Once more into the trickle-down breech

[Kurt_and_Hunter]

“Trickle-down” economics (aka supply-side) is an argument that rich people should have more money because rich people are in the best position to use the money for beneficial economic purposes that will then create wealth that will enrich the lower economic rungs of society.

It is an argument for lower tax rates for the wealthy.

Supply-side economics is crap. Though the rich can do more broadly productive things with money in concept (due to scale) they generally do not do so. They sit on money.

(Note that the problem with the bank bail-outs and 0% Fed Funds rate is not giving the banks money. The problem is that the banks have not then moved the money along into the system. They are hoarding it. Their rich clients are hoarding it.)

Trickle-down is an argument for arranging society so that the rich have more money. It is a cynical con.

A rich person spending $2 million on a social function is not trickle-down. Arguing that a rich person should have $2 million because they might then spend it on a lavish social function would be trickle-down.

A rich person spending $2 million on a social function does, in fact, benefit many average people. That does not argue that a rich person should have $2 million, but rather that if they happen to have $2 million it would be nice if they spent it. It is a transfer of money from richer people to less rich people in exchange for services.

The rich person is not throwing a lavish party to be charitable, of course. The rich person is buying a desired good--a lavish party.


One can argue that there are MORE desirable uses of the money. Giving it to charity or starting a productive business that will employ people for a long time are MORE desirable activities.

But that is not the question. Some hypothetical person has $2 million. It is sitting in a bond fund. It has been sitting in a bond fund for a generation. It will be passed along within the family and will still be sitting in an investment fund a generation from now.

That is where most of wealthy people’s money is… it is invested somewhere. There are trillions of rich-family dollars invested somewhere. And that has been true every minute everyone reading this has been alive.

When a rich person decides to cash in investments and blow money on some lavish foolishness that is VASTLY superior to what is going on with the other 99% of capital.

President Obama has more than $2 million tied up in very static investments. That is inarguably less good for average people than if he blew that money on a party.

But if he blew that money on a party a lot of people would complain. Why? Because it is written deep in our psychology that the primary commodity is FOOD and when you eat food it is gone forever. (Okay... you get a little fertilizer out of the deal.)

If President Obama had $2 million worth of food stashed somewhere very securely it would be soothing to people. Ant and the grasshopper... Joseph in Egypt... we like stories about people storing up some food against hard times.

If, however, President Obama took that $2 million worth of food and had a lavish potlatch-style food-orgy with tons of food being thrown away people would say, “Oh no! All that food is gone forever. There is now less food in the world and that makes me anxious because I have to eat every day.” It would appear destructive and wasteful.

Paying people for services is, however, not the destruction of money. It is the movement of money from one person to another person. It is generally considered a desirable thing. We have 10% unemployment because people with money are not currently buying enough labor from people without money.

One can argue that nobody should have $2 million in the first place. Fair enough.

But why would anyone observe a rich person blowing money and take THAT PARTICULAR occasion to fume that taxes should be higher?

The person already had the $2 million. It was already excess sitting in the bank. It was already unjust, undeserved, etc..

The only thing that has changed is that the person is doing something MORE worthwhile with the money.

And when it is pointed out that, all things being equal, it is better for average people if the rich blow some money on extravagances, versus hoarding it as idle capital, the cry goes out, “Trickle-down!”

That is 180 degrees wrong. It is the opposite of the truth.

Trickle-down would be an argument that the rich should not pay taxes because maybe we will get lucky and they will blow a few million rather than simply hoarding 100% of the money. It would be a moronic argument fit for the Ronald Reagans and Dick Cheneys of the world. It would be grotesque.

But nobody on DU has ever said any such thing.

What some people on DU have said is that if a person happens to have gotten their hands on $2 million somehow it is better for everyone if they SPEND it. It is terrible for everyone if the HOARDE it.

That is a 2+2=4 argument. The counter would be to deny the most basic tenets of Keynesian economics as a practical description of a market economy.

The counter is a tea-bag argument. If the Republicans take power they will plunge us back into recession precisely because they reject Keynes and do not believe in stimulus.

