Economists

[JimC]

This thread makes my head hurt.

[laklak]

The longer I live the more convinced I am that ain't nobody know shit 'bout nothing.

[Hermit]

Be more accurate if it was also pissing on the small glasses.

That's how we're told it works.

The Trickle-Down Lie

Nobody is advocating the trickle-down theory that the Left attacks.

...

Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory. Some readers said that somebody said that somebody else had advocated a “trickle-down” policy. But they could never name that somebody else and quote them.

[snip]Yet none of those who denounce a “trickle-down” theory can quote anybody who actually advocated it.

https://www.nationalreview.com/2014/01/ ... as-sowell/

"Trickle down theory " is just another name for "Supply-side economics", which claims that economic growth can be most effectively created by lowering taxes and decreasing regulation. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices and employment will increase. President Reagan implemented it with the Economic Recovery Tax Act of 1981. A main feature was to chop the top marginal tax rate from 70 to 50%. Tax revenue from the wealthy dropped, consumerism of lower waged citizens did not increase, and much of the increased wealth collected at the top of the tax bracket, with little reinvested into the economy.

And yet, every government that chops the tax rates at the top end claims that everybody will benefit. That is classic trickle down economics. The reason it never works is that people who most benefit from those tax reductions tend to take most of the money out of circulation by paying off more of their debts (like mortgages and car repayments), buying stocks, bonds, hedge funds and so on. Had the tax cuts been focused more on tax payers in the lower income range, the money would have been mostly spent on consumables, which would have accelerated the economy.

By the way, Reagan's presidency started with a budgetary debt of $900 billion. It ended with a debt of $2.6 trillion.

[pErvinalia]

Be more accurate if it was also pissing on the small glasses.

That's how we're told it works.

The Trickle-Down Lie

Nobody is advocating the trickle-down theory that the Left attacks.

...

Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory. Some readers said that somebody said that somebody else had advocated a “trickle-down” policy. But they could never name that somebody else and quote them.

...

Let’s do something completely unexpected: Let’s stop and think. Why would anyone advocate that we “give” something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? But all this is moot, because there was no trickle-down theory about giving something to anybody in the first place.

The “trickle-down” theory cannot be found in even the most voluminous scholarly studies of economic theories — including J. A. Schumpeter’s monumental History of Economic Analysis, more than a thousand pages long and printed in very small type.

It is not just in politics that the nonexistent “trickle-down” theory is found. It has been attacked in the New York Times, in the Washington Post, and by professors at prestigious American universities — and even as far away as India. Yet none of those who denounce a “trickle-down” theory can quote anybody who actually advocated it.

https://www.nationalreview.com/2014/01/ ... as-sowell/

"Trickle-down" is just another term, I think, for "A rising tide lifts all boats". And I've heard plenty of politicians and political commentators, and possibly economists, refer to this.

[Sean Hayden]

Be more accurate if it was also pissing on the small glasses.

That's how we're told it works.

The Trickle-Down Lie

Nobody is advocating the trickle-down theory that the Left attacks.

...

Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory. Some readers said that somebody said that somebody else had advocated a “trickle-down” policy. But they could never name that somebody else and quote them.

[snip]Yet none of those who denounce a “trickle-down” theory can quote anybody who actually advocated it.

https://www.nationalreview.com/2014/01/ ... as-sowell/

"Trickle down theory " is just another name for "Supply-side economics", which claims that economic growth can be most effectively created by lowering taxes and decreasing regulation. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices and employment will increase. President Reagan implemented it with the Economic Recovery Tax Act of 1981. A main feature was to chop the top marginal tax rate from 70 to 50%. Tax revenue from the wealthy dropped, consumerism of lower waged citizens did not increase, and much of the increased wealth collected at the top of the tax bracket, with little reinvested into the economy.

And yet, every government that chops the tax rates at the top end claims that everybody will benefit. That is classic trickle down economics. The reason it never works is that people who most benefit from those tax reductions tend to take most of the money out of circulation by paying off more of their debts (like mortgages and car repayments), buying stocks, bonds, hedge funds and so on. Had the tax cuts been focused more on tax payers in the lower income range, the money would have been mostly spent on consumables, which would have accelerated the economy.

By the way, Reagan's presidency started with a budgetary debt of $900 billion. It ended with a debt of $2.6 trillion.

