20 year study of global wealth demolishes the myth of ‘trickle-down’
businessinsider.com
businessinsider.com
Coase's argument was that "given 0 transaction costs," it doesn't matter who owns what property or right. The market will achieve efficient solutions as firms sell each other radio spectrum or whatnot. Policy should focus on minimizing transaction costs and let the market organize itself.
Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised.
What Coase actually meant is that (1) transaction costs tend to be high (2) this explains the clearly observable inefficiencies of such markets. Literally the opposite of what I was taught as "Coase Theorem."
He meant that because market are imperfect, it really matters what the starting position is. Trickle down economics is the same kind of error. If we are extremely confident that markets work the way efficiency-assuming models do... Trickle down makes sense. It doesn't really matter where the money starts, the market will deal with allocation efficiently. If not it does matter where the money starts.
In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises.
The actual equality dichotomy is ROIs vs labour/income.
I agree with you but it remains a problematic point. The issue is the power imbalance it creates and outlines.
Because in and of itself, wealth is of little interest. Economy is first and foremost the study of exchanges. If the wealthy stayed amongst themselves with their wealth parked peacefully and little interaction with the rest of the system, you could pretend they didn’t exist and from the point of view of the economy experienced by the majority of the people that would mostly be true. That’s mostly what’s happening actually which is why people don’t riot.
It is both a blessing and a curse because as usual throughout history when an aristocracy arise, their main fear is that the general population realise they are not actually providing that much value and could be dispensed with. That’s why they use the power they own - the ability to put the system out of balance - to lobby in their favour, keep control of the political system and information apparatus in order to keep being able to extract value from the system.
From my point of view, we are in situation which has a lot to do with the Old Regime. Aristocrats used to explain that they could not be dispensed with because they had superior value and were needed to administer and guide while exploiting the collective labours of the population. Modern large shareholders and executives explain that they can’t be dispensed with due to their superior ability to manage and impart a strategy while exploiting the collective labour of their employees tolling for meager wages.
Do some people overcome their initial bad luck and generate wealth for themselves? Of course there are some. But it is not "the majority of those with vast wealth." That's head-in-sand silicon valley tech utopia wankery.
I thought the movie Knives Out did a great job of parodying this "Rich people are ENTREPRENEURS that EARNED IT!" idea.
If you count top 10% as wealthy, sure then you need to be wealthy to make it big. A kid with top 10% parents has everything they need to succeed and create a top company. A poor kid doesn't, true, but a poor kid in USA still has everything they need to get to top 10%, and then their kids has everything they need to become top 0.1%. So you are right, this process isn't perfect, but it works in 2 generations, which is still really good compared to historically.
As a poor kid who did this, this is an incredibly ignorant and out-of-touch statement. This is like the socioeconomic equivalent of that Verge PC build.
Generally, after a lifetime of honest, hard work, you'll make it 1, maybe 2 tax brackets higher than your parents. To make it further than that you have to be especially talented, lucky, or both.
I just looked it up: as of 2016, 7.5% of kids born in the bottom quintile make it to the top quintile, so it is indeed possible, though quite rare. [1]
I think your basic sentiment is right, though you'd probably need to insert one more generation: a poor kid has everything they need to make it to the middle class and live a not-poor life, a middle class kid has everything they need to make it to the top 10%, and a top 10% kid has everything they need to become fabulously wealthy.
The poor -> middle class leap is probably more difficult than any of the others.
[1] https://www.economist.com/graphic-detail/2018/02/14/american...
Is 7.5% “quite rare”? That’s around (and between) the portion of the population who is left handed and the portion of the US population that has naturally blond hair, neither of which would I describe as “quite rare”.
7.5% of the bottom 20% make it to the top 20%. In a perfectly fair and equitable society, you'd expect it to be 20%. I wouldn't call this "quite rare," though I would call this uncommon.
But what percentage of the bottom 10% do you think make it to the top 10%? It's probably even fewer.
And to go step further: I'm not convinced the "top 10%" actually has everything they need to become a billionaire. Zuckerberg's parents were both doctors, Bill Gate's dad co-founded a successful law firm, Musk's parents owned an emerald mine in South Africa. These folks almost certainly grew up in the top 5% of household income.
If you need to grow up as a child in a top 5% household to "have everything you need" to start a wildly successful company, what percentage of the bottom 5% make it to the top 5%?
I'll bet you it's indeed "quite rare."
We have a general problem in that people do not consume enough to grow our economy. Now, endlessly increasing consumption sounds bad, but it’s basically required for the economy to keep growing in real terms, since it’s the main component of GDP. Most wealthy people, not even billionaires but lots of run-of-the-mill hundred-thousandaires and petit millionaires, save a lot of their money including their ROI, or at the very least spend money less quickly than they make it.
If people spent money more or said “enough” earlier in their wealth accumulation journey, asset prices would be lower and the economy would be bigger. This is good in a lot of ways because capital goods like land really ought to be inexpensive to allow the economy to grow. Same with stocks. Assuming a constant risk-free rate of return (ie treasuries) it’s actually better for equities to have a lower P/E ratio - it’s cheaper to purchase cash flow.
I think this general lack of propensity to spend, or basically hoarding, is caused by our perpetually low interest rates and also general government policy that is leading to inflated asset prices. But there is also a cultural aspect to it though. There are a lot of “middle class millionaires” these days with $10m+ fortunes who basically don’t spend it. It’s their right to do so, but it’s stifling growth for the reasons I’ve outlined
EG, the ECB recently "loaned" EU member states quite a lot of euros. They do this every year, with the amount determined by public deficits. The amount is not determined by the amount of savings in ECB savings accounts. They can loan as much as they need, subject to EU law.
Public surpluses (deposits by EU member states into their national ECB savings account) are not common. The public doesn't make up the difference. There's no auction of ECB bonds before budget season to balance savings and loans.
Banks access funds in a similar way, though the EU chain is more complex that the UK or US'. There are often rules that dictate a balance between savings and access to central bank funds. Basically though, banks can loan as much as their regulators allow them to... for the same reason that states can.
We have a general problem that our economy doesn't support certain use cases of wealth.
1. Because birth rates are lower, being directly supported by one's children/grandchildren is no longer feasible.
2. No socialized retirement system. As a result, each individual must accumulate a small fortune in order to retire. Most retirement plans rely on living off of the investment income without touching the principal. Therefore, the amount required to retire is also sufficient for a person to live indefinitely. (Back of the envelope calculation, assuming 3% annual return on investment after inflation, $3M in retirement savings yields about $90k/year perpetually.)
3. Currently, the first $11.18M of an estate is entirely exempt from the estate tax, and the even the top marginal rate is only 40%. At no point would it prevent inheritance of a perpetuity by several descendants.
(1) is a long-term demographic change, and I think it's good overall, in terms of the care and attention children can receive. (2) forces the accumulation of wealth, out of fear of societal abandonment in old age. (3) allows those accumulations to persist across generations. I think that the appropriate spots to break this cycle are at (2), by instituting better social safety nets and retirement care, reducing the incentive to indefinitely accumulate, and at (3) by significantly increasing the estate tax.
Plus, not everyone wants to work to 67 (full retirement age for SS for most workers today). Then, not everyone wants to drop their spending down to that of a median income household.
Combine those factors and social retirement systems aren’t going to be the solution to stop people from saving and investing privately to supplement.
I can’t see social retirement ever being funded to the level of a middle-class retirement; I think it’s a useful safety net to ensure people who worked their whole lives but didn’t save privately don’t starve, but dramatically expanding it is mathematically difficult to fund.
Nope, the max is around $4200 (or, will be in a few weeks). And that's per person. A couple could receive as much as $8400/month.
So, the market should look like "lots o small companies funded by cheap money" but it does not. And is that because Jeff Bezos is basically Marie Antoinette?
Isn't this evidence that the aristocrats were right? We beheaded them and new aristocrats sprang up in the same place, almost as if there must and will always be people in such positions.
Or possibly it's just a consequence of the kinds of society we've had up till now. Perhaps in [your favorite utopia] it's not necessary nor beneficial.
This is obviously wrong. Take India vs Switzerland as an example. Also, in the post-war era, the Western European countries saw a diminution of wealth disparity at the same time as a great wealth increase.
Actually the history of the western world in the 20th century looks more like “the less wealth disparity, the more wealth growth” (I'm not implying causality, but at least the correlation goes this way).
Compare one billionaire buying a mega yacht and 10,000 people buying their first car, in both cases you've created say $200M in direct GDP, but in the later case you have 10,000 people more mobile to get a job or consume other goods or services.
> The second part of Bismarck’s strategy to destroy social democracy was the introduction of social legislation to woo the workers away from political radicalism. During the 1880s, accident and old-age insurance as well as a form of socialized medicine were introduced and implemented by the government. But Bismarck’s two-pronged strategy to win the workers for the conservative regime did not succeed. Support for the Social Democrats increased with each election.
I don't understand why the USSR failing or being 'bad' is necessary to further incentivize 'the rich', if anything I'd say the opposite is true.
The USSR was bad because they were neither socialist or communist but an oligarchy bent on maintaining power at all cost -- just like China is today. The people at the top are the aristocrats in revolutionary France.
https://www.npr.org/sections/money/2015/02/11/384988128/the-...)
https://www.stlouisfed.org/publications/in-the-balance/2017/...
Is it really an error if what is observed is what was expected is what was desired?
Your mistake is you’re listening to what they’re saying rather than looking at what they’re doing.
Interesting take. I haven't ever heard trickle down proponents suggest we give the money to the working class. It's like they don't really believe that.
Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
https://www.bls.gov/oes/current/oes_nat.htm#00-0000
I probably shouldn't have included doctors though. I always forget how grossly overpaid they are.
I mean where do you think defense contractor profits come from? How about medical and Pharma? Medicare is the largest single payor in the US and they deal exclusively with the elderly who require more prescriptions and medical care. Many large industry's largest client is the federal, state and local governments. Where does that money come from? Our taxes; not only ours but the taxes of future generations through debt. We do it all-the-time with business to prop them up. That doesn't even get into tax incentives.
Inefficiency
The way to fight it is not by giving more powers to government but giving less.
This is your paradise, your side won. Move the goalposts all you want, but we’re at the logical consequence of letting “the market” make every social, economic, and political decision.
So what? What’s the argument here? Because we have programs that take X amount of dollars, burn a portion of it and give the rest to people in group Y, we should have other programs doing the same for the people in group Z1,Z2,…?
Call me crazy, but IMO the solution is not having programs that burn our collective wealth.
Follow the thread:
>> I haven't ever heard trickle down proponents suggest we give the money to the working class.
>Because that would require taking from some people and giving to others through government, which is a very inefficient way to do it.
The argument is even though trickle down proponents don't suggest we give the money to the working class, they're fine with giving money via several mechanisms to business, thus trickle down.
>Call me crazy, but IMO the solution is not having programs that burn our collective wealth.
Our collective wealth should be spent on helping the "collective," i.e. citizenry directly. It's been hijacked with trickle down theory. Trickle down theory basically says if you give all the collective wealth to business, it will be spent helping the citizenry. I guess it does in the form of jobs, but the businesses certainly get most of the cut.
https://en.wikipedia.org/wiki/Trickle-down_economics
"...means to stimulate business investment in the short term and benefit society at large in the long term."
Of course it's a sham, but it's been going on since at least Reagan.
I would say even that is a straw man. The argument is that I’d rather trust the market than governments with that task given their respective track records.
How so? Why would you assume that the distribution of wealth is correlated to the total stock? In reality this actually doesn't have to be the case at all. Aside from direct means of wealth redistribution, the are ways of setting up an economic system such that wealth inequality is reduced.
