Does the trickle down theory actually work?

[randy054]

I came across this thread at Something Awful Forums wherein the OP posted quite a compelling argument that trickle down theory is bullshit and that our standard of living as well as class mobility is on the decline.

Here is the link (83 page's on the thread so far)

The American Dream is a Myth

http://forums.somethingawful.com/showthread.php?threadid=3256833&userid=0&perpage=40&pagenumber=1

Please don't comment until actually looking at the data and arguments presented there. Thanks

[begbert2]

So you want us to read an 83 page thread before commenting, then?

[Czarcasm]

I came across this thread at Something Awful Forums wherein the OP posted quite a compelling argument that trickle down theory is bullshit and that our standard of living as well as class mobility is on the decline.

Here is the link (83 page's on the thread so far)

The American Dream is a Myth

http://forums.somethingawful.com/showthread.php?threadid=3256833&userid=0&perpage=40&pagenumber=1

Please don't comment until actually looking at the data and arguments presented there. ThanksWhy don't you go ahead and comment, since you started this thread and(I presume) read that other thread.

[randy054]

Ok, this may take awhile, I'll summarize some of the main points I have come across brought up. The opening post however has a lot of information and is where most of the debate is centered around.

(I have only read around 10 pages however)

[XT]

Start here. Define what trickle down theory is, so we are all on the same page. Define what 'actually work'(s) means exactly. Then give some figures on how our standard of living is in decline, and that 'class mobility' is less today than in the past. You may also want to define what you mean by 'class mobility' exactly, and how you want to categorize the various classes, so we can judge the relative mobility, both today and in the past.

-XT

[Robot Arm]

That guy just threw everything at the wall and hopes some of it will stick. There may be some interesting facts tucked away in there, but as a coherent argument, it sucks.

I've heard and read some interesting things about income distribution in the United States over the past few decades, worthy of debate, even, but that thread is just not the way to get started.

[BrotherCadfael]

"Not only does it work, in the long run it is the ONLY thing that works."

[Der Trihs]

Then give some figures on how our standard of living is in decline, and that 'class mobility' is less today than in the past. As Rich-Poor Gap Grows, Class Mobility Stalls (http://www.post-gazette.com/pg/05133/504149.stm)

But over the last 10 years, better data and more number-crunching have led economists and sociologists to a new consensus: The escalators of mobility move much more slowly. A substantial body of research finds that at least 45 percent of parents' advantage in income is passed along to their children, and perhaps as much as 60 percent. With the higher estimate, it's not only how much money your parents have that matters -- even your great-great grandfather's wealth might give you a noticeable edge today.

< snip >

Despite the widespread belief that the U.S. remains a more mobile society than Europe, economists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity. Miles Corak, an economist for Canada's national statistical agency who edited a recent Cambridge University Press book on mobility in Europe and North America, tweaked dozens of studies of the U.S., Canada and European countries to make them comparable. "The U.S. and Britain appear to stand out as the least mobile societies among the rich countries studied," he finds. France and Germany are somewhat more mobile than the U.S.; Canada and the Nordic countries are much more so.

[Sage Rat]

So let's say that we jack up wealth distribution as high as it can go, AKA true socialism. Well, this turns into Communism, which I think it's safe to say that you don't need to quote a minutiae of figures to show doesn't really work.

Let's say that we don't go that far, we figure out how much money people need to live at the base level, plus put their kids through college, etc. and give them a bit more than that. In return, what we likely see is that business in Las Vegas starts booming, everyone has a car, a big house, and kids going to college. What we don't see is very much investment or R&D because all money is going to stable markets, food, drink, construction, education. Blue collar workers end up getting even more money by this feedback. But as a whole, the economy shrinks because there's no growth for this area of the market and there's no money elsewhere. Eventually the market stabilizes and you're stuck with an insular country that is happy to just keep going on without any desire to work hard and kick ass. Perhaps an example would be Mexico, Spain, or Greece.

Certainly everyone is happy, but you've just stalled the economy and technological breakthroughs.

[Blalron]

Here's a powerful (http://online.wsj.com/article/SB118005313993514160.html?mod=home_whats_news_us) cite against the trickle down theory:

The report also found that between 1947 and 1974, productivity, or output per hour, and median family income, adjusted for inflation, both roughly doubled. Between 1974 and 2000, productivity rose 56% while income rose 29%. Between 2000 and 2005, productivity rose 16% while median income fell 2%, challenging “the notion that a rising tide will lift all boats,” the report says.

[XT]

Here is the Wiki (http://en.wikipedia.org/wiki/Trickle-down_economics) on 'trickle-down economics', which I thought might be a good place to start, so that we are all on the same page:

Trickle-down economics

"Trickle-down economics" and "trickle-down theory" are terms of political rhetoric that refer to the policy of providing tax cuts or other benefits to businesses in the belief that this will indirectly benefit the broad population.[1] The term has been attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy."[2]

Proponents of these policies claim that if the top income earners invest more into the business infrastructure and equity markets, it will in turn lead to more goods at lower prices, and create more jobs for middle and lower class individuals.[citation needed] Proponents argue economic growth flows down from the top to the bottom, indirectly benefiting those who do not directly benefit from the policy changes. However, others have argued that "trickle-down" policies generally do not work,[3] and that the trickle-down effect might be very slim.[4]

Proponents' views

Stockman placed supply-side economics in a long tradition in economics, and maintained that laissez-faire will benefit not just those well-placed in the market but also the poorest. A more general version argues that increases in real gross domestic product are almost always good for the poor.

