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Comment by javert | Hacker News Reader

If you take 3% more away from a million+ earner, they don't spend less on personal luxuries. They spend less on investment.

So that is 3% that is not being spent on expanding production. (i.e. "Making the economic pie bigger.")

Yes, the government will spend the money somewhere else, but typically it will go almost entirely to consumption, instead. That is redistributing the pie, rather than growing it.

Note that growing the pie lowers the cost of things, so it inherently benefits everyone. There is no such thing as growing the pie and only benefiting the rich.

In fact, not growing the pie disproportionately hurts the less well off. While the rich forego investments, the poor forego things that actually make their lives better.

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Your hypothesis would require evidence that we are investment locked ie. companies would like to expand but do not have access to the funds.

Unfortunately, the evidence is to the contrary.

Companies have no useful place to put investment to use since they see no useful place to generate extra demand and consequently are sitting on some of the largest stockpiles of cash recorded in corporate history.

The evidence is increasingly clear that the anti-tax brigade are wrong. This does not automatically make raising taxes correct (although evidence suggest that small increases are probably called for), but it does mean that cutting taxes is clearly an incorrect path.

Thanks, this is an interesting idea that I had not considered.

Isn't it the case that those large stockpiles of "cash" are actually invested, though? e.g. I have heard of Apple sitting on a ton of cash, but presumably it is not literally just sitting in the bank. Even if it is, the bank is investing it and thus is able to pay interest. Though it might be the case that the interest only really amounts to inflation, and the bank is really just preserving the value by putting the cash into more stable assets. I'd be intereted in any thoughts of yours on this.

Another thing, off the top of my head. I think that if your point were true for the economy overall, the economy would not be growing and it would not be possible to get greater-than-inflation returns from the stock market overall. Both of those things seem not to be the case, any thoughts?

> I have heard of Apple sitting on a ton of cash, but presumably it is not literally just sitting in the bank.

It's literally sitting on their balance sheet, and, consequently, even a bank can't actually use it for investments. It's really bad.

> I think that if your point were true for the economy overall, the economy would not be growing and it would not be possible to get greater-than-inflation returns from the stock market overall.

Stock market returns are not particularly connected to the economy in any useful way anymore (stocks are more vehicles for speculation than real ownership of a company). I wouldn't use it as a proxy.

A better proxy would be auto traffic numbers. In California, CalTrans traffic engineers were forced to sign non-disclosure agreements about traffic numbers because they were so horrifically down during the bust.

The economy is growing some, but slowly. The fact that California managed to balance a budget and quit cutting helps. An extra million people with health insurance helps twofold--more people in healthcare professions and better productivity from people at the bottom of the ladder. Gradual minimum wage increases will help get people buried at the bottom of the ladder a little.

The very interesting question to me is whether the ACA will unleash small businesses. A LOT of people in their 40s and 50s stayed buried in jobs they hated simply because they were terrified that they couldn't get health insurance if they left. Those people are now free to move--I think this is going to be THE legacy of the ACA.

A lot of potential investment is parked in sovereign debt right now. The Treasury has no trouble selling debt at essentially zero interest.

There's plenty of supply out there, but not enough demand.

> typically it will go almost entirely to consumption, instead.

If your economy is suffering from a shortage of aggregate demand, as ours is, then promoting consumption is a good thing.

> Note that growing the pie lowers the cost of things, so it inherently benefits everyone. There is no such thing as growing the pie and only benefiting the rich.

Lowering taxes on the wealthy, or otherwise favoring investment over consumption, benefits the rich much more than it benefits everyone else. The "rising tide" metaphor is misleading, because economic policy changes that favor the rich raise their boats much more than everyone else's.

Other policies, that favor investment less, may benefit the less-well-off more than any potential indirect gain they may have experienced from investment-favoring policies.

Overall, the economy only grows and people only get better off when net production expands (or, equivalently, production gets cheaper).

You clearly are espousing some kind of nonsensical demand-side economics that contradicts the above law.

> If your economy is suffering from a shortage of aggregate demand, as ours is, then promoting consumption is a good thing.

There is no such thing as a "shortage of demand." It's a nonsensical idea.