> Many or most people have no wealth, depending on your semantics of "wealth."
Again, this is not a fact of nature. It's not in the biological nature of most people to be poor. Poverty is a result of a badly functioning society and can be alleviated.
Increased wealth through technological means has had two effects.
1. It's raised the maximum possible wealth ceiling. That is, the wealthiest people who've ever lived, are alive today.
2. It's lowered the minimum survivable poverty floor. That is, it's possible to survive being poorer than at any previous point in history.
As Clark puts it in his introduction, "There walk the earth now both the richest people who ever lived and the poorest."
Sample chapter online: http://assets.press.princeton.edu/chapters/s8461.pdf
https://archive.org/details/farewelltoalmsbr00clar/page/n9/m...
(I don’t usually comment on typos but this one took more than a second for my brain to decipher.)
That is a stark claim with little empirical evidence. If you look at the world, you will find that Europe, one of the most affluent parts of the world has the lowest wealth inequality. While wealth inequality is very high in Africa, one of the poorer regions of the world.
Wealth inequality is far more likely to be the outcome of policies. Europe has been dominated more by various social democratic parties which have actively worked to reduce inequality. While areas such as North American with high levels of inequality has been dominated by parties pushing neoliberal economic policies.
[0]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_in...
"The issue is that the accumulated inter-generational wealth compounds itself quicker than the Dutch government can reduce the money added to it. The Netherlands’ historical wealth can be traced back centuries ago, with huge money-makers like the Dutch East Indies company. They allowed an extremely small minority of the Dutch population to accumulate astronomical amounts of wealth that are still compounding and increasing the wealth gap to this day."[0]
Even with their ginormous disparity, the poor in the Netherlands are not doing so bad.[1]
[0] https://uweb.berkeley.edu/2021/04/11/the-duality-of-the-dutc...
[1] https://en.wikipedia.org/wiki/List_of_countries_by_percentag...
> The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property.'
Key phrase there being 'Pareto efficient' which basically means 'without addressing the initial starting point inequality'.
I'm also not sure what your last claim is about, it sounds like a garbled version of 'you need inequality to progress' which is a common trope, but not actually backed by any logic as far as I can tell, or even fleshed out enough to escape from the 'not even wrong' category.
Similar themes came up in Ronald Coase's appearance (at a stunningly-lucid 101 years old) on this 2012 episode of EconTalk: https://www.econtalk.org/coase-on-externalities-the-firm-and...
Plugging this as it's one of my favorite episodes of one of my favorite podcasts.
100-something Ronald Coase
First, income inequality doesn't measure income mobility. Places like the US that have a huge number of unskilled illegal and legal immigrants constantly entering at the bottom level will always have high income inequality. The question is, what happens to each individual over the course of their lives?
83% of Americans will earn more than their parents. 73% of Americans will spend at least 1 year in the top 20% of income earners in their lifetime.
https://fee.org/articles/income-mobility-data-show-america-s...
Also, there is no such thing as "trickle down economics", that is an insult leveled by critics of the idea you should let people spend and invest their own money rather than the government. The results speak for themselves and are astounding. The poorest person alive in a first world country today lives better than the richest 100 years ago. This was all because of investment. Clearly investment, or "trickling down" (as its critics like to call it) isn't just effective, it is the only thing that works to make people's lives better.
What? Not even remotely close. John D Rockefeller was shrouded in wealth about 100 years ago. If you think the poorest, homeless person now stuck on the streets lives better than Rockefeller did, you're confused.
Do not conflate general human progress of what's available with more knowledge, science, and basic technology with what a time period normalized standard of living looks like. You can't attribute economics directly with progress (it is a factor but not the only factor), otherwise you could very easily make a valid argument for an authoritarian government and economy like you see in China. China is arguably just as technologically advanced as the US.
Now your middle income American might be considered as living better than Rockefeller depending on how you define quality of life. They have all the essentials they need to survive and access to more progress than Rockefeller did during his time period. They also have significantly less free time and less resources to explore the current space of possibilities whereas in the early 1900s, someone like Rockefeller had access to anything they wanted to do during that time period.
>Do not conflate general human progress of what's available with more knowledge, science, and basic technology
You seem to imagine that these things magically just appeared. They were created because humans with money invested in them.
>China is arguably just as technologically advanced as the US.
China stole every single thing it had from the US. They have developed almost zero technology. (You could very nearly say the same for Europe, though they are less socialist than China and so have developed some things on their own - barely). This is always the way. Countries with authoritarian, dominating governments never develop anything - they can't. They can only steal and destroy, they can't create. Individuals develop new things and push humanity forward and only countries that empower individuals can create.
You need to ask the question about why humans have progressed so much, and why all that advancement happened in certain places only and not others.
What the hell are you talking about? Are you really saying all that R&D spending in other countries is going towards copy-pasting stuff made in the US?
Yes. I can barely think of any examples to the contrary. 90% of technology being used around the world today was developed in the US. More importantly, R&D money spent by governments usually amounts to absolutely nothing. R&D spent by private companies can be ground breaking, or it can just be a nonsense tax break, or it can be spent learning to reproduce what others have already invented.
So simply looking at R&D spending is pretty useless. Instead look at the results.
Americans like to talk about how dirt poor Mexico is, but it is actually richer than plenty of Eastern European countries. Not to mention pretty much all of Africa, which sends refugees and illegals across the Mediterranean.
If you look at income mobility across different countries you will find that the US has quite bad income mobility. The US ranks below old class societies such as Britain.
Just to pick up on the income mobility. The US is one of the worst countries regarding income mobility while at the same time one of the ones implementing the most "trickle down" economic policies [1]. The contrast is particularly stark when comparing to the Scandinavian countries, which get often called "socialist" in the US. So by your own metric, trickle down does not work, because it leads to worse outcomes.
[1] https://en.wikipedia.org/wiki/Socioeconomic_mobility_in_the_...
https://www.cnn.com/2020/01/11/politics/millennials-income-s...
As a side note, I personally know some former FEE writers, and they left because the editors wouldn't give a fair shake to facts that went against the world view they were trying to push. One of them actually went from being a FEE writer style libertarian to being a socialist over the whole thing.
I'm not sure if you're being hyperbolic or not but innovation is often cited as the thing that improves people's lives. You might say that innovation requires investment but there have been many examples of poor people, without outside investment, innovating to make people's lives better.
What examples?
Whether or not is is, or ever was a a thing -- it absolutely was the unquestioned gospel among U.S. conservatives (and most definitely a staple in the rhetoric of the Reagan administration) in the 80s-90s, and continues to suffuse the current debate, albeit in other guises -- "income mobility" -- up through the current day.
What makes people’s lives better is services being rendered for mutual benefit.
Investment does play a role in facilitating this but mostly because our monetary system is set up in a way that investment is necessary to service outstanding debt. It could be different.
> There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.[19]
* https://en.wikipedia.org/wiki/Trickle-down_economics
See also:
> Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'[33]
* Ibid.
> In America, trickle-down was exemplified by President Ronald Reagan's tax slashes.
So what we get is a bunch of “those who can’t, teach” social science economics. Greenspan in front of Congress talking about “flaws in conceptual frameworks” rather than “me and Summers shouldn’t have squished Brooksley Born like a fucking bug when she tried to institute some sanity in derivatives markets”. California and electricity. Repeal of Glass-Steagall. Top work guys.
Sometimes I think that HN will literally be the last place where temporarily embarrassed billionaires are pseudo-intellectualizing about pseudo-science economics when the tent-camp people under the 101 interchange finally head over to South Park and rig up a guillotine on that grassy bit.
My snarky comment critical of trickle-down[1] has been flagged and hidden when it reaches a score of 66; and the admins have threatened me with a ban.
I don't mind this strict adherence to the "be kind, don't be snarky" rule, but I haven't seen it so vigilantly enforced on fumigation from fiscal conservatives, which I routinely see here.
I feel like it reflects a dynamic in which flagging is used to steer a discussion, instead of improving its quality.
I would be curious to see the stats on people to flag comments. Do they comment themselves? Do people agree with them?
But I digress. I'm surprised your comment is still here, but that's a good sign.
The East India company/ies pretty much won much of the world for Britain & Europe. Europe was neither wealthy nor technologically more advanced than India. But the Church with its christianising mission and doctrine of christian discovery allowed the pooling of resources. Concentration of wealth is important and the wealth did trickle down to other countries of Europe.
A modern take within India is of Reliance which has made cheap telecom services accessible for much of the population. Or the TATAs who have created a local automobile ecosystem competitive based on vertical integration. Trickle down does happen in the long run as long as corruption is limited. Concentration or pooling of wealth is important especially for developing countries.
Personally I do not care for inequality, and care more for dignity and wellbeing. The metric that matters most especially with developing countries is if their productivity has increased and if they have moved from low skilled to medium to high skilled job.
It's interesting that you call this dignity and well being. You're basically saying that the time spent by the 95 people is orders of magnitude less valuable than the time spent by the 5 people.
We should be more concerned with the productivity. This is especially true with developing countries where people are mostly employed in backbreaking manual labor. Sometimes it is due to lack of skills and many a times due to lack of industry or ecosystem.
Inequality is a great talking point for socialist but isn't an important metric. Inequality is inevitable in a highly competitive and fast growing economy. Just productivity improvement is a great measure of how well the economy is doing.
For developed countries productivity improvements is difficult because it only comes about from innovation. For developing countries it can be had from just adoption of existing technologies.
Reality is that Europe conquered the world because it was economically and technologically superior to all other nations. Neither India nor China had modern science that developed in Europe in the age of enlightenment. There was nobody like Galileo Galilei, da Vinci, Kepler, Newton, Leibniz, Descart, Pascal, Christiaan Huygens, James Watt, Newcomb etc outside of Europe. This is just a small selection of European thinkers from that era. These was a huge number of them involved in all areas of science and engineering.
All this stuff meant Europe could mass produce high quality guns, cannons, warships etc. It meant Europe could mechanize all sorts of production. Produce steam engines etc.
I am not writing this to suggest that Indians or Chinese are somehow inherently lesser people. Development fluctuates over time. In periods India and China was more developed than Europe. However many developments happened in Europe which caused European development to get supercharged and move ahead. This wasn't colonization. Rather colonization was made possible due to technological, economic and social development which gave Europeans and advantage over their competitors.
It was precisely because of the concentration of wealth (from Europe) and the hemorrhaging of gold that it desired conquest and taxing the locals.
Political weakness in India as against strong crown and church in Europe made conquest easy, but it did take a long time and it was mostly indirect (100s of princely states).
Industrial revolution in Britain started 4 years after they set up their trading port in Calcutta and most definitely copying Industrial knowledge.
If all they wanted was spices, they could have got that from North and West Africa, or in their new colonies in the Americas.
Populations go through ups and downs as do their wealth and power, everyone copies not just China. Nobody grows in isolation.
The idea that Europe suddenly started innovating from the dark ages and became industrial needs to be revisited. Call it revisionist all you want.
[1] https://www.epi.org/productivity-pay-gap/ [2] https://www.weforum.org/agenda/2020/11/productivity-workforc...
The two questions in my mind are:
1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending? 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed? Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
Think of how productive thousands of people would be if they weren’t staring down at death or disability daily because some ambitious motherfucker decided to make a cheap commodity like insulin a monopolized product, essential for life at a usurious price.
