I'm curious if Trickle Down Economics has any demonstrable evidence of being a sucessful economic framework. I've seen figures of this effect in China, and other similar examples but only in developing nations. That is to say, I've found a trickling effect in areas that previous had nothing. My question therfore is has this been observed in an already developed nation with results that benifit the population generally?
I'd first asked, where has it actually been tried? In terms of the US, they used the term whilst really employing (blatantly inefficient) Military Keynesianism. Closest we have is the UK and Thatcher. The massive rise in child poverty demonstrated its "success"!
Have you ever heard the saying success has many fathers but failure is an orphan? Successful times will have multiple schools of thought claiming them while bad times will have no one claim them. So supply siders will point to good times and you will always be able to say "no it was X policies from Y school of thought that caused this." Theoretically, we know that positive supply shocks can promote good things in the economy. However, many supply siders overestimate the supply side movement of their policies, while ignoring others, for example, a supply sider saying we should cut spending by cutting R&D research and thus completely ignoring how R&D is perhaps the most effective supply side policy EVER (not that taxation doesn't matter). Usually, hardcore supply siders are political commentators first, and economists second (if at all). Another example is how eliminating capital gains (last I read about it) is supposed to raise growth rates 1% after 10 years or so. A lot of supply siders want to promise those higher growth rates instantly!
I love hearing people debate the differences between tickle down and trickle up. It goes to show that they bit the hook of oversimplification fed to them by the two political parties.
Trickle down is more than just party politics. It refers to how ideology can be used to twist macroeconomic policy, despite the prediction of disastrous outcome
A couple of things here. First, the standard finding is positive effects from fiscal policy (e.g. Blanchard and Perotti, 2002, An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output, Quarterly Journal of Economics, Vol 17, pp. 1329-1368 ). Second, you haven't even managed to refer to the folly of trickle down
Yes and this is the usual discourse on this topic. It's why I've asked the question on the forum I've suspected this myself. I've only seen a few people learned in economies strongly support supply-side and they come off as pushing an agenda rather then being interested in economic facts. They rarely provide more information then the commentators. Again, that's why i asked the question here As a US citizen your forced to debate this topic -People on either side of the topic are the ones on the ballot. Also, the hypothesis are not necessary oversimplified. Some of the best ideas are simple e.g. evolution is a simple idea that governs the complexities of life. So, anyway, I'm getting the impression that most people feel the answer is no. So let me try and pose the question another way. Currently in America we have quite a large concentration of wealth. Is there any examples in history (Or strong economic theories) that suggest this "gap" will be closed purely by the free market (Without government policies that tend to redistribute wealth. Policies that increase the gap would be allowed in the example or theory)? I'm assuming that a large sum of money distributed among few gives the conditions for "trickle down" -let me know if I'm mistaken.
There are some right wing economists who will support lower taxes and the like, but they'd be less overly optimistic about the gains then a lot of conservative political commentators. Part of the reason they haven't mention reasons is they would likely need to have models to show the losses. Not to mention, it's hard to know exactly how big/small the gains from reducing taxation would be. Also most people in the political sphere (at least so it seems to me) are more interested in being patted at the head and being told they're right then be given a logical argument as to why they are right. You could make the perfect competitive argument, I.E. that lacking barriers to entry, we'd see people switch careers to more lucrative careers. This lowers the pay of these high earning careers, until they are even with the low paying careers. Unfortunately, we can't expect this to happen, due to barriers to entry (such as naturally ability, college degrees etc.). but you could argue that the free market is trying to REDUCE the amount of income equality. Personally? I'm skeptical of any argument that relies on perfect competition.
This is what most people seem to be ignoring or just ignorant of... What exactly is "trickle"? Are we debating whether money actually flows one way or another, or actually proposing to favor the rich or favor the poor in our tax system? Since 47% of the bottom either pays nothing or lives completely on the taxation of the rest; excluding the few at the top who through loopholes can avoid paying a significant portion of their income in taxes, our system is currently unequal. It is therefore not incorrect to say that a tax break on the rich is actually a step "towards fairness" direction than we have been (not that it's in any way popular). On the other hand, as Thomas Sowell describes it, "trickle down" is not even an economic theory that economists discuss. He also showed that the concept was based on a bogus view of capital flow. The business cycle is driven by an incentive to profit, and he merely pointed out that massive taxation at this level severely reduces the possibility of profit. Because the expansion of an economy depends on new investment, and the majority of that is sunk into assets and labor, a lack of confidence in future profit reduces the scale of entrepreneurship, which stagnates growth.
