Don't be too disappointed that it is another Chris Post.
I do not consider myself a very intelligent person, but I am generally very
curious and really want to understand some things better, especially politics.
Luckily for me I am surrounded by exceptional family and friends who are sharp
and informed. This election has motivated me to try to dive deeper into politics
than I have ever before attempted. I have many criticism of both of our dominant
political parties but would like to continually provoke discussion on some fundamental topics that I don't hear enough about. I appreciate how professional and classy all of my associations have been as far as not stooping to the loaded manipulative language that we get from our general media. I'm so proud you.
Lately I have been trying to better understand "trickle down" economics and if
this approach has been valuable to our country. I have attached a link to an
article that is critical of Reagan era changes to the economy. The reason I
think this article may be valuable is because of the the information presented from the the Census Bureau regarding household income. (it is all cited and linked to the Census Bureau website) This writer argues that the intention of trickle down policies was never to benefit the poor from the beginning which I don't necessarily believe. But whatever the true motivation, it is important to evaluate how it has done.
Please, if you have time and would like to share your opinion, review the graphs and information presented here and let me know what you think. Is there additional information and statistics that you feel counter the claims in this article? Please share. I just want to use this article to spur a dialogue between friends and family on this subject.
If the information presented by the Census Bureau is correct, it would seem that
a trickle down approach to economics has had a 20 year trial to make its case
and has failed to benefit our society as a whole. Instead, it has increased the gap between the rich and poor. Though the economy has prospered, that money has never made it down to the middle and lower class who has averaged the same salary since the 70's. When taking into consideration how many more women are working and how much more accessible credit is, that fact is staggering. Do you disagree with this
information? Is there something that is not being taken into consideration? Please share what you know on the subject. I don't want people to use the reasoning that if you reject this approach you have to subscribe to the opposite extreme ( Ex. The whole dissing on a Democrat President to defend stupid policies of a Republican one, or vice versa ) I want an honest weighing of pros and cons. I would not ask your opinions if they did not mean a lot to me. Please share your opinion on the subject even if you do not feel entirely informed.
Thank you everybody for your participation. Be patient with me if you feel I am naive, but now is your chance to lay it down. Thank you.
here is the link
http://rationalrevolution.net/war/trickle_down.htm
Lunch, Please
5 days ago
12 comments:
My brother Dan e-mailed me a comment to this blog which I find incredibly insightful. I am going to post it and I would love to hear some comments on it.
Hey Bro, I read your blog and I just wanted to kind of give you my two cents on the matter. As I looked through the graphs of your article I made the following conclusions. First, that the rich are getting richer and the poor are getting poorer and now many, if not all household are forced to have both parents work in order to make things work. Well, we all know that. The fact is that yes Reagan cut taxes to the rich, thereby allowing them to take that money and get richer. Its easier to make money when you have money to make it with. But my belief about trickle down economics is this. It was never meant to be a way to help the poor. It was and is a way for government to collect more money. When the gov cuts taxes their revenues collected go up. This is a fact. The belief is that the rich person or corporation has more money to make money and will hire employees and they will have jobs and pay taxes on their incomes and then the government gets more revenue. This is true. It happens. But, its not the best way to make money. the best way is to LOAN it. When a person or corporation wants to make money they use their money to loan it to people who need it and then charge interest on the loan and they get a profit. The person who then gets the loan has the same opportunity to make money that the person loaning him does, except he has to give a share (ie the interest on the loan) to whom he was indebted. So right out of the gate the debtor is at a disadvantage. His profit will be whatever he makes minus his interest paid on the loan. The person with the money to loan did nothing but loan it and they get a profit. The thing is that the gov taxes the both of them. They get to collect twice, get it? Same money, two times the tax revenue. The government never gave a damn who really had the money and who didn't they just want their share. Lets take this a step further. If i loan you a dollar and you agree to pay me back a $1.10, fine. and you go make 2 bucks give me my money back plus interest. The gov says you made 90 cents we want 9 and I made 10 cents they want 1 cent. Now what? I have 1.09 and you have 0.81. See where this goes? If you continue to use my money you will never be richer than me because I am the one who had the dollar to begin with. The trickle down part is that you have now got 81 cents to work with. But you are the one who did the work, not me.