The very same government you want to take everyone money and believe will spend it wisely
> This line of argument seems suspiciously pro-capital
it seems like you think only one side has any moral contribution to make. This isn’t Russia in the 1920’s
Sure business will do what they can to pump shareholder earning, the check on that is market competition. In this instance various government regulations , and laws prohibit or limit that competition that would emerge in a freerer market
Insulin in particular was part of a EO package that was going to open up competition (and lower prices), the EO package was rescinded by Biden
If the problem is that people are frequently running a red light, the root cause isn’t the fact that a traffic light exists.
an Unneeded, nonoperational light (which alot of regulations are) would be the root cause
https://www.policymed.com/2021/10/biden-administration-resci...
The reality is that the GOP would vote against the sun coming up in the morning if Biden suggested it were a good idea. Such is politics.
In the case of insulin, it was in fact invented with nothing more than research grants and the promise of fame and nobel prizes. But it also took 30 years from the first hints of what might solve diabetes until they produced a drug for it. It's an open question whether that could have happened faster with a profit-motivated company pushing the research.
Our economic policy for decades has been mostly centered around pumping capital into markets to prop them up or grow them. The problem is there’s too much money pursuing too little novel work. Ironically, making billions of “surplus” dollars available to big companies drives lots of little command economies, not healthy markets. It makes more sense to corner the market on insulin or some foot fungus cream and rip people off than to create a new or improved product. There is very low R&D at improving anything associated with insulin because of rent seeking behaviors.
Profits don’t motivate research. Market activity does. I hope we learn from the successful aspects of COVID and pump money at people to make economic decisions for themselves.
You're talking about the legislators and the bureaucrats, right? Sure, the lobbyists asked them too but you'd think professionals would be a little more responsible than to just do what the lobbyists ask (yes I know they only did so incrementally over a decades long time period but my point stands).
This stuff is only a monopoly because we've made it so slow and money consuming to break into these industries that there is not a steady enough flow of new entrants who undercut incumbents and drive costs down to actually keep the costs down.
And so capitalist pharmaceutical companies came in, invested in R&D, and created new formulations of insulin that work better. And they're charging more to recover their investment. And when it goes off patent (and if the ass-covering shitheads at the FDA don't fuck it up), those new formulations will eventually be the same $25 at Walmart.
Who make that regulations? The government.
The government is just a huge corporation without competition that can use violence legally on people.
At each place where the cost of service and product have gone up you will find regulations and monopolistic entreprises who are way too much connected to the government.
There are regulations against price collusion but they are not enforced.
2. This is a similar argument to those claiming that electric cars will never work because “what if I want to drive 12 hours straight without stopping?”. It’s possible but an extreme outlier.
Ambition and competitive spirit are double edged swords. We should be prudent before trying to social engineer these things away.
Lastly inequality as it grows more extreme is a problem in and of itself. Unless you posit that the effort put in by the top 1% has increased a lot, then what we have is a situation that seems unfair. And this is demotivating, and will lead to instability in society even more than it already has. Why would you try to push forward your society if it seems like no matter what you do, wealth inequality is just going to increase, and the top 1% are going to capture most of the rewards? It's true that it's a rising tide that floats all boats, but if some are being floated much more than others then there are issues around power that are concerning. We already see evidence that increasingly the government is less responsive to those without wealth and more responsive to those with wealth. Wealth may be a zero sum game, but power is not. If we allow wealth to concentrate, then power concentrates.
> Why would you try to push forward your society if it seems like no matter what you do, wealth inequality is just going to increase
Curious how you seem to flip-flop between understanding marginal gains and not understanding them. The reason you would try to push forward your society is that more effort leads to more reward, still.
The power of those with more wealth is steadily increasing, and the power of those without wealth is steadily decreasing. To many it seems like the game is rigged and no amount of effort is going to be able to give them a say in what direction our society heads in.
I absolutely support taxing 90% on any earnings above a ridiculous threshold like that, that no one really deserves, not matter how smart or hard working, while people who happened to be born under different circumstances and might work their ass off for their whole life won't get even a tiny percentage of that no matter how hard they try.
Do you think Elon Musk or Jeff Bezos deserve wealth literally thousands of times bigger than anyone you've probably ever known personally (and I am assuming HN readers tend to know a lot of smart, incredibly hard-working people - but even they won't make a tiny fraction of a billion in their whole lives)?
If you think there needs to be an incentive for people to put in hard work into something, I would say that you just need to look at open source. People will put insane amounts of work with basically zero chance of getting anything back in return monetarily. All they want is some respect and acknowledgement of their abilities - it's enough for most of the really smart people (who can make enough money on other activities without having to amass billions to be happy).
If not then not only do I want to tax you your fair share in progressive taxes, I want to fine you to stop you doing destructive things.
Anyway, I don't see why a billionaire shouldn't have a 90% bracket.
Flat tax for all!
>Anyway, I don't see why a billionaire shouldn't have a 90% bracket.
Lets ignore the economics and how going off the gold standard removed the government's ability to tax and taxation will trend toward 0% for everyone until we figure out a new standard.
However, let me tell you about 3 brothers. They all live on the same culdesac, they all have the same education, same type of job. The only difference is hours worked. The first brother works 20 hours, middle brother works 40 hours, and final brother works 60 hour/weeks. They come together and agree they want to contract a landscaping/flower place to put flowers on their culdesac. The flat cost is $10,000/each but the brother who only works 20 hours cant afford that. He wants his brothers to pay for it. They protest that he should pay his cut. The middle brother however devises a plan.
The poor brother will pay very little if not nothing. The middle brother pays less than $10,000. The final brother has to pay for most of it. They vote and 2 to 1 they win.
What happens? The brother working 60 hour weeks is now incentivized to reduce his hours so he gets less penalized.
The people who work 20 hour weeks are upset and certainly dont work any additional amount. Daycare probably booms as a business.
Productivity plummets to tremendously low levels, economies collapse, massive numbers of people die, etc.
Less than half of doctors work 40 hours or less. Pretty significant number above 60 hours/week. Same for nursing and much of the medical field.
Firefighters have very long hours.
Truck driving and logistics pretty much depends on truck drivers maxing their hours at around 70 hour weeks.
Lawyers pretty much cant work 40 hour weeks without the legal system collapsing.
So right away, we are going to have people working different amounts of hours per week. It's unavoidable. This alone means you can never have 'equal outcome' A doctor who works 60 hours a week and still paying off med school loans cannot have the same outcome as a part time mcjobber.
That's the failure of the progressive tax. The progressive tax is some wierd attempt to make the rich less rich but instead generates significantly more income inequality as a consequence.
All the examples you listed don't have anything to do with your thought experiment. I hope you didn't interpret my comment as normative or as the right would say "market intervention" I was merely describing one way that the three brothers could get along.
I find your comment quite amusing.
To demonstrate the progressive tax system. Completely valid to the real world.
>All the examples you listed don't have anything to do with your thought experiment. I hope you didn't interpret my comment as normative or as the right would say "market intervention" I was merely describing one way that the three brothers could get along.
That's just not practical. People choose to work 20 hour weeks for various reason, people choose to work more than 40 hour weeks for various reasons. You cant form society into everyone working exactly the same hours. It probably would be a great thing if we could. Allow productive people who work 60 hour weeks to do something different and do more.
However, the reality is that we discover income inequality is just a fact because of individual choices. Trying to 'fix' this using a progressive tax system in fact only makes it worse.
>I find your comment quite amusing.
How do you mean?
And if you think you can tax a rich person at 90% without all their money disappearing into tax havens, I have a bridge to sell you
> 1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
It's quaint that there are people out there who believe that income at the top strata of society is primarily earned.
Those dividend payments, rents and capital gains (realized) that make up the bulk of top earner incomes happen while they sleep.
A minimum wage is earned. A doctor's wage is earned. A golden parachute after a CEO ruins a company? Somebody with a trust fund? A person living off dividend income? Not so much.
It's one in a series of ways the .1% try to rhetorically conceal themselves. Another is that article the other day that complained about an overproduction of "elites" (referring to college degreed starbucks baristas).
Their actual added value is minimal, but they sell it so good that (almost) everyone actually believes the myth.
Sad.
Obviously, managers never actually "add" value. All they do is organize, so that value can be generated in the first place. And obviously they are the ones who gain the most profit if succeed and loose the most if not.
Anyone can verify it by founding a startup, but surprisingly people prefer comfy jobs.
Try organizing something and it will be immediately evident how hard it is to actually make people work effectively towards the same goal. I have actually left a position of a team lead in favor of a linear software development job -- it's just SOOOOOO much simpler and less nervous than any kind of organizational stuff.
Note that figuring out who is a good CEO is left as an exercise to the reader. (meaning I don't think anyone knows how to tell in advance)
The problem is the income generated by their wealth, not the income generated by their labor.
CEOs are not special, they are not a different breed, and they most definitely do not in any way deserve to sit at the top and be paid more than 1000% the earnings of the people who make their businesses run (ie laborers).
How would you say that money used to support them and grow their wealth was "earned" if they didnt work?
The truth is it was earned. Just not by them. It's glaringly obvious if you think about it for just one second but we maintain a polite fiction all the same.
Throwing the money at your preferred wall street instrument of choice is the same thing but with half a million layers of abstraction and redirection all of which involve middle men who either take cuts or otherwise get paid for sorting and bundling, matchmaking, providing liquidity, etc, etc.
No. Why would it be?
Those layers of abstraction cut out the risk such that in many cases cash is the riskier instrument.
Because the doctor had to evaluate the investment opportunity and risk what they invested.
>Those layers of abstraction cut out the risk
And that's why you only make pennies on the dollar doing it that way vs the risky way of picking specific things with high growth potential to invest in.
Unless it's the doctor's hobby somebody usually does this on the doctor's behalf in exchange for a %. This is one of the functions of a well oiled financial industry.
If nobody was willing to do this for < expected rate of return then yes, that suggests all the money is earned.
>And that's why you only make pennies on the dollar doing it
Can you guess the average yearly S&P return over the last 30 years?
If the doctor et al - the investing public - don’t own the dividend-paying companies, who will? If you say “a broader base of people” I agree. If you say “the state”, I’d urge you to read some history books.
Ownership is an economic concept that is fundamentally misunderstood. It’s a skill you can be good at, and a good owner has a massive positive impact on society. It’s not a golden ticket to sit on your ass and switch off your brain like some others imply.
When you own something, you have to look out for everything that can go wrong with your property and have strategies in place to deal with it. You have to consider every possible use of it and decide on the one that adds the most value. You have to consider the long-term flow of resources needed for various projects and invest either your own or borrow someone else’s. You have to hire good managers and then manage them.
Owning something is a LOT of work if you do it right because you own the entire outcome, no matter what it is or who’s fault it is.
Buy $5 mil in S&P and that's exactly what you can do. Comfortably.
The fact that you can mix work with wealth and earn a higher return is proof of little more than you can mix work with wealth.
If you have wealth that is.
The PE ratio’s in the 500 S&P co’s have been heading ever upward (https://www.multpl.com/shiller-pe) indicating some sort of self-reinforcing effect.
With a basic income/free housing your comment would be valid though.
>> A doctor's wage is earned.
Your wage is earned.
> invested most of my income in that 20 years in to dividend paying stocks
Whether that one is 'earned' is debatable. From a neoliberal economists perspective you probably 'earned' it by risking your income. Although I always have to chuckle a bit of someone says that speculation is 'investment'. Investment is buying machinery, investment is specialization training of workers, investment is research and development. Playing roulette on the stock market is hardly 'investment'.
From a moral perspective you probably didn't 'earn' it. You didn't work for it and - since you were able to put it aside for a later use - you didn't actually 'need' it. So from a moral and societal point of view, that money should have rather gone to pay for teachers wages, for infrastructure or anything else that was of immediate necessity. By investing in the stock market, it probably just went to some banker's bank account.
