Final Nail in the Coffin for Trickle Down Economics?

[DisgruntledGoat]

So with the release of an IMF "discussion note" (they really don't like to call things studies, papers, etc.) on income inequality which you can find here has a lot of interesting info (its long and I haven't completely finished reading it). Of particular note are its findings with regards to trickle down economics. In short they found that increasing income share of the top 20% actually caused economies to slow down and declines over the medium term and the "benefits do not trickle down." Increasing the income share of the bottom 20% on the other hand results in GDP growth. Their conclusion from this is striking in how common sense it is (i.e. did we really need a statistical study to show us this):

The poor and the middle classmatter the most for growth via a number of interrelated economic, social, and political channels

The note also covers topics like labour laws, saying the loosening of law regulations equates to economic losses and gains in the share of income for the top 10%.

I live in a country with some of the LOWEST corporate taxes as well as significant tax breaks for top income earners as well as significant new attacks on organized labour (thanks Steven Harper, HEAVE STEVE 2015!) and I hope my future governments begin to take this into account (finally). Myself, being a top 20% earner in my country I have no problem giving up some of my perks if it means that our struggling economy can start moving again.

Now if governments can just learn that austerity doesn't work either we might start seeing some serious progress.

[Abdülmecid I]

Never understood the popularity of the trickle-down theory. Even with only a basic knowledge of history, you should know that money takes the opposite direction, from the lower to the upper classes, which slowly but gradually begin to accumulate th wealth of their society. Even Solon understood that simple concept, 2500 years ago. The state is supposed to use taxes, in order to redistribute the wealth of the community, preventing the society from imploding by too much inequality between its members. Even the wealthiest should support a redistributing system moderately in favour of the poor, since it provides stability and allows the society to continue to function normally, maintaining the social status quo.

[Caligula's_Horse]

Never understood the popularity of the trickle-down theory. Even with only a basic knowledge of history, you should know that money takes the opposite direction, from the lower to the upper classes, which slowly but gradually begin to accumulate th wealth of their society. Even Solon understood that simple concept, 2500 years ago. The state is supposed to use taxes, in order to redistribute the wealth of the community, preventing the society from imploding by too much inequality between its members. Even the wealthiest should support a redistributing system moderately in favour of the poor, since it provides stability and allows the society to continue to function normally, maintaining the social status quo.

In defense of the trickle down concept, it did work, sort of, for a time.
Its just nonsense the wealthy try to throw around to justify their tax law privileges in the eyes of the masses nowadays, but the trickle down model really did work for large stretches of the 20th century. It wasn't necessarily the best way of going about it, but it did get results and served as a workable basis without imploding on itself, like say, communism, or being swept away by reform and revolt like feudalism. The western world is still home to many of the most economically equal societies in the world today, partially thanks to its past achievements.

Of course, today what merits it had were stripped away by globalization and mechanization that mean the rich can keep getting richer without much wealth being redistributed. Much of the trust some people still have in the trickle down model is based on past performance, however, not its current record.

[DisgruntledGoat]

What past performance? Granted this study only looked back to 1983 but since then it has not had any success. So please elaborate on these "larges stretches of the 20th century" where trickle down economic polices have proved successful.

[mrmouth]

Never understood the popularity of the trickle-down theory.

It's that the rich people owned the narrative and the Democrats went along with conservative fiscal policy of the last 30+ years. The fallacy of trickle-down is the fallacy of conservative fiscal responsibility.

[Caligula's_Horse]

What past performance? Granted this study only looked back to 1983 but since then it has not had any success. So please elaborate on these "larges stretches of the 20th century" where trickle down economic polices have proved successful.

I'll freely admit its more of a general impression I've got rather then something I based on any particular study (that I can recall at least).
That being said, the trickle down model was very much the norm across the western world roughly from WWII to today, and at least for the first couple of decades saw income inequality reduced and wages comparatively rising for the lower 80%. Its partially attributable to other variables of course, but then, what isn't? Probably has to do with how much the economies of the time relied on manufacturing using local skilled labor.
It still works to an extent in some places. China's recent rise in wages and quality of living is largely due to trickle down, though how sustainable it is, and whether it could have been done better is a different matter.

