Does trickle-down economics actually work? - Jonathan Smith
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Date: 2022-05-13
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Comments and reviews: 10
Darrell
This video touched on a point but kind of glossed over it. It mentions that trickle-down economics only work if the money is reinvested in the system. There are two things with that. 1) That is why we give tax deductions for money reinvested. There is a lot of criticism over the taxes that corporations pay but they only get those breaks when they are reinvesting their profits which, as this video pointed out, does work. 2) Even if the rich people are just holding on to their money, they money is still being reinvested. Suppose you have a savings account with 100, 000 in it. The bank surely keeps a record of what you let them borrow but they turned around and lent your money out to someone else. Your money went to buy someone's house or car or business or something. So even just holding on to your money still puts it back into the economy. The trick to this is keeping it all in balance and controlling the speed of growth. Cut too much and you will accelerate growth to the point of creating more demand than supply thus leading to increased inflation. Tax too much and you stifle growth leading to higher unemployment and more of a demand for government support. It's kind of like holding the steering wheel on your vehicle in a way. If you didn't make tiny corrections, even if it looked like you were going straight, you would run right off the road one way or the other.
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This video touched on a point but kind of glossed over it. It mentions that trickle-down economics only work if the money is reinvested in the system. There are two things with that. 1) That is why we give tax deductions for money reinvested. There is a lot of criticism over the taxes that corporations pay but they only get those breaks when they are reinvesting their profits which, as this video pointed out, does work. 2) Even if the rich people are just holding on to their money, they money is still being reinvested. Suppose you have a savings account with 100, 000 in it. The bank surely keeps a record of what you let them borrow but they turned around and lent your money out to someone else. Your money went to buy someone's house or car or business or something. So even just holding on to your money still puts it back into the economy. The trick to this is keeping it all in balance and controlling the speed of growth. Cut too much and you will accelerate growth to the point of creating more demand than supply thus leading to increased inflation. Tax too much and you stifle growth leading to higher unemployment and more of a demand for government support. It's kind of like holding the steering wheel on your vehicle in a way. If you didn't make tiny corrections, even if it looked like you were going straight, you would run right off the road one way or the other.
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Matthew
Several Things are wrong with this video. First is that trickle down economics was actually an attack first used against Andrew Mellon, who was the secretary of the treasury under Harding and Hoover. Mellon argued that lowering the tax rates would actually increase the government revenue. This is now know as the laffer curve which describes a parabolic relationship between tax rate and government revenue. (This video does mention this but in fairly oblique terms) In fact while the deficit expanded under Reagan, the revenues for the federal government actually increased; spending just happened to increase at a faster rate.
Secondly, Reagan used the term supply side economics. This essentially postulated that the capital gains tax and the income tax reduce to incentive to invest money. The video seems to imply the consumptive spending by the rich is what Reagan and those that came after were after. Instead they were after increased investment spending which is what the rich do spend money on.
Third, is this video implicitly believes that increased government spending is the chief driver of the economics and lifting and/or helping people in poverty. Government spending can help the poor and the economy, but just as often or even more so is that such spending will be wasteful or even counterproductive.
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Several Things are wrong with this video. First is that trickle down economics was actually an attack first used against Andrew Mellon, who was the secretary of the treasury under Harding and Hoover. Mellon argued that lowering the tax rates would actually increase the government revenue. This is now know as the laffer curve which describes a parabolic relationship between tax rate and government revenue. (This video does mention this but in fairly oblique terms) In fact while the deficit expanded under Reagan, the revenues for the federal government actually increased; spending just happened to increase at a faster rate.
Secondly, Reagan used the term supply side economics. This essentially postulated that the capital gains tax and the income tax reduce to incentive to invest money. The video seems to imply the consumptive spending by the rich is what Reagan and those that came after were after. Instead they were after increased investment spending which is what the rich do spend money on.
