Trickle Down: Does it work?

[HemlockGrey]

Simple question. Does giving rich corporations and people money and tax cuts eventually create more jobs for the lower classes? Why or why not?

[CDS]

My initial thoughts on this are "yes.. the more money that a company has the more money it has to pay staff wages for any extra staff they need"

But then, it's been a couple of years since I've studied economics...

[Durandal]

Simple question. Does giving rich corporations and people money and tax cuts eventually create more jobs for the lower classes? Why or why not?

According to Homer Simpson, yes. After Marge demands to know why he blew his Christmas spending money on a frivolous gift for himself, he says, "There's a trickle-down theory here. The happier I am, the less abusive I am to you."

[tharkûn]

Simple question. Does giving rich corporations and people money and tax cuts eventually create more jobs for the lower classes? Why or why not?

In general, yes. There are four things one can do with the resulting cash:
1. Spend it.
2. Invest it.
3. Put it in the bank.
4. Bury it in the garden.

Option 1 creates more demand for something and ceteris parabis that creates upward pressure in the labor market. That in turn means higher wages for somebody, which goes back to square one, or more people are hired to fill out demand.

Investment means that the supply of capital goes up and the opportunity cost for expanding a business goes down. As long as there are marginal oppurtunities for growth, and there almost always are, then previously uneconomical operations become practical. This ends up being an upward pressure on the labor market as well as a downward pressure on the supply curve.

Going to the bank is really just another form of investing it. If banks have more money, then they have more money to loan so the supply of loans goes up, the cost comes down, and then you go back to investment as more people can take out business loans.

The last option is the only one that generally doesn't grow the economy. If you remove money from circulation all you accomplish is a slight deflation of the currency. Generally speaking deflation is viewed as a bad thing by economists.


In reality the effects of trickle down are a fraction of what the popular theories predicted. The main cause of this is because all of the above assumptions assume all economic activity is domestic. In reality corporations and the rich can buy imports, creating jobs somewhere else; invest overseas, creating jobs somewhere else; or bank overseas, which is almost impossible to what happens from there.

One should notice here that all of the above arguements apply regardless of who is getting the money. The big thought has always been that the wealthy are more likely to invest and the poor are more likely to consume; but that is becoming increasingly less true. Fostering investment is best done through cutting unearned income taxes (aka capital gains, stock dividends, etc.) and reducing the costs of doing business. Wether or not the economy grows BETTER through trickle down or percolate up is not well understood. My personal bet is that targeting the middle class would be the best economic policy (those who have the ability to invest, but are not likely to invest overseas).

Essentially trickledown "Is correct if one remembers to divide all predictions by a factor of 10".

[Darth Wong]

Simple question. Does giving rich corporations and people money and tax cuts eventually create more jobs for the lower classes? Why or why not?

Giving dogs money would also eventually create more jobs for everyone, because their owners would spend it on consumer goods, thus creating more demand and increasing sales. That example, to me, illustrates the problem with trickle-down thinking: it assumes that the rich are somehow uniquely positioned to spend their money in a manner that will improve the economy.

[Col. Crackpot]

Simple question. Does giving rich corporations and people money and tax cuts eventually create more jobs for the lower classes? Why or why not?

Giving dogs money would also eventually create more jobs for everyone, because their owners would spend it on consumer goods, thus creating more demand and increasing sales. That example, to me, illustrates the problem with trickle-down thinking: it assumes that the rich are somehow uniquely positioned to spend their money in a manner that will improve the economy.

Considering successfull entrepreneurs are a subset of "the rich" then that assumption is more often correct than it is incorrect. Perfect? Not by any means, but it is far better to invest the money in people with a higher likelyhood of investing it into a job creating enterprise that provides long term employement for the masses. Or would you rather spend that investment on those who would be more likely to burn it in the short term by pissing it away on booze and plasma televisions?

[Darth Wong]

Giving dogs money would also eventually create more jobs for everyone, because their owners would spend it on consumer goods, thus creating more demand and increasing sales. That example, to me, illustrates the problem with trickle-down thinking: it assumes that the rich are somehow uniquely positioned to spend their money in a manner that will improve the economy.

Considering successfull entrepreneurs are a subset of "the rich" then that assumption is more often correct than it is incorrect. Perfect? Not by any means, but it is far better to invest the money in people with a higher likelyhood of investing it into a job creating enterprise that provides long term employement for the masses. Or would you rather spend that investment on those who would be more likely to burn it in the short term by pissing it away on booze and plasma televisions?

You apparently do not realize that booze and plasma televisions are consumer products, hence corporations will make money by selling them. Increased sales = increased money at their disposal for capital investment. But in this case, the consumer market decides which corporations will get this increased money, rather than the government deciding via targeted handouts.

[Col. Crackpot]

You apparently do not realize that booze and plasma televisions are consumer products, hence corporations will make money by selling them. Increased sales = increased money at their disposal for capital investment. But in this case, the consumer market decides which corporations will get this increased money, rather than the government deciding via targeted handouts.

true, but by the time it is distributed over a larger demographic, the buying power is diluted.