Not sure how relevant it is for our discussion though, seeing as globalization and mechanization/automation have drastically changed the picture since. We're talking about today's economics, not back before the developed world partially de-industrialized.

[DisgruntledGoat]

I would argue the advances of organized labour are what drove the economy though most of the 20th, at least up to the 70's. I really can't see how it was trickle down economics. The massive boom in population in the decades following the war drove the consumer economy wild necessitating massive investment in manufacturing facilities. Organized labour than ensured those that were working at those facilities were getting fair compensation and benefits.

China is certainly not somewhere that we should be looking for trickle down economics. The investment there was driven by exploited labour and still is.

[MathiasOfAthens]

I would argue the best real world example of Trickle down in action is in the State of Kansas. They have literally demonstrated how this theory will affect society. A Kansas farmer was interviewed and asked whether he would hire extra workers now that his taxes were cut . He said he would save the extra money... he has no need to hire more workers.


Anyway Kansas realized their failure in this experiment and decided to raise taxes again.... on the poor.

[dogukan]

Economics is not a scientific field where you do one thing wrong or right.
Economics is presented as a science where you try to manage it right...THat I believe is an illusion.
Economics is all about politics, and all economic choices are political. Whether be pro-austerity or anti-austerity.

The era that kick-started neo-liberalism was an era where the bourgeouisie hegemony smashed labour through its new ideology. It was an agenda pushed by the empowered rich.
Of course there is an academic side to it, but neo-liberal agenda was acting a lot more on political motivation than technocratic mentality. A political connection to global market connection, supported by the then growing TNCs. Much like the ideology of "real communism" of the 20th century having a ideological relation to state-ownership.

That being said, from bourgeouise's perspective, the neo-liberal area was succesfull in increasing commodification of more things in the world, turning the whole world into a shopping center. In some countries this translated to growth, though there is no "real wage growth".
Absolute poverty decreased, but relative poverty even increased.
Inequality thus, definetly grew more.
And nowadays the neo-keynesian team is stronger in their argument, presenting that neo-liberalism's agenda did not achieve any significant growth compared to the Keynesian era of 1950-70s.

But I don't believe that those policies necessarily solve problems. I believe society's problems are ingrained in the functioning dynamics of capitalism, especially at the global scale.

[Dr. Chet Manley]

Well I actually have to address the elephant in the room, we are going through a transitional stage. Past economic policies have ran its course and presently we (developed world) have no answer for the issues raised with the modernization of labour and for the service-oriented economy that the West has turned into.

I believe the future will be something more akin to a form of communism and please let me entertain this idea.

Imagine that in a near future all production is fully automated and that some services still require human intervention. Assume now that a country's assets are all state owned.

Every citizen should receive benefits, even if they don't work and those who do work will receive more.
Since the economy is state controled this should not be a problem and assuming that most of the world adopts this policy.

Technological advances should still occur because people are naturally curious and ambitious.

One of the many problems with this is that capital runs the world nowadays and these capitalists are the only ones who would be able to lead us into this technological level (which would be ironical to say the least).

I know this is off-topic but tis only my two cents.

[Revan The Great]

While I'm studying to become an accountant, my only real economic background is college-level economy classes, which in any case were more concerned with supply/demand curves than really discussing economic theory. That said, I had a few thoughts I'd like to add.

I don't like taxation. I consider it a necessary evil to fund certain critical things, like a military, a police force, certain social safety nets, and so on - the exact extent of what the government should fund is open to extremely varied interpretations, but it's not important right now except to say that I tend to be on the 'smaller government' side of things.

Basically, I think that people know how to spend their money better than the government knows how to spend it, because the government is large, ponderous, and wasteful. $100 in my hands is $100, but $100 is the government's hands might only amount to $57 in practical terms after waste, inefficiency, servicing debt taken to fund the behemoth, and so on. In that sense, I'm not rich but I want rich people to keep their money and do things with it - start new companies, fund research, give to charities...or simply invest in the stock market and help fund industry that way. At least, that's the ideal.

