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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsWhy trickle down economics is pure crap
The Reagan era theory of trickle down economics is pure crap and has never worked that I know of.
The theory is that if you give more money to leaders of corporations and other wealthy people that they will use it to create jobs and grow the economy. Sounds like a good theory, but, sorry folks, it just does not work.
Here in its simplest terms is why it does not work. Let’s say you have 2 dogs of varying sizes. You only have one big dog biscuit to be shared by the two dogs. You have two different options you can do with the bone. Option one is to break the bone in half and give each dog a piece of the bone. Option two is to give the bone to the biggest dog and expect him to share it with the smaller dog.
Do you think the big dog will share the bone? I don’t think so. Option two is trickle down economics. The rich are not going to share the bones of society because they want it all.
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louis-t
(23,297 posts)Are the same ones telling you the money will trickle down. That's like the big dog saying "give me the biscuit, I promise I'll share it."
Gothmog
(145,567 posts)Without magical tax cuts, trickle down does not work
1StrongBlackMan
(31,849 posts)and that we are all familiar with ...
There is a stretch of road that runs through the middle of town. Come Spring, the number of pothole complaints shoots through the roof. The government lets out a contract to fix the road.
This contract is paid for with tax dollars.
The contract goes to a contractor who pays the various sub-contractors to do various parts of the road repair.
Each of these sub-contractors hire workers to do the repair work.
Each pay day, the workers put some change in their kids piggy bank.
That is how trickle-down actually works. It was bastardized during the Reagan haze to mean giving the wealthy something with them providing nothing tangible in return.
ProfessorGAC
(65,191 posts)I get your meaning, but that isn't really trickle down. That's just the normal flow of money in any healthy capitalist system.
Trickle down is a redistribution of wealth that promises to eventually flow downward and outward. What you're describing isn't redistribution. It's just distribution.
There are goods and services provided for a certain amount of cash. That's how it's supposed to work.
Redistributing upward in a vague hope that it will eventually move somewhere else is a whole different thing, and we definitely agree that it doesn't work and won't.
Jim Lane
(11,175 posts)If the government runs a deficit to do the road work described by 1SBM, the money does, as he says, flow through the economy. (I mention a deficit so that we can ignore the contrary effect of any tax increase that pays for the road work.)
Suppose, instead, the government deficit is caused by tax cuts for the rich. Then the road work doesn't get done. The contractor and subcontractors lay people off. The rich family in town, now having extra money, probably doesn't magnanimously share it with unemployed workers (the OP is right about that), but they do spend a portion of that tax cut on hiring one of the laid-off workers to do landscaping and yard work at their mansion. To that extent there is some trickle-down effect.
The point of comparing the two examples is that, in terms of economic recovery, you get more bang for the buck from just about any fiscal stimulus other than tax cuts for the rich, but even that has some beneficial effect. If you don't like calling the road work an example of trickle-down, you can refer to the multiplier effect of different policies. Infrastructure spending will outperform tax cuts.
ProfessorGAC
(65,191 posts)I still don't think what is being described is trickle down. What's being described is wise and benevolent capitalism and is how things should work.
Trickle down is a upward redistribution of wealth, in some "hope" that it will redistribute back downward.
All i'm saying is that normal flow of capital from a centralized source (tax base) is not the same thing.
One makes sense. The other doesn't.
unblock
(52,328 posts)they simply promised that *some* of the benefits of the economic growth stimulated by giving the rich more money would eventually benefit the poor as well.
and there's some truth in that, *provided* that there was an aggregate shortage of investment capital, and giving the rich more money actually helps alleviate this problem.
this is what i loathe about american political economic discourse. tinkering with the economy is often a matter of engineering: identify the problem, then put in place a solution that addresses that problem. it's a rare proposal that's *always* right or *always* wrong. most proposals are sensible under the right conditions, and idiotic under the wrong conditions.
republicans are usually the ones guilty of this; they always hate taxes, even when a tax would make sense. if the tax rate is too low and the government is struggling and cutting back on spending, then raising taxes could actually stimulate the economy and be a huge boon to everyone, including those paying more in taxes.
the real problem with reagan's tax cuts was that they weren't guided by any engineering thought. they were built simply on a dogmatic objection to high taxes on the rich, without regard to the effect on government budgets, government spending, the economy, or anything for that matter other than the short-term goose for the rich.
the 80's had a mild capital shortage, and a minor tax cut might have made sense. but reagan's plan was way over the line. in any event, we haven't had didn't have anything resembling a shortage of investment capital from then until 2008, so any tax cut proposal made in the 90's or the 00's, were hugely misguided.