>>You didn't work for it and - since you were able to put it aside for a later use - you didn't actually 'need' it. So from a moral and societal point of view, that money should have rather gone to pay for teachers wages
wow. just wow. So morally a person should only be paid what the need to live
that is your honest position.. If so I certainly hope people that think like you never attain any real power
Do you want me to hold that strawman while you give it a real good bashing? It can be satisfying, strawman bashing. It would however be more productive it you honestly tried to understand the argument I'm making. What do you think, do you want to give it a try? [0]
> If so I certainly hope people that think like you never attain any real power
Well, don't worry. The con-artists, faudsters and moochers from the swamp have everything under control and from what I see the populace-at-large is not interested in mitigating the pain and suffering and damage that crony-capitalism is brought upon us in or in correcting the course towards societal collapse which that entails. The hucksters meanwhile will continue to squeeze every last dollar of profit everyone else while their bought-and-paid-for politicians make sure that nurses and teachers and - well, everyone else, there a theme for you - pays a higher share of their income in taxes than their masters, while they themselves gorge on the ill-gotten gains their corruption, leaving behind the soiled and despoiled corpses of land and people.
The only alternative is raising taxes, the horror.
But hey, all power to you.
GP isn't saying that the good and upstanding thing is be paid only what you need to live. GP is saying that if we're looking at the moral essence of what "earning money" means, then investing in stocks is not "earning money".
But did that hold true for their whole career?
Do you have any evidence to support this claim? Especially the sacrifices part -- this seems like an awfully bold assertion, especially if you consider that most people earning millions have spent their entire careers to get there.
I believe the inequality comes from the fact that individuals and companies with large sums of money can shape policies in government better than any individual or group of individuals.
I agree you shouldn't pay 90% tax rate but you shouldn't be paying zero either.
This is a false opposition. Taxed money does not have to be spent at the point of the state. A sovereign wealth fund could raise funds from wealth taxes and assign a share to every citizen in the country. It could then use its interest-bearing assets to pay out a dividend to all shareholders every year. It could be run by an independent but publicly supervised body - like the Norwegian wealth fund - and the money would be disbursed straight into the bank accounts of citizens.
In any case we live in democratic societies in which legislated changes to the structure and distribution of wealth would then bind politicians via the rule of law. We do not have to depend on the individual virtue of politicians. On the margin I would generally prefer states whose remit includes the public interest to spend another dollar than I would private entities ruled by financial profit.
This assumes responsible spending, which is not the case IRL. And what about shared infrastructure projects?
If your standard is 'responsible spending', the counterfactual baseline is keeping this money in the hands of the wealthy. For obvious reasons - diminishing marginal utility, the breakdown of the social compact, the corruption of politics - I don't think they would spend a dollar on the margin any more 'responsibly'.
What about shared infrastructure projects? I'm not suggesting this ought to replace the state, simply that global wealth can be equalised without reallocating that wealth to the state to spend.
The folks that have a lot of money don't spend it. Out of all of Buffett's, Gates', and Bezos' fortunes how much is being spent 'productively' and how much is just sitting around collecting interest on interest. The velocity of money hasn't been doing much in recent decades, which seems to indicate it's just sitting in accounts:
* https://fred.stlouisfed.org/series/M2V
'Coïncidentally' wealth inequality has been rising in the same time period. Perhaps the link of stagnant money and a lack of activity are linked?
There's plenty of old bridges, dams, locks, transit, airports, etc, that need to be repaired and that money could be used for those upgrades providing good pay jobs.
"Bezos’s ex-wife MacKenzie Scott can’t give her billions away fast enough", and she is worth 'only' US$ 60B (21st richest person):
* https://www.thetimes.co.uk/article/bezoss-ex-wife-mackenzie-...
Further, this is not (or does not have to be) an either-or situation: it's not like all the money goes to the government or stay with the wealthy. If (e.g.) 2-5% of someone's wealth over (say) $10B is taxed annually, they still have 98-95% to do whatever with.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
What motivates someone with $1B to work more? Is it really to make another $10M? Is Bezos working the hours he is because of money? Is Buffett? Musk? I think the people who get to this level work because of of intrinsic motivation rather than extrinsic rewards.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
Do you understand how marginal tax brackets work? When someone makes $1M + 1 dollars, the government does not take $900K in this hypothetical 90% margin rate: they take 90¢ of the last $1. The rest of the money is taxed at lower rates:
* https://www.vox.com/policy-and-politics/2019/1/7/18171975/ta...
And a 70% top tax rate isn't unheard of in the US: it's what it used to be during the 1950s and 1960s, and economic growth was just fine. 70% isn't a bad rate to start looking at:
* https://www.vox.com/policy-and-politics/2019/1/4/18168431/al...
And perhaps by having ridiculously high top tax brackets will send a signal to people that instead of send money to the top, perhaps the 'little people' should get some of it too:
* https://www.vox.com/2014/4/18/5620702/case-for-confiscatory-...
You seem to indicate they have lots of money, but most of their wealth is assets, much of which is ownership of their own companies. If they "spent" that it would mean selling pieces of the company to someone else, and they would lose power to make the sorts of decisions that made the company successful in the first place. Letting a lot of middle class people's retirement savings managers make all the board decisions for Microsoft is not going to provide the same level of innovation as letting Gates have a large vote. The only reason those stocks have any value at all is because of the size and market position of the company. There is no benefit in letting this form of wealth have "money velocity".
Maybe you left Musk off the list on purpose, but what he's "doing with his wealth" is trying to make humans a multi-planet race, and he literally doesn't even care what his company shares are worth to other people. Is it really "money" if he doesn't intend to sell it? His recent sale of lots of Tesla was only because he had options to buy more of the company and immediately sell it. (and now he'll pay a few billion in tax, on that, since it was actually income) Until he did that, all his "wealth" was a mental fiction invented by him and the hard working people in his company. The real money just moved into his account for the first time in a long while, as he drained your retirement account in exchange for the idea that they now have a tiny piece of control over Tesla.
* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
Given the general trend of capital growth being higher than economic growth, that would be probably be small amount of shares at any given time, and would take a while before they deplete having large control over their companies.
> 1. Should we trust the government to spend the money more wisely than the folks who earned it?
Ah, the neo-liberal myth of the maker, the builder, the job creator. Let me tell you this; our economy/ies are built on the back of low-wage workers that are always, always, always getting only a share of their value addition. A fraction. So, unfortunately, the people "earning" the money already don't get it. So we could at least increase the taxes on the moochers that keep them subservient and make sure that the actual makers and builders don't get bankrupted just because of an unexpected illness.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
I guess that would be hunger and the need to pay for a roof over the head. Because that's what it is like for the vast, suffocatingly overwhelming majority of people. They work at insane rates because they are paid a starving wage and don't have to luxury. Far too many are forced to work insane hours, far too many are even doing multiple jobs at the same time because pay is so bad.
> long hours and sacrifices
Haha, that was a good one.
I'm terribly sorry, but the way you write makes it sound as if you would learn a lot from working a few months in a low-wage environment while having to pay your living expenses exclusively from that low-income wage. Without the option of going back home to your parents and cry. It might give you some perspective!
That's what did it for me at least.
There are at least three kinds of people working insane rates.
First, there are people working insane rates because they need the money for essentials. They are in low hourly rate jobs, and have to put in insane hours to get enough money for basic things like food and shelter for their families.
Second, there are people working insane rates because they like what they are doing. These are the people that if what they liked was painting would be your classic "starving artist" types, but if they happen to like doing something that people will actually pay a lot for like programming they can end up doing great financially as a welcome side effect.
Third, there are people working insane rates because they want to accumulate vast wealth.
My guess is that the vast majority of people working insane rates are in the first two groups, and that much of those in the third group are working at things for which it would be an improvement if we had less people doing them.
In my experience all of the highly payed specialists are exactly those who have the passion for what they are doing.
IMO, it is often easier to monetize your passions as you often end up being able to do things that others can't.
Yes.
> Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
Transparent auditing of taxpayer funds. Presumably this exists to some degree in your country.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
This is a loaded question, as it implies that incentives beyond survival/comfort exist under the incumbent model of operation.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
To what end? The proposal is an alternative model of living which lifts the baseline quality of life, thus reducing this incorrect perceived need for an extreme financial safety net.
Some people like to compete for the heck of it.
When the aristocracy watched as the new-born communist Russia brutally executed its royal family, in their hearts they knew their narrative of birthright and nobility would no longer be accepted. They needed a new reasoning to justify their positions of power, to convince the peasantry that their lords were just and inevitable. Thus was the narrative of 'meritocracy' born in a world where there is obviously no possibility of such a thing.
How is it "obviously"? All the business relations between people are inherently meritocratic. Not only relations, the whole principle of "you reap what you sow" is inherently meritocratic: you have to put in some merit to generate value in return.
That is why there are precisely zero complaints about broken hiring processes and promotion schemes.
Honestly if you can't see how the ideal of a meritocracy is impossible you're just not trying. Surely, some elements of meritocratic ideas are useful, but it is folly to believe that people with wealth have 'earned' it purely on merit.
I'm paid more than ten times what the local movers are paid. I'm very confident that they work harder, with fewer breaks, and less control over their hours than I do. My wife is a professor. In the evening she is consistently grading papers while I am messing around on the internet. Her salary is like 15% of my income.
I have not observed a correlation between harder work and higher pay.
It is pretty easy to see the health outcomes. Americans have for-profit health care and they have some of the worst health outcomes in the western world. Scandinavians all have socialized health care and some of the best health outcomes.
There is no natural law that says government must be corrupt. Corruption varies immensely between countries. Nordic countries have some of the largest governments and lowest level of corruption.
But regardless, you don't necessarily need to reduce inequality through higher taxes. You can also push legislation benefitting regular people more: Stronger unions to give workers better bargaining power. Worker representation or corporate boards so they can better influence how companies are run. In Norway where I live, we have worker participation in company decision making as part of the constitution.
The idea that only shareholders should make decision about how a company is run is just a political decision. In Germanic countries there is a long tradition of seeing companies as part of a community and having a wider responsibility to that community beyond maximizing value for shareholders.
We have a choice. The way an economy operates and is optimized is a choice. It is not a law of nature.
Research shows that inequality is largely due to starting conditions and some luck. In fact some research shows that if we don't work against it (i.e. tell people how they spend their money) inequality just grows [1]. Also it's funny, how many say we should not take the money from the rich and "tell them how to spend the money", but at the same time are quite happy with a large buerocratic apparatus dictating every aspect of live for poor people.
The way I understand the "trickle down" idea is that the global economy is not a zero-sum game and when rich people build something, the poor indirectly take advantage of it, even if the wealth repartition curve doesn't change. For example, a rich person may use his wealth to make cheap computers, which sell well, so he becomes even richer, the poor don't become richer, but now they have computers, so in the end, even if wealth inequality didn't change, or maybe even became worse, the poor are better off, thanks to computers being cheaper. If we didn't let the rich entrepreneur get rich, there would be no cheap computers and while the poor may be wealthier on paper, they still won't have computers.
But if we only care about money, then yes, of course inequality causes inequality, and if the "trickle down" theory says otherwise, then it is simply illogical, just as its debunking is circular reasoning.
The study is not worthless, it is an interesting observational study, but I don't see how it disproves the more interesting non zero-sum version of "trickle down". For that it should also use indicators that are not money, like health, education, etc...
It's more about giving preferential treatment, power, or advantage to the wealthy because they are considered the value creators and by giving them bigger breaks, advantages, or ability to make guidance decisions, they will move things in directions that benefit everyone.
