NullPointer
Member
Indeed, and like you I look at this more as an opportunity than a reason for dread, although both perspectives have merit.
-
Hey, guest user. Hope you're enjoying NeoGAF! Have you considered registering for an account? Come join us and add your take to the daily discourse.
Why doesn't "trickle down" economics work?
- Thread starter Vermillion
- Start date
- Status
Phantast2k
Member
But the money is not just sleeping in the bank accounts. The bank makes it work, just not necessary the country of origin and not to the benefit of the poorest in the said countries (not necessarily/most certainly not creating low-level jobs) ANYMORE.
Or they might invest it in things that do no good for anybody, like oil futures or foreign currencies.
Whenever I read an article that talks about investors looking for places to park their money, I want to commit an act of physical violence.
Glass. Did you know glass trickles too?
I have a really poor understanding of microeconomics (shouldn't have dropped that class..), so correct me if I'm wrong here:
Tax breaks for small business owners will foster the creation of more new businesses and sustain more existing businesses. Maybe to a small degree, but it should have some effect. This may not push individual business owners to hire more staff since demand would remain the same, but it would mean that more businesses are around which would mean that more people are employed.
Yes/No?
Just trying to have a complete understanding. "Job creators" is obviously a GOP talking point to justify their mandate to the public, but I suppose there might be some truth there.
Of course you could argue that, in a round-about way, cutting taxes for small business owners will have an adverse effect on the rest of the population since either the middle/lower classes would be taxed more heavily or there would just be less tax revenue which would mean spending cuts -- both of which could lead to less consumption which would then effect small business owners...
Black Mamba
Member
No, that is how an economy functions. trickle down economics says if you release more funds for the rich, they will in turn invest it in the economy and everyone will be better off.
This has not been substantiated in any way, shape, or form. Every time it has been analyzed it has been refuted. It is not an actual economic theory. It is akin to believing in a flat Earth.
When I say "invest," I generally mean new Investment in capital. Stock Market and Futures trading is not investment, it is gambling (unless it's an IPO), unless otherwise specified. For future reference (since you read PoliGAF).
banks don't need money to lend money. They actually don't want your money since it is a debt.
Black Mamba
Member
Tax cuts for small businesses could help expand their business and/or invest in new businesses. Or pay down their debt. Or save more. Or spend more (the owners).
But small business are [not the wealthy. You're essentially cutting taxes on the middle class, so this is completely different.
So yes, cutting taxes on small businesses should help the economy. It's cutting taxes on large corporations and the wealthy where things are different.
Most small businesses do not have net annual incomes above $1,000,000 anyways (expenses and wages paid to employees are deductible) so most of the GOP tax cut proposals actually do not affect small business at all. What they are really aimed at are the super large multinational corporations that are buying politicians.
i nerini del buio
Member
I thought trickle down was some kind of gaf joke ahah. I mean, seriously, people do not really believe there's some kind if economic reasoning behind wealth "trickling down" right? Because there isn't. Actually, it's been demonstrated that redistributing wealth across the population (either through universal health care, affordable education or whatever) is a major factor in developed countries growth. Developing countries are a different story though.
Exactly. This is why I thought it was some kind of gaf meme ahah.
Black Mamba
Member
Phantast2k
Member
The general answer here is: it depends.
I was obviously speaking of a general concept of banks and of regular times too, not critical stretches of time where the central banks are flooding the banks.
Your statement
is still incorrect/simplistic in regards to the discussion at hand.
I guess we are just disagreeing on a definition here.
Or maybe I am just not understanding you.
Trickle down economics is the idea of the government allowing large companies to succeed, and with that success they create jobs. There is another aspect of it, tax breaks for rich individuals which I think is bull shit and does not benefit anyone. That aspect I do not agree with.
It is a broad term. When applied to corporations it works, when applied to rich individuals then not so much unless they are spending their money and not investing it.
Yeah, this was my own separate strand of conversation, inspired by the OP. I didn't mean to couple it with the "trickle down" stuff.
Who does the term "job creators" even refer to? Is it a vague term that tries to establish some specious relationship between the wealthy and job creation, or are they actually referring to small business owners? I've only seen this from the periphery (Canada) so my understanding is superficial (Daily Show).