I acknowledge that there's a 'Savings Problem', where people take their tax cuts, or just their regular gains, and don't spend it. They buy land and hold it, or stuff money in the mattress. So no, that part isn't healthy...but I would argue that this behavior isn't a failure of 'Trickle Down Economics', it's due to other factors - high government regulation, excessive/punitive taxation, economic uncertainty and so on. We must remember that the world is still recovering from a global, economic slump and I think people, companies, and countries are still trying to find paths forward while still being threatened with stuff like the Chinese stock market plummeting, Greece threatening default, and so on.

One last thing, I don't think that economic inequality in and of itself is necessarily a problem. There are always going to be people on the bottom, and the prospect of getting to the top is, in part, what motivates people to create Microsoft, start Facebook, and do all that creation, innovation, business starting, and so on. What I'm more concerned about is economic inequality that is accompanied by stagnation. Yes, the bottom 20% own a minor fraction of the wealth, but are those same people in the bottom 20% ten, or twenty years from now, or is the bottom 20% now occupied by a new crop of young people, immigrants, etc. ? In other words, I don't think economic inequality is an awful thing as long as there's social mobility, and people don't get 'stuck' in the bottom 20% for their entire lives and become a permanent underclass.

I'm not familiar with statistics on social mobility of people from the bottom 20% on upwards, or lack thereof, but I imagine social mobility has taken a hit recently. Again, I wonder if this is an intrinsic problem in need of a clear solution, or just another function of a world wide economic slowdown that we've yet to recover from.

Edit: I didn't realize the last post in this thread was a month ago until after I posted so apologies if I just dredged up a dead topic. Feel free to ignore me ^^

[Enemy of the State]

I would argue the best real world example of Trickle down in action is in the State of Kansas. They have literally demonstrated how this theory will affect society. A Kansas farmer was interviewed and asked whether he would hire extra workers now that his taxes were cut . He said he would save the extra money... he has no need to hire more workers.


Anyway Kansas realized their failure in this experiment and decided to raise taxes again.... on the poor.

Unless that farmer is stacking piles of cash under his bed, those savings are being invested. Why do you think Kansas would benefit from more people working on farms and not elsewhere?

I'm not convinced the term "Trickle Down Economics" is anything but a strawman. Can anyone give me an example of an economist actually advocating such a thing?

[dogukan]

https://en.wikipedia.org/wiki/Trickle-down_economics

It has been a thing for quiet a long time, especially in development economics. If you allow a rich to arise, they will eventually create employment and increase wealth in the nation.
Neo-liberalism has really enjoyed this idea in the past decades. It was one of the main cases against social welfare...that wealth was going to be created anyways.

and for the poor countries, inequality may rise for a while, but on the long-term they will be out of poverty trap.

None of these happened of course.
In the devloped world, real wages remained stagnant as inequality increased. And in the developing world, inequality grew without coming back down, and poverty persisted.

[snuggans]

https://en.wikipedia.org/wiki/Trickle-down_economics

It has been a thing for quiet a long time, especially in development economics. If you allow a rich to arise, they will eventually create employment and increase wealth in the nation.
Neo-liberalism has really enjoyed this idea in the past decades. It was one of the main cases against social welfare...that wealth was going to be created anyways.

and for the poor countries, inequality may rise for a while, but on the long-term they will be out of poverty trap.