Economist Thomas Sowell has written that the actual path of money in a private enterprise economy is quite the opposite of that claimed by people who refer to the trickle-down theory. He noted that money invested in new business ventures is first paid out to employees, suppliers, and contractors. Only some time later, if the business is profitable, does money return to the business owners--but in the absence of a profit motive, which is reduced in the aggregate by a raise in marginal tax rates in the upper tiers, this activity does not occur. Sowell further has made the case that no economist has ever advocated a "trickle-down" theory of economics, which is rather a misnomer attributed to certain economic ideas by political critics. [9]

Although economists do not use the term 'trickle down', some economic theories reflect the meaning of this pejorative. Some macroeconomic models assume that a certain proportion of each dollar of income will be saved. This is called the marginal propensity to save. Many studies have found that the marginal propensity to save is considerably higher among wealthier people. Policies, including tax cuts, that seek to increase saving are often aimed at the wealthy for this reason. [10]

In the early 1990s Congressional Record, non-pejorative uses of the term are rare but do appear.[11][12][13][14]

A May 16, 2006 editorial in the Wall St. Journal stated, "The Pacific Research Institute has crunched the tax numbers in all 50 states and published the 'U.S. Economic Freedom Index' ranking all states according to how friendly or unfriendly their policies were toward free enterprise... In 2005, per capita personal income grew 31% faster in the 15 most economically free states than it did in the 15 states at the bottom of the list. And employment growth was a staggering 216% higher in the most free states."

Criticisms

The economist John Kenneth Galbraith noted that "trickle-down economics" had been tried before in the United States in the 1890s under the name "horse and sparrow theory". He wrote, "Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'" Galbraith claimed that the horse and sparrow theory was partly to blame for the Panic of 1896.[16] During this period, in his Cross of Gold speech, Democrat William Jennings Bryan said:

There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests up on them.

Proponents of Keynesian economics and related theories often criticize tax rate cuts for the wealthy as being "trickle down", arguing tax cuts directly targeting those with less income would be more economically stimulative. Keynesians generally argue for broad fiscal policies that are direct across the entire economy, not toward one specific group. In 2008, after President George W. Bush's Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke requested $700 billion in immediate Congressional funds, and with Lehman Bros. gone, Bear Stearns and Merrill Lynch acquired by others, and Goldman Sachs seeking a federal bank charter, the Wall Street Journal ran a 1/13/2009 article ' We're All Keynesians Again ' in praise of government intervention.

-XT

[randy054]

Trickle down economics otherwise, also known as supply side economics implies that tax cuts, or other benefits to business's will indirectly benefit the population over the long term through investments creating new business, rises in wages etc.

With this in mind, increased productivity is a direct benefit to business and as a consequence should benefit the population as a whole overtime.

But wages have stagnated over the past 30 years as productivity as skyrocketed

http://endofcapitalism.files.wordpress.com/2009/10/wolff_real_wages.jpg

Also from the Wall Street Journal

http://online.wsj.com/article/SB118005313993514160.html?mod=home_whats_news_us

Not Your Father's Pay: Why Wages Today Are Weaker

American men in their 30s today are worse off than their fathers’ generation, a reversal from just a decade ago, when sons generally were better off than their fathers, a new study finds.

The study, the first in a series on economic mobility undertaken by several prominent think tanks, also says the typical American family’s income has lagged far behind productivity growth since 2000, a departure from most of the post-World War II period.

The study, the first in a series on economic mobility undertaken by several prominent think tanks, also says the typical American family's income has lagged far behind productivity growth since 2000, a departure from most of the post-World War II period.

The findings suggest “the up escalator that has historically ensured that each generation would do better than the last may not be working very well,” says the study, which is scheduled for release today. The study was written principally by John Morton of the Pew Charitable Trusts, which is leading the series, called the Economic Mobility Project, and Isabel Sawhill of the Brookings Institution. Other participating think tanks are the Heritage Foundation, American Enterprise Institute and the Urban Institute.

In 2004, the median income for a man in his 30s, a good predictor of his lifetime earnings, was $35,010, the study says, 12% less than for men in their 30s in 1974 — their fathers’ generation — adjusted for inflation. A decade ago, median income for men in their 30s was $32,901, 5% higher than 30 years earlier. Ms. Sawhill said she isn’t sure why men’s wages have stagnated. “It seems there’s been some slowdown in economic growth, it’s possible that the movement of women into the labor force has affected male earnings, and it’s possible that men are not working as hard as they used to.”

The study suggests that absolute mobility — the rate at which an entire generation’s lot improves relative to previous generations — has declined. But within a particular generation, individuals can still get ahead if relative mobility, the rate at which the rich and poor trade places, remains high. Poor fathers may have rich sons, and vice versa.

The report also found that between 1947 and 1974, productivity, or output per hour, and median family income, adjusted for inflation, both roughly doubled. Between 1974 and 2000, productivity rose 56% while income rose 29%. Between 2000 and 2005, productivity rose 16% while median income fell 2%, challenging “the notion that a rising tide will lift all boats,” the report says.

Average wages have not risen over 30 years
http://img.waffleimages.com/49b668a4e387cc6697d14d221ebddfe808e3ee0b/wage.png


Also, while the cost of imported goods may be cheaper because of all this outsoucing, the costs of housing, health, food, etc have also skyrocketed and kept up with inflation while wages have not. The costs of housing actually has a long ways to fall as well in order to be in the range of 2 to 3 times most peoples wages.

The US government in collusion with the big investment banks however want to keep the party going. It would have been cheaper to pay off everyones mortgage than to bail out the banks.

The banks would have got thier money and people would be kept in thier homes.
Instead, the banks like Goldman Sachs, being leveraged 30 to 1, received not only thier winnings from betting on a housing fail,
but will also in the end, kick the people out and get the property as well.

