Question on Economic Policies

This is a real question; hopefully we can gain some wisdom.

Regarding the economic model in practice for especially the last 8 years - call it Supply Side or Trickle Down as you wish -

The theory here, as I understand it, is the high-end economic class and corporations get substantial tax breaks, so they will expand their business and hire more people into good jobs at good wages, thus the economic benefit trickles down to the middle class.

Based on results, and the current state of employment and the US economy, it is clear that this trickle down theory is not working.

My personal opinion, based on what I know at the moment, is that trickle down could work. But it is clear, given that working class wages have stagnated or declined while executive class wages have gone through the roof, that said executive class workers have not chosen to trickle down their economic benefits... they have chosen instead to keep those benefits accorded by tax and other economic policies in the executive wage group.

Working class wage stagnation and executive class wage increases have been well documented on this site, so I will not do so here.

The McCain tax and general economic policy by all appearances is not significantly different than the Bush model of the last 8 years, so we can probably fairly safely assume his model will continue the trickle down approach. Which has been documented to be not working.

Obama's economic model appears to be different and may or may not make things better; it is not the intention of this thread to discuss his plan.

So (finally) here is my question:

Given that the trickle down economic model has not worked and given that the priorities and incentives of the executive wage class workers has not significantly changed and given the apparent fact (subject of course to my mis-understanding of McCain's model) that the McCain economic policy will not significantly diverge from the current trickle down approach, what reason is there to assume that continued application of the trickle down economic model will have any different outcome in the future than it has had to date?

OK, now:

This thread is not about Obama.
This thread is not about Obama's economic policies.
This thread is not about semantics of whether the current economic policy can be labeled the "Bush" policy.

This thread is asking a relatively simple question, the one in bold above.

Edit to fix typo.


[edit on 21-10-2008 by Open_Minded Skeptic]

Originally posted by Open_Minded Skeptic
OK, now:

This thread is not about Obama.
This thread is not about Obama's economic policies.
This thread is not about semantics of whether the current economic policy can be labeled the "Bush" policy.

This thread is asking a relatively simple question, the one in bold above.

Brilliant, I love this disclaimer/statement... i should have used this or some variation of, when venturing off into the pollyticking end of the ATS universe.

On the "Question on Economic Policies" i think Ron Paul is the only one on the ball. As long as the Federal Reserve is pulling the strings, any difference in economic policy is trivial.

Synopsis on Paul's bill
H.R. 2755: Federal Reserve Board Abolition Act

Originally posted by The All Seeing I
On the "Question on Economic Policies" i think Ron Paul is the only one on the ball. As long as the Federal Reserve is pulling the strings, any difference in economic policy is trivial.

I tend to agree... I'll check this out when I get back to a system that can access YouTube...

...what reason is there to assume that continued application of the trickle down economic model will have any different outcome in the future than it has had to date?

The question you ask regards an issue that is very steeped in dogma. Economy, is a behavioral science. There are many assumptions regarding what is and isn't 'fact' and 'hard rule' about how markets work. This is true because monetary policy, political ideology, and much more have bearing on the way revenue and wealth flow within a community.

I apologize for not coming out and answering your question from the get go, but you must be willing to accept that which you WILL NOT be told by anyone who already has a 'mindset' regarding what is the proper way to interpret what you refer to as trickle-down.

Let me specify the answer now, to relieve you from having to read the rest of my diatribe if you disagree.

There is no REAL reason to assume that continued application of the trickle down economic model will have any different outcome in the future than it has had thus far.

Keynesian economics, supply-side economics, trickle-down economics, voo-doo economics; no matter how you slice it it is a construct dependent on paradigms that our 'talking heads' and 'political know-it-alls' never seem to mention; namely:

1. Monetary policy granting a monopoly of currency to an internationally controlled cartel of bankers represented in a single 'central national' bank. This banking entity is separate and removed from control of the government in question; they determine the availability of actual currency in the market, thus driving inflation at their whim; also they are the sole determiners of the 'credit rate' at which all other lending institutions are held to by law.

This model reduced the governments ability to control the economy by forcing a reactive element; it discourages 'saving' and creates a financial center of gravity away from the source of the wealth (the people) towards the privately owned international banking industry.

2. It is assumed that by increasing the wealth of the 'wealthiest' the 'excess' will be shared in the form of increased availability of services, products, or what have you, at a lower cost to the consumer - since the profit is not threatened by the market itself. In other words, the 'trickle-down' will happen because we ASSUME the wealthy will 'share' their good fortune, or be less inclined to horde it all for themselves.

Supply side refers to the holiest of holies to neokeynesian economists, the Laffer curve. They propose that demand is a consequence of supply - so all the financial benefits must be applied to the supply side of the equation to benefit the 'demand' side.

For more info see the ongoing debate:

www.abovetopsecret.com...