It is unlikely that Sowell is unaware of supply-side economics. His point seems to be that trickle-down is a mischaracterization of it. He goes so far as to call it a strawman.

Repeatedly, over the years, the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things. Proponents of tax rate cuts base their arguments on anticipated changes in behavior by investors in response to reduced income tax rates. Opponents of tax cuts attribute to the proponents a desire to see higher income taxpayers have more after-tax income, so that their prosperity will somehow "trickle down" to others, which opponents of tax cuts deny will happen. One side is talking about behavioral changes that can change the total output of the economy, while the other side is talking about changing the direction of existing after-tax income flows among people of differing income levels at existing levels of output. These have been arguments about very different things, and the two arguments have largely gone past each other untouched.

"Trickle Down" Theory and "Tax Cuts for the rich" Thomas Sowell https://www.hoover.org/sites/default/fi ... _FINAL.pdf

-tax revenue during the Reagan administration:

FY 1989 $991 billion
FY 1988 $909 billion
FY 1987 $854 billion
FY 1986 $769 billion
FY 1985 $734 billion
FY 1984 $666 billion
FY 1983 $601 billion
FY 1982 $618 billion

--the share of income tax revenue from the wealthy increased from ~18% in 1981 to about ~25% in 1989.

Proponents of the tax cuts argue that a growing deficit despite increased revenue is a result of overspending. Data since the latest tax cuts appears at first glance to support their argument. While tax revenue increased by ~4%, spending during the same period grew by ~8%.

[JimC]

Corporations and the very wealthy are always going to push for more and more tax cuts. They have the political connections and leverage to achieve this, along with access to the smartest lawyers money can buy to exploit each and every loophole they can. Trickle-down economics via tax cuts for the rich is self interest at its very purest. It may well be that extremely high corporate and personal taxes may stifle business, but the US (and Oz) are nowhere near such a situation.

[Hermit]

It is unlikely that Sowell is unaware of supply-side economics. His point seems to be that trickle-down is a mischaracterization of it. He goes so far as to call it a strawman.

Sowell's attempt to differentiate between the intent of tax rate cuts and what critics of the trickle-down concept make of it is disingenuous if not downright devious. Conservative politicians are not likely to say they cut taxes disproportionally for the rich to make easier for them to become richer even if that leaves the poor in the lurch, and they don't need to explicitly say "trickle-down theory. All they need to do is to say that tax cuts are good for the economy, and what is good for the economy is good for everyone.

This is the main point about income tax rate reductions Reagan made in his Address Before a Joint Session of the Congress on the Program for Economic Recovery on February 18, 1981. "reduced tax rates," he said, "are essential if we're to have economic recovery." Strangely enough he added (and even more strangely Sowell quotes it.) "this is not merely a shift of wealth between different sets of taxpayers." "Not merely", eh? But no, don't worry - on the whole that shift will improve the lot of people in the low income strata. Tax reductions from 70% down to 28% for people with a taxable income above $250,000 frees those people's savings up to invest in stuff that will create millions of jobs for the ordinary wage earner. What other justification could there be for such a shift?

Supply-side and trickle-down economics are one and the same.

[Brian Peacock]

I think we're running the risk of assuming that tax policy is always set for technocratically rational, structural, budgetary reasons -- purely as a means of supporting government spending, a means of balancing the national account. To this extent it is invariably talked about as if the national account is essentially the same as a household budget, just on a larger scale. It isn't. The conservative narrative around taxation is that tax cuts make you richer, therefore give you more purchasing power, and therefore stimulate the economy. This gives the impression that there's a fixed amount of money to go round, that incomes and taxes are balanced in such a way that if you're getting less someone else is getting more, and that the economy is founded on consumption.

In simple terms, the government is not a household or a business because the latter are merely the users of a currency whereas the former is the issuer of currency. The government's fiscal capacity, it's ability to create and spend money, is virtually unlimited compared to the ability of a household or business to earn money and then spend it.

In this regard, stories about how the government are hard up or can go broke are misinformed, or just a politically convenient fiction. The idea that the balance of the national account, or 'The Deficit', can, will, or does affect the government's ability to, say, respond to a massive market failure as in 2007/8 or a global pandemic like we have at the moment, or even its ability to fund public services, is a similar fiction. Nonetheless, narratives about how tax revenues are the government's only source of income feed directly into this kind of misunderstanding - which is in part why questions about whether tax cuts increase revenues seem like a reasonable thing to discuss.