Banks Bundled Bad Debt, Bet Against It and Won

http://www.nytimes.com/2009/12/24/business/24trading.html
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”


Class Mobility
http://img.waffleimages.com/ba92c28ccd32d94ac9ac378470c0270b7dbe3466/classcolor.JPG
The higher you go, the more income mobile you are, but people in the bottom two quintiles don't really make it that far, and people in the upper-middle quintile seem to have nowhere to go but down!



furthermore, the top 1% controls 46% of the wealth
and 19% control 44%
and 80% control the remaining 9%.

I propose a tax increase and dismantling NAFTA for starters. Oh Ross was right when he said you would hear a great big sucking sound when NAFTA was activated.

Look at this graph showing the tax rates from the current era all the way back to 1920.

Under Bush 36%
Under Regean 50%
Under Nixon 70%
Under Eisenhower 91%


Clearly we did fine when it was at 91%, and while there would be many complaining, there would still be people to take thier place since there would be needs that need to be met.

Currently the tax rate for the upper percentile is 35%, but most of thier wealth is stashed in capital gains which is only taxed at 15%.

[randy054]

One of the main causes, we find ourselves in this depression, and it is a depression is because of this inequality of wealth.

http://www.gusmorino.com/pag3/greatdepression/

The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize.

If you don't believe it is a depression, then picture 36 million Americans in the BreadLines.

http://www.frac.org/html/news/fsp/2009.07_FSP.htm

In July 2009, SNAP/Food Stamp participation continued to break records, rising to a record 35,851,176 people, an increase of 725,621 individuals from June 2009, the prior record level, and an increase of nearly 6.8 million people compared with the prior July.

Currently, nearly one in eight Americans receives SNAP/Food Stamps. This is the highest share of the U.S. population on SNAP/Food Stamps.Click here to see a state-by-state analysis (share of total participation - pdf).

All states reported increases in caseloads between July 2008 and July 2009. Five states experienced increases over-the-prior July percentage caseload increases above 40 percent: Nevada (49.2%); Utah (46.8%); Idaho (42.3%); Washington (41.8%); and Florida (40.2%). Eight states experienced increases above 30 percent: Vermont (38.2%); Colorado (36%); Wisconsin (35.8%); Arizona (35.6%); New Hampshire (33.7%); Maryland (31.8%); Wyoming (31%); and Georgia (30.5%).



Furthermore, unemployment as measured in the great depression, rather this U1 through U6 crap is over 20%

[randy054]

I think I have shown a good case on while Trickle Down Economics does not work, at least as things are right now. Apparently it is going to only get worse, now that corporations will be able to throw unlimited funds at the people they want us to choose from.

I think ones running the ship hoped that the Chinese would all of a sudden be massive consumers like Americans. In hard times people learn to save money and spend only on what they need. Re- Poor Chinese Farmers - and many people that went through the Great Depression were the same way. It takes a generation to create a high consumerist lifestyle like America had.


Here is a graph depiciting the distribution of wealth in the Great Depression and now. It appears things will only get worse based on the level of disparity.

http://www.mrunlucky.com/wp-content/uploads/greed.jpg

[Kobal2]

Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'"

I love this. "Don't worry, y'all can eat our shit" became "Don't worry, we'll be pissing on y'all ". Hey, at least they're upfront.

[Dick Dastardly]

The policies espoused by the trickle down gang have caused wealth to tricle up over the past few decades. The share of wealth of the top 1% has more than doubled since Reagan took office, tax cuts have left us with subpar economic growth but massive deficits. Even the guys who brought you supply side economics like Bruce Bartlett are now saying it was a dumb idea that backfired. Guys like David Stockman are now even advocating cracking down on Wall Street. Unfortunately the whole thing that tax cuts are always good is now an article of faith for the dumbass wing of the GOP, which is just about all of them these days. This doesn't bode well for our economic future, we can only hope they get back in power as soon as possible and screw things up so badly next time that the bond markets reimpose economic sanity on the country.

[Dick Dastardly]

"There are two ideas of government. There are those who believe that you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it."

William Jennings Bryan
Democratic National Convention 1896

Plus ca change and all that.

[Algher]

Income mobility is the key measurement. The Michigan Study is the one most cited, but here is some information using tax returns and panel data:

http://www.entrepreneur.com/tradejournals/article/print/206340741.html
* There was considerable income mobility of individuals in the U.S. economy over the 1996-2005 period. More than half of taxpayers (57.5 percent by one measure and 55 percent by another measure) moved to a different income quintile over this period. About half (56 percent by one measure and 42 percent by another) of those in the bottom income quintile in 1996 moved to a higher income group by 2005.

* Median incomes of taxpayers in the sample increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. Furthermore, the median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups. In contrast, the real median incomes of taxpayers who were in the highest income groups in 1996 declined by 2005.

* The composition of the very top income groups changed dramatically over time. Less than half (39 percent or 42 percent depending on the measure) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.

* The degree of relative income mobility among income groups over the 1996-2005 period was very similar to that over the prior decade (19871996). To the extent that increasing income inequality widened income gaps, this was offset by increased absolute income mobility so that relative income mobility neither increased nor decreased over the past 20 years.

* Upward and downward mobility is affected by many factors. Based on a regression analysis, we find that initial position in the income distribution and changes in marital status are among the more important factors associated with changing positions in the income distribution.