Third, is this video implicitly believes that increased government spending is the chief driver of the economics and lifting and/or helping people in poverty. Government spending can help the poor and the economy, but just as often or even more so is that such spending will be wasteful or even counterproductive.
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formsMostBeautiful
Trickle Down Economics is a term used by the opponents of this policy (the correct term is Supply Side Economics. By labeling it such you are poisoning the well. Rational discussions should best represent arguments before countering them. This goes by the name steel manning which is the opposite of strawmannirg. The rest of the video continues this disingenuous start. You've completely misrepresented the supply side argument and to top it off you undergird your misrepresentation with caricatures of rich people buying superfluous luxury goods to further manipulate your audience to your point of view. I encourage anybody who actually wants to understand the other side to visit Dan Mitchell's blog, International Liberty. I think he does a fantastic job of illustrating these ideas. EDIT: One further thing: Supply Side opponents often point to the Kansas tax cuts as an example of Supply Side failing (as this video did. The truth is not so clear cut. I'd encourage everybody to read Dan's post Three Lessons from the Tax Defeat in Kansas
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Trickle Down Economics is a term used by the opponents of this policy (the correct term is Supply Side Economics. By labeling it such you are poisoning the well. Rational discussions should best represent arguments before countering them. This goes by the name steel manning which is the opposite of strawmannirg. The rest of the video continues this disingenuous start. You've completely misrepresented the supply side argument and to top it off you undergird your misrepresentation with caricatures of rich people buying superfluous luxury goods to further manipulate your audience to your point of view. I encourage anybody who actually wants to understand the other side to visit Dan Mitchell's blog, International Liberty. I think he does a fantastic job of illustrating these ideas. EDIT: One further thing: Supply Side opponents often point to the Kansas tax cuts as an example of Supply Side failing (as this video did. The truth is not so clear cut. I'd encourage everybody to read Dan's post Three Lessons from the Tax Defeat in Kansas
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Sarah
In my country, we are famous/infamous for having some of the highest tax rates in the world.
However, since salaries are also high, even those with the lowest incomes and those living off subsidies can feed themselves every day and keep a roof over their heads. The taxes fund free healthcare and a public education system which leads to very high social mobility. Meanwhile we have record-breakingly low corruption in the world and rank high on the freedom index.
I pay 38% every month, and I'm okay with that. I would rather have educated and dedicated professionals decide on what the country should invest in rather than having billionaires racing into space, building flamethrowers and buying twitter, all the while keeping my fingers crossed and hoping they will donate to my university or hospital if I might be so lucky.
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In my country, we are famous/infamous for having some of the highest tax rates in the world.
However, since salaries are also high, even those with the lowest incomes and those living off subsidies can feed themselves every day and keep a roof over their heads. The taxes fund free healthcare and a public education system which leads to very high social mobility. Meanwhile we have record-breakingly low corruption in the world and rank high on the freedom index.
I pay 38% every month, and I'm okay with that. I would rather have educated and dedicated professionals decide on what the country should invest in rather than having billionaires racing into space, building flamethrowers and buying twitter, all the while keeping my fingers crossed and hoping they will donate to my university or hospital if I might be so lucky.
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basstt
Literally the only possible way this could work is if you reverse it. If you give tax breaks to the poor and middle class, (who are also the majority percent of consumers) then they have more money to spend and therefore put into the economy. The rich would still be making money since people would probably buy and invest more from them. The only thing would be that companies wouldn't be able to cut corners since people might focus more on quality products rather than what's just the cheapest, which is actually a good thing as it'll probably lower practices that are bad for the environment or workers. It really should be trickle up economics.
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Literally the only possible way this could work is if you reverse it. If you give tax breaks to the poor and middle class, (who are also the majority percent of consumers) then they have more money to spend and therefore put into the economy. The rich would still be making money since people would probably buy and invest more from them. The only thing would be that companies wouldn't be able to cut corners since people might focus more on quality products rather than what's just the cheapest, which is actually a good thing as it'll probably lower practices that are bad for the environment or workers. It really should be trickle up economics.