"trickle down" is a slur against a set of economically liberal policies. It's not a "theory". It's not an economic model. And it's certainly not well-defined. It would be like arguing against "revolving door" sentencing, which is another slur.
Point being, anyone who uses the term "trickle down" is advocating some sort of propaganda, and tuning them out or calling them out for being propagandists is the best course of action. Being on the guard for these markers of propaganda is important in today's media environment, where so often advocacy masquerades as both news and science.
That does not mean that underneath all these political slurs there aren't useful debates about, for example, what is the right tax rate on capital income or property taxes. Should we increase or decrease business regulation, etc.
Those are all good discussions to have, but unlike the slurs, they are actually nuanced and people who approach them understand there are trade offs not simply reducible to "trickle down" or "revolving door". Therefore the goal of these slurs is to reduce thought. To eliminate nuance and to hide painful trade offs. To make it seem like there is one simple, obvious, correct solution to what is, in fact, a complex issue with no obvious solutions.
This one is easy. If the monetary system was a watershed, the rich would be at the bottom. You can't dump a billion litres at the mouth of the Amazon and reasonably expect it to make its way to the rest of the rainforest.
You “pour money” at Amazon and lower prices come out the end. Note that I put “pour money” because no one has never suggested actually giving money, just taking less.
But trickle-down doesn't claim that wealth differences between rich and poor should decrease! Rather, it's about absolute gains, where poor people get higher incomes the richer other people are. (I.e. increasing wealth inequality is good if it is the rich getting richer, instead of the poor getting poorer.)
A disproof would be something like finding a lot of poor people who got poorer as everyone else around them got richer.
I think over all, people are much richer today than 2 decades ago - even those who are poor relative to the rich. Richness doesn't just include cash in hand, but the availability of goods and services. The fact that the internet is available (to be purchased) is a form of wealth, but this is often not counted.
I honestly find it absurd to suggest that we're somehow 'richer' while most young people have no hope of a stable life.
Technology has made us much more productive but all that added value has been captured by the ultrarich
Which country is this where inflation affects everything except wages? Are you sure you're not comparing inflation-adjusted wages (where it's not surprising if they stay mostly the same) to nominal prices affected by inflation?
> I honestly find it absurd to suggest that we're somehow 'richer' while most young people have no hope of a stable life.
If most young people had no hope of a stable life before and then everyone got richer, so that more young people can hope to have a stable life, it can still be the case that most young people have no hope of a stable life. The only way "most young people have no hope of a stable life" could contradict "we're somehow 'richer'" is if there was a time when most young people could hope to have a stable life, and then things got worse. When was that?
> Technology has made us much more productive but all that added value has been captured by the ultrarich.
When people communicate over long distances today not by sending a letter but by calling each other, they're benefiting from technology without the added value being captured by the ultrarich. (Unless you think their mere existence sucks all joy out of hearing your loved ones' voices.)
Also, it should be surprising that inflation adjusted wages stay the same when we are now much more productive thanks to technology. Why has this not caused wages to go up!
2. People have not gotten richer, wage increases at best match inflation. With the decline of unions even this is not the case. Good jobs have been outsourced for pennies. House prices and healthcare have gone up. I would have an easier time getting married and buying a house literally anytime in the past.
You used to be able to sustain a family on a single income. That's almost impossible now.
3. I'm on hackernews, I like tech. Videocalling is nice. I do pay $50 a month for the privilege to some of the most hated companies in America. Most of the internet has been designed to ruthlessly take your money and attention as efficiently as possible. It's not a very pleasant place, videocalls aside.
Really though, my point is: technology has made us all much more productive. The stock market is at record levels. Trillions of dollars have been given to businesses.
Meanwhile, wages as a whole have at best matched inflation. Minimum wage has not increased at all. Houses are massively more expensive. There are so few good jobs that people work at Starbucks with master's degrees.
Why has all the record setting economy stats only benefited billionaires? The ability to pay for slave-labor built spying planned-obsolete smartphones is the only thing the common person has gained in the last 20 years
Then of course the more money you have as a society, the more money the rich people of your society will have. And if you have a large population, the difference between those who are rich and those who are not is gonna have to be very large just because there's so much more money to be divided between the necessarily few rich people (again: if many people have lots of money then you don't have a special class of "rich").
So to summarise, if you're gonna have a rich society, you're gonna have to have rich people who are much more rich than not-rich people.
Problem is, that's not about inequality, nor about the richess of socieities, but about amibition. You see, everyone wants to be rich. Translated: everyone wants to have more than almost everyone else. So everyone supports an economic system that supports rich people, and therefore, wealth inequality.
Which is funny because the vast majority of people who support that kind of system are necessarily going to have to be not-rich.
So in order for most people to be able to dream that, one day, they'll be filthy rich, most people have to spend their entire lives in relative (or absolute) poverty.
Funny old world, eh?
The interesting outcome of this policy approach, is it's actually protecting the ultra rich from more competition (more wealthy people competing for influence & assets). Which means billionaires can maintain more socio-political control with their wealth with very high marginal income tax rates. Billionaires (who want to maintain power) do not want a lot more millionaires.
The next time a progressive advocates for high marginal income tax rates, ask them why they want to protect the 1% from competition. :-)
Edit: My personal preference is a 0.05% tax on any transfer between a LLC and it's owners (dividend, buyback, payroll to stockholders, or equivalent). I would also insist that this new tax be only allowed to flow to a direct citizen payment fund e.g. universal income (as I don't believe the captured bureaucracy will use it effectively or not just end up redirecting it back to billionaires). And for my liberty minded friends, think of it as a payment for limited liability protection for the owners (something that doesn't exist in a true free market. a government intervention that helps crony capitalism in some manner). If owners of a company want to avoid the tax, they can incorporate where their wealth is at risk for the damages their org does.
I am self employed so I get paid everything then have to pay my own tax. Aside from the sticker shock this has some effects.
Toward the end of the year when my marginal rate cracks 50% I get a lot more generous. I tend to but more kit, and hire people for gigs. I may even hire an EA next year and pre-pay her at the end of this year. If faced with either saving an extra 20k or hiring an EA and paying her 50k, I am more inclined to the latter.
The difference between income and wealth has only become clear to me recently. I am a top 10% earner in the UK, according to the statistics. But it made no sense to me because I can only barely afford to buy a house (now in my mid-30s) and the amount that others seem to spend on cars etc. is truly baffling to me. So I look up the other statistic. Well it turns out I'm in the bottom 30% when it comes to wealth.
Having wealth means someone could afford my lifestyle on a fraction of the income. There are millions of people who are trapped in a cycle of renting and borrowing who aren't building up any wealth at all. Meanwhile, people who started off with wealth in the first place find it easier and easier to keep building.
I'm probably not the only person who makes this mistake between income and wealth. Income can give you a nice lifestyle today. But the moment you stop working, you're out on the street. Wealth is what really matters.
So the lower the interest rates the more "wealth" actually means future wealth. If interest rates were 5% today as it was steadily 50 years ago then future money gets valued much less and asset valuation would go down. It would cause inflation of course, but I don't think that is a bad thing.
This seems like one of those strawman political football arguments.
Also, the methodology here is a bit flawed. I think that economic data that cherry picks the start of the covid-19 pandemic is deeply flawed. 2020 will always be known as an economic outlier. It's like selecting 2008, or September 2001. These are data points that should be eliminated from your data set - not highlighted in your conclusions.
Seems like just another anti-billionaire political hit piece, frankly. No real substance.
Also, a nitpick - the STUDY didn't take 20 years. The DATA was from a 20 year period. The title builds the study up to imply far more effort than was actually expended.
They do?? Do you have a source for this?
It’s quite incredible that the Left have not made the connection between the Fed openly aiming to increase wealth inequality (which is what this is) while also keeping a watchful eye out for any wage inflation (which is the only way the common person can keep up).
https://digitalcommons.trinity.edu/econ_faculty/31/
Search for Bernanke wealth effect or any variation you like. The BIS and other central banks talk about it openly as well.
The central banks are the biggest engines of wealth inequality in the world, and it’s all done in the open with barely any pushback.
Also, the stimulus checks are also a "wealth effect" mechanism, but no one would confuse that for "trickle down".
The title makes a false comparison.
Also, the stimulus checks are a fiscal measure and have absolutely nothing to do with the wealth effect induced by loose monetary policy.
You are equating the "wealth-effect" with "trickle down" - they are not the same.
The Fed described the wealth effect of stable home prices because people, at the time, were re-financing their homes and taking home-equity loans, which created spending.
Another "wealth-effect" are the stimulus checks. Are you suggesting those too are "trickle down".
The reality is that having more money stimulates spending. Trickle down specifically means only giving the RICH more money (traditionally in the form of tax breaks).
You comment completely conflates these two different notions.
It is a mathematical certainty that deliberately raising asset prices gives much more money to the rich than to the general public (many of whom get nothing or indeed go backwards by taking on massive debt to keep up).
It’s no different to a massive tax break or any other way of giving wealthy people loads of money in the hope that some of it “trickles down”. And it fails to boost the real economy for the same reason - Bezos can only get so many haircuts, read so many books, eat so many meals.
However, we have seen several rounds of tax cuts for the rich and the language used to justify it is something like "these tax cuts will stimulate growth and that's good for everyone".
The general point of the article is that tax cuts for the rich lead to more inequality which is hard to argue with.
Which country are you from? Certainly not the US, are you? It's called "cutting taxes" these days, with the tax cuts being mostly applied to the ultra rich.
The entire Republican party economic agenda still preaches trickle-down. If only because they are doing everything they can to prevent Reagan's trickle-down policies from being reverted.
> 2020 will always be known as an economic outlier. It's like selecting 2008, or September 2001.
Sounds like we're reliably getting an "outlier" every decade, huh.
Also, outlier by what metric? That's a non-sequitur. Every year is an outlier in some way.
2017 was the only year with a total Solar eclipse, for example. It's an outlier!
You need to specify the metric by which 2020 is an outlier, and how it can be biasing the study towards the conclusion that the paper reaches, otherwise it's no better than excluding 2017 for the Solar Eclipse reasons.
So the Democrat's push to reinstate the SALT tax credit (cut) are trickle down also?
Are tax cuts in any bracket trickle down?
When the GOP raises taxes - do they implode?
Of course not, but when tax cuts for the top are billed to be wealth generating mechanisms for the middle and lower classes, that is literally the definition of "trickle-down economics".
https://www.nytimes.com/2021/11/02/us/politics/salt-cap-tax-...
NYT is paywalled, but I found https://www.vox.com/2021/11/6/22766735/salt-deduction-cap-de... interesting
No, just the ones that benefit the massively wealthy individuals and corporations.
>So the Democrat's push to reinstate the SALT tax credit (cut) are trickle down also?
Irrelevant.
>Are tax cuts in any bracket trickle down?
You have asked this question already.
>When the GOP raises taxes [for the massively wealthy corporations and individuals] - do they implode?
Almost certainly.
Any further questions?
That was the fundamental argument for Trump's tax cuts in 2017. "If we cut taxes on the wealthy then they will use that money to create jobs for the middle and lower classes." That mostly didn't happen of course. [1]
[1] https://www.pbs.org/newshour/economy/making-sense/did-trumps...
"The rich are taking most of the gains for themselves"
No, stock in certain valuable companies rose a lot when their inherent value did (especially in relative terms), and stockholders thus hold a lot more wealth on paper.
Starting a company that skyrockets in value (Musk, Bezos, etc) will never have a wealth trajectory like an unskilled labourer.
There is no reason to expect wealth to grow at similar rates between people who do very different things, and have very different amounts of money to invest or skills to leverage for a high wage.