[Rumor_Watkins]

The problem, to me, of the "wealth inequality is good because that way we can enlarge the pie, instead of merely changing the allocation of the same-sized pie" crowd isn't one of wealth inequality per se - it's that because of the way our government is fashioned the wealth inequality results in political inequality.

i don't care if bill gates is richer than me by 1000 times or 10000 times even though this is what economic conservatives will believe to be a feature of "economic liberal" thought - that economic liberals are all incurably jealous. indeed, by enriching small groups of capital owners, it may actually create a larger pie for everyone else to become enriched. to the extent that this is true (which it may or may not be - i'm not entirely convinced people enriched by conservative economic policies don't just hoard the money or spend it entirely on themselves) then i have no real qualms with it. on some primal level, maybe it is better that capital is concentrated in the hands of people who know what to do with it - instead of people who will camp outside a wal-mart for a night just so they can be the first to waste their money on consumables.

what is problematic, however, is that because of the way society works (and this isn't some unique feature of american government - although the way we finance elections and the way our political system works may enhance the problems) those with economic capital have greater political capital. which i'm not cool with.

[jshore]

Income mobility is the key measurement. The Michigan Study is the one most cited, but here is some information using tax returns and panel data:

http://www.entrepreneur.com/tradejournals/article/print/206340741.html

The problem with those studies is they tend not to correct for factors such as what happens to people as they age, etc. So, for example, even someone from a relatively well-to-do family may not have much income while they are, say, in graduate school or medical school. Likewise, people who earned a lot of money while they were working won't have a huge income once they retire...at least in years when the stock market isn't going like gangbusters. I think one needs to look at more comprehensive assessments of income and wealth.


what is problematic, however, is that because of the way society works (and this isn't some unique feature of american government - although the way we finance elections and the way our political system works may enhance the problems) those with economic capital have greater political capital. which i'm not cool with.

Yeah...That's a real problem. Another issue is that people seem to measure wealth relatively...i.e., in comparison to those around them. And, that is not entirely for bad reasons either. After all, housing prices are based in large part on what people are willing to pay for them and thus they tend to get bid up, particularly in areas where there is a lot of wealth. So, those not on the wealthy side of average end up in housing situations that are bad in lots of ways...high crime, poor schools, etc., etc. It is often pointed out that those who are below the poverty line in the U.S. often have median incomes considerably higher than the average in many Third World countries; however, I don't think it is realistic to believe that this translates into the better lifestyles that this would seem to imply.

[Dick Dastardly]

US right at the bottom of the pile in terms of social mobility according to these guys :

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/EMP_American_Dream_Report.pdf

Financial Times too:

http://www.ft.com/cms/s/0/2f9749c8-7879-11de-bb06-00144feabdc0.html


(http://www.ft.com/cms/s/2f9749c8-7879-11de-bb06-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2f9749c8-7879-11de-bb06-00144feabdc0.html&_i_referer=http%3A%2F%2Fdelong.typepad.com%2Fsdj%2F2009%2F07%2Feducation-and-equal-opportunity.html)

[gonzomax]

The trickle down theory works very well if you are at the top. and believe you should get even richer.

[Wesley Clark]

For the most part believers in trickle down economics fall into a few categories:


1. People who aren't rich but think they will be someday

2. People who already are rich

3. Teabaggers and other right wing authoritarians whose get their opinions from a small number of media outlets, usually the ones designed to service the interests of group 2.


In the last 30 years taxes and expenses have gone up dramatically for the middle class. So has productivity. Wages have stagnated.

Almost all the tax cuts and income gains have gone to the top 5% and corporations. None of it trickled down.

The corporate profit rate went from $600 billion to $1.4 trillion in just 6 years under Bush. None of it trickled down.

http://1.bp.blogspot.com/_otfwl2zc6Qc/SkPPiDc_KzI/AAAAAAAAKeo/cTW9dFKf9z4/s400/profits.jpg

[Wesley Clark]

So let's say that we jack up wealth distribution as high as it can go, AKA true socialism. Well, this turns into Communism, which I think it's safe to say that you don't need to quote a minutiae of figures to show doesn't really work.

Let's say that we don't go that far, we figure out how much money people need to live at the base level, plus put their kids through college, etc. and give them a bit more than that. In return, what we likely see is that business in Las Vegas starts booming, everyone has a car, a big house, and kids going to college. What we don't see is very much investment or R&D because all money is going to stable markets, food, drink, construction, education. Blue collar workers end up getting even more money by this feedback. But as a whole, the economy shrinks because there's no growth for this area of the market and there's no money elsewhere. Eventually the market stabilizes and you're stuck with an insular country that is happy to just keep going on without any desire to work hard and kick ass. Perhaps an example would be Mexico, Spain, or Greece.

Certainly everyone is happy, but you've just stalled the economy and technological breakthroughs.

We spend about 2.6% of GDP on R&D. So about $370 billion, of that about $100 billion comes from the federal government, and a good deal (although not all) of R&D is done at public universities. So private industry puts maybe $250 billion a year into R&D.

http://www.aaas.org/spp/rd/guitotal.htm

Bonuses to bankers on wall street in 2009 made up 1% of GDP, about $145 billion.

http://market-ticker.denninger.net/archives/1893-Weekend-Roundup-123.html


So your argument in favor of supply side economics doesn't phase me. We barely averted a depression, and a small number of financial workers will earn 1% of GDP in bonuses for causing that. That isn't the same as the 1.7% of GDP that private industry invests into R&D. But even so, there is something wrong with your argument. If you give money to the wealthy, they just keep it. They do not invest it in R&D. Why are bankers alone making bonuses that are 60% as large as the entire private sector's investments into R&D if supply side economics improves R&D? Corporate profits for 2009 were probably 1 trillion or so.

Confiscatory tax rates combined with tax credits for companies that invest in R&D would improve R&D levels.

