Trickle Down Economics

[guywithashovel]

It's also called "supply side economics," and most people associate it with the policies of the 40th US president, Ronald Reagan.

What are the pros? The cons? Overall, does it work? Is it a good system for a country to follow? If not, what are the viable alternatives?

[BroomJockey]

I feel it isn't a good policy, for it assumes the rich to be philanthropists.

The whole concept of the "trickle down" is that the rich spend their money in ways that it is transferred to the less-rich. The issue is, the rich tend to hold on to their money, which is why they're rich. They then own the businesses, and do what they can to maximize their profits, which includes not paying their workers lots. So, money flows towards those who own businesses. The rich spend their money at a business, and it's recorded as profit for the rich person who owns the business. It only transfers the cash from one rich person to another.

Most painfully, the poor need to spend money at the businesses owned by the rich, thus giving the money they're paid back to the rich. In the trickle-down method, the only way for a poor person to become rich is to get a rare skill, such as doctor or lawyer, which can command what price they will. And not everyone is able to do so, especially since often obtaining those skills requires some financial backing in the first place. That's why the trades are usually so pushed as career paths for the lower classes. They're relatively cheap to gain skills in, and structured enough not to flood the market due to the journeyman system. Yet by that same system, you're often not earning much until you're past journeyman.

A trickle-down is set up to keep the status quo for as long as possible.

[lordlundar]

to add to Broom's post, trickle down also depends on the rich investing in the working stiffs locally (ie paying the local workers better for the work they do to retain them). Unfortunately, when it costs less to get workers overseas (outsourcing) or to push the laws to the breaking point (hiring illegal workers to pay them below minimum wage or using that threat to keep people from demanding higher pay), there is little to no trickle down. The top people in the money scale are that way because they found ways to AVOID shelling out money.

In theory, it's a good idea, too bad people are to selfish and greedy to make it work.

[guywithashovel]

The whole concept of the "trickle down" is that the rich spend their money in ways that it is transferred to the less-rich. The issue is, the rich tend to hold on to their money, which is why they're rich. They then own the businesses, and do what they can to maximize their profits, which includes not paying their workers lots. So, money flows towards those who own businesses. The rich spend their money at a business, and it's recorded as profit for the rich person who owns the business. It only transfers the cash from one rich person to another.

I'm sure some people will point to some benefits that can be reaped from trickle down policies, but this has long been a problem I have had with it. One of the tenets behind this economic philosophy is that if the businesses and corporations are doing well, then everyone else will do well, too. One way this is said to happen is that businesses and corporations will have more incentive to hire more employees.

This makes me think of the five years I spent working at Wal-Mart. My tenure there showed me that that company will go to as many lengths as possible to get by on as few employees as possbile. When I worked there, almost all of us had to spread ourselves out over at least two different jobs. For example, they strongly encouraged all of the associates on the sales floor to be trained on the cash registers so that they could call us up there when things got busy---instead of just hiring more cashiers. My mom works there now, and she says that whenever someone quits, they often don't replace that person. They frequently have other employees band together to do the work left behind by that person. When I worked there, I would often spend some time in my department, some type working in electronics, some time on the cash registers, and sometimes I would have to go outside and bring in carts, too. Much of this was because they didn't want to hire other people to do these jobs.

Now, some might be thinking, "Well, that was just one store." Yes, but many of the blocks on hiring came from our district and regional offices. That tells me that it happened at other stores, too. This makes me leery of trickle down poliicies.

[bunnyboy]

As was pointed out it assumes a closed system, it was great when the rich only had the choice to do business locally or at the very least nationally, unfortunately since the phone and intercontinental travel started shrinking both the physical and business world, it works about as well as communism or an Ashton Kutcher comedy on a large scale, looks outstanding on paper, but add in the human element of reality and it falls apart faster than you can say gulag.

I feel it really has a place with other such old world notions like Hands-off Capitalism, Randian Objectivism, Anglo-Israelism, Alngo-Latinism and Fascism (real, as in Mussolini/Franco style.)

In reality it stopped being viable when I as a business owner didn't HAVE to have anything but the main office in the US.

[Boozy]

Supply-side economic theory is mostly used to justify tax breaks for the rich without reducing the tax burden on the not-so-rich. Like communist theory, it has rarely been put into true practice.

There is a difference between stimulating growth with the reduction of income taxes and capital gains taxes across the board, and "Reaganomics", which depended on the reduction of the tax burden on the upper 20% to "trickle down" to the bottom 80%. Which it did not, for all the reasons mentioned and more.

Income tax cuts do tend to boost growth, but only in economies where corporate and personal taxes are too high. The US, with comparatively low tax rates, is not likely to benefit from further reductions. Other economies, such as Sweden's, would probably benefit from lowered tax rates. A general tax cut would increase economic growth -- which does nothing to narrow the rich-poor gap, but usually "lifts all boats."

Trickle-down economics has not been shown to lift all boats. The rich get richer and the poor either get poorer or stagnate.

[joe hx]

"Trickle-down" economics will improve an economy in the form of tax cuts. It does not necessarily help, however, people who are poor and have little or no money, since their not part of the economy. "Trickle-down" economics makes little sense in the form of grants/bailouts/etc since your essentially taxing the rich people so you can give rich people money.

The rational for this economic philosophy is this:

Say there's this business owner. His name is Rich. Then there's a poor fellow, let's call him Joe. The opposite of trickle-down economics wants to tax Rich so the government can give money to Joe so he can affect the economy more. Trickle-down economics wants to give Rich a tax cut so he can hire Joe, thus giving Joe an income and thus affect the economy more.

[BroomJockey]

Trickle-down economics wants to give Rich a tax cut so he can hire Joe, thus giving Joe an income and thus affect the economy more.

I think that's more actual supply-side, than "trickle-down/Reaganomics." As Boozy pointed out, there's a bit of a difference. Supply-side might actually work. Trickle-down doesn't. Trickle-down is tax cuts for the rich, not tax cuts for business owners.

[lordlundar]

Trickle-down economics wants to give Rich a tax cut so he can hire Joe, thus giving Joe an income and thus affect the economy more.

Yes, that's the theory. Too bad the truth has been instead of hiring Joe, he hires Jose, an illegal immigrant that he only has to pay a third of the price or use the threat of hiring Jose to have Joe work for less money than he should be paid for, and pocketing the rest saved in that tax break.