back) to the masses by the politicians who got bribed to shower some special interests with easy money? How in the world can someone argue that we should make it much easier for some groups of people to become so rich that they'll get tired of money and the power it confers and they'll become benefactors and throw it more easily to the poor people who work for them ?
Remember that their counter-argument is that giving money to people who don't deserve it (proven because they are not the elite) is a waste because they don't "build" anything with it, since they need to spend it.
The value of this proposition is to build concentrations of wealth, which are their own proof of virtue.
The religious expression of this is the Prosperity Gospel https://en.wikipedia.org/wiki/Prosperity_theology .
Trickle down would be to give the money to big successfull corporations and hopen that they are buying and funding startups with it.
That doesn't seem correct. I'm led to believe that trickle down economics (the concept, if not the name) existed before Milton Friedman was born after looking through https://en.wikipedia.org/wiki/Trickle-down_economics.
I also remember the author of the paper saying his work was being misinterpreted… but GOPers out-shouted him.
Concept as in "an argument to get votes or to put some politics in place".
It's just political slogan. Sometimes it used to refer supply-side economics.
Why would someone call their theory "trickle down"
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>This bottom-up model, Keynesian economics, provides public support for the neediest, which keeps "subsistence" funds in the general economy, for things like energy, food, shelter, and medicine. *But Keynesian economics is also concerned with expanding and raising up the broad middle class so that we can move beyond subsistence and into a gradually increasing standard of living*.
These two statements demonstrate that the author is not an economist; the high mid-century tax rates was targeted towards a small handful of billionaires and left most people untouched, and proper Keynesian economics is only valid during periods of sub-zero interest rates.
Tax evasion was much simpler pre modern computing, the internet, credit cards, etc. The rate of tax is high on paper but the effective rate of tax was much lower. Not only that the tax code was (and is) riddled with loopholes. I'd say they had a high rate of tax for honest millionaires and millionaires who aren't friendly with some congressmen.
Thank god, I was worried it was going to be a waste of time
Countries compete for businesses. Businesses try to optimize their costs and tax bills by pulling every trick the government allows.
The government's objective is to be among the most business-friendly countries, without losing money by being too much friendlier than the next one. If a government strays too far from that, while it won't happen overnight, businesses start leaving, UHNW individuals start leaving, employees follow, and the govt has a serious problem.
It's a tricky proposition to figure out how much govt can demand from corporations before they've had enough and move. Different companies with different infrastructure and employee requirements will make that decision at different levels of annoyance. Government policy probably errs on the too-friendly-toward-business side, but it's a game of imperfect information combined with non-linear effects and a disastrous endgame if govt chooses wrong.
To some extent companies already do this, by offshoring labor or by creative accounting, figuring out how to keep significant portions of their income legally untaxed by their home country, using shell companies and, in some cases, intellectual property licensing deals to funnel the money. Much has been outsourced to Asia or Mexico on the manufacturing side, and on the financial engineering side to Ireland. Stamping that out would be a choice govt could make, but the current negative side effects of those things pales in comparison to what happens if FAANG decides to move to Brazil or India and pays enough of their critical employees to move with them that it becomes viable.
Even with a negative tax, fast fashion wouldn't produce any clothes in the US while high-tech research labs thrive in cities with high taxes and labour costs. Meanwhile, the megacorp holdings already shift earnings, profits and costs around the globe in a way that turns competition into an unwinnable race to the bottom. How could the US ever compete on tax when Ireland is willing to tax Facebook's earnings at basically 0%?
Big businesses generally have a higher elasticity of demand for many goods and services, compared to the poor and middle class. This translates to big businesses being willing and able to raise prices, lower production, lower wages, lay off workers, move overseas, or have rich executives retire early in response to government impositions.
I don't quite get why you would argue that taxes don't affect wages; taxes affect the return on investment for hiring employees, so it should affect how much a company is willing to pay for someone's labor.
Ultimately, none of that matters until you speak to tax policy.
As I have learned in a recent HN thread about tax policy people are generally internally conflicted about what they want taxed. The general nature I could gleam from the comments is that wealth should be taxed, but nobody could define wealth. Taxes should be fair unless you are wealthy or poor. Tax policy should be simple until your personally identified special interest group is impacted at which point there must be all kinds of exceptions. Land value should be disproportionately taxed at a higher rate, but only if owned by wealthy people. Some forms of taxing are superior because they are more efficient except for automation. Everything read like a self-contradictory nightmare where people really wanted to feel rational.