The expression is a buzzword for a political hack. What we should refer to is 'supply side economics'. The country that pursued that the most aggressively was Britain. Note that its child poverty rates went through the roof. You've not provided any data capable of assessing the fairness of the tax system. You'd need to refer to all taxes and you'd need to calculate marginal rates of tax. They'd discuss supply side economics (and its severe limitations such as securing a result that maximises hysteresis effects in unemployment) This is a confused statement. Is this a reference to corporate tax? If so then you're probably going to have to severely exaggerate the effective tax rates. Is it instead about uncertainty? If so then you're going to shift the whole discussion of taxes. For example, with entrepreneurship, its perhaps the social wage that's most important (which takes into account both taxes and social benefits). As this increases the negative consequences of risk adversity for firm creation falls.
In my opinion, supply side economics should not be dealing with trickle down effects, but with supplying better governance at potentially lower prices. What objection is there to supply side economics supplying us with public sector means of production which can lower our tax burden in the manner of Hoover Dam and the Fed; with enough public sector means of production, better governance at lower prices can be achieved.
No need to "shift", in "confidence" read "will I make enough profit for this venture to be worth beginning in the first place. If a venture capitalist knows that taxes, fees, licenses, etc. are going to cripple his business or that he may or may not come out in the black, he won't do anything. It seems you're implying that social wage will somehow lift the burden from the business owner... such is a laughable theory. State inflated wages merely drive up the cost of labor... which is only good for the workers who are left in a job...
Granny says what dat means is... ... dem rich folks dat ain't payin' their fair share o' taxes... ... an' own the companies dat's outsourcin' American jobs overseas... ... is tricklin' onna poor folks.
The Blanchard Perotti paper is great. The results (from the paper): Bailing out a pile of different industries was the wrong thing to do. The folly of supply-side? Just look at the Laffer curve: The key is finding the right tax rate. Unfortunately, most of our taxes are hidden (by design) so the government can "collect" more money than Constitutionally allowed.
Not a cunning idea. The empirical evidence suggests a multi-peaked curve and actually suggests tax rises are advisable. Shot yourself in the foot there!
LOL! I quoted the paper YOU posted, you contradicted yourself and somehow I shot myself in the foot? That's some good trolling there son.
I referred to a paper that finds positive government spending shocks have a positive effect on output. There's no contradiction Haven't you realised your error yet? You gave the ridiculously simple Laffer curve thinking that you had made a good point. You didn't realise that the empirical evidence shows that the Laffer Curve is multi-peaked. You've actually provided an argument for tax rises. Tut tut!
In my opinion, trickle down "theory" has already been discredited by our own elected representatives to government since last millennium. A rising tide lifting all boats could be accomplished by merely increasing the circulation of money in money based markets via market friendly means.
Why, with all these years without regulation, the gap has remained so much smaller? 1. Part of it is the media - what is the income gap between superstars in sports and actors (the average actor income from acting, $4K a year)? I have heard rumors of "Occupy Hollywood" - wonder how the left leaning superstars would react? 2. Part of it is the law, some of those highly compensated are class action lawyers. 3. Another group is executives in highly regulated industries - why is regulation important, only the very large companies can afford the cost of regulation. Where there is a lack of competition, prices will necessarily skyrocket. The large sum of money comes from where? Trickle down means make it easier for businesses and investors to make money, will stimulate the economy. What are the alternatives? Trickle up? How does trickle up work? Increase minimum wage and a more generous welfare? Push down, increase the tax rates on the rich? Both?
Apparently competitive industries exhibit substantial income differentials. Second, hierarchy is typically the voluntary choice of the organisation. Ignoring firm organisation (and economic reality) is a basic requirement for the supply side economics crow
If I am a CEO willing to live with a $10M salary / bonus, and I run a company as efficiently as my competitor paying the CEO a slary / bonus of $100M, I can find a way to use that $80M to steal market share (lower prices, more features, better quality, etc.) As I steal market share, my competitor has a choice how to respond. I expect lowering their CEO's compensation may be a conversation in the board meetings. Oh yes, I know working for only $10M is terribly utopian.
Your argument is based on the neoclassical concept of normal profit in capitalism. We don't have that. Competitive industries are sill characterised by hierarchy and the underpayment therefore created. Bucking the trend will cost the firm economic rent (i.e. profits). Its essentially the profit motive that you ignore