[Voyager]

We spend about 2.6% of GDP on R&D. So about $370 billion, of that about $100 billion comes from the federal government, and a good deal (although not all) of R&D is done at public universities. So private industry puts maybe $250 billion a year into R&D.

So your argument in favor of supply side economics doesn't phase me. We barely averted a depression, and a small number of financial workers will earn 1% of GDP in bonuses for causing that. That isn't the same as the 1.7% of GDP that private industry invests into R&D. But even so, there is something wrong with your argument. If you give money to the wealthy, they just keep it. They do not invest it in R&D. Why are bankers alone making bonuses that are 60% as large as the entire private sector's investments into R&D if supply side economics improves R&D? Corporate profits for 2009 were probably 1 trillion or so.

Confiscatory tax rates combined with tax credits for companies that invest in R&D would improve R&D levels.

The biggest problem with his argument is that it isn't a slippery slope, it's a slippery cliff. Saying that radical income redistribution is bad says nothing about the benefits of moderate income distribution.

I didn't realize that bonuses were 1% of GDP. That is frightening.
Two things to extend your argument. One, there is R&D and there is R&D. R&D work funded by the government, and done by universities, is mostly fundamental work that can lead to major advances. Most R&D work done by industry is much, much shorter term. It leads to new products, but usually isn't the kind of game changer that university R&D can be. Except for Microsoft, and maybe Google, the kind of corporate lab like AT&T and IBM had is long gone. IBM still does research, but they are encourage to work much more in the short term than they used to work.

I'm not sure I totally agree that the wealthy will just keep their money. But, even if they want to invest it in more production, the masses of people who haven't benefited from the increase in productivity have no money with which to buy the results of that production. The, the wealthy will make bets on unproductive instruments like we saw a few years ago, and we have a bubble. The only alternative is to drive demand and provide cheap credit to let people without money borrow and consume - and it is clear what the results of that were.

[devilsknew]

Treacle is the shit juice that runs down your leg.

[Robot Arm]

Let's say that we don't go that far, we figure out how much money people need to live at the base level, plus put their kids through college, etc. and give them a bit more than that. In return, what we likely see is that business in Las Vegas starts booming, everyone has a car, a big house, and kids going to college.With such thriving markets (compared to today), I would think investors would do very well. And wouldn't those hundreds of millions of buyers be a sufficient incentive for any car company (to use one example) to try to out-research and out-develop its competitors?

What we don't see is very much investment or R&D because all money is going to stable markets, food, drink, construction, education. Blue collar workers end up getting even more money by this feedback. But as a whole, the economy shrinks because there's no growth for this area of the market and there's no money elsewhere.We don't all squander our excess cash at the craps tables. I'm sure that if we had all our needs met, plus a little extra, some of that would find its way into the capital markets. A million people with a buck each can buy as much R&D as a single millionaire.

Eventually the market stabilizes and you're stuck with an insular country that is happy to just keep going on without any desire to work hard and kick ass. Perhaps an example would be Mexico, Spain, or Greece.

Certainly everyone is happy, but you've just stalled the economy and technological breakthroughs.For the last couple decades, most people in this country have been working hard and kicking ass, and have seen no improvement in their economic situation. For them, a stalled economy would be a step up.

[msmith537]

Two things to extend your argument. One, there is R&D and there is R&D. R&D work funded by the government, and done by universities, is mostly fundamental work that can lead to major advances. Most R&D work done by industry is much, much shorter term. It leads to new products, but usually isn't the kind of game changer that university R&D can be. Except for Microsoft, and maybe Google, the kind of corporate lab like AT&T and IBM had is long gone. IBM still does research, but they are encourage to work much more in the short term than they used to work.

Do you have an cites for this statement? What major "game changing" inventions have come from university labs?

[Wesley Clark]

Do you have an cites for this statement? What major "game changing" inventions have come from university labs?

The guy went to MIT and as far as I know has worked in scientific industry for several decades.

I know when I was in college much of the research was more about basic science or finding new information or new ways of doing things rather than taking a product to market. My impression is industrial R&D is more about bringing a product to market. Both serve a purpose, but they aren't the same thing. My brother, who does graduate work in math, said it isn't uncommon for innovation to be done in and for it to sometimes take decades before people find uses for it in novel ways in private industry. Private industry cannot take those risks (investing in R&D that might not be useful for several decades or may be useful in unexpected ways).

But an example is Pharma. Groundbreaking ideas come from the public sector, then the private sector brings them to market and/or creates new forms of those ideas. But the pioneering R&D is done by the public sector.

http://www.commercialalert.org/relmanangell.pdf


The relatively small contribution of
industry is also clear from an unpublished
internal document produced by the NIH
in February 2000, which was obtained by
Public Citizen through the Freedom of
Information Act. The NIH had selected
the five top-selling drugs in 1995 (Zantac,
Zovirax, Capoten, Vasotec, and Prozac)
and found that 16 of the 17 key scientific
papers leading to the discovery and development
of these drugs came from outside
the industry. Looking at all the relevant
published research, not just at the key
studies, 85 percent came from American
taxpayer-supported laboratories or foreign
academic laboratories. While it is
true that academic scientists may have
more incentive to publish their research
results than do their colleagues in industry,
these data are persuasive: publicly
funded medical research is by far the
major source of pharmaceutical innovation—
not the industry itself.

[Voyager]

Do you have an cites for this statement? What major "game changing" inventions have come from university labs?

Off the top of my head, Tagamet, the ulcer drug. The underlying discovery behind it was done at a university. Smith Kline productized it.

Oh - and Google, of course. Game changing enough for you? Multi-user operating systems were developed first at universities also.