The government does not tax because it starts from a position of having no money - the government doesn't just spend 'other people's money' as Mrs Thatcher would have said. Thinking that it does is a shibboleth that needs to be overturned in the minds of the public and politicians alike. In fact it is government spending (public services, contracts etc) that creates and pumps money into the real economy of people and businesses buying and selling each other stuff, and yet against the conservative narratives this fact somehow appears counter-intuitive until, that is, one realises that every dollar spent is actually someone else's income and that every liability (debt) is actually someone else's asset.

In this light, trying to determine if tax cuts increase government revenues as a way to assess whether r not government can program future spending is kind of looking at things ass-backwards. And even if we put our intuitions aside (without questioning where we got them) and look at the practicalities from a personal perspective: have 40 years of pretty much only tax cuts given us better public services, given us more secure and better paid jobs, reduced our household or business borrowing, or increased our spending power in the real economy of buying and selling stuff against rising prices?

This discussion about tax cuts is merely a side-show to the main event.

[Joe]

I think we're running the risk of assuming that tax policy is always set for technocratically rational, structural, budgetary reasons -- purely as a means of supporting government spending, a means of balancing the national account. To this extent it is invariably talked about as if the national account is essentially the same as a household budget, just on a larger scale. It isn't. The conservative narrative around taxation is that tax cuts make you richer, therefore give you more purchasing power, and therefore stimulate the economy. This gives the impression that there's a fixed amount of money to go round, that incomes and taxes are balanced in such a way that if you're getting less someone else is getting more, and that the economy is founded on consumption.

In simple terms, the government is not a household or a business because the latter are merely the users of a currency whereas the former is the issuer of currency. The government's fiscal capacity, it's ability to create and spend money, is virtually unlimited compared to the ability of a household or business to earn money and then spend it.

In this regard, stories about how the government are hard up or can go broke are misinformed, or just a politically convenient fiction. The idea that the balance of the national account, or 'The Deficit', can, will, or does affect the government's ability to, say, respond to a massive market failure as in 2007/8 or a global pandemic like we have at the moment, or even its ability to fund public services, is a similar fiction. Nonetheless, narratives about how tax revenues are the government's only source of income feed directly into this kind of misunderstanding - which is in part why questions about whether tax cuts increase revenues seem like a reasonable thing to discuss.

The government does not tax because it starts from a position of having no money - the government doesn't just spend 'other people's money' as Mrs Thatcher would have said. Thinking that it does is a shibboleth that needs to be overturned in the minds of the public and politicians alike. In fact it is government spending (public services, contracts etc) that creates and pumps money into the real economy of people and businesses buying and selling each other stuff, and yet against the conservative narratives this fact somehow appears counter-intuitive until, that is, one realises that every dollar spent is actually someone else's income and that every liability (debt) is actually someone else's asset.

In this light, trying to determine if tax cuts increase government revenues as a way to assess whether r not government can program future spending is kind of looking at things ass-backwards. And even if we put our intuitions aside (without questioning where we got them) and look at the practicalities from a personal perspective: have 40 years of pretty much only tax cuts given us better public services, given us more secure and better paid jobs, reduced our household or business borrowing, or increased our spending power in the real economy of buying and selling stuff against rising prices?

This discussion about tax cuts is merely a side-show to the main event.

Why Mr. Peacock, I get the sense that you are gently trying to detour the discussion from its plodding trek through the fetid squalor of the swamps of the dismal science into the broad, sunlit uplands of the enlightened social contract, or at least the benign mercies of Keynesian economic theory.

I don't think you will get much argument here, since most of us are old enough to remember the period before Mrs. Thatcher and Mr Reagan, when these views were the orthodoxy, and many ordinary people benefited from them.

However, I wouldn't call a discussion of the tax cut religion merely a side-show. We didn't depart from Keynesian theory by accident, but by way of an intense propaganda effort, of which this "tax cuts pay for themselves" was a part. Now for a broad swath of our population, at least in the US, this is the orthodoxy that stands in the way of attempting a more Keynesian approach.