Maybe he was like Scrooge McDuck and had a giant vault full of gold coins that he'd take a dip in periodically?
My guess is that that's not the case. He probably had the money invested in some project.
The real question in my mind is this. How do you want to figure out where resources are going to be invested? We can do it democratically - everyone votes on what they want to spend money on.
Or we can have everyone invest their own money.
The later is tricky. People will only invest their own money if they think the investment will make still more money - and some of that return is going to be spent on things that have zero return i.e. a new Porsche in the driveway.
The former also has a few issues. What's stopping everyone from voting themselves a check? How much care is spent when you're spending other people's money?
Most of the cash is used to further buy shares of existing companies. These shares are purchased on the open market so the money does not actually go to the companies in question, but rather to a shareholder that wishes to cash in.
A company only makes money in the stock market during their IPO: the shares go from being "inside" the company to the "outside". No matter how many times shares are traded after that initial exchange, the company does not get a penny. (Unless they do another share offering.)
So if a company distributes dividends, cash leaves the company to share holders, and then collects in accounts. And if you have a lot of shares (in one company, or in many companies), you probably can only spend only so much of it, so a large portion may simply sitting around. So the rich often decide to use that "spare" to buy more stocks—because why not?
On the other hand, people that are less rich will tend not to have a bunch of "spare" cash sitting around. Most people use up all the cash that they get from (e.g.) dividends to (say) fund their life in retirement. Further, they may not have enough from just dividends to meet their expenses and so they also liquidate capital. And the buyers of the not-rich's shares would probably be the rich.
So the rich use their large holdings to gain a lot of "spare" cash which they can't manage to completely spend, and so they use that spare cash to build even larger holdings.
So what's the point of giving more money to those who probably already have 'too much' when all they're really doing with it is snowballing their holdings?
If you give it to people who do not have a lot they will probably spend it (completely). At the grocery store, at the clothing store, perhaps at the car dealership to get a more reliable automobile, perhaps do some home improvement to fix a drafty house.
This spending by one group will become income for another. Whereas the rich will simply re-consolidate things to themselves without much economic activity.
For the point of something more practical, like taxation, it doesn't matter if the primary means of taxation isn't based upon transaction frequency. The primary means of tax revenue in the US is income tax, which has no bearing on any transactions.
Wasn't the money reinvested to create those jobs in the first place?
The alternative term, 'bubble up economics', needs to the popularised more.
Foundational economics, structured economics, etc where there is a strong base 'at the bottom'.
What's curious is--when these policies came about under Reagan, the economy basically exploded upwards for 40 years. What the hell do you want? LBJ's Great Society back again? That's where we're headed right now. Inflation and destitution!
Deluge Up Economics
Which has the handy property of "due" being the acronym.
You've got to pay your dues, buddy.
Do you think the purchasers of quality but second hand goods could afford to buy them new?
When I began to have more money I just started buying more expensive cheap items. So yes, I could afford to buy new more expensive stuff.
The first example that comes to mind is power tools. I can buy a cheap trim router at Harbor Freight and it'll work as well or better than many of the top brands at Home Depot. Not all of them, but if I can't otherwise determine which is the best, it doesn't make sense to spend the extra money.
IIRC, I've heard people say the same about shoes on HN, too. And IME, My $50 shoes have lasted just as long as the $110+ shoes that I used to buy, and were as comfortable or better.
In addition, like you, I hate reselling things. We had a yard sale a couple months ago and just let everything go really cheap because it wasn't worth the effort to try to get more. At the end of a yard sale, we generally pack the rest up and donate it, anyhow.
Generally buy cheap first. Odds are it'll will get the job done for what you need.
If you do actually manage to work it hard enough to break it, then you know that it may actually be worth spending a little extra.
Just tracking down what an item really is to find reviews can be hard, and then you really never know if the underling product has changed in the meantime.
It feels so anti consumer.
I personally never factor in resale value in my purchases, and I rarely buy second hand, because of the additional risk and additional effort involved. In general, poor people do not have capacity for risk.