The only way you can beat me is not to borrow from me. Go out and earn your own money. that is keystone of capitalism. that is what is wrong with society. How many people do you know that have had to start their business with a business loan from a bank. right from the get go they are a step behind and in the hole. The rich get richer and the poor get poorer. Now if they are smart enough they can make enough to pay the bank and keep some for themselves and that is all well and good. But most don't And the bank doesn't are. they will loan you the moon as long as you keep making a monthly payment. Remember, Chris, Debt is slavery. Debt is responsible for the rich poor gap, not trickle down economics, not the government. If I could not loan you that dollar I would have to hire you and pay you to work for me, because I couldn't make any money with out you. With loan i make money even if you fail.But who's the stupid one? me or you? You agreed to take the loan didn't you? I just offered it.
Its wholly the fool who thinks he can get ahead buy selling his soul for silver. I am as guilty of it as any man. I am stuck in Winnemucca NV 500 miles from my family because I bought a house and a travel trailer that i could not afford and I had to have it. Tffany would probably not have to work at all if we had been content to stay in our last house.
One of the ten commandments is "thou shall not covet" and I feel often like I am paying hell's tribute for my sins.
Look at your neighbor. He may look like he is doing better off, but chances are he is in the same boat as you.
How easy is to get a "debt consolidation" loan on the equity in your house? Its a piece of cake. Then you can go into more debt, but you will have some nice things, wont you?
The banking world is in turmoil because of housing loans that cannot be repaid, and who do they go to for help? Yeah you know who. The government who is itself in debt up to its eyeballs. Now are grandkids will have to pay off those debts. Where will the madness end?
Anyway, Im on a rant now and i am also a little drunk tonight but just promise me one thing. Dont ever borrow another penny from anyone. Tell everyone you know to pay off their debt. This is freedom this is what makes us rich and them poor. The debtor is slave to the borrower.
This is how i am choosing my vote for president, and Obama will put this country in debt like no other ever in the history of the USA. I vote against debt.
Ok bro, talk to you later.---- Danny
I didn't really look at the article but I'll tell you this. Economic policies do not create changes overnight. It takes a LONG TIME before their effects are fully felt. The prosperity in the 80s was due to decisions made 20 or 30 years earlier. The crap we're in now is probably in part a result of policies implemented in the 80s. Look at the way the economy was run in the 90s also and you'll begin to see that we had this coming a long time before subprime loans were offered to everyone.
If you want to really understand the economy you need to go back, a lot. Remember that learning your country's history is patriotic. Also remember that no matter who is elected in November there is NO QUICK FIX. If anyone is suggesting something that is a quick fix (remember Hillary touting the gas holiday a while back?) stay away from them. They are stupid.
Hope that helps.
My father e-mailed an interesting response as well.
My analysis of your question is rather straight forward, in that there are many what ifs and supposes that get in the way. This question, in its most basic form, takes on a strong left-right struggle.
Trickle-down economics is a derogatory term used by liberals to criticize Supply-Side Economics. It serves basically the same function as the conservative term "pro-death" when describing what liberals call "pro-choice". They hope to provide prima facie proof that the philosophy is false with just the use of a name. The typical liberal description of the supply-side approach goes something like this: government provides lots of tax and other type benefits to the rich and "eventually" some of that money "might" trickle down to everybody else. The liberal alternative is to have government provide direct financial help to the needy and, of course, they want to get the money to do that by taking it away from the rich.
In reality, supply-side economics is: "let the economy function on its own, with only the truly required amount of supervision/regulation and it will provide the greatest amount of benefit to the greatest number of people. Special problems, such as situations where people cannot make it in the system (single parent families, undereducated, health afflicted, etc.) can be treated on the side through special government attention. Application of wisdom is an absolute requirement.
The general argument is simple: let business function, but watch out for the cheaters. When business operates normally, people have jobs. They are the first to get money. Goods are purchased from other businesses and this provides jobs for more people. The right kind of tax benefits for business results in expansion and still more jobs. Is that trickling? Profits are made, but if they get too high, then other people jump in to compete, bringing those profits to sane levels. That is what happens, unless poor laws and government interference get in the way (as with the oil companies). Yes, this is not perfect. Government does have the responsibility of watch dog and fixing the problem areas. Healthcare, for example, is such an issue, but must be approached carefully.
The above description must be contrasted with the alternative provided by liberals: The government taxes (or in other ways takes money from) the rich to provide for the poor and afflicted. This approach has many problems, but to reiterate a few: (1) Liberals retain the right to define who is rich. They do not distinguish between individuals and businesses This means that they feel they have the right to get the money from whereever they feel they have the power to do so. Of course, when money is taken away from businesses, the businesses have to cut back and jobs suffer. (2) They don't say it outright, but their actions make a simple statement that being rich is evil when someone else (anyone else) is not, no matter how the rich person obtains that money. Creativity, industry, and organizational ability to get things done that other people are not able to do do not merit any reward. Only existence merits reward. As an artist, Chris, how do you feel about that? Liberals do not understand that the right to property is a human right. (3) Liberals retain the right to define who is needy. In a perfect world this would mean the poor and afflicted. In the real world, however, they would be very inclined to send the money in whatever direction lies their strongest power base. (4) Over the centuries government has proven itself again and again to be the least efficient method of operating any kind of function other than war. When government gets involved, most of the available money is wasted and most of what is left gets distributed to chronies. (5) Liberals have the ability to dream wildly about how they can spend other people's money. If they truly had power, whatever money is available will disappear quickly and they'll be looking about for more. Do you really think they are going to stop with the rich?