The argument that rich people should be thrifty because times are tough is the same as the argument that we should cut government spending because times are tough.

To review:

Trickle-down is an argument that rich people should have MORE money.

It is a flat fact that, all things being equal, it is better for the average person that rich people spend money versus hoarding money.

It does not follow that rich people spending money is so beneficial that we need to give them MORE money.

The very real benefit of rich people spending money in the real world of this week presupposes that rich people currently exist (they do), that they are taxed at whatever rate they are currently taxed at (they are) and that current law allows them to park money in bond fund or blow money on a party (they can).

Given that, it is vastly superior that they blow the money versus hoarding

[Ruby the Liberal]

1. It showcases velocity

The more money changes hands, the more goods and services are purchased. Parked money has no velocity.

I have an analogy somewhere here about that concept. I'll try to find it.

K&R

[Bitwit1234]

2. No no trickle down is fine for republicans

look at this. Cheney gave Halliburton and it's subsidies all those no bid contracts. Then because he refused to divest himself from the Halliburton stock 43,000 shares, like he was supposed to, he got the trickle down effect. He got it to the tune of about 80M dollars thru Halliburton.

So this trickle down effect works. If you are a republican, associated with big business and are able to hand off all the contracts to your associates. Works very well indeed.

[Ozymanithrax]

3. Spending $2 million on a social function is Conspicuous Consumption...

which is lavish spending on material goods or services for the purpose of displaying income or wealth.

It is a modern version of a Potlatch, which was an extravagant festival held by the Indian tribes of the northern Pacific coast where chiefs and leading warriors gave away their possessions and held lavish parties in order to establish their superiority in social or political status.

[texastoast]

4. ...

[drm604]

5. To boil down your argument (which I agree with)

Wealthy people spending money is a good thing if it's spent on goods and services provided by working people.

Trickle-down claims that they will spend the money if they're allowed to keep it. This is not true to the extent that it makes up for the lost tax revenue. The government is MUCH more likely to put it into circulation than they are.

[Kurt_and_Hunter]

12. It would be nice if the working people got it directly...

...but assuming rich people exist then yes, it is better for them to do something with their money that puts it in circulation.

It would often be better for the government to spend that same money, if that options exists.

(During the stimulus debates pugs were upset that there were not enough tax-cuts for the rich. The counter was, correctly, that tax cuts for the rich are less stimulative because they might save the money. Tax cuts for working people typically get spent.

[northernlights]

6. the investment part would work *if* it were true investment

giving businesses the capital with which to grow and hire more workers.

Instead, what once was investment is now high-stakes computerized gambling on "exotic instruments," controlling the cost and allocation of commodities such as food (literally causing the starvation of some segments of the world population), and stealing from the nonelite who are lured into "investing" but lack the computer-trading and wealth manager advantages.

[90-percent]

7. The trickle down experiment

This experiment has been ongoing for the last thirty years. The measurable data from this experiment shows that in this time period, real income of the middle class has either gained a percent or two, remained stagnant, or has actually gone down. In the same time period, the 1% most wealthy has seen their income (or net worth?) rise geometrically (or exponentially?)

How many more decades are we going to allow this failed economic experiment to continue? My current guess is in perpetuity.

-90% Jimmy

[alterfurz]

8. bumpersticker: "30 years of trickle-down has created a nation of...peons"

Great Depression-era version: "Feed the horse enough oats, and eventually some will make it down onto the road for the sparrows to find."

[county worker]

9. Taxing them more means we have a better chance at using the money for social justice.

[onethatcares]

10. you'll not find the very wealthy arguing with you about those points,

you will find those folks making 43K a year or 55K a year arguing that the tax cuts have to stay. For some reason, they think they are the wealthy ones or that they have a million dollars (liquid cash) to pass on to thier heirs. Sometimes it just makes me want to run headlong into a wall after talking to those kind of folks.

That's why economics is not taught in public schools.

Peace

[Orsino]

11. Yes.

"A rich person spending $2 million on a social function is not trickle-down. Arguing that a rich person should have $2 million because they might then spend it on a lavish social function would be trickle-down."

This.