[Darth Wong]

You apparently do not realize that booze and plasma televisions are consumer products, hence corporations will make money by selling them. Increased sales = increased money at their disposal for capital investment. But in this case, the consumer market decides which corporations will get this increased money, rather than the government deciding via targeted handouts.

true, but by the time it is distributed over a larger demographic, the buying power is diluted.

So what? Why is dilution harmful to the argument? Wal-Mart has based its entire, ridiculously successful business on dilution of profit margin across high sales volume.

[Col. Crackpot]

You apparently do not realize that booze and plasma televisions are consumer products, hence corporations will make money by selling them. Increased sales = increased money at their disposal for capital investment. But in this case, the consumer market decides which corporations will get this increased money, rather than the government deciding via targeted handouts.

true, but by the time it is distributed over a larger demographic, the buying power is diluted.

So what? Why is dilution harmful to the argument? Wal-Mart has based its entire, ridiculously successful business on dilution of profit margin across high sales volume.

which has driven down wages, reduced the number of people with health insurance and driven up the trade deficit.

[Darth Wong]

true, but by the time it is distributed over a larger demographic, the buying power is diluted.

So what? Why is dilution harmful to the argument? Wal-Mart has based its entire, ridiculously successful business on dilution of profit margin across high sales volume.

which has driven down wages, reduced the number of people with health insurance and driven up the trade deficit.

Don't change the subject: Wal-Mart was only brought up as an example to disprove your absurd notion that dilution = less money. Do you understand the concept of an example used in order to prove a particular point? It doesn't mean I think Wal-Mart has been a wonderful business. But if you insist on using this kind of shitty-idiot debating style, consider this: if the government gave Wal-Mart a billion dollars, do you think they'd invest it in a manner beneficial to local economies?

[Col. Crackpot]

Don't change the subject: Wal-Mart was only brought up as an example to disprove your absurd notion that dilution = less money. Do you understand the concept of an example used in order to prove a particular point? It doesn't mean I think Wal-Mart has been a wonderful business. But if you insist on using this kind of shitty-idiot debating style, consider this: if the government gave Wal-Mart a billion dollars, do you think they'd invest it in a manner beneficial to local economies?

i didn't change the subject. As a matter of fact the Wal Mart example is a pefect example of why dilution in this case is a bad thing. Instead of this money being used to generate long term economic growth it would generate a short term burst of growth, enrich few and fizzle in the long term.

And no Mike, i'm not saying it is a perfect system.

[Darth Wong]

Don't change the subject: Wal-Mart was only brought up as an example to disprove your absurd notion that dilution = less money. Do you understand the concept of an example used in order to prove a particular point? It doesn't mean I think Wal-Mart has been a wonderful business. But if you insist on using this kind of shitty-idiot debating style, consider this: if the government gave Wal-Mart a billion dollars, do you think they'd invest it in a manner beneficial to local economies?

i didn't change the subject. As a matter of fact the Wal Mart example is a pefect example of why dilution in this case is a bad thing. Instead of this money being used to generate long term economic growth it would generate a short term burst of growth, enrich few and fizzle in the long term.

Uh no, it's the wrong example for you, because the CORPORATION is doing the off-shoring, not the little people to whom the money was given. Wal-Mart is a good example of how CORPORATIONS will try to spend their money in a way that is not beneficial for the domestic economy, so it disproves your assertion that it's better to give money to CORPORATIONS. Get it?

And no Mike, i'm not saying it is a perfect system.

No, but you're saying that it's better to concentrate money in a few hands rather than spreading it around through many hands, and when presented with the example of giving a billion dollars to Wal-Mart, you simply ignore the point and soldier on.

[Col. Crackpot]

Uh no, it's the wrong example for you, because the CORPORATION is doing the off-shoring, not the little people to whom the money was given. Wal-Mart is a good example of how CORPORATIONS will try to spend their money in a way that is not beneficial for the domestic economy, so it disproves your assertion that it's better to give money to CORPORATIONS. Get it?

Corporation are off-shoring as a response to market demands for cost reductions. Granted profit motive is also a factor. Your method would create a massive increase in demand for cheap low end goods would further increase that! This would serve to help shit corporations like Wal Mart and enrich it's unsavory executives.

[SirNitram]

Talk about fearmongering...

So ensuring the money flows up through the various levels, paying wages and increasing profits for a multitude of companies, is all inferior to giving it to the richest 10%, the primary group responsible for money disappearing into savings and not being invested in some form or another?

[Durandal]

Uh no, it's the wrong example for you, because the CORPORATION is doing the off-shoring, not the little people to whom the money was given. Wal-Mart is a good example of how CORPORATIONS will try to spend their money in a way that is not beneficial for the domestic economy, so it disproves your assertion that it's better to give money to CORPORATIONS. Get it?

Corporation are off-shoring as a response to market demands for cost reductions. Granted profit motive is also a factor. Your method would create a massive increase in demand for cheap low end goods would further increase that! This would serve to help shit corporations like Wal Mart and enrich it's unsavory executives.