It's combining many small streams that make up the big rivers... as in: give money to the lower classes, they will consume stuff and so the money will end up in the pockets of whoever produced the goods (usually large companies -> the sea?), and there the money will flow back up as income (clouds/rain?) and that will feed the small streams over again.
In that analogy, the wealthy act like a dam, not as a source, cause the wealthy can only consume so much...
That is exactly the point. The wealthy cannot consume too much, so they will invest the rest. Investment means factories and jobs for the poor. The government could take the money and do the investments themselves, but that never really works well. With so many inefficiencies, the governments would slow down the economic development significantly. Communist countries had 5 year plans setup by the government and they fell further and further behind in the market. All the money was distributed by the government, based on studies and decisions made mostly by engineers and politicians (e.g. if a dam was deemed profitable it was built no matter what. If nuclear is better it was getting built, and get public support afterwards etc.), and still they fell behind.
Of course not, which is why whoever proposes these policies doesn't call them "trickle down". But what the poor will get is jobs, better jobs than 20 or 100 years ago, that pay for more goods and services compared to 20 or 100 years ago. Which is true, the working poor today live very well compared to even rich people 20 or 100 years ago.
This article is hot garbage anyway. These days people can afford far more things and of better quality that were once considered luxuries decades ago, and people with actual useful skills are earning more than past generations.
Maybe trickle down is a myth? I don’t know, but whatever we’re doing now, let’s keep doing it, because it is working.
It's very simple. A billionaire can do 3 things with their money:
1)spend it reinserting it into the economy- this 'trickles the money down'.
2)invest it- this funds projects and/or decreases yield ratios (thus making capital cheaper) which in the longer-term reinsterts the money into the economy.
3)burn it - this creates disinflation which increases the value of every other dollar thus reinserting money into the economy.
The wealthy will always have more opportunities bc of the 80/20 rule, and the fact that inequality is inherent in all animals. It is called "trickle down" after all, not "ration down."
Math is hard:-(
It’s trivially shown to be complete and utter garbage..
Anyone pushing this type of pseudo-ideology should be laughed out of any intelligent discussion.
(Sadly, in reality, these braindead morons are actually in charge of our economy..)
That doesn't mean that there aren't more than enough people still clinging to supply-side economic theories as if their undeserved wealth depended on it. Because it does.
You disagree?
“Trickle down” was a Democratic ploy to disparage the policy of reducing tax rates. Apparently we are still talking about it despite the economic expansion of the 1980’s in contrast to the “malaise” of the 70’s.
Supply side economics is increasing the amount of available goods regardless of demand. The lagging wages are mitigated by credit, i.e. debt.
“ Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade”
There are many thousand ways of "giving people money". Supply-side economics prescribes exactly one way of "giving people money", that's by lowering taxes.
You cannot claim that because supply-side economics supports one way of "giving" people money that every way of giving people money is supply-side economics.
You see that, right?
I presume that actually think that this is the case and that you didn't just forget the /s.
Supply-side economics has been thoroughly debunked, again and again[0]. Just look the current state of the US.
> Give people more money and they spend it.
It depends. It depends how much money they have, how much money they already have and what your definition of 'spending' is. Not every kind of 'spending' is of economic and social value. Give a billionaire a dollar and they'll forget it with the lint in their pocket, will get thrown out with the trousers and incinerated along with the trash. Give a billionaire a million dollars and they'll put it into NFT or crypto or something else of questionable social or economical value. It's only when you give a poor person some money that they will spend it in a 'useful' way that actually increases productivity.
But "Give people more money and they spend it" not supply-side economics, actually, is it?
In all actual actuality, supply-side economics is about lowering taxes, decreasing regulation, and allowing free trade, with a heavy emphasis on lowering taxes. You could say that it's primarily about lowering taxes, because 'decrease regulation' and 'promote free trade' is not exactly a supply-side original. SSE is about lowering taxes, primarily for the 'job creators'. That's what the Laffer curve is for. And only the beginning of the issues with supply-side economics ...
> Apparently we are still talking about it despite the economic expansion of the 1980’s
What good is economic expansion if no one but a very small and exclusive group of very exclusive and already very rich people profits said economic expansion? Do larger number make you happy? if so, here's a big number for you: 10↑10.
If you are not more happy now, then you are in the same boat as most US workers since 1979. Just because there was economic expansion, it doesn't mean their lives got better. Worse, in fact. Wages stalled, living expenses increased, social support networks were cut and cut and cut again. Why exactly? Yes, exactly. Supply-side economics, or "voodoo economic policy", as George H. W. Bush famously described it. Presumably because it thrives on the corpses of exsanguinated workers.
> a Democratic ploy [...]
To my knowledge, one of the mayor reasons for the '70ies economic downturn was the "Nixon shock" where prices and wages were frozen and import taxed increased. It's named after Richard Nixon. He was a Republicant President[1].
[0] https://en.wikipedia.org/wiki/Kansas_experiment
[1] https://en.wikipedia.org/wiki/1973%E2%80%931975_recession
Real wages grew and unemployment was at record lows during the 80’s. Even for the lower class. Please stop getting your information from social media.
Are you saying that’s wrong?
What, no! Here, let me quote myself from the previous answer I gave you.
>> But "Give people more money and they spend it" not supply-side economics, actually, is it?
Here, have a look at what supply-side economic is[0]. Supply-side economics is basically just lowering taxes.
> Real wages grew and unemployment was at record lows during the 80’s.
Nope, they didn't. Check [1] or [2]. Here's a pretty picture of the same data, just to be sure: [3].
Here's one for unemplyment: [4]; in the early 1980 unemployment skyrocketed, only to slowly fall back towards the level it was at the beginning of the 1980. I guess you could say that you are technically correct say that is was falling for most of the time - because it shot up so much at the beginning. Technically correct; the worst way of being correct.
In fact, ever since the introduction of supply-side "economics", wages have more or less flatlined and the profit from increased productivity has gone pretty much excursively to the very small layer of scum floating on top of the economic sewage water while everyone else is eating shit.
> Are you saying that’s wrong?
I guess I am? My suggestion would be to check the data.
> Please stop getting your information from social media.
There's no need for insults, is there?
[0] https://en.wikipedia.org/wiki/Supply-side_economics
[1] https://www.epi.org/publication/swa-wages-2019/#fig-e
[2] https://fred.stlouisfed.org/series/AHETPI
[3] https://en.wikipedia.org/wiki/File:United_States_real_wages_...
[4] https://en.wikipedia.org/wiki/File:US_1980s_unemployment.png
Yes unemployment skyrocketed in the early 80’s followed by the biggest economic expansion in decades.
The 70’s were a morass of stagflation. To argue Regans policies didn’t bring the economy out of that mess is just being dishonest.
It's only dishonest if I actually thought that Reagan's policies did any good, isn't it? Joking aside, I actually think Reagan's policies were a disaster for the USA in the long run and didn't accomplish much during his time in office[0]. It is however during this time that real wage growth for the middle/low-income completely decoupled from economic growth for the first time and set them up for the mess they are in today. But don't take my word for it: [1]
[0] https://people.stern.nyu.edu/nroubini/SUPPLY.HTM
[1] https://www.researchgate.net/publication/330443901_Reaganomi...
I think you have to be a bit more specific here, otherwise you're just blowing hot air without anything worth discussing. I provided several reasons and sources to why I think that the Reagan presidency failed in the long run - do you care to examine and response to any of that?
> You realize he was elected with some of the biggest pluralities
A vast majority of the US population supported going to war against Iraq in 2003. Turns out this was an unmitigated disaster that has repercussions until today. It is one of the reasons - just for example - that the U.S. and coalition actions in Afghanistan failed.
Just because a plurality of people agrees to a thing, it doesn't mean we cannot look back and find out that we were wrong.
> Clearly the voters (on both sides) benefited.
I'm not sure I follow your line of reasoning. Just because the Nigerian scammer got you to transfer the funds that doesn't mean you benefited, right?
It's controversial solely for the same reason global warming is - it threatens wealth.
Because during the last 20 years, just (for example) the access to computing power and information did in fact "trickle-down" to almost everybody on earth in the form of smartphones and Internet. This value was worth a king's ransom in the past.
But indeed, the number of TSLA stock in one's pocket did not trickle down from Elon Musk to the rest of us. Not sure why that matters though.
In fact, looking in the article, they talk define trickle-down as "cutting taxes on the rich [...] eventually benefiting everyone" then complain about "very high level of income inequality and an extreme level of wealth inequality". You can have both true at the same time.
A lot of that is just a boom in stock and house prices which may reprice lower one day.
It's done a lot of damage in that time.
It's time to stop wasting time pretending the other side are open to discussion, compromise or persuasion.
Even pointing out the falsehoods in these lies actually makes people more likely to believe them. You saw this with the "350m pounds a week for the nhs" lie in the Brexit campaign. Even after it was revealed and admitted to be untrue, the more it was mentioned the more people believed it.
So stop acting shocked and talk about how we need a trickle up program.
-- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 8.
https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...
I answered it.
You're ignoring the answer.
You're now arguing against a proposition which doesn't exist and wasn't made.
Goalposts have been moved.
The goal, however, stands.
Anyone in the least familiar with Smith's works, would be aware of his discussion on differentiation in wages. It's actually a useful discussion, with solid points though with divergence from empirical evidence, and including only a subset of sources of personal wealth. It would make for a more useful further discussion than ignoring responses and changing the subject.
Power Law strikes again
You could note that, for instance, despite having a lower-than-average cost of living for the west(^1,2) and lower-than-average taxes for the west (^3,4), the US is top-five for both average wage (^5,6) and PPP-adjusted median income (^7,8). And despite what you may think, even adjusting for government transfers (e.g. healthcare) does not tilt the scale: the US boasts a #1 (or #3, depending on who you ask) PPP-adjusted disposable income (^9). These generally apply to medians too, so one cannot even fall back on skew to explain it away.
Meanwhile, when we speak of "inequality" and billionaires, China has above-average taxes (seems to be 25% across the board with no carve-out for capital gains), yet has far worse inequality than the US.
As with most things economic, reports like this can be crafted to fit whatever narrative you like. But if you are sitting in the US in 2021-- one of the wealthiest societies in human history-- and complaining about how bad capitalism or low taxes are, you're badly misinformed about the "normal" economic state of a human and where you sit. Here's a hint: it's probably in the 95th percentile across history and the 90th percentile today.
Sources:
Cost of Living
1. https://www.numbeo.com/cost-of-living/rankings_by_country.js...
2. https://www.worlddata.info/cost-of-living.php
Taxes
3. https://tradingeconomics.com/country-list/personal-income-ta...
4. https://stats.oecd.org/Index.aspx?DataSetCode=TABLE_I6
Average wage
5. https://worldpopulationreview.com/country-rankings/median-in...
6. https://en.wikipedia.org/wiki/Median_income
PPP-adjusted Median income
7. https://statisticstimes.com/economy/countries-by-gdp-capita-...
8. https://en.wikipedia.org/wiki/List_of_countries_by_average_w...
PPP-adjusted Disposable household income
9. https://en.wikipedia.org/wiki/Disposable_household_and_per_c...
It’s about quality of life .
It does trickle down considering that nurses are taking overseas trips to Europe every 2 months and 800$ purses can be bought for 5$ and the only thing which makes it noticeable is a small hologram which nobody will check .
Of course people only look at yachts and mansions because when everything becomes equal the stuff which separates the rich from the rest of us tends to shine brighter and get all the attention.
Of course if you want everybody to be a millionaire then trickle down failed , but in the past experiments which tried to make monetary wealth equal for everybody caused a situation where quality of life collapsed for everybody….and being all equally as miserable is not such a great result and the number in the bank account being all equal won’t provide any consolation
I'm unaware that nurses were popping off to Europe twice a year (unless you meant nurses that already live in Europe).