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Jermel
That s right who s to say that when you cut taxes that money will actually trickle down they don t have to spend that money. If you cut my taxes since I make 70, 000 a year odds are I will find something to spend the money on a new car a bigger house maybe I ll get a new bathroom set I wanted. Do the same for a billionaire who s to say they are going to take that money and spend it. Even if they do take the money and spend it they don t have to spend it here. The trickle effect that comes down might be felt elsewhere. In fact that s often what happens. You cut taxes here they can go invest in a global economy somewhere else.
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That s right who s to say that when you cut taxes that money will actually trickle down they don t have to spend that money. If you cut my taxes since I make 70, 000 a year odds are I will find something to spend the money on a new car a bigger house maybe I ll get a new bathroom set I wanted. Do the same for a billionaire who s to say they are going to take that money and spend it. Even if they do take the money and spend it they don t have to spend it here. The trickle effect that comes down might be felt elsewhere. In fact that s often what happens. You cut taxes here they can go invest in a global economy somewhere else.
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The
In certain financial situations, yes in theory it does work but in 2022? No, the past 2 years how shown us exactly why it doesn't work when people are in a panic to supporting themselves and not reinvesting in their communities or employees. There is a time and place for all things but 2022 is not the time for trick down economics. We need to start looking at or inventing a new system from the ground up, that could have the desired effect we are looking for.
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In certain financial situations, yes in theory it does work but in 2022? No, the past 2 years how shown us exactly why it doesn't work when people are in a panic to supporting themselves and not reinvesting in their communities or employees. There is a time and place for all things but 2022 is not the time for trick down economics. We need to start looking at or inventing a new system from the ground up, that could have the desired effect we are looking for.
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Saahil
In macroeconomics, we have the idea of the marginal propensity to consume (MPC. It s how much of every extra dollar you have that you spend on something as opposed to saving it. The fact that s been evident for decades is that the MPC of rich people is much less than that of poorer people. For rich people, they really do have more money than they know what to do with, and it d be far more beneficial to cut taxes for lower incomes than for the rich.
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In macroeconomics, we have the idea of the marginal propensity to consume (MPC. It s how much of every extra dollar you have that you spend on something as opposed to saving it. The fact that s been evident for decades is that the MPC of rich people is much less than that of poorer people. For rich people, they really do have more money than they know what to do with, and it d be far more beneficial to cut taxes for lower incomes than for the rich.
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YellowBrickExpat
I'm a Kansas native and lived there until 2018 (so, during the big tax cut by Sam Brownback. The problem that anyone who knows Kansas geography could understand is that you could have your business in Kansas City, Kansas, but go live and spend your money in Kansas City, Missouri. It created such a disaster, but Brownback repeatedly called it a shot of adrenaline to the state. let's just say the adrenaline never came.
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I'm a Kansas native and lived there until 2018 (so, during the big tax cut by Sam Brownback. The problem that anyone who knows Kansas geography could understand is that you could have your business in Kansas City, Kansas, but go live and spend your money in Kansas City, Missouri. It created such a disaster, but Brownback repeatedly called it a shot of adrenaline to the state. let's just say the adrenaline never came.
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NoBudjetFilms
But why do the wealthy and corporations not spend that saved money on things? That doesn't make logical sense. At the very least they would invest it which in turn would help businesses with those investments which in turn would help those businesses to hire more people or give their employees better wages.
What do corporations and the wealthy do with money saved from taxes? Stuff it in a mattress?
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But why do the wealthy and corporations not spend that saved money on things? That doesn't make logical sense. At the very least they would invest it which in turn would help businesses with those investments which in turn would help those businesses to hire more people or give their employees better wages.
What do corporations and the wealthy do with money saved from taxes? Stuff it in a mattress?
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