Yes, off-shoring is a response for demand in cost reduction and an easy way to fatten margins. Don't you see how this completely disproves the idea that corporations having more money doesn't necessarily translate to that money being put in a beneficiary place for the rest of the economy, especially for the lower- and middle-class workers who are getting screwed out of their jobs by outsourcing and off-shoring?

[Darth Wong]

Uh no, it's the wrong example for you, because the CORPORATION is doing the off-shoring, not the little people to whom the money was given. Wal-Mart is a good example of how CORPORATIONS will try to spend their money in a way that is not beneficial for the domestic economy, so it disproves your assertion that it's better to give money to CORPORATIONS. Get it?

Corporation are off-shoring as a response to market demands for cost reductions. Granted profit motive is also a factor. Your method would create a massive increase in demand for cheap low end goods would further increase that! This would serve to help shit corporations like Wal Mart and enrich it's unsavory executives.

But giving them money DIRECTLY wouold not?

My system would still allow individual consumers to choose who gets the money. Your system is based on the decisions of bureaucrats, and gives money to corporations without regard for their merits as decided by the consumer market.

[Crown]

Warren Buffet (hoped I spelt that name correctly) says it's a load of bullshit (paraphrased of course), he believes tax breaks are more helpful to the economy for the middle class.

Warren Buffet is the world's richest invester. Warren Buffet's opion >>>>> than Bushites.

Well that's my two cents.

[Master of Ossus]

Most proponents of upper-class tax cuts make their case on the basis that the wealthy are uniquely positioned to invest their money, and that such a technique should be used to encourage investment and indirectly capacity. This works great for dealing with some specific problems in the economy, but poorly for dealing with others. It really is yet another one of those trade-offs where you have to sacrifice something to get a little bit of something else, and trickle-down is invoked frequently when it shouldn't be.

[Uraniun235]

true, but by the time it is distributed over a larger demographic, the buying power is diluted.

What you don't realize is that there's a multiplicative property of economic transactions - each transaction itself tends to generate money. Also, people in lower income brackets tend to spend a greater proportion of their money than the rich do.

[Darth Wong]

The philosophy seems to be "if you build it, they will come". Nice line for a movie, but it really doesn't work as an economic model. Increasing production capacity does not necessarily increase local economic activity, since people have to BUY the increased volume of merchandise in order to make that happen.

And what would they buy it with? Money? What money? Oh yeah, we're presuming that their employers give them more money to buy stuff with, aren't we? I guess their employers will have to hand over some of the money they're getting from the government.

So what is the advantage of this scheme over simply giving those consumers the money directly? Aha, more middlemen. Always the best way to achieve maximum efficiency. Increased demand generally results in increased supply; the reverse is nowhere near as reliable a rule.

[Beowulf]

But giving them money DIRECTLY wouold not?

My system would still allow individual consumers to choose who gets the money. Your system is based on the decisions of bureaucrats, and gives money to corporations without regard for their merits as decided by the consumer market.

How do bureaucrats get to decide? The absolute amount that a company gets as a tax break depends on how big the company is, and therefore how much money it gets from it's customers.

[Darth Wong]

But giving them money DIRECTLY wouold not?

My system would still allow individual consumers to choose who gets the money. Your system is based on the decisions of bureaucrats, and gives money to corporations without regard for their merits as decided by the consumer market.

How do bureaucrats get to decide? The absolute amount that a company gets as a tax break depends on how big the company is, and therefore how much money it gets from it's customers.

All tax-break schemes are based on rules whose impact will vary from industry to industry. It's not just a matter of company size. And you're not addressing the point made earlier, that this distribution is done without regard for the company's individual merits, whereas the public would distribute its cash differently.

[Beowulf]

How do bureaucrats get to decide? The absolute amount that a company gets as a tax break depends on how big the company is, and therefore how much money it gets from it's customers.

All tax-break schemes are based on rules whose impact will vary from industry to industry. It's not just a matter of company size. And you're not addressing the point made earlier, that this distribution is done without regard for the company's individual merits, whereas the public would distribute its cash differently.

The public already spends it's cash as it sees fit. Giving them a marginally larger amount of cash won't change it's spending habits. The tax breaks don't really have to have a regard for the company's merits, because the consumer has already decided whether or not it's worthy. If the company makes no money, then they won't get a tax break.

[Darth Wong]

How do bureaucrats get to decide? The absolute amount that a company gets as a tax break depends on how big the company is, and therefore how much money it gets from it's customers.

All tax-break schemes are based on rules whose impact will vary from industry to industry. It's not just a matter of company size. And you're not addressing the point made earlier, that this distribution is done without regard for the company's individual merits, whereas the public would distribute its cash differently.

The public already spends it's cash as it sees fit. Giving them a marginally larger amount of cash won't change it's spending habits.

That would be a powerful rebuttal ... IF the objective were to make the public change its spending habits. Unfortunately for you, it's not.

The tax breaks don't really have to have a regard for the company's merits, because the consumer has already decided whether or not it's worthy. If the company makes no money, then they won't get a tax break.

You obviously haven't known enough creative accountants.