Meanwhile I see more and more homeless living along the freeways.
Trickle down made it so that the 2 are indistinguishable, except for an hologram nobody would ever check .
Of course if you are hating on trickle down because not everybody owns a 40M yacht then you’d always be disappointed in every system .
At least with trickle down a regular person can afford to be on a 40M yacht for a week in their whole lifetime if they accept some trade-offs , some sharing of the boat with other guests and maybe some debt .
Not to mention luxury buildings costing 5 billions or more . Regular people can go in those hotel buildings at least 4 times per year (think the big Vegas hotels)
Also nurses do travel overseas . Don’t know if it’s all paid for or some debt but for sure they are going
This is why have start ups. But when someone starts company on here we are supportive, soon as they make it big everyone is jealous and that person is evil.
You know, if you go on reddit and say you own a home, it's like going to Israeli in a Nazi uniform.
It was pure mythology from the start; there's never been any basis for it to begin with. It's a pity we even have to debunk it like that.
Go figure, give a million hungry people $20 each, and see $20M return to the economy the next day as they spend it on food.
Give a billionaire $20M, see the money go into the fintech machine and pour out into offshore accounts, as the billionaire holds on to whatever financial product they bought forever as long as it appreciates faster than inflation.
Oh, and they'll spend $200 on a fancy dinner.
Cue Pikachu face when the economy doesn't improve.
If the millionaire receives gold and bury it in his garden, sure, but if he puts it in a bank or an instrument, chances are you're paid by it.
And sure, giving money to non value added non productive endeavour like you propose works, but who gives this money? Wait a bit eventually all people do is pay taxes to receive money to pay taxes: you need an escape valve, something more valuable to happen, than just feeding hoboes with money.
But granted, trickle down has never been hosing down. A trickle it is and it's better if you can produce clear visible value that compensate you even if millionaires arent involved. Like say, make bread or cut hair...
It all has to perform way better than anything tangible could hope to do, and this starves out the type of investing to which you refer.
Newest example: crypto. Like burying capital in pure abstractions, except they pollute (which gold doesn't)
You make an excellent point about modern finance. Increasingly to me it seems modern finance should be considered for its affects on money supply and finance not dissimilar to actions of central banks and certain government spending. It’s probably gone unnoticed largely exactly because the corporate finance machinations are not anywhere near as visible and widely disclosed at a Fed decision.
How could you possibly think that? Most gold today is produced through hard rock mining, which involves either enormous pits or tunnels. Many tons of ore is crushed and processed with either cyanide or mercury to get a few grams of gold.
Look it’s the internet. I know we all want to pretend that we’re super pedantic lawyers. Oh wait. I never agreed to those terms.
The effect of investing in financial instruments is effectively the same as burying gold (as the study shows). My citation is TFA.
Bonus: tell me again who gets to "live" from someone shorting Tesla stock on the dip.
Side note: your houses argument is cute. In this case, we should just buy that house and cut the middle (billionaire) man out.
The only thing the billionaire can do with the house is either rent (taking money out of the economy) or sell (and we're back where we started, minus whatever profit they made).
So clearly, a better move is to pay someone to give up their house (retirement money), and let someone else live there rent-free.
While we're at that, instead of having the rich person buy stock (and pay for seller's retirement), we should buy that stock ourselves, since it's the same effect.
Congratulations! We now have socialized housing and nationalized corporations. Welcome to the Socialist States of America!
TL;DR: if trickle-down works, The Man should own everything. Strangely, Reagan wasn't a fan. Huh.
Why is this strawman still the target for low-effort articles?
Try and find some examples
Such a neat trick!
We are not talking about which phrase the Right uses today. The idea of trickle-down is what our current taxes are based on. There's no need to call it anything; obstructionism suffices
https://www.heartland.org/publications-resources/publication...
(I am assuming this is a right biased publication, again not well read, genuinely curious because it seems to line up with those middle class I know who were Trump supporters -- they regularly cite their lower taxes).
The reason you don't continue to hear about trickle down economics is because it's a derogatory framing of the economic mindset that supports a structure we largely subscribe to. It's deeply embedded in our economy and culture. Maintainers don't need to argue much for it because it's the status quo and has momentum. What you should see are more politicians fighting to reverse the effects that push trickle down economics had/have on the country and there are few who do. Sanders, Warren, and Cortez are the most famous opposition pushing to promote general workers rights and bottom up economies, I'd argue Sanders being the leader here. Many think he's crazy for his ideals which is a testament to how deep seated trickle down economics is in this country.
If there is economic demand (millions of homeless buying food) even a marginally efficient market will invest in the businesses that service that market.
A business servicing that demand doesn't really care if the investment money comes from one billionaire or thousands of small investors.
Good thing politicians haven't done the wealthy any tax favors since the 1980's...
- the summary of half of the comments here.
if there wasn't enough food in the first place, then the $20m just got inflated. This 20m will not go towards investment in higher food productivity when given to individuals like that.
Give this 20m to "the rich", they will invest it in food creation machinery. At least there would be more food produced after the investment.
That's the falacy. Reality is nearer they'll buy an NFT of a hamburger and then ask for another $20m
let's say for argument's sake, that they ended up doing this - what's the difference than the food buyers in this case? Both is generating economic activity. And if the $20m was spent on food, wouldn't those people also then ask for another $20m after having eaten their food?
My point is, gov't handouts are better off being invested into productivity producing investments, rather than consumption. The productivity investments would allow cheaper consumption in the future, and in the mean time, generate jobs for people to produce for consumption.
In a very obvious and mundane way, how often do people find that when someone leaves a job they're suddenly doing their own work and the work of the person who left? But without a pay rise?
That's a productivity increase. It is very much not a "generated job."
Add automation to this and it's even more obvious.
The only time jobs are generated is when new markets are opened and this allows new kinds of activity which weren't possible before.
The textbook example is government seed funding of computing in the 50s, which created completely new kinds of business activity. But only after the initial research was paid for by the public. And at the cost of many traditional jobs. (Secretaries, clerks of all kinds, etc.)
Traditional economic theory has almost nothing of value to say about processes like these. There's plenty of mythology, but nothing that will accurately quantify wider social costs/benefits in a strategically useful way.
In reality technologies have downsides as well as upsides, not just in terms of direct externalities but in terms of job losses - and sometimes in terms of productive value losses.
It's exactly this feature of "economic progress" which conventional economics fails to analyse, quantify, or - often - even notice.
this is exactly my point - "food" (computing) wasn't available, and the gov't "handed out" lots of money to "the rich" (aka, seed funding) to perform this sort of research and development. The end result is that new "food" (computing) became available where none was before.
No, you're conflating two different things, targetted seed funding for r&d, and just giving money to wealthy people
So fund companies doing useful work directly.
If you don't like the government deciding, and want to say spend $350b to stimulate the economy and be useful, give everyone a $1000 "investment voucher" that can be invested in exchange for a share, into companies with a net worth of say between $1m and $50m, to be spent on R&D.
not if there was a lack of food as i initially posited.
There's few places to put in low risk money, but i would say that there's still plenty of high risk investments out there that could return well.
In everything I’ve read about direct giving, inflation is so insignificant, it isn’t even concern that’s addressed.
I'm not necessarily against you here, but I'm curious: How does your sentiment square with the fact that a significant amount of direct giving just occurred, and we seem to now have significant demand-pull inflation to the point the ports are all backed up and the fed admits to 6% inflation which we know is understated. It would seem that doesn't reconcile, especially since post-2008 loose fiscal policy and low interest rates did NOT result in significant inflation as a comparison.
I cannot believe that the stimulus money given to the US public has had the supply effects spanning the globe that are also partially responsible for inflation. I firmly believe doing so is a) shortsighted, b) unbelievably arrogant, and c) just plain ignorant of how the world has changed in the last 18 months.
In other words, I do not believe this is as strong of an argument as you think it is. Supply chain, labor shortage, a bounce-back effect in various spending categories after a low year in 2020. All of these things absolutely must play a factor in that.
Not just handing out money to people.
So what is unsubstantiated in your view? The fact that super rich use offshore accounts? That super rich make more money with moving assets than they could make with labor? That poor people will likely spend given money quickly?
> Ahh, the good old trickle-down, aka "piss in my eyes and tell me it's raining" (which is the only way trickle-down actually works).
Clearly hyperbole. Where’s the evidence for this broad claim?
> It was pure mythology from the start; there's never been any basis for it to begin with.
Is this not “free market economics” ? Seems there’s a non-mythical basis there.. I could be wrong though if that’s a fictional concept? Would love to be enlightened.
> It's a pity we even have to debunk it like that.
This is opinion/conjecture.
> Go figure, give a million hungry people $20 each, and see $20M return to the economy the next day as they spend it on food.
Appeal to probability, evidence?
> Give a billionaire $20M, see the money go into the fintech machine and pour out into offshore accounts, as the billionaire holds on to whatever financial product they bought forever as long as it appreciates faster than inflation.
Again, speak to probability, evidence?
> Oh, and they'll spend $200 on a fancy dinner.
Is that illegal? What’s the problem here?
> Cue Pikachu face when the economy doesn't improve.
Must I comment on this one?
But it seems like the obviousness of the stupidity of the idea of trickle-down has been lost on us; hence the study.
Do quote though — maybe it'll help the obvious point trickle down to the rest of the population.
Just like making computers copy data over the Internet is labor.
With labor the pay is tied to the number of hours worked.
Economically there is the distinction. If you do not agree there is you, IMHO, have fallen for the capitalist's propaganda that they "do labor", "add value" and "you can be one too if you work hard and do not spend money on useless things".
Lol.
It's not like they have an AI that just makes optimal asset moves automatically...
What do you do for work, huh? Sit in front of a computer all day? I bet a lot of people think you're just cheating your way to wages too. Imagine how someone literally laying bricks feels about your 100k comfy office salary.
They use 2020 as a key data point, despite it obviously being an outlier due to covid.
Moreover, the only people talking about trickle down are people on the left. No one on the right has mentioned trickle down since Reagan was president.
It's a complete strawman.
AND, it's funny. So extra points for that.
I feel somewhat attacked by some of the other comments, being flagged, and a threat of ban from the admins; it felt as if people were ignoring the words I was saying, and were responding to something else entirely.
Thank you.
"Trickle-down economics" is an extremely bad-faith argument, essentially boiling down to "rich people pay slightly less rich people to tell poor people it's better for The Economy if they stay poor". That it was ever given credence in the first place reflects very badly on the economics profession (or, as I would reframe it, shows that economics as a subject has been wholly captured by elites).
Another word for that is investment.
Where do you think that money goes? You don’t earn returns on money that isn’t doing anything.
And hell, even if it was true, what is wrong with investing in foreign companies (of presumably underdeveloped nations)? That money still isn't "doing nothing", but rather giving the funding to companies that need it.
Yes you do? That’s what assets are.
To trade a investment, is to dig a hole and sell the void.
Offshore. I think that money goes offshore. I even said it in the previous sentence, which you didn't quote.
>Another word for that is investment.
Well let's entertain the fantasy that the money doesn't flow away into offshore accounts for a second.
So you're saying that investing is good? Then instead of giving money to rich people (e.g. by tax cuts), the government should do what rich people do and invest. Domestically.
What do we have here? Ah, stocks and real estate. Got it. The government should buy companies and houses, the way the rich people invest.
Didn't expect HN to argue that we should socialize housing and nationalize corporations, but I'll take it.