Perhaps it's better to think of it as an obstacle in the road to the main event.

[Brian Peacock]

I'd go with that, as it suggests we're yet to even arrive at the fairground.

[Tero]

People are lacking any data in this generally. Then you get the pople working shit jobs in the rust belt and up pops Trump. Mexico is going to pay for the wall! China is paying the tariffs! They believe that, because "he speaks how I feel." The "tax cuts pay for themselves" has just been fact for them since Reagan.

[Svartalf]

and reagan was already famous for his voodoo economics... he might have succeeded in bringing the SSSR to their knees, but what few people realize is how close the US were to going the same way, thanks to his sinking fortunes into boondoggles while restricting revenue and cutting funding to necessary sectors.

[Seabass]

Anyone can zoom in on one or two years and see what they want to see from any given tax policy. It's more useful to look at the big picture. FDR's economic policies built the richest middle class in this country's history, while Reaganomics has ushered in the worst wealth inequality since the days of rail tycoons. It's pretty clear what works and what doesn't. Reaganomics has been an abysmal failure and so the conservatives have nothing left but the culture war crap. They are killing us and starving us and blaming it all on minorities and immigrants. The more desperate they get, the more detached from reality they get. Hence Trumpism.

[Sean Hayden]

It is unlikely that Sowell is unaware of supply-side economics. His point seems to be that trickle-down is a mischaracterization of it. He goes so far as to call it a strawman.

Sowell's attempt to differentiate between the intent of tax rate cuts and what critics of the trickle-down concept make of it is disingenuous if not downright devious. Conservative politicians are not likely to say they cut taxes disproportionally for the rich to make easier for them to become richer even if that leaves the poor in the lurch, and they don't need to explicitly say "trickle-down theory. All they need to do is to say that tax cuts are good for the economy, and what is good for the economy is good for everyone.

This is the main point about income tax rate reductions Reagan made in his Address Before a Joint Session of the Congress on the Program for Economic Recovery on February 18, 1981. "reduced tax rates," he said, "are essential if we're to have economic recovery." Strangely enough he added (and even more strangely Sowell quotes it.) "this is not merely a shift of wealth between different sets of taxpayers." "Not merely", eh? But no, don't worry - on the whole that shift will improve the lot of people in the low income strata. Tax reductions from 70% down to 28% for people with a taxable income above $250,000 frees those people's savings up to invest in stuff that will create millions of jobs for the ordinary wage earner. What other justification could there be for such a shift?

Supply-side and trickle-down economics are one and the same.

I disagree that Sowell is being either disingenuous or devious. He clearly states that the tax cuts have nothing to do with ensuring everyone gets something. Trickle-down then is not the same theory. As for politicians --keep in mind he asked for economists that espouse trickle-down theory-- he provides several examples which show their aim was to raise federal income.

This is the main point about income tax rate reductions Reagan made in his Address Before a Joint Session of the Congress on the Program for Economic Recovery on February 18, 1981. "reduced tax rates," he said, "are essential if we're to have economic recovery." Strangely enough he added (and even more strangely Sowell quotes it.) "this is not merely a shift of wealth between different sets of taxpayers." "Not merely", eh?

--//--

"this is not merely a shift of wealth between different sets of taxpayers." "Not merely", eh?

"this is not merely a shift of wealth between different sets of taxpayers."

--//--

--same statement

I think some of the confusion may be the result of different beliefs about what is possible, or what one should expect from the world. He seems to start from the assumption that controlling the flow of money may not even be possible. He certainly thinks it is a separate issue. I think he would say that it's a fantasy. This aligns with Reagan's speech as well, which doesn't include the idea of trickle-down either, merely, the possibility of creating opportunity. Sowell would probably disagree with anyone who thought the existence of said opportunity was going to be fairly distributed and accessible, or even could be, or that it would necessarily bring success to anyone.

[Sean Hayden]

In this regard, stories about how the government are hard up or can go broke are misinformed, or just a politically convenient fiction.

Bankrupting others was a staple of the British Empire, wasn't it? --nvm-- We became the global player we are in large part because Europe became hard up and had to rely on us. The idea that government's can't become hard up is definitely new to me.

edit: Worse, unless I'm misremembering, it was by following the advice of British economists that some found themselves suddenly beholden to the empire...