Trickle Down Economics (Reaganomics). Does it work?

[VoodooAce]

Well? You know what I'll say, but I'm interested in exactly how some of our more economically conservative posters explain it.

Does it ever REALLY end up trickling down? Or does most of it stay there? Or does most of what does end up trickling down trickle down in Taiwan, Mexico and Indonesia?

I say that most of it doesn't trickle down at all. The rich just end up getting richer is all. This isn't meant to be a class-warfare attack. Just stating my opinion.

Basic GOP economic strategy, IMHO, is that you make sure the guys on top like the CEO's are taken care of, free to make money and getting to keep more of it. This way, the CEO's and their companies are kept nice and healthy and are able to hire more people and pay them more (this is where the trickling down comes in).

This would all be nice were it not for a simple fact. The people with the money that should end up trickling down didn't get where they are by letting $$ trickle down in the first place! They are there because they DON'T let it trickle down any more than is absolutely necessary.

This would also be nice if it weren't for the fact that that even wealthier CEO closes down that plant he runs ANYWAY, and starts taking advantage of the cheaper labor provided elsewhere.

So the job market becomes even more watered down, driving down wages, insuring that even less actually trickles down.

When I see trickle down economics result in anything OTHER than a recession, I will admit I'm wrong about it. But, thus far, I've only seen it result in unbalanced budgets and massive deficits.

The $300 sounded good to some people in the short term, but I see it having the same results as it did when we suffered through 12 years of GOP leadership that was directly responsible for the recession in the early 90s.

 

[onejayhawk]

It certainly did work in the 1980's. Tax revenues exploded. Deficites began to decline. Interest rates and unemployment dropped like rocks. A good time was had by almost all.

J

PS "Almost" will be commenting shortly.

 

[newfangle]

onjayhawk, that comment is relatively baffling, especially the defecit decline. Reagan tripled the national defecit during his 8 years. If he HAD 4 TERMS, does that mean that it would have increased by a factor of 9?

Reaganomics can be applied to Thatcherism as well. The distaste a few of the Britons I know feel towards the conservative government is well founded. They messed up the rail system nice and good. The removed funding from subsidized housing. The healthcare system nearly fell to pieces.

Supply-sided economics worked for the rich. They only increased the gap between classes. Canada had Mulruny. His party received only 2 seats after their last term. Now Canada has a Liberal government that appears to be very stable (a little too right for me). The UK now has the Labour Party in charge, and they seem relatively stable as well.

Reaganomics did prove one thing. If the supply side is pursued in the United States, it can only survive with heavy investment in the military. Since the nature of supply-side produces many poor people, they are simply put into service. I don't know if this is un-PC, but where did all the poor blacks go under Reaganomics? Definitely not work experience programs subsidized by the government.

 

[Richard III]

I dunno. Personally, I think no one has tried the better alternative enough yet: trickle up. I am in favor of big tax cuts, but applied directly to the base personal exemption, so the net effect is to eliminate large numbers of people from the tax rolls entirely at the bottom end.

There certainly is a "laffer curve" in the sense that taxes that are too high at the top end take in less revenue because of lower incentives and increased tax avoidance by upper income earners. But once you've dropped safely below the level of counterproductive taxation at the upper end, I think the most effective tax relief is bottom up, frankly.

R.III

 

[MrPresident]

laffer curve

Got to love that curve.

The UK now has the Labour Party in charge

You do know that "New" Labour is basically Thatcherism with lots of spin, right?

Since the nature of supply-side produces many poor people

I'm sorry I must have missed that part of the economics class. Why exactly does supply-side policies produce many poor people? And are you talking short-term or long-term?

Interest rates and unemployment dropped like rocks.

This was certainly true and was probably the best thing Reagan did for America, as well as you know winning the cold war.

Personally I don't know whether the biggest peace-time boom during the Reagan years was really a vindictation of supply-side policies or more due to borrowing money from future generations to pay for current propersity. You would have to ask someone with a little more experience with economics and modern American history. However I do know that there is not one all-purpose right answer to economics, despite what people in this forum or cab drivers may say.

 

[amadeus]

Originally posted by newfangle
onjayhawk, that comment is relatively baffling, especially the defecit decline. Reagan tripled the national defecit during his 8 years.