Personally, I'm able to enjoy the lifestyle I do because I buy second hand. I'm also able to add value by repairing items, although as you say, there is the risk that someone is dumping broken items on you. You just have to be discerning, and possibly experience getting burned a few times.
None of which I factor resell value in.
I keep my vehicles on average for 8 years or more, to the point where resale nill
I have the same couch I bought almost 15 years ago now, if I replace it the old one will not be worth anything and will be donated or trashed
My current computer is 6 years old, and when I replace it will be recyled or donated as well
I run almost everything I own to fail. Even my home, barring economic necessity forcing me to sell (i.e need to move for a job, or economic depression[1]) I plan on dying in my current home
[1]and face it at the rate of government spending right now a dollar collapse is very possible
https://web.archive.org/web/20170821004405/http://ime.bg/upl...
A tax cut that isn't matched by a spending cut translates to more government borrowing, where the rich take that money they save on taxes, and lend it to the government.
It's still trotted-out occasionally by out-of-touch Republicans and conservatives just to be debunked by folks like Thom Hartmann. If it ever makes a resurgence with the level of inequality at present, we're more than doomed.
Of course we can't know, so it is to a certain extent speculation. However, we can certainly question whether the reality met the expectations, and I think we can all agree that things haven't turned out as what predicted.
I personally feel that globalisation and the decline in American manufacturing, and the rise of China are massively important factors and may have as much or more to do with how things turned out, but i'm no economist.
It's a pointless question the answer of which doesn't produce the information you think it does.
https://en.wikipedia.org/wiki/Social_dominance_orientation
https://en.wikipedia.org/wiki/Social_dominance_theory
Those are really primitive, irrational, traditional values and ideas that are difficult to get rid of, because so many humans just believe in the fatality of social darwinism. Evolutionism has no place in civilized society. Cynics who argue otherwise just want to benefit from their higher status.
How can you square this with the necessity of Darwinian-like competition in a relatively free-market economy? I want to see the unsuccessful companies go extinct, and I want to see the unproductive workers let go, because such sorting is necessary for prosperity.
I don't, it's a waste of resources. I want them to relearn or restructure. (That's why I support social net and limited liability, by the way.) You are assuming that evolution itself is somehow "efficient"; I don't see that as self-evident.
Having been part of a company that went extinct, I don't agree. Some groups of people pointed in a particular direction just aren't meant to be and aren't productive.
It's better for them to be forced to disband (due to lack of funds) after the market told them squarely that they're not providing a valuable product or service.
Now all these people have gone their own ways and are providing much more value for both themselves and others in various parts of the economy where their skills are being put to better use.
> You are assuming that evolution itself is somehow "efficient"; I don't see that as self-evident.
I'm asserting that competition is necessary for societal prosperity, which inevitably leads to some sorting as a consequence.
Says who exactly? Where do you see that competition is beneficial? What kind of prosperity, and for who? People eat, sleep and socialize, and competition doesn't really drive prosperity.
Poor people, the unemployed and the homeless don't deserve their situation, yet a merit system will always create inequalities.
People are free from doing what they want, as long as it doesn't lead to the exclusion of individuals.
Consider just one example: competition in the labor market.
Businesses need to hire competent people that have the skills required for the job, otherwise they won't be able to function.
That means pitting candidates against each other in a form of competition and sorting them during the interview process, in order to find who are the best at what you're hiring for.
Without this one example of competition and sorting, hiring good people would be a roll of the dice and I'd even say that our whole economy wouldn't be able to function.
There's countless other similar examples throughout the economy where competition and sorting are necessary, but I think that one example should suffice.
> What kind of prosperity, and for who?
Everyone is better off with it, because without it we'd all be in desperate poverty, since the economy wouldn't function.
It's difficult to prove. Where is the philosophy in that? Where is the theory about competition? How do you evaluate if a person is competent by the way? How do you really "pit" themselves against each other?
I would say, let people candidate for the jobs they want to work, just put some simple requirement, and roll the dice. If those people are not happy with those jobs, they'll quit.
> Everyone is better off with it, because without it we'd all be in desperate poverty, since the economy wouldn't function.
I heard that argument thousands of time, without proof or arguments. I mean there are alternative but if all you say is that "There are no alternative, we do things this way because we don't know a different way so we're stuck", it's hard for me to be convinced.