And of course investing is good - how could you even argue against that? Businesses need funding. And yes, governments in fact do invest in both companies and private housing, I don't understand why you think this is some gotcha. It's just that on average governments tend to do worse at investing, so it's generally restricted to areas where the private market fails to provide.
Seems like you missed a step. The thing that appreciates is the financial product that this money buys.
>I'm curious as to what you even mean by "money goes offshore"
Buying stock in an IPO in a multinational corporation based in Taxhavenlandia would be one example.
Buying stock in an IPO in a multinational corporation based in Taxhavenlandia is capitalizing a presumably enterprise which will generate a positive return. I can understand that you might be concerned about capital leaving the country rather than being invested domestically, but I'm not sure you've been advocating capital controls.
Laughs in pump and dump schemes
>Buying stock in an IPO in a multinational corporation based in Taxhavenlandia would be one example.
Even if this were the case, the only bad part would be evading taxes. To generate a profit, it still has to be an investment in a profitable venture, which increases overall economic productivity. (I also don't think there's any indication that this happens on a large scale, otherwise the stock index of any such Taxhavenlandia should show this)
Ah, the little things.
>To generate a profit, it still has to be an investment in a profitable venture
Like Twitter? Which got a tax break recently, BTW
>I also don't think there's any indication that this happens on a large scale
Did you try looking?
You could say that once in offshore accounts, money will maybe be invested in other countries rather than domestically. That might be true, but that is a different problem (globalism) rather than trickle down.
There is a picture of Elon Musk on the article. Do you really think a government would have ever been able to create Tesla?
There should not be a picture of Elon on the article. That speaks to ignorance. Elon gets a lot of flak because he's highly visible but he's nowhere near a poster child for the idle rich. The idle rich who sit and extract rent know to keep out of the limelight.
Not all governments, check Norway for a great example of great investment.
A pension fund is payment to a group of people over a period of time. Traditional investment from a government into a country comes in the form of building infrastructure and military. Dollars spent on infrastructure and the military will not pay yearly cash dividends.
A factory can take it's payroll budget and "invest" it on machines, but it will not be able to pay it's employees, which defeats the purpose of a payroll budget.
Norway has a yearly budget and it invests in traditional things like infrastructure and their military. This is what the GP means when they say that governments can make good investments. [1]
I would say even the government of Norway recognized that the free economy will do better with the money that they can (and how right they were!)
First, what tiny fraction of US money goes offshore versus for US investment? Ridiculously tiny. The total value of US investments dwarfs any offshore boogeyman.
And, offshore isn't a dead end. It invests where it's worthwhile, which, again, is incredibly US based - look at our bond rates and market caps.
>that investing is good
What allows new companies, large and small, to form and employ? What allows small companies to make payroll during slow seasons? What allows people to get college loans, mortgages to help build wealth, people to get loans for things that allow them to create and plan? What allows farmers to farm all year and only sell in a small window?
Oh yeah, investment.
A small percentage of it does get re-invested in actual production, but productive investments tend to be higher risk than rent extracting "investments." Conservative holders of wealth are not going to dump it into private space programs or <5nm microchips. They're going to buy up vast amounts of housing and collect rent.
Edit:
In my opinion entrepreneurs and investors in actual productive work should be against "trickle down" economics as it makes it much harder to build substantial new ventures. You can't build new products and services if there are no customers. Productive capitalism (as opposed to a rentier economy) requires a fully capitalized consumer base.
Personally if I were a VC I would be in favor of dropping money on the poor and middle class from helicopters, especially if my portfolio had many consumer or small business focused companies in it.
"Trickle down" economics primarily benefits the non-productive rich, the rentier class. It even hurts the productive rich.
I'm a huge fan of Georgism: https://en.wikipedia.org/wiki/Georgism
TL;DR: zero income tax, zero sales tax, zero capital gains tax on productive investments, high taxes on the "ownership" of land and other things human beings do not produce. A modern take would also include pollution taxes such as a fossil carbon fuel tax.
(FWIW I think I would be pro high taxes on multiple home ownership, investors purchasing and parking in home real estate on the surface seems like a bad thing, but then commercial real estate and dense urban housing seems like it would require investment-driven development so not really sure)
Private investors prefer to take long bets in technology corporations (like FAANG, etc). That benefits to a small extent the few people working there because the high stock price convinces the CEO that he can afford another position here or there. It does nothing for the people in the lower income percentiles, because the additional money earned by the people in the higher percentile is not spent on consumables. It's mostly just spent on financial assets (that is housing, equity and bonds). Unsurprisingly the people in the lower percentiles have very few financial assets and mainly live off of their labor. Of course it won't benefit them.
Instead the government needs to invest in projects that create jobs for everyone. But since the biggest voting base consists of older people with lots of savings they don't want the government to spend more, which could cause inflation and increase their tax rate. QE by the Fed on the other hand increases their portfolio value. So it's ultimately a political decision.
Buy stock and benefit (or take a loss) with them.
> Instead the government needs to invest in projects that create jobs for everyone.
Vote for such government or immigrate to a socialists country, Venezuela or North Korea. They have the lot of jobs.
Buy stocks, and explain to your children why they won't get to eat for the year to come.
It will pay off in the long run!
And if they starve to death, well, that's savings right there!
.... You do realize that millions — if not most people under 40 in the US — don't have spare money to invest into papers that they can't eat today, do you?
Rent, food, transportation, medical expenses, educational expenses, and a small amount of spending on something that makes that life feel like it's maybe worth living — and oops, there goes the paycheck.
Funny how the rent is larger than mortgage, but you can't get a mortgage unless you save money, but you can't save money because you have rent to pay.
And everyone who's working to make a living is one car accident away from a medical bankruptcy. A fun lottery nearly all of us get to play, funny that.
>Vote for such government
Yay, I voted, and FPTP ensured that meant nothing. I voted for ranked choice, but peculiarly, the vote for that was based on the same system that I was trying to replace.
>or immigrate to a socialists country, Venezuela or North Korea. They have the lot of jobs.
False dichotomy much?
And these are the only two countries in the world with universal healthcare and government providing housing and services to its citizens, I guess? Not Sweden, no? Not even the UK, or any EU country? Oh wait, nobody is waiting for me there.
But more importantly, what basis do you have for telling people what to do?
Especially when you tell someone to move to another country. How about... No.
What the parent commenter is doing, and what I'll do, is we'll be damn sure to talk about what the government should do in all public forums whenever the opportunity presents itself, to raise the awareness ans steer the public discourse in the direction we want our country to move into, rather than shutting up and moving if our vote gives us nothing this election cycle.
And we'll make it obviously, blatantly clear that opinions like the one you presented — ”vote or leave" — are rubbish.
Bad faith rubbish that doesn't belong on HN.
So I'll ask you to stop. My basis for that are the guidelines of this forum. We could do with less trash here.
What's wrong with that?
The income the liquor store earned was income on my $1 million. The $250,000 may have been because of a change in tastes for liquor, or improvements I've made to the business through efficiency or reinvesting the icnome.
But what of the original owner who took my $1 million. He is retired and he has most of it in the bank (who will use it to make loans) while he spends the rest over the years as his retirement income.
The share of Apple is no different.
Offshores, real estate, stocks, cryptocurrencies and other speculative bubbles. Probably on slaves, in a couple of decades.
That’s not a return, the economy doesn’t work that way.
You can’t assess real impact without taking that into account.
1. there's enough market competition. monopoly power and rent seeking is low.
2. the stimulus is slowly introduced to give time for the market to react.
3. the mostly state regulations but also federal regulations are small enough to all new business to form. and those small businesses have access to capital.
4. all of the above are reasoned and tweaked by rational adults with a background in statistics, science and engineering instead of idiots with slogans.
Obviously that's a fantasy land. so here we are.
The “return”, or benefit of the operation can’t be properly understood without taking into account that you’ve taken that 20M$ from some people to give it to (presumably) others.
You give it to the hungry, they buy food, the people who run places that sell food do things like buy new clothes and tvs, the people who make clothes and tvs invest in things, etc.
At least as I read their argument they are suggesting a "trickle up" effect, whereby cash in the hands of people who aren't in a position to just park it in real estate or something gets spread around and improves the overall flow of cash in an economy, not the overall amount of cash
That's the fundamental basis of economy.
Theoretically, if you actually HAD a million starving people, then yes, feeding them from taxation proceeds (or even money creation), is indeed a net benefit to the economy, because they then are able to work, and bring their skills/labor to the market to further stimulate the economy.
In that way, events like starvation, plague, or even sudden economic downturns, can damage the economy beyond the initial scope of their impact by robbing the economy of labor, transport, etc... For this reason, "stimulus" makes sense in these transitionary times.
Of course, the negative effect of stimulus is to temporarily distort businesses by flooding certain resources at below market rates - causing a smaller scale damage to the overall disruption. You have to do the math to determine if it's worth it.
On the other hand if there's no sudden change - no crisis, then stimulus is just permanently distorting markets - which is costly in addition to damaging. If you're feeding literal "starving" people, that's one thing - but if you're sending them checks so that they can increase their discretionary spending - that may look like a good thing because spending is increased, but you're not really creating value as in the original example.
tldr: Feeding actual starving people (or paying for other critical non-discretionary spending) can be smart economic decision if well targeted. Increasing the money supply so that people can spend more on discretionary spending damages the overall economy.
It was never about the "economy". It has always been about pumping up the profit-generating machinery. It used to be that profit-generating machinery had real meatspace jobs backing it, and real machines and factories to feed. But now, given that machinery is now fully virtualized, first in the stock market, then in financial instruments, then tech, now in the unholy marriage of finance and technology and crypto currencies, I think the money'd elites would consider everything "working as intended". The stock market is generating record profits, therefore nothing is broken.
It was merely a trope to market the new rules as somehow being beneficial to the general public who was about to be fleeced, so they didn't protest and riot and let it go through. No different from the Grinch's claim to Cindy Lou Who that he'd be fixing the tree and bring it back - just say anything to keep someone who sees they're being robbed from raising the alarm. Except with the real story here, the Grinch's heart only keeps shrinking.
I know someone who was given a couple hundred million in a GRAT, which grew well beyond $1B, in the exact manner you reference. They aren’t on any of the lists, but I can confirm this exact scenario does, in fact exist.
> Oh, and they'll spend $200 on a fancy dinner.
You forgot about the drugs!
Europe has substantially higher taxes and cost-of-living than the US, but lower median, PPP-adjusted median, and median post-tax post-government-transfer disposable incomes than the US.
When you compare countries by their tax rate compared to what the average (median) citizen ends up with, it does not seem to be the case that higher taxes result in greater personal financial security. Frankly, whether lower taxes results in more billionaires is irrelevant to the question of whether it increases the quality-of-life or economic security of your average person.
Imagine pointing at one of the richest societies to ever exist (across all quartiles) as an example of how bad its economic policy is.
What you did in this thread (dozens of flamewar comments) was egregious. We ban accounts that do that. We've had to ask you not to do it in the past. Please don't do it again.
My goal with this comment - as at least one other commenter understood - was to introduce the concept of Marginal Propensity to Consume[1] in a simple way, and with a bit of humor.
One thing I have learned from many years of teaching and giving conference talks is that when a new concept is introduced to someone with a dry language, it will, in most likelihood, will be ignore, or immediately forgotten. This applies to college freshmen as well as tenured mathematics professors.
My goal was to get responses like[2].
Alas, in my attempt to write thought-provoking comments, I ended up writing simply provoking ones. Note taken.
I'm not writing this to disagree with you assessment of the thread, but to clarify the intent and put my account history in context.
Thank you again, -r
[1] https://en.wikipedia.org/wiki/Marginal_propensity_to_consume