For every dollar Ronald Reagan proposed, the Tip O'Neill left spent $1.82. Had we fully followed the Reagan plan, I believe it was some five or so years we would not be defecit spending.

For every dollar of debt under Reagan, ten dollars of wealth were created in the U.S.

How do you think the Asian tigers, Japan, South Korea, Taiwan, Singapore, and Hong Kong were able to go from amazingly poor to amazingly wealthy within 50 years?

They all had free-market economies. Many of these countries had double-digit growth rates for longer than a decade.

 

[onejayhawk]

Originally posted by newfangle
onjayhawk, that comment is relatively baffling, especially the defecit decline. Reagan tripled the national defecit during his 8 years. If he HAD 4 TERMS, does that mean that it would have increased by a factor of 9?

This can be made slightly true with a lot of fancy bookkeeping. Basically by taking the deficites from the depths of the recession in 1981- 82 when interest rates were at their highest and comparing them to a vastly different climite when Carter took office. When the interest rates came down, and the debt service improved, deficites also improved. To give Clinton his due, he continued a trend set up in 1982.

Supply-sided economics worked for the rich.

True. It also worked for the masses of people going back to work off unemployment. The Economy was broke, and they fixed it, as well as the government can fix the economy.

They only increased the gap between classes.

Untrue. Check the numbers. The middle class did best, while poverty level thinned slightly

Reaganomics did prove one thing. If the supply side is pursued in the United States, it can only survive with heavy investment in the military. Since the nature of supply-side produces many poor people, they are simply put into service.

You lost me. What is that supposed to mean? Military spending is notneeded to drive an economy. Civilian spending does it better. The militar was a wreck, and it needed an overhaul. In 1990, the new model worked pretty well. Unfortunately the military had 8 years of neglect and overuse from 1993-2001. But that is neither here nor there.

J

 

[Greadius]

Originally posted by Richard III
I dunno. Personally, I think no one has tried the better alternative enough yet: trickle up. I am in favor of big tax cuts, but applied directly to the base personal exemption, so the net effect is to eliminate large numbers of people from the tax rolls entirely at the bottom end.

Exactly how I feel. It is why I find it so baffling that sales taxes are so much more popular than income taxes, yet sales taxes punish consumption and disproportionatly tax the poor

Originally posted by Richard III
There certainly is a "laffer curve" in the sense that taxes that are too high at the top end take in less revenue because of lower incentives and increased tax avoidance by upper income earners. But once you've dropped safely below the level of counterproductive taxation at the upper end, I think the most effective tax relief is bottom up, frankly.

If it were humanly possible to calculate the laffer curve we'd be in great shape. We just get general ideas. Like Sweden too high, Brazil too low.

Originally posted by rmsharpe
How do you think the Asian tigers, Japan, South Korea, Taiwan, Singapore, and Hong Kong were able to go from amazingly poor to amazingly wealthy within 50 years?

They all had free-market economies. Many of these countries had double-digit growth rates for longer than a decade.

It is a lot more complex with that. They used free-market policies to gain economic growth, but used a lot of government industrial policy, trade protectionism, and public spending (particularly education) to help.
Taiwan, for example, has some of the most equitable income distribution amongst wealthy nations.

Originally posted by onejayhawk
Unfortunately the military had 8 years of neglect and overuse from 1993-2001. But that is neither here nor there.

As compared with the vacation they've had in the last two years
Overuse compared to what?

 

[The Troquelet]

Deficit spending has nothing to do with trickledown - but saying Reagan LOWERED the deficit is ridiculous. In the 12 years of GOP leadership the deficit TRIPLED.

As for trickle-down, it's the economic equivalent of "divine right". It's merely a ploy of the people in power to get and keep more power and wealth.

I never understood that one thing about Reaganomics: that to help the poor we chose, not the government, whose RESPONSIBILITY it is, but instead private citizens who attained this special position by holding on to every dollar they ever GOT, with typical greed? Why should giving money to the rich do anything but make them richer? It's just a gimmick, a play on words, so that the rich can give each other kickbacks.

If you have to give money to SOMEBODY, why not the poor directly?

 

[The Troquelet]

By the way this site may interest you: http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.html?pagewanted=print&position=top

as far as I've been able to check up on the numbers, they are very sound...

 

[Richard III]

Originally posted by The Troquelet
Why should giving money to the rich do anything but make them richer? It's just a gimmick, a play on words, so that the rich can give each other kickbacks.