[/shameless self-promotion]



[edit on 21-10-2008 by Maxmars]

reply to post by Open_Minded Skeptic


Well, where do I start? I know, Trickle Down theory is a complete and utter FALLACY. It has never worked and never will work. Here is why.

For any economic theorem to hold true it must first stand up to the basic tenets of supply and demand as they are the foundation of the science of economics. Let me give you a few examples to illustrate this. As you stated, Trickle Down would have you believe that giving tax breaks to a company will allow said company to expand and hire more workers or possibly pay their workers more money. This is FALSE.

A company will only hire more workers if the DEMAND for its product increases, PERIOD. Look at it this way, if your company needed 100 workers to produce 1000 widgets last year, and next year you expect demand for your product to again be 1000 widgets, why, even if given a new tax break, would you hire more workers? The 100 workers you had last year produced your 1000 widgets and they will suffice in producing your 1000 widgets next year. Why would you expand your labor force or your facilities in this example? The answer...You would NOT. Lets move on to the other false assertion of Trickle Down that a company would pay its workers more money in the light of an additional tax break.

The price of labor (wages) acts just like the price of any other commodity (oil, bread, computers, etc). The price paid for any commodity is directly related to the supply of and demand for that commodity. When the supply of a particular commodity decreases, the price you pay increases. When the demand for a particular commodity increases, so does its price. The price a company is willing to pay for labor is no different. It will only change if the supply of labor or demand for labor in its labor market changes...PERIOD. Lets look at another example. Say you require college graduates to produce your product or service. If for some reason the supply of college graduates decreased in your labor market, you would then be willing to pay more for those workers. On the flip side, if the demand for college graduates increased in your labor market, say a competitor moved in who also needs college graduates, then you again would be willing / forced to pay more for those workers. Aside from these two examples, there would be no reason for you to pay your workers more money...PERIOD, no ifs ands or buts about it (aside from artificial increases in minimum wage or cost of living increases). An increase in profits due to a new tax break would have no effect on wages paid for your labor.

Trickle Down theory is the perfect example of demagoguery. A demagogue by the way is a person who preaches things he knows to be false to people who he knows do not understand. This is why the conservatives continue to spout this false theory, they know most people do not understand it (and of course it greatly benefits the rich). Trickle down makes sense on the surface and that is all that matters to them because most people are not willing, or able for that matter, to scratch below the surface and discover that this theory dose not work.

No true economist will ever tout Trickle Down because they know a second year economics student could disprove it. You will however, see many people tout this theory in books written by conservatives to sell to still other conservatives. However, proof is not delivered in commercial books, it is delivered in peer reviewed economic papers written ,or published, and up to scrutiny by other economists.

After reading this, I can only hope you will never let some conservative tout Trickle Down or Reaganomics or Supply Side economics ever again. If that happens, I have done my job.

Maxmars and BluegrassRevolutionary, thank you both for your replies...

Maxmars, thanks for the link to the debate... I'll have to go through that when I've got more time to give it the attention it deserves.

BGR - seems like I've seen your argument before, and Thank You. I've not been able to find it since the first time I saw it, and I find it an excellent argument.

Where I see that TrickleDown could work is, given your example of still needing to produce 1000 widgets with 100 people, but this year the company gets a big tax break.

The tax break in essence means higher profits, all else being equal. So the business owner can do some combination of the following with these higher profits:

1) Expand the business. Not likely in this scenario, for the reasons you state... why, given no added demand? Let's say for this discussion also that the mfg. equipment is fully up to date, so no need to modernize there.

2) Save these added profits so that in lean times, there would be less or no need for lay-offs. This could be interpreted as the benefits trickling down, as the employees would then not lose their jobs when they otherwise might. A tricky argument, and raises other questions, such as what if no lean times?

3) Keep the money, i.e. give him/her self a raise.

4) Give the workers a raise.


So. We can eliminate option 1, by the constraints of our example.

Option 2 seems to have some merit, and if the widget industry is cyclic or seasonal, might make sense. A worker that is normally laid off is likely in better circumstances if they are employed, which this option could cause to happen.

Option 4 requires that the business owner have some degree of selflessness (for lack of a better term). Higher profits due to tax breaks are not due to any explicit effort on the part of the workers, so it can be argued that they don't "deserve" a raise from that.

Option 3 is the route most frequently taken, as the economic data indicates.

So it really comes down to, as Maxmars said, behavior. Trickle down depends on the generosity of spirit of business owners to spread increased profits due to tax breaks among the workers.

While I can see how this could be the case, I also believe it is true that such generosity of spirit is not often found in major business owners. The business climate is too cut-throat, or at least is seen as such.

I agree that

I know, Trickle Down theory is a complete and utter FALLACY. It has never worked and never will work.

and I'm nowhere near being any sort of economist, first or second year...

But if it is obvious to the likes of me that it is a fallacy, we come back to my original question: why continue to pursue it?

I'd still like to hear some opinion from adherents of the Trickle Down approach.