Think back 20 - 50 years, and far more game changers came out of industrial research labs - the transistor, lasers, the mouse and Ethernet, the GUI. In my opinion this is a better way of innovating, since those researchers are more in contact with real problems and can get real examples more easily. But those days are gone, alas.

[Voyager]

The guy went to MIT and as far as I know has worked in scientific industry for several decades.

MIT just as an undergrad, so no game changing there. I did work at Bell Labs for 15 years, with half the funding for my group coming from development (1 - 2 year out stuff) and the other half what we called research, which was 3-5 year out stuff. I wasn't in Area 11, which was > 5 year horizon stuff, (though it often was more focused) but I worked with them very closely. In some cases we supplied them with software infrastructure which they added on to. I had a personal research project with a budget for $2 million for a while. Anyhow, we talked about this stuff all the time, and the differences between the various types of R&D affected my group's bottom line quite a lot.

[Sateryn76]

The problem, to me, of the "wealth inequality is good because that way we can enlarge the pie, instead of merely changing the allocation of the same-sized pie" crowd isn't one of wealth inequality per se - it's that because of the way our government is fashioned the wealth inequality results in political inequality.

i don't care if bill gates is richer than me by 1000 times or 10000 times even though this is what economic conservatives will believe to be a feature of "economic liberal" thought - that economic liberals are all incurably jealous. indeed, by enriching small groups of capital owners, it may actually create a larger pie for everyone else to become enriched. to the extent that this is true (which it may or may not be - i'm not entirely convinced people enriched by conservative economic policies don't just hoard the money or spend it entirely on themselves) then i have no real qualms with it. on some primal level, maybe it is better that capital is concentrated in the hands of people who know what to do with it - instead of people who will camp outside a wal-mart for a night just so they can be the first to waste their money on consumables.

what is problematic, however, is that because of the way society works (and this isn't some unique feature of american government - although the way we finance elections and the way our political system works may enhance the problems) those with economic capital have greater political capital. which i'm not cool with.



Just wanted to address the bolded part of your post.

Yes, Bill Gates or Warren Buffett or whoever may spend their money only on themselves, but that means the money is being spread around to everyone else. Mr. Gates may be able to make good software (ha!), but he can't fire his own bricks and build his own house. He doesn't make coffeemakers or high-end cosmetics or any other consumer good he buys. So if he drops $10,000 on a suit, that money does down the ladder and pays the tailor, the fabric maker, etc.

Everyone who consumes things adds to the pool of money available. My addition may only be $25 for a new coffeemaker, but his contributions add millions of dollars to the pool. If he had not made that money, those contributions wouldn't have been made.

[Icarus]

Yes, Bill Gates or Warren Buffett or whoever may spend their money only on themselves, but that means the money is being spread around to everyone else. Mr. Gates may be able to make good software (ha!), but he can't fire his own bricks and build his own house. He doesn't make coffeemakers or high-end cosmetics or any other consumer good he buys. So if he drops $10,000 on a suit, that money does down the ladder and pays the tailor, the fabric maker, etc.

Everyone who consumes things adds to the pool of money available. My addition may only be $25 for a new coffeemaker, but his contributions add millions of dollars to the pool. If he had not made that money, those contributions wouldn't have been made.

Yes, but -

There is a somewhat finite limit on how much stuff a person can buy, own, eat. The wealthier a person is, the smaller the percentage of their wealth this is. The remainder of their wealth goes to savings/investments or charity. So, on a percentage of dollar owned basis, the rich are potentially contributing less to the consumer economy than the less rich.

Your $25 dollar coffee maker (multiplied by all the people like you buying $25 coffee makers) contributes more than the rich guy buying a $10,000 suit (multiplied by the number of guys buying $10,000 suits).

[Spoke]

There is a somewhat finite limit on how much stuff a person can buy, own, eat. The wealthier a person is, the smaller the percentage of their wealth this is.

Exactly. And if we reach a point where the great bulk of "consumers" can't afford to consume, the economy will lock down in a hurry.

[XT]

Bill Gates, IIRC, has given away something like $4 billion of his personal wealth to various charities...and this doesn't count the impact his products and company have had on the economy as a whole or the lives of the people who have worked directly or indirectly for Microsoft. So...how does that scale, on the broader issue of $25 coffee makers, say? Seems like you could buy nearly every $25 coffee maker in the world for $4 billion, ehe?

Exactly. And if we reach a point where the great bulk of "consumers" can't afford to consume, the economy will lock down in a hurry.

What are the indications that such a dire result is impending?

-XT

[Robot Arm]

Bill Gates, IIRC, has given away something like $4 billion of his personal wealth to various charities...and this doesn't count the impact his products and company have had on the economy as a whole or the lives of the people who have worked directly or indirectly for Microsoft.And much of that is to be admired, however, I don't think he deserves all the credit and all the reward for the gains in productivity over the past few decades. Thanks in part to tools made by people like Bill Gates, one person can do the work that it used to take two people to do. So why doesn't that one person now have twice the lifestyle and twice the purchasing power? It takes people at all levels to make the economy grow, but for a generation the only people seeing the benefits of that growth have been the rich.

[begbert2]

What are the indications that such a dire result is impending?Ask again after the credit card/debt crash.

[Voyager]

And much of that is to be admired, however, I don't think he deserves all the credit and all the reward for the gains in productivity over the past few decades. Thanks in part to tools made by people like Bill Gates, one person can do the work that it used to take two people to do. So why doesn't that one person now have twice the lifestyle and twice the purchasing power? It takes people at all levels to make the economy grow, but for a generation the only people seeing the benefits of that growth have been the rich.