[edit] Looks like Zzoram addressed this. So they're trying to justify tax breaks on the wealthy when they say "job creators"?
acheron_xl
Member
We need to hike capital gains taxes way up. Punish the people who use their money solely for the purpose of making more money.
Ask countries like Saudi Arabia, India or any other country with a huge income disparity how money trickles from the rich down to the poor. (Answer: not at all). So why should it miraculously work in the US? It's nothing more than a fairy tale spread by the super rich in order to avoid higher taxes.
Yes.
Black Mamba
Member
I'm going by the generally accepted definition:
http://en.wikipedia.org/wiki/Trickle-down_economics
http://www.thefreedictionary.com/trickle-down
"allowing to succeed" is not "according financial benefits to"
Trickle down economics is either tax cuts or subsidies for the wealthy.
The GOP uses "job creators" to trick people into thinking about small business owners when in reality the policies are geared towards stock holders in large corporations. But at the same time a lot of people have been fooled into thinking they also are "job creators."
A lot of people truly believe if you give the rich more money it will mean they will help everyone else buy creating jobs. They believe it worked under Reagan (it didn't).
SquiddyCracker
Banned
Trickle down economy is, from what I gathered, giving the guy on the top tax breaks so that they will keep more money, which is then assumed to be spent creating more jobs - putting back money into society.
Put like that, it should be obvious to anyone that society as a whole ends up at a net loss if they give the top tax breaks, as they are "giving" away more money than they get back.
Cos a rich guy will never spend as much as he earns.
On the other hand, a poor guy often does end up spending as much as he earns - so "trickle up" makes a lot more sense in both theory and practice.
Black Mamba
Member
And the interest rates are currently negative! Our gov't is getting begged to borrow but it won't do it! At a time when we need to put people back to work and get infrastructure building/fixing up and it's cheaper to borrow now that it ever will be!
argh!
Actually, that's a myth. The means of manufacture of glass in olden days caused it to be thicker at one end, and that end was usually placed at the bottom for stability.
Yes, it shattered (if you'll pardon the pun) my worldview when I found that out, too.
We need Toxic Adam or Gaborn or someone of that nature to come in and provide the counter argument.
Surely there is one.
Surely there is one.
Ugghh. I hope that started as a plain sentence that you then realized was a pun. Only excuse.
Not exactly true. Glass is a funny substance, not truly a solid or a liquid.
If it does happen then it is very very slow.
http://math.ucr.edu/home/baez/physics/General/Glass/glass.html
Given that, what is a reserve requirement? And why do they take your money if they don't want it?
Reserve requirement is regulated.
I think banks do need your money to lend out to other people, but the big banks have just been scamming the system by lending each other money with manipulated rates so they somehow all make money out of nothing. That was the LIBOR scandal I think, involving an unfathomable amount of money.
Because trickle-up economics are what happens in reality. The people at the top wouldn't have accumulated so much wealth if the reverse were true. Everyone needs to spend money on basics like food, electricity, etc. Big companies can provide it wholesale and so a large amount of the money is funneled to them. That in turn goes to the people at the top of said company.
It's like how some economists said the stimulus should go directly to the less wealthy. They use it to pay off debts and so the money ends up with the banks anyway.
It's like how some economists said the stimulus should go directly to the less wealthy. They use it to pay off debts and so the money ends up with the banks anyway.
I think you would be hard pressed to prove that. Taxes do not create money, they just redistribute it or lose it. Find me a profitable government institution and I will find you 20 that lose money.
Often that money goes nowhere. It goes to paying off government debt, or to Africa or the military. It creates nothing of profitable value and the majority of every dollar spent will never be seen again in the hands of someone from this country. A lot of that money just dies. The government does not gain much of anything from being profitable so it conducts itself like a 5 year old with unlimited credit at a Toys R Us.
I don't think Toxic believes in tickle down economics anymore, if he ever did.
Remnant or Ripclaw or Alphanoid surely do though.
Funky Papa
FUNK-Y-PPA-4
When will people learn that government institutions are not meant to be profitable?
Stephen Colbert
Banned
Tax cuts to the rich doesn't create demand for new businesses and services, disposable income in the hands of consumers does.