None of these happened of course.
In the devloped world, real wages remained stagnant as inequality increased. And in the developing world, inequality grew without coming back down, and poverty persisted.

http://www.un.org/esa/socdev/rwss/do...0/chapter2.pdf






http://ourworldindata.org/data/growt...world-poverty/







GDP growth, global trade and entrepreneurship does help immensely, but we also need wise regulation not advocated by laissez-faire capitalism. socialism and communism is not the answer either (except for specific situations such as self-sustaining agrarian villages/hamlets where everybody's effort can be accounted for and those getting free rides are easily noticed and weeded out). china was able to lift several hundred million people out of poverty because they increasingly turned towards capitalism and trade, NOT Maoism.

the movement to raise minimum wages and wages in general is already happening, although i do not condone such a sudden hike to something like $15 an hour especially for entry-level jobs like fast food workers. here's a thing liberals don't understand: you can either complain about outsourcing jobs or you can complain about low wages, but you can't have both amazing wages and for corporations to keep all the jobs here, it doesn't work that way mathematically. the far-left want to disembowel the entrepreneurship ceiling because each time they look at a high-rise in NYC their blood boils in jealousy, instead of using that high-rise as motivation they can aspire to, to work harder and make more money.

as GDP grows, the amount of money that comes from taxing it also increases, and this money can then be used in the budget to fund social services and to help boost the worst-off among us. the key is to promote globalization and the free market. yes, far-lefties, those evil corporations you guys like to trash are very essential in reducing poverty and other worldly ailments. keep taxes low but not to such extremes such as flat rates, which right-wingers desire. with lower taxes, you reduce the incentive to tax evade and stash funds in off-shore banks, more businesses are attracted to the playing field. manufacturers should for example have more leeway in taxes as long as they keep the jobs here. and yes we need regulation, but just the right amount.

but the rich aren't the only ones that should be regulated, the poor and downtrodden, yes you guessed it, they need to be looked at under a magnifying glass as well. there is so much fraud going on in our social services it is unbelievable. the difference is that in a small agrarian village you can tell who is not pulling their weight, but in a metropolis of millions of people, it is much easier to hide your laziness and mischievousness. people need to realize that food stamps and other such services are not there to be used INDEFINITELY, they are supposed to be TEMPORARY. there are still some serious social revolutions pertaining to knowledge that need to occur, particularly in the areas of managing your personal finances, as well as contraception (which the conservatives are hilariously against due to religious issues). people cannot be popping out babies while their bank accounts are in tatters, people need to assume a lot more responsibility than they currently are.

[dogukan]

Snuggans, I understand your concern with Cuba and socialism, but you should not take everything I say as a revolution hint.

The point I was making is that there is nothing to suggest that neo-liberal agenda, its mass privitization mentality and deregulation of the rich did not make any unique impact.
In fact, in the 60-70 years of development agenda, it caused the biggest problems between 80s-90s which is why it gets such a bad name.
For instance, the period between 50s to 70s is seen as a great success. Especially in Africa.
80s is called the lost-decade for Latin AMerica under IMF-WB SAPs.

There is a general decline in poverty since industrialization. It did not come with neo-liberalism, which suggests that growing production capacity might be more important than economy politics.
Neo-liberal 80s and late 70s crisis is why Africa is this way today for instace.

*As for China, you need to understand the infrastructural development and balancing done during the "communist" period. We cannot know how China would have fared in 80s,90s without its Maoist background.
I have always viewed commie revs in Russia and China as "modernization" pressure exploding through middle class and peasant/proleteriat alliance. In terms of dismantling many old relations that could have been damaging for a capitalist economy were sorted out in China. Which gave it its explosive growth potential. You cannot understand todays growing China without Maoist China. Same as you cannot understand neo-liberal Chile without understanding Allende's times.
The structural changes made at the time can be a basis for explosive growth.

[kesa82]

the rich..... the poor.... they need to be looked at under a magnifying glass as well..

I think you would do better to just look at garden variety human nature.

there is so much fraud going on in our social services it is unbelievable. the difference is that in a small agrarian village you can tell who is not pulling their weight, but in a metropolis of millions of people, it is much easier to hide your laziness and mischievousness. people need to realize that food stamps and other such services are not there to be used INDEFINITELY, they are supposed to be TEMPORARY. .

NO.
They are NOT supposed to be temporary.

If you inherit a million dollars they will cut your food stamps ? If you get a 80k -a -year engineering job they will cut your food stamps ?
No, if you get a minimum wage burger-flipping job they will probably cut out your food stamps entirely. Never mind that such wages won't even adequately cover the grocery bill, which is how you typically wound up in the food stamp line to begin with.