I doubt Gates believes in the trickle down theory. Though he might have more money to trickle down if he didn't do it, my impression is that Microsoft employees get treated very well both in terms of money and stock. I don't know about Bill, but in 2001 or so his father specifically came out against the Bush tax cuts for the rich.

[Sateryn76]

And much of that is to be admired, however, I don't think he deserves all the credit and all the reward for the gains in productivity over the past few decades. Thanks in part to tools made by people like Bill Gates, one person can do the work that it used to take two people to do. So why doesn't that one person now have twice the lifestyle and twice the purchasing power? It takes people at all levels to make the economy grow, but for a generation the only people seeing the benefits of that growth have been the rich.

I disagree - our generation has access to all sorts of things that weren't available to our parents. It's both high-end things like new medical technology to affordable air travel to low end things like cheap new clothing and home decorator products.

Think of something like the internet - we have all the world's knowledge available to us, for a small fee. My dad called me today looking for suggestions on where to buy a good German-English dictionary. I told him to check the internet for translations. So, instead of having to drive around and look for a good dictionary, and pay something like $25 for it, he gets what he needs, and a million other facts, for $30 a month.

Perhaps it's how you define "benefits", but I can clearly see that the opportunities available to me are far richer than those available to my father. And neither one of us is "rich".

[XT]

So why doesn't that one person now have twice the lifestyle and twice the purchasing power?

Well...why should they? Why do you suppose that it necessarily has to translate that someone doing essentially the same work (i.e. with the same skill set, ability, training, etc) today as someone 20 years ago who is more productive (not through their own skills but through the use of technology) SHOULD make twice as much, or enjoy twice the life style?

And this leaves aside the fact that we ALL (including our theoretical worker bee) enjoy the benefits of the increase in productivity because we all pay less for products and services today than we did 20 years ago.

It takes people at all levels to make the economy grow, but for a generation the only people seeing the benefits of that growth have been the rich.

Well, that's good rhetoric, but in practical real world terms it's complete horseshit. We ALL benefit from the 'rich' because, frankly, they are the ones with the capital and investment abilities and desires to not only fund most of the places where real people work (such as Microsoft, to use that example), but also pay a fairly large percentage of the taxes, which again, we all benefit from. This isn't to say that it doesn't take people at all levels to make the economy grow...that part isn't complete horseshit...but that the rich aren't the ONLY people to see a benefit from the growth of the last several decades.

As I said in another thread, I think the problem here is that people expect US wages and standards of living to just go up and up, for no other reason than that it should because, well, we're Americans (and those dirty rich folks are getting rich, blah blah blah). But the truth is that this isn't how things really work. Labor is just another resource, just another market factor, and it's worth is determined by how marketable ones skills are, and how in demand they are, and how replaceable ones skills are. If ones skills are in demand, if there are only a limited number of others who have similar skills, or if some other factor that makes ones skills desirable and in demand, then ones standard of living, wages, benefits, etc, are all going to go up. If not, then...not.

Personally, my own standard of living has gone up fairly steadily, despite a number of setbacks in my own industry. If my own skills become common place, or if technology renders them obsolete (which could happen, considering the expert network systems that continue to evolve), then my choices become A) hoping to hold my job and hold the line at some fairly static pay grade and standard of living, or B) adapt, get new training, shift careers to a newer, more dynamic path or C) hope to win the lottery. There really isn't any magical reason that my standard of living and wages/benefits HAVE to keep going up and up, after all, and I can see several technologies that would render my own skill set, if not obsolete then at least less in demand...and if that happens, why exactly SHOULD my salary and standard of living keep rising? Just because companies like CISCO, Microsoft, HP, etc continues to make a profit??

-XT

[Voyager]

Ask again after the credit card/debt crash.

Why wait? Check out the 2008 retail sales results for Christmas. I thought it was clear that this recession is demand side driven. Though I agree it could possibly get worse.

[begbert2]

Well...why should they? Why do you suppose that it necessarily has to translate that someone doing essentially the same work (i.e. with the same skill set, ability, training, etc) today as someone 20 years ago who is more productive (not through their own skills but through the use of technology) SHOULD make twice as much, or enjoy twice the life style?

And this leaves aside the fact that we ALL (including our theoretical worker bee) enjoy the benefits of the increase in productivity because we all pay less for products and services today than we did 20 years ago.That thing you're talking about in the second paragraph there? That's increased purchasing power. Is it happening or not?

[XT]

That thing you're talking about in the second paragraph there? That's increased purchasing power. Is it happening or not?

I'd say it's self evident, but why don't you tell me. What percentage of money does it take to buy, say, a computer today? Clothing? Consumer goods? Is it cheaper, or more expensive as an over all percentage of median income?

-XT

[begbert2]

I'd say it's self evident, but why don't you tell me. What percentage of money does it take to buy, say, a computer today? Clothing? Consumer goods? Is it cheaper, or more expensive as an over all percentage of median income?

-XTWhat a positively irrelevent question - what matters is whether, like you said, "we all pay less for products and services today than we did 20 years ago." What we pay now is meaningless unless compared to what we paid then - inflation adjusted, of course.

[XT]

Of COURSE it matters....assuming I'm correct. Big assuming, to be sure. If one is buying a PC and it costs $600.00 (in today's dollars), that's a hell of a lot less of ones income than paying $3000 (in 1990's dollars)...which is pretty much why more people today have PC's than they did in the 90's. Clothing also costs less today...if one pays $15 for Levis blue jeans (which is what I pay, anyway), then that is less than paying $30 for them in the 90's in both absolute terms and in adjusted terms. Food is also cheaper, in similar ways and for similar reasons. Even if we factor in housing and things like gas, my guess (and I admit it's only a guess...could be wrong and probably am) is that over all we pay less (adjusted for inflation) today for every day staples than we did 20, 30, 40 etc years ago.