This chart was not adjusted for inflation, while the wealthy are making out like bandits, middle class income has actually gone down over the past 30 years, since this trickle down economics/reagenomics was implemented.
Much of that income inequality is due to increasing efficiency due to technology and outsources enabling companies to downsize to fewer and fewer employees, while still getting the same amount of work done, thus beefing up their profit margins for their investors at the expense of their middle class employees.
The rich and the investors get rich, while the number of middle class jobs stagnates and thus middle class wages stagnate.
Too much money in the hands of investors, and too little in the hands of consumers is exactly the scenario we have now. Money has never been easier to borrow right if you want to create a new startup, there is a crap load of people out there right now looking to invest. However, there is a lack of good investment opportunies because there aren't enough middle class people with lots of disposable income to serve as a customer base for any new products or services the companies wish to offer. This is why you see so many bubbles right now, because these investors put all this money they have in whatever they think the next big thing is, due to lack of stuff to invest it, and that next big thing fails to take off due to lack of customers.
Low taxes is not what intices a rich business owner to expand. There is no point in expanding your business if your customer base isn't growing, no matter how much extra money you have. The wealthy have craploads of excess money right now burning a hole in their pocket and it's not causing them to expand their businesses. Increasing demand (more money in the hands of consumers aka. trickle up economics) is what causes them to expand, even if the business owner has to to borrow money in order to do so.
This chart was not adjusted for inflation, while the wealthy are making out like bandits, middle class income has actually gone down over the past 30 years, since this trickle down economics/reagenomics was implemented.
Much of that income inequality is due to increasing efficiency due to technology and outsources enabling companies to downsize to fewer and fewer employees, while still getting the same amount of work done, thus beefing up their profit margins for their investors at the expense of their middle class employees.
The rich and the investors get rich, while the number of middle class jobs stagnates and thus middle class wages stagnate.
Too much money in the hands of investors, and too little in the hands of consumers is exactly the scenario we have now. Money has never been easier to borrow right if you want to create a new startup, there is a crap load of people out there right now looking to invest. However, there is a lack of good investment opportunies because there aren't enough middle class people with lots of disposable income to serve as a customer base for any new products or services the companies wish to offer. This is why you see so many bubbles right now, because these investors put all this money they have in whatever they think the next big thing is, due to lack of stuff to invest it, and that next big thing fails to take off due to lack of customers.
Low taxes is not what intices a rich business owner to expand. There is no point in expanding your business if your customer base isn't growing, no matter how much extra money you have. The wealthy have craploads of excess money right now burning a hole in their pocket and it's not causing them to expand their businesses. Increasing demand (more money in the hands of consumers aka. trickle up economics) is what causes them to expand, even if the business owner has to to borrow money in order to do so.
theignoramus
Member
the better question is how and why was Reagan able to sell such a fraud to the american people?
I never said they were. I was just arguing with someone who said taxes have a larger trickle down effect.
Salvor.Hardin
Banned
Of course there's a counter argument. It's just that when most people think of Trickle-Down, they think of tax breaks for the wealthy, when in real, the term trickle-down actually refers to a multitude of economic policies that help businesses in a variety of ways.
Trickle-down is not a real term in economic theory, so it shouldn't be treated as one. It's best to evaluate the validity of business and investment incentives on their individual merit. Do tax breaks for growing companies help them expand and hire? Of course. Do lower middle-class taxes create more jobs through increased expenditure? Yes. Do government subsidies allow larger companies to become more competitive in foreign markets, leading to higher tax receipts, higher employment and better technology? Yes.
All of that is documented and researched.
But the effects of tax cuts for the wealthy is a less than murky area.
Money does 'trickle-down', as much as gaf might tell you otherwise. But it's not always clear which policies are most effective at it and when best to implement those policies.
The problem here is that the top 1% is an awfully small number of people compared to the other graphs. So it's obvious that those people will have the most to gain, and will gain by a much higher amount simply because it's a very small group. The middle class on the other hand is a huge group, so a 25% increase in wages for the middle class is a huge increase.
Higher sums of money will always attract higher returns. The top 1% are investors, the middle and bottom percentages of income earners are not. It's an odd comparison to make. It's like comparing scoring averages in Basketball to Soccer.
David Incorporated Esq.