> Lowering taxes on the wealthy, or otherwise favoring investment over consumption, benefits the rich much more than it benefits everyone else.

That is obviously patently false for the reason I already stated. More concretely: A rich person going without an investment (not even tangible) is less of a hit than a poor person going without better food, clothing, shelter, education, entertainment, etc.

> There is no such thing as a "shortage of demand." It's a nonsensical idea.

Eppur si muove. The predictions of demand-side economic models have been largely correct since the 2008 crisis; the predictions of supply-side models have been outrageously wrong.

If a lot of people suddenly decide to consume less (as they have since 2008), then they save more. The money they put into the bank is, ideally, productively invested; that investment creates new demand, and then there's no such thing as a demand shortage.

In that model, you would be right. However, that's not what we actually see. Foregone consumption is not automatically channelled to productive investment. If you own a company, you have no reason to invest in increased production capacity if no one will buy your increased output. And why is no one buying that increased output? It's partly an issue of distribution; the wealthy have a lower marginal propensity to consume.

A lot of people and companies actually are sitting on big piles of cash (or other short-term, low-risk investments that don't do much to increase productive capacity). This is part of the reason why interest rates are so low.

>people only get better off when net production expands

This is a trivially false statement. Just look at any recession in history and you can easily find people who become better off even though net production shrank.

Trickle down economics have been AFAIK demonstrated to be false. But that will be hard to argue with someone who judging by his HN about section is an Ayn Rand fan.

In Economics nothing is ever "demonstrated to be false." There are just various schools of thoughts with their various detractors and supporters. Sure, some of those schools of thought are more popular at one time or another, but none are ever "demonstrated to be false." It is only in politics and news that claims will be made to that effect. There is evidence to support pretty much every school of thought, and evidence to contradict it. Liberals, in particular, like to make this claim--but the jury is still out, and likely will be for...well, ever.

Ok, I guess I should have said 'have not been demonstrated to be true'. I'd like to see some recent peer-reviewed study that has shown that trickle down economics does work then. Of course it won't be conclusive.

Sure, things can be demonstrated to be false. I could make up an economic law or principle right now that would easily be demonstrably false.

I do get and agree with your overall point, but let's not throw the baby out with the bath water. There is certainly hope for economics to eventually develop to a better point.

> There is evidence to support pretty much every school of thought, and evidence to contradict it.

If there were evidence to literally contradict a school of thought, that school of thought is proven wrong. That is not the same as evidence that seems to argue against a school of thought, yet does not do so conclusively.

Unless you argue that everyone should be taxed 100%, then there is some economically-optimal tax rate schedule. It follows that the current rates might exceed the optimal ones, and therefore a tax reduction may be entirely appropriate.

Calling every tax reduction for a higher bracket "trickle down" is simply name-calling. You can say that all the way up to 100%.

It might also follow that a tax increase is appropriate. According to the economic indicators from California, there is some basis for this. Whereas you have not presented anything.

Sure, it might.

This whole thread is essentially absent of any information (to the extent there is any, it is far below the threshold for making any useful conclusion).

I was responding to the implication that a 3% tax reduction is "trickle down" and therefore "demonstrated to be false".

Nice straw man argument you got there. There is a difference between a tax reduction and a tax reduction with the intent that the tax decrease will propagate to the rest of the society. As in, sure decrease taxes but don't claim that said tax decrease for the wealthiest is in the interest of the poorest.

(1) "Trickling down" is not the mechanism by which a growing economy helps everyone, so you're attacking the wrong thing.

(2) No credible disproof of Ayn Rand's theories has been offered. (Most serious attempt is Prof. Michael Heumer's and it is a poor attempt.) Why don't you write one?

This comment would be much better with just the first sentence. Please, no personal slights.

Its not 3% more on million+ earners either. If you make 2m, the second million is taxed 3% more than the first million.

Also during times of economic hardships, companies are much less likely to invest (they still will, but be more conservative than if times were good) which in my opinion, it falls to the government to !make up this gap, and they need money to do that. So that means they need to tax more, but hopefully readjust taxes down (slightly, big tax drops in the past have caused more problems) but that usually doesn't happen.

TL;DR we need a happy sweet spot, we are below that currently.

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