( By the way, in the old days we didn't use a curious euphemism like " entry level job " for that sort of job and wage scale. We called it what it was ; a BS teenagers job. )

I very much doubt anyone who has actually read the regulations and requirements has any doubt but that it is deliberately designed not to empower or to help up , but to keep people right where they are.

Everyone loves upward mobility .

No, that's a lie. The average person, rich or poor, educated or illiterate, WANTS the ditch-digger to stay right where he is.
I capitalized "wants" because ideology or theory has nothing to do with it , it is about what people really FEEL .

The average person would rather spend a fortune on "charity" , than spend 5 cents to give a stranger an advantage that would make that stranger our actual equal, or perhaps even our better, but in any case independent of us , that is free to say " **** your opinion jack. " " I don't care what you want jack. "

The inherited wealth of the rich is supposedly despised, and the handouts to the poor are supposedly despised.

Never mind the fact that WE ALL fit that description , and to no minor degree. Consider virtually any endeavor critically and it becomes blatantly obvious that it is virtually impossible to accomplish virtually anything without inheritance or charity from a third party.


You were not born rich, and you never received charity , instead you studied hard , went to college, and now you have an 8Ok career , you are self-made ?

Oh ? study, qualifying for college, takes a great deal of time and effort, and time , energy, and resources are finite even for the rich .
So how was it that ---at 12 years old --- you had the power and /or means to say to some adults , " I'm going to spend my time and my energy on this endeavor that's going to serve my ends and my wishes " ?

No , SOMEBODY ELSE ALLOWED you .

No, you got a rather big whooping hand -out from a third party. And more than once too.

[Knight of Heaven]

So with the release of an IMF "discussion note" (they really don't like to call things studies, papers, etc.) on income inequality which you can find here has a lot of interesting info (its long and I haven't completely finished reading it). Of particular note are its findings with regards to trickle down economics. In short they found that increasing income share of the top 20% actually caused economies to slow down and declines over the medium term and the "benefits do not trickle down." Increasing the income share of the bottom 20% on the other hand results in GDP growth. Their conclusion from this is striking in how common sense it is (i.e. did we really need a statistical study to show us this):

I was thinking the exact same thing when i was reading your post....For me it is just comon sense. But there is tons of other people who think otherwise outthere. And will continue to do so.

[alex man142]

Trickle down economics just makes common sense, at least to me.

Take the industrial revolution for instance. That was survival of the fittest run amok. Railroad tycoons battled out to run everyone out of business, factories were made to make profit, and whatnot. Guess what happened? Everyone benefited! In the race to invest in rail, thousands of miles of rail were created, all with the sole purpose of profit, linking towns like never before. In the race to create a car that would wipe out the competition, Ford revolutionized the world.

Trickle Down economics simply works. It may not seem like it is, but the rich invest money which benefits everyone. It seems so natural to me.

[empr guy]

Do you have any examples of it 'working' that aren't ~150+ years ago?

[dogukan]

Trickle down economics just makes common sense, at least to me.

Take the industrial revolution for instance. That was survival of the fittest run amok. Railroad tycoons battled out to run everyone out of business, factories were made to make profit, and whatnot. Guess what happened? Everyone benefited! In the race to invest in rail, thousands of miles of rail were created, all with the sole purpose of profit, linking towns like never before. In the race to create a car that would wipe out the competition, Ford revolutionized the world.

Trickle Down economics simply works. It may not seem like it is, but the rich invest money which benefits everyone. It seems so natural to me.

There isn't an unlimited amount of "feudalism" to convert. No economic theory stands forever. Dynamics that theory works on always changes.
What you say parallels to the modernization paradigm and the famous(or infamous) Kuznets curve. History has shown that none of these perspectives are absolute.

It is also a matter of debate what consitutes "development", or how we develop is also an important question.
Surely we owe a lot to the early industrialization for many of our comforts, but that is only okay because it happened. That does not mean we have to be okay with going through such destruction and proleterianization.