Member
Here's a rough look at Capitalism:
Laborers trade their labor for stable pay and job security. The actual value of their labor is more than they are compensated, and that extra bit of value goes to their employer. The employer is in business because, ultimately, the product or service he provides is bought by laborers (mostly).
So ask yourself a question: What mechanic is there for wealth to trickle back down to the laborer? Labor makes product or service, employer takes a cut of the value produced, other labor buys that product or service. Why would you give money to the middle man?
Yes this is a grossly simplified view.
Laborers trade their labor for stable pay and job security. The actual value of their labor is more than they are compensated, and that extra bit of value goes to their employer. The employer is in business because, ultimately, the product or service he provides is bought by laborers (mostly).
So ask yourself a question: What mechanic is there for wealth to trickle back down to the laborer? Labor makes product or service, employer takes a cut of the value produced, other labor buys that product or service. Why would you give money to the middle man?
Yes this is a grossly simplified view.
Stephen Colbert
Banned
It doesn't help that because of the way the tax laws are written, rich people like Mitt Romney got away with paying a meager 13% of his income each year in taxes despite pulling in billions in income each year. While the average factory worker working his butt off plays 24% of his 30,000k an year salary in taxes.
It's a sad state of being that the rich pay a substantially lower tax rate than the poor. And no only do republicans not want to fix this, they actually want to make it worse by removing the capital gains tax all together, bring Mitt Romney's tax rate down to a mere 0.08%!
It's a sad state of being that the rich pay a substantially lower tax rate than the poor. And no only do republicans not want to fix this, they actually want to make it worse by removing the capital gains tax all together, bring Mitt Romney's tax rate down to a mere 0.08%!
He was a good actor?
ReBurn
Gold Member
In the context of small business people focus too much on hiring and "job creation" and not enough on actual economics. Small businesses are consumers as much as they are "job creators". As people grow their small businesses they need to be able to purchase whatever they need to meet their own demand, which stimulates more demand in the market. So a small business having adequate cash flow to grow is important as it means other businesses may need to hire to meet the demand that small businesses create.
That's different than wealthy people getting tax cuts, which is where the vitriol is justifiably focused. Small business getting tax breaks isn't the problem at all.
That's different than wealthy people getting tax cuts, which is where the vitriol is justifiably focused. Small business getting tax breaks isn't the problem at all.
I am not sure what you are getting at. The laborer is producing a product per an hour that is worth more then their wages. But without the guy upstairs who provides the distribution and tools to the laborer, they would not have a job. You can go mine coal all you want, but without the proper tools and those people who sell, transport, and convert the coal you are not accomplishing much.
If Bill Gates gets $100 of free money, most likely he will yawn and say "Oh, more change. You go to the bank". He probably doesn't use it to open a lemonade stand because he already got so much.
If a poor dude gets $100 of free money, he or she most likely will spend it immediately on foods, rent, clothes. Whatever it is, it will be immediately circulated in the economy (even if it's booze).
Trickle down doesn't work because it's simply the least efficient way to inject money into the economy.
If a poor dude gets $100 of free money, he or she most likely will spend it immediately on foods, rent, clothes. Whatever it is, it will be immediately circulated in the economy (even if it's booze).
Trickle down doesn't work because it's simply the least efficient way to inject money into the economy.
Surely then he'll be able to create even more jerbs. Hire another accountant maybe.
Charisma, even if lack logic or truth in ideas do his work and fool most of the people. I think Reagan didn't fully understand what he was defending he was a mere puppet.
Baraka in the White House
2-Terms of Kombat
30+ years wasn't enough?
David Incorporated Esq.
Member
You missed the point. The point is that the guy upstairs profits on the value of work produced by labor. Of course he does work as well, but the point is that wealth in our system works its way to the top, so why would you try to improve things by easing taxes on the top instead of the bottom?
gutter_trash
Banned
The Technomancer
card-carrying scientician
Its basically this. Consumer spending as a proportion of wealth levels out at a certain point but we've created a society in which you can accumulate money far beyond that plateau. Combine this with a lot of safe investments (even just banking interest) that allow for additional wealth accumulation with literally no continuous work, and the money beings to coalesce at the the top. You get some return into the economy from failed investments, but its clearly not enough to reverse the trend.
- Status