Liberals think they are wise and philanthropic. But they are only applying band aids by throwing money at problems. Their entire philosophy is too highly prone to manipulation by demigods, whom people trust to take care of them. The word "totalitarian" is generally thought to mean being governed by a dictator or tyrant; which has certain elements of truth to it. But, the original meaning for totalitarianism is where a country is ruled by a government that takes care of its citizens' every need and want. It's not very hard to see how the later tends to move toward the former.
Again, what I say here is blunt and simplified. Additional pros and cons on both sides can be found, but they generally do not amount to much.
Okay, I'd like to make a few comments on the other thoughts people have put here, just to get the facts straight and contribute more to this argument. First regarding the national debt. For some reason everyone thinks that Democrats mean increasing the national debt and republicans mean decreasing it. I'm not sure where that comes from. The "Big Government" distinction used to be true, but the fact of the matter is that the government has increased in size under each presidency pretty much since WWII. If you don't believe me look at some statistics and you'll find that the debt has increased by about 11% under our current president Bush. Historically, however, the debt has grown more when Congress was run by the Democrats (since Congress, not the president, gets to pass laws and spend money), though it goes up under Republicans as well. Don't let this be a factor in choosing who the next president will be. The debt is going to increase whether we're spending money on a hugely unpopular war or whether we're giving health care to people who don't have it.
Second, supply-side economics and trickle-down economics are not necessarily the same thing. To understand supply side you'll probably need to know a little bit of econ 101, but basically everything has to do with supply and demand. Ideally, if you let things go on their own, they will find a nice medium and suppliers will meet the demand and consumers will get everything they want. Governments rarely let this play out ideally. Traditional economic theory would tell you it's best to increase the demand for a product (if more people want something, they'll buy it, so long as they have the money for it. This usually means that we make the burden easier on the poor and middle classes so that they can then buy it). This is pretty simple to see in recent years. Who wouldn't buy a hybrid car these days if we could just afford one?!?
Supply-side economics is a big departure from traditional economics, in that it attempts to raise the supply of products--not the demand. To accomplish this, you have to break taxes for the rich so that they can increase the supply. It doesn't have to do with money trickling down per se. The idea is that you make the whole economy grow (more products for everyone!) So basically the idea is to increase the overall size of the economy. Reagonomics is a type of supply-side economics, but it is not exactly the same thing. Now, going back to my whole car analogy. There are plenty of Hummers out there. Huge supply. Would you want one? No? Really? So just imagine that on a national level. Now you can see why the article you read is so critical of the policy.
Hope that helps.
My friend Mitchel had this to say...
i have a little input for this and i get the feeling you won't see anyone say the same things I will but I might be a little naive about this. I'm a little in the dark on this stuff too but I can tell that this guy is giving one sided rhetoric. That sounds like a negative remark but i was using the literal meaning of the word "rhetoric" which means to Persude using words. If you think back to your English classes in college you will probably remember that feeling of "how the hell can I believe anything I read?". In class we studied many examples where two apposing arguments used the same graphs and evidence to support their claims. This is my problem with politics. It is brimming with rhetoric. So who do I believe? I just trust my gut feelings. Just reading the form of this guys rhetorical analysis tells me he understands the art of persuasion. He is a lot better at making those who already believe his views on the subject to nod their heads in agreement than changing someones mind but he knows what he is doing. This is geared toward those who are not sure and don't fully understand all the ramifications like you and me. one of the main flaws that i found right away (unless i just skipped it without noticing) was that this guy seemed to forget that people spend their money eventually. Nobody hordes their gold like Scrooge McDuck. They buy huge mansions, huge boats, insane cars. All of these things are created by the middle class who end up with that money(I like the middle class. that's us, isn't it? LOL). so many rich people go broke because they spend spend spend. the few who don't eventually die, the money goes somewhere else, and is spent. That's my small amount of rhetoric. Do I think the system is perfect? Hell no! The republicans made it. Do I think this guys politicians have a better plan? Hell no! Their obviously Democrats. I hate them both with the burning passion of a thousand hells! They are both invested in a nation of people who are in debt and drowning in the flawed culture of credit and debt. Remember, the trickle down system is a system that TAKES AWAY less money from people who make more money but it still takes away. I'm so stupid I can hardly support a system that takes away a higher percentage of taxes from anyone.