If you have to give money to SOMEBODY, why not the poor directly?

You know, while it does get used a little too often, it is worth remembering that no one here is discussing "giving" money to the rich, but rather not taking away as much. The difference is more than semantic.

As for the whole deficit spending argument, I think it's a very different discussion. I am always amused by David Stockman's "The Triumph of Politics" - a good read for anyone who wants to learn about how real hardball dollar politics is played. Stockman (Reagan's first budget director) is a genuine hardline fiscal conservative, as contrasted with a relatively pragmatic Reagan; Stockman's makes it clear that Reagan's administration certainly contributed to the spending spree, although not quite to the extent that the Congress did over time. Though in the end, in my view, Congress passes, the budget, and in law it's Congress's budget, so they bear the ultimate political responsibility.

So far, no one has credited Reagan or Thatcher era central banking policies/reforms for the boom, for which some of the credit must surely go.

R.III

 

[ejday]

Trivial factoid: Supply-side economics, or Reaganomics to some (Say's Law, the Laffer Curve, yaddah yaddah yaddah), actually had an earlier term: Voodoo economics. Ten points if you can name the guy that coined that description.




I'll give you a hint: He used it to describe his opponent's economic theory while running against him in a particular campaign primary.

 

[Switch625]

George Herbert Walker Bush. Easy one. Now, how do I spend my 10 points?

 

[ejday]

Originally posted by Switch625
George Herbert Walker Bush. Easy one. Now, how do I spend my 10 points?

Answered in two minutes flat. That's practically "instant" in a forum. Extra ten points.
Hang on, I've the prize catalog around here, somewhere...
( I use the "Whose line is it anyway?" point system)

 

[VoodooAce]

Originally posted by onejayhawk
It certainly did work in the 1980's. Tax revenues exploded. Deficites began to decline. Interest rates and unemployment dropped like rocks. A good time was had by almost all.

J

PS "Almost" will be commenting shortly.

We went into very, very, very, very, very serious debt for those 'good times'. Was NOT worth it. Well maybe for 1 out of ten.

So, I guess, the other 90% would constitute the 'almost' crowd.

Dems in 80's: This is going to cost us.

GOP in 80's: What? Can't hear you! Having too good a time with all this money we've borrowed from the future! Plus I have my fingers in my ears.

 

[VoodooAce]

Originally posted by rmsharpe


For every dollar Ronald Reagan proposed, the Tip O'Neill left spent $1.82. Had we fully followed the Reagan plan, I believe it was some five or so years we would not be defecit spending.

Gee, that's funny.

And I always thought REAGAN was the president during the REAGAN years, lol.

And I thought the president signed bills into law.

 

[VoodooAce]

Originally posted by Richard III


You know, while it does get used a little too often, it is worth remembering that no one here is discussing "giving" money to the rich, but rather not taking away as much. The difference is more than semantic.

Kind of like turning one's words around and claiming that being against a tax cut is 'trying to raise taxes', right?

 

[MrPresident]

How do you think the Asian tigers, Japan, South Korea, Taiwan, Singapore, and Hong Kong were able to go from amazingly poor to amazingly wealthy within 50 years?

Massive government intervention in the economy combined with free market policies in certain areas. Not as many people like rmsharpe claim due to the market being left to run free, free like a bird and so on.

 

[Richard III]

Originally posted by VoodooAce
Kind of like turning one's words around and claiming that being against a tax cut is 'trying to raise taxes', right?

Even when working as a lobbyist for tax cuts, I didn't agree with that argument. Others may think so, but I'm capable of seeing the difference between no tax cut and a tax increase, so why not call it splits it see the distinction between cutting taxes and redistributing them?

R.III

 

[Cloudyvortex]

Haven't you people heard of adaptive doctrine. No system or method works best all the time. This applies to all subjects (except spirituality: I suspect God exists outside of time and would rather have people's spiritual lives revolve around Him). The trick is to have economic strategy revolve around economic reality. Of cource this will require greater wisdom and integrity than any human or group of humans posses. In short, no human ran economy, whether demand, command, or in between, is going to work and it's probably best for individuals to react to their econo-political environment as individuals.

In other words:
Stop expecting anything from any instituation. It's everyone for him/herself.

The trickly up idea may be worth a shot, though.