That won't work. You're a C++ programmer. As you know, very few people know anything about C++, a lot of the people that claim they're good at C++ aren't, and the number of true C++ experts are very few and far between.
If you select a person at random for a C++ job, either from the general population or the population of people that simply put C++ on their CV, you're probably going to get a bad hire, and if you do this for all your hires, you'll almost certainly fail as a business.
> I heard that argument thousands of time, without proof or arguments.
If you think that a business can function without sorting candidates through interviews or some other filtering process - which is a competition - then I believe you're the one with the burden of proof, not me.
That was your idea.
People are generally pretty well aware of their skills.
https://en.wikipedia.org/wiki/Market_abolitionism
I never talked about business, and your example of C++ programmers is very very specific.
You're the one that said "let people candidate for the jobs they want to work, just put some simple requirement, and roll the dice."
> C++ programmers is very very specific.
My C++ example was an explanation of why your idea won't work by bringing it into a domain that you're familiar with.
You call it "very very specific" but it's the same anywhere in the business world. Change C++ engineer to Java engineer or salesperson or anything else, and my argument is identical. So no, my argument is not very specific. It is general.
If you hire people without filtering/interviewing/reviewing N candidates and selecting the best N/5 or N/10, you are going to fail as an organization. That's just a well accepted fact and if you're going to deny that then you have a large burden of proof that you haven't satisfied.
If you don't deny that, then you accept that competition is necessary for the functioning of the labor market and therefore of the economy/society.
> I never talked about business.
We're talking about the functioning of the economy. That's the topic of discussion. If the labor market can't function because people are ideologically opposed to sorting candidates, then the economy can't function.
> hiring good people would be a roll of the dice and I'd even say that our whole economy wouldn't be able to function.
> That's just a well accepted fact
Says who?
https://www.youtube.com/watch?v=u6XAPnuFjJc
https://medium.com/@20manikandanad/why-competition-is-not-as...
https://www.quora.com/Why-is-competition-often-seen-as-impor...
"Says who?"
Ask any of them if their business could function without this sorting of people - hiring the good and firing the mistakes - and they'll all say no.
So that's who. Pretty much everyone who knows what they're talking about.
There are plenty alternatives that work. It's about politics, in the end. It's ok to disagree.
In this case, there aren't. Show me 1 successful business with large headcount that doesn't put effort into hiring the competent and firing the bad and I'll concede your point. Until then, your ideology is clashing with all of reality in an irreconcilable way.
So eventually I came to conclusion that authoritarian/conservative value is far from primitive, but has actually a goal of avoiding social change, in the fear of breaking the society apart. It is probably related to parent-children relationships, we as children believe it is beneficial to trust parents, and learn from them, and we also extend this to people who are in institutional positions of authority, that they "know better" how to run stuff. That's why we submit to them, and that's also why older and more experienced people (who typically get to run institutions) also become more conservative - they want to keep the system that seemed to work (at least for them).
It however can get misused by people who want power, and that's where the fundamental problem of this value comes from. Authoritarian/conservative values are also in opposition with liberal values (individual freedom) and socialist/progressive values (inclusion in the collective).
So while I agree that social darwinism is fatalistic, I am not sure it is the only explanation (or correct one, for that matter) of why people accept social hierarchies.
Authoritarian has nothing to do with conservatism, in fact communist countries are the more authoritarian in the world.
Conservative dominated countries have the biggest individual freedom in the world by far.
Are warlords in Afghanistan, Congo or the rest of Africa conservative? No, they are not, they will take whatever they can from you because they have weapons and are willing to kill and you are not, odds are he will be twenty something, as they die soon. I have interviewed hundreds of people that lost all what they had because of them, or were just raped or had family members killed. Politics have nothing to do with it, it is power.
All social creatures in this world have hierarchy and power, and males fight each other for getting up in the status. From horses(I have seen one cut another's neck tendon) and sheep to lions and wolves. All apes including bonobos(considered pacific) fight for hierarchy.
In socialist-progressive countries you have people that want power as much as in conservative countries and it will be socialistic people those who want to dominate others(and taking people's money using high taxes is a great way to do that).
In liberal countries the liberal people want individual freedom but at the same time they will love to dominate others with privileges or monopolies.
People idealize what they don't know.