My thoughts are that there will never be a system that protects everyone because there will always be people who will not work, will always steal from others, will cheat the system, will kill, will rape, will gamble. One of my problems with using one of the proposed systems contrary to the trickle down system is that it takes the earnings away from people of leadership and jobs that average people can't do like Surgeons. IF SURGEONS TOOK HOME AS MUCH MONEY AS A BARBER THEN WHAT THE HELL WAS THE POINT OF GOING THROUGH SCHOOL AND SAVING PEOPLES LIVES?! I put it in bold because it is one of the thoughts that burns in my mind when I think about socialism. Both apposing sides, meaning Republicans and Democrats, have such wildly extreme methods of taking from citizens that it drives me crazy. The Republicans have my vote on this one because it takes less away from Americans. Taxing people never bumped a bum into the middle class. Never! It only fed the government and I'm one of those crazy people who thinks we need to chop our government down to less than half it's current size. No system is perfect. I am a capitalist but when capitalism goes unchecked it gets corrupt and uses children for slave labor. So, again, no system is perfect so go with your gut feelings on this one.
Of course I'm just your average everyday American idiot who can't be trusted with the money I might earn by being exceptional or extraordinary. That's why the government should chose for me and take away anything I earn for being more than average.
How does one go about measuring the size of government anyway? What has the current administration done to increase the size of government?
So Dave, you said that the national debt will go up no matter which political party is in office. If not debt, than what do you think should be the ultimate measure for who we support for president?
This is a really tough one for me, because I am by no means an economic expert - or even someone with what I would call a firm grasp of economics. Maybe I've just weakened my argument by leading off with that, but you should never trust someone who isn't honest regarding the limits of his knowledge.
I would consider myself an economic realist tending toward conservative. The government should run the way we ideally run our own finances. We should limit our debt, but realize that responsible use of credit is all but necessary these days. It's the only way to buy a house, for example, and like buying a house, smart use of credit can be leveraged to bring about a better financial future, such as selling a house for more than you owe on it.
But we've just seen an unbearably huge bailout pass in which our government is buying assets from failed banks that can no longer afford to keep those assets themselves. There is a glimmer of hope that one day those assets will be worth more and taxpayers will recoup our losses. That's a huge gamble, and definitely not fiscally conservative. And it was supported by Republicans and Democrats alike.
There's a quote: "Capitalism will always survive as long as socialism is around to bail it out." It's a scary quote, but it has become quite a truism. I'm not an anti-socialist panic monger, but I do think we have to be very careful to avoid this kind of "corporate welfare" socialism.
(Shameless political sidenote: Bush may be our most fiscally unconservative president in a long, long time, and the rest of the GOP isn't much better. In this election, the choices seem to be between the Republicans - a fiscally irresponsible party in conservative's clothing - or the Democrats - headed by a fiscal liberal with a truly conservative and rational temperament who is at least honest about his big-government outlook.)
To my mind, trickle-down doesn't work. Tax cuts for the rich, in theory, put more money in the pockets of rich people to spend spend spend, putting more money in the economy. In reality, rich people don't use their money the way the rest of us do, and a lot of that money they save by paying lower taxes ends up in the stock market, in real estate investments that contribute to dangerous housing bubbles, and in other places that don't do the rest of us much good. The rich aren't using their money to buy more Big Macs and help poor people working at McDonald's.
To Dave's point, though, that's not the same as supply side, and there is some usefulness for supply-side economics. Strategic investment in the supply side makes certain goods and services more accessible to the people who need it. It should be leveraged for parts of the economy that go to the greater good. So government investment in clean energy technologies will help us all afford more energy-efficient appliances or cars that use alternative fuel sources, contributing to important environmental and national security gains. Investment in medical research makes more readily available life-saving medicines and procedures. But supply-side investment in oil companies or coal mining just enables wasteful use of resources that we can't afford to keep squandering.
I think this goes back to a point you made in a recent comment, Chris: Does there have to be one right way? We have been experimenting with one form or another of trickle-down economics for a long time, and we now have a huge gap between rich and poor. Questions of causation versus correlation aside, maybe it's time for the pendulum to swing back toward progressive taxation, which places a greater burden on those in the higher brackets and puts money back in the pockets of the middle classes, who are now struggling just to make ends meet. It's not a punishment of the rich. It's not anti-business. It's just seeing a need for a course correction and addressing it.