To my understanding, Bush's trickle down economics had very little to do with the situation we are in. Its unfair to blame him for something that happened primarily because of something Clinton put into power.


As for Ron Paul, I personally think he is a good guy. Certainly more qualified than Obama. I must also say though that a LOT of young voters will be voting for him, as Paul supporters are passionate about their candidate. Unfortunately, all Ron Paul is going to do is sway wins wherever he's on the ballot.

reply to post by AndrewTB


I think we need to go even further back than Clinton. The earliest example of the model of 'tax-breaks for corporations' = 'increased wealth for all' in my opinion started with Andrew Mellon, who bolstered his and his friends business in the late 1920's by decreasing the taxes they had to pay. As a result the GNP rose (of course we coincidentally had a market crash of unprecedented scale following that 'strategy'). Oddly, despite the outcome, people still use Mellon's actions as a justification to promote the notion that removing tax-liability from the mega-wealthy corporate entities to 'improve' the lot of the 'little people.'

Sadly, politicians are no longer agents of the people. Thus, Clinton, Reagan, etc., all had no real bearing on the policies of the Fed - which are the crux of the problem. The last President to attempt to compete with the Fed by printing US currency on Constitutional authority was JFK. What can we infer from that? Perhaps nothing. Perhaps something.

reply to post by Maxmars


Actually, the idea of Trickle Down goes even further back. I believe it was first used as far back as the late 1800s. Back then it was known as the "Horse and Sparrow" theory of economics. The way the theory went, if you feed the horse enough oats, some of the oats will fall to the ground to feed the sparrow. Again, it makes sense on the surface, however, it does not work like that in the real world. All too often the horse is greedy and couldn't care less about the sparrow ultimately attempting to eat even the oats on the ground.

Originally posted by AndrewTB
To my understanding, Bush's trickle down economics had very little to do with the situation we are in. Its unfair to blame him for something that happened primarily because of something Clinton put into power.

Actually, the economic crisis we find ourselves in today mostly relates to Reaganomics (another word for Trickle Down by the way) and Reagan's policies of DEREGULATION. Remember that word, it will be a hot topic in the years to come, or, at least, the reversal of deregulation that is. If you doubt this, type "failure of Reaganomics" into Google News and read a few of the many recent articles relating to this subject and our current financial crisis.

Wow, Nice question! and I love the disclaimer!

I believe that the so called "trickle down" economics policy could work, but it would have to be tweaked a little.

Right now, most of the trickle down policies are just tax breaks for "nothing" pretty much. If somehow, we could institute a quid-pro-quo tax break system, it may have a shot at working... let me explain myself...

The government should not just give a tax break for being a big corporation IMHO. but maybe, if they gave tax breaks based on what they provide for their employees, i.e. a tax break based on payroll figures for all wage employees making more than minimum wage (on a sliding scale to accommodate for higher payed wage employees, also note I said Wage, or the hourly guys... not salaried positions).

Or perhaps a tax break for providing extra benefits to your employees.

if the government could balance the costs incurred by these businesses with the appropriate level of tax relief, It might work...

Add my belief in raising taxes on imports, making American companies profitable vs buying foreign goods, and we might have a winning formula.

However on that last point, I may be biased as I am a Michigan resident, and our area has been hit unbelievably hard by the foreign automakers and cheap overseas labor.

reply to post by nj2day


There is merit in your ideas. The pro-corporate stance is that the already is a quid pro quo in place; namely, the trickled down benefits to the economy.

Perhaps we should have more say in what constitutes acceptable 'quid' for the 'pro quo'. Right now they get to make that determination virtually unilaterally - by lobbying (or purchasing) the allegiance of legislators or political 'appointees' (which are mostly their own ilk anyway.)

Originally posted by nj2day
The government should not just give a tax break for being a big corporation IMHO. but maybe, if they gave tax breaks based on what they provide for their employees, i.e. a tax break based on payroll figures for all wage employees making more than minimum wage (on a sliding scale to accommodate for higher payed wage employees, also note I said Wage, or the hourly guys... not salaried positions).

Or perhaps a tax break for providing extra benefits to your employees.

if the government could balance the costs incurred by these businesses with the appropriate level of tax relief, It might work...

I also like this idea... kind of puts the horse in front of the cart again... the way its done now is, the corps. get the breaks on the assumption they will do something valuable with them, then they too often don't.

This idea rewards companies that DO take care of their employees, and helps offset the cost of doing so...

Great idea!

Capitalism has been such a great driver for increasingly expensive technologies precisely because it concentrates cash. You can get one thing to everyone, they give up little, you get lots. For trickle down to work, you need redistribution, because that is paying teachers to skill our work force, and as you will find out, doctors to heal the sick. It also involves welfare, defence and the police. Trickle down does occur, but over centuries as one class out grows another, in the immediate term, it is so slow that without backup it is an excuse of a policy.