Marr
(20,317 posts)Even though it's been repeatedly repudiated by the real world, over and over, ever since-- it's only gained traction with our political establishment. Trickle down economics is a espoused by the Democratic Party's establishment now, too-- though they never use the actual term. They just refer to 'job creators'.
raccoon
(31,126 posts)
Thinkingabout
(30,058 posts)bible and Cruz is claiming to be a Reagan fan.
rickford66
(5,528 posts)Give the bone to the smaller dog. He'll get some of it, maybe more than half, before the big dog takes some away. In Option 1, the big dog is sure to get more than half anyway. Option 2 is what we have now.
Sherman A1
(38,958 posts)and those of us old enough to remember the Reagan era understood this then. Even his budget director came out and said it was unworkable.
eppur_se_muova
(36,290 posts)If one is weaker or less aggressive than the others, it will starve to death. The most aggressive ones grow biggest, fastest, no matter how much food the parents bring.
mmonk
(52,589 posts)BlueJazz
(25,348 posts)
TampaAnimusVortex
(785 posts)If you put money in a bank, the bank's lend that money out for new projects. I don't know of anyone with any type of savings that stuffs their cash into their mattress, as most people are smart enough to want a return on their money, less inflation eat away at it.
If your money (or a rich guy's money) is in a bank, it is in fact trickling down (or sideways, or some-ways).
ErikJ
(6,335 posts)And the multiplier effect of tax cuts for the rich is 32 cents increase in the GDP for every dollar tax cuts vs about $1.50 for every dollar govt spends.
http://freebeacon.com/issues/report-tax-evasion-avoidance-costs-united-states-100-billion-a-year/
http://www.politifact.com/truth-o-meter/statements/2010/aug/12/rachel-maddow/maddow-claims-spending-more-stimulative-tax-cuts/
TampaAnimusVortex
(785 posts)But it doesn't change the truth of what I said. This is a completely separate issue.
ErikJ
(6,335 posts)And most of that probably not even in this country.
Nuclear Unicorn
(19,497 posts)The dog owner is supposedly a centralized distribution point for an artificially fixed number of resources for a set number of consumers.
Why does the dog owner only have 1 bone? That doesn't represent a market economy but a command economy. In a real world economy another party would step in to produce additional bones to meet demand because the profit would be there. Moreover, unlike real world economies the dogs are static consumers but in reality consumers are also producers, i.e. we all have jobs supplying goods and services for others.
ErikJ
(6,335 posts)no matter how much it is. Wolf pack 'dogs' do but domesticated dogs generally dont.
Nuclear Unicorn
(19,497 posts)The analogy is supposed to illustrate one party not sharing with another party. Okay, that works when talking about greed but for the reasons I noted it fails to describe an economic reality where consumers are also producers exchanging goods and services.
Perhaps one of the dogs produces bones and the other dog produces squeaker toys; each producing just enough to satisfy its own consumption. Neither is inclined to share and even if they did half a bone or half a toy would not be very satisfying for either party. The bone producing dog really wants a squeaker toy and the squeaker toy producing dog wants a bone. So both dogs elect to produce more than what they need for themselves and exchange their surplus with each other.
ErikJ
(6,335 posts)And they are willing to do anything to get there. As they say. 'Money is only the scorekeeper'. Meaning they know they have 1000 times more than they need. Its all about being top dog.
Nuclear Unicorn
(19,497 posts)We all come from the same gene pool. The "greedy rich" are absolutely identical to the "scratching poor." Take an impoverished person and give them the same circumstances and they'll probably act the same way (assuming all rich people act the same way). Conversely, taking away opportunity for material wealth away will not cure greed. Imposing a workers' paradise will not cure greed and ambition. All that will happen is the corporatists give up their McMansions to become commissars with summer dachas. Why? Because "they are willing to do anything to get there...Its all about being top dog."
ErikJ
(6,335 posts)Examples are billionaire Nick Hannauer who advocates much higher taxes on the rich so the US doesnt become a 3rd world nation. Many other examples too. Warren Buffet and Bill Gates want to increase taxes on rich as well.
The WISE rich dont want to be a rich man in a poor man's country.
Nuclear Unicorn
(19,497 posts)Whatever economic system we propose will bend to human nature and human nature, unlike economic systems, cannot be changed.
ErikJ
(6,335 posts)but small scale communism does work. Communism cant work in groups bigger than 150 people because it depends on everyone knowing each other personally. And 150 is the max people can personally know.
Large scale capitalism can and does work as long as it is strictly controlled and regulated with high taxes on the rich for good public infrastructure social net programs for the 5% unemployed at any one time.
There are small communist farms all over America known as the Hutterites. THey split when they reach 120 people or so. They share housing and the latest farm equipment and usually do much better than their neighboring small farmers.