More important, however, might be closing the tax loopholes that big business and the super-rich are able to manipulate. Right now, the rich are, on paper, supposed to be paying a higher tax rate than the rest of us. But because of loopholes, most are able to find ways to dramatically reduce their tax liabilities. So we end up with overtaxed middle classes, a rich class that can CLAIM to be overtaxed, and a government that is outspending itself day by day and has no reason to expect ever being able to pay off the huge debt and close the deficit. It's the worst of both worlds.
Here is another article that shows very clear information about spending under both parties.
http://www.cedarcomm.com/~stevelm1/usdebt.htm
It takes many things into consideration including which parties occupied the house and the senate in relation to rises and falls. It makes a strong case against conservative spending. In fact you can see since Reagan that revenue increased because of increased spending. Our national debt has skyrocketed under Republicans. The success of the economy seems to be falsely inflated because of record spending. Someone needs to look at this information and tell me what I don't see. Because this information (pulled from Govt. data) Shows that Democrats have the best record for being fiscally conservative. True since WW II the deficit has been going up slowly but surely underneath the leadership of both parties, but it clearly goes down or flat lines when Democrats get control. If our govt. was taxing us for their needs such as the war, we would feel the reality of it a lot more. It would have a stronger effect on our lives. We would be more conscious of the war. The war is distanced from us and I think that is exactly how they want it. Their spending is out of control and our children will still pay that debt. But to me it seems like a sneaky conniving way to get done what they want to do. What's worse spending or taxes? Also, From what I read the size of Government is usually measured by expenditure as a percentage of gross domestic product. By this measure our govt. size has grown significantly under our current administration. I thought Republicans were against large Government? Their record contradicts their words. My trust in conservative spending promises is currently 0.0 Does anybody have some constructive feedback against this stance?
In addition to what Dan said. Our money system, the printing of our fiat money system by the Federal reserve, has an automatic debt payment included into it. It is called the Fed Fund Rate, and it has just been lowered to 1%, but has been as high as 14% in my lifetime.
This is how it works. The Fed Rate is the rate that the Federal Reserve charges banks to borrow money. Now this "borrowed money" is just printed by the reserve to "lend". So the Fed will give this money to its member banks, and they charge those banks the Fed rate of interest. Those banks then lend it to other banks, who lend it to customers and business. Then those entities are charge a premium interest rate over the Fed rate so that the banks make there profits.
The banks then take those interest payment from their customers and pay back the loans to the Fed.
Now if you consider this, in the current climate. We pay our government and the Fed, 1% interest a year, or whatever the Fed fund rte is, to use American currency. Even if you are debt free, you still owe the Fed 1% on your money. This is the underlying cause and control for inflation.
-Ryan Fretz
Chris, with basic economic theory, governments should spend money during downturns and reduce spending during booms. This acts as a control on the growth of the economy and was proven during the New Deal when the US spent it's way out of the depression.
Our economic superiority is based on a concept called the "velocity of money". This is what Tickle Down and Supply Side ultimately try to accomplish. A vibrant economy requires people to not save, but spend their money. It must move between as many hands as many times as possible. Once placed in a bank, it slows that process, well, until the bank has enough in reserve (6%) to lend it out. A dollar saved is 6 cents taken from circulation.
So each of these policies is an attempt to speed to velocity of our currency. The government has the ability to increase the money in our system, by lending and spending.
So your insights on historical government spending are very well placed. It made economic sense for the Clinton Administration to curtail spending as America began to emerge from the downturn of the 80's, and it also made sense for the Bush Administration to increase spending after the tech bubble burst and the 911 attacks. It should also be noted that each had there own unique economic climate. During Clinton, there was more money being made, people needed less government support, the US could cut social spending. During W Bush, the opposite.
I think that with this considered, it can really change the argument on spending vs not spending or liberal vs conservative. A political party really should not associate itself with a specific economic policy, because it cripples their ability to act when the climate changes, or it destroys their credibility (ie W Bush). What a party should claim is fiscal responsibility, how is that money spent? Is it spent on domestic social programs, medical coverage for children, etc. Or is it spent on prison camps, inflated military contracts, etc?
Either way, the tangle is thick, and the only thing keeping it all up is the need for it all to stand, the disbelief that it can fall.
Ryan that is a very insightful comment and it helps me understand a lot. I guess it shouldn't be about spending or not spending but about transparency, and responsibility. So when you see the debt incurred during the past administration do you think that the only flaw was spending all that money on the wrong things? Or did they spend too much even considering the fact that spending can be good. Does that make sense?
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