-XT

[Voyager]

/rant on/
I am so fed up with this wealth crap. Being rich can be defined in two ways. The first is standing in the distribution of assets or income, and in the amount of money which someone in a decile has. In that respect most people are not richer today than they were.

The second way is psychological. Someone who sees himself getting further and further behind those in income levels above him is not going to feel rich, no matter how big his TV is. And there is a security aspect. Part of being rich is not having to worry where your next meal, or your next doctor visit, is going to come from. Someone with a lot of gadgets who worries nearly every day about losing it all is not going to feel rich. He may have that PC, but the money that paid for that PC is sitting in his unpaid credit card balance, and costing him more every month. Our middle class got "rich" during the Bush years in exactly this way. Not keeping up with inflation and having possessions only from borrowing against an inflated house value is not being rich.
Then there is the number and quality of possessions vs what is available. When I was a kid we had no microwave, no VCR, no DVD, no flat screen TV, not even a color TV - because they either hadn't been invented or were not common. Saying I'm richer now than I was then because I now have these things is nonsense.
I'm richer than my father was because I'm in a higher income decile, but on the other hand, he never worried about his job, and when he came home he was home, and not checking email.
You go tell the guy worrying about losing his house that he's richer than his father because he owns a cellphone, go ahead.

[Dick Dastardly]

What are the indications that such a dire result is impending?

-XT

http://www.skeptically.org/sitebuildercontent/sitebuilderpictures/.pond/household-debt-graph.jpg.w300h376.jpg

http://static.seekingalpha.com/uploads/2009/12/3/98115-125984636910344-John-Lounsbury_origin.jpg

http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html

[XT]

Honestly, I think the flaw in your thinking (and of course, this is from my own perspective and world view), Voyager, is that this theoretical guy SHOULD be (by right) 'richer' than his father...that this is the natural course of events, just like the rising of the sun or the changing of the seasons. It's the EXPECTATION that everyone should be 'richer' than their parents simply because we are Americans...or simply because rich people in America are perceived (or perhaps actually) to be getting richer than 'poor' people.

-XT

[Sateryn76]

/rant on/
I am so fed up with this wealth crap. Being rich can be defined in two ways. The first is standing in the distribution of assets or income, and in the amount of money which someone in a decile has. In that respect most people are not richer today than they were.

The second way is psychological. Someone who sees himself getting further and further behind those in income levels above him is not going to feel rich, no matter how big his TV is. And there is a security aspect. Part of being rich is not having to worry where your next meal, or your next doctor visit, is going to come from. Someone with a lot of gadgets who worries nearly every day about losing it all is not going to feel rich. He may have that PC, but the money that paid for that PC is sitting in his unpaid credit card balance, and costing him more every month. Our middle class got "rich" during the Bush years in exactly this way. Not keeping up with inflation and having possessions only from borrowing against an inflated house value is not being rich.
Then there is the number and quality of possessions vs what is available. When I was a kid we had no microwave, no VCR, no DVD, no flat screen TV, not even a color TV - because they either hadn't been invented or were not common. Saying I'm richer now than I was then because I now have these things is nonsense.
I'm richer than my father was because I'm in a higher income decile, but on the other hand, he never worried about his job, and when he came home he was home, and not checking email.
You go tell the guy worrying about losing his house that he's richer than his father because he owns a cellphone, go ahead.

But that behavior has nothing to do with the "rich", and has everything to do with the "stupid"

If people choose to work in a high-pressure job that requires him to check his email at home, then that's the decision they make. No electronic gadget or McMansion is necessary to live a full and complete life. If you measure your worth by what the guy next door is doing, then you're a fool. IMO, much of this debate is based on envy - the "rich" have it all, and poor Joe down at the cubicle farm doesn't.

And, although this is never a popular position, maybe the guy who's losing his house should get rid of the cell phone. Barring a catastrophe like a job loss, perhaps one of the reasons he's losing his house is because he has too much crap, and didn't save or pay down his mortgage.

If you look at tax breaks and the like as a "reward", I think that "reward" should go to a big company who creates jobs and wealth, before Poor Old Dumb Joe, and his cell phone. Fact is - Big Company can hire me, create a new, cheaper kind of product I need, pay me a dividend, hire others who then have disposable income to spend, etc., while Joe doesn't do much for the nation as a whole.

[begbert2]

Honestly, I think the flaw in your thinking (and of course, this is from my own perspective and world view), Voyager, is that this theoretical guy SHOULD be (by right) 'richer' than his father...that this is the natural course of events, just like the rising of the sun or the changing of the seasons. It's the EXPECTATION that everyone should be 'richer' than their parents simply because we are Americans...or simply because rich people in America are perceived (or perhaps actually) to be getting richer than 'poor' people.

-XTThe other side of your mouth is saying that we are richer than our parents.

Assuming for a moment that staples do indeed cost less in real dollars than they used to, and that the median person's income hasn't dropped to a degree to make the cheaper staples irrelevent, then there's another problem - not everything has gotten cheaper across the board. Correct me if I'm wrong but certain critical things like houses, medical, and retirements are no longer as affordable to the average joe. And when those are out of reach, the deal you got on that nifty T-shirt is poor consolation.

[petew83]

Since there are obviously forces working in opposite directions, wouldn't the best answer be derived from the most direct empirical data you can find? Maybe the best places to start would be the economic impacts of the Reagan/Bush presidencies, and and then one must decide if the outcome was 'good' or 'bad'.

My simple analysis would be immediate stimulus at the expense of massive debt. After all, it's a 'trickle down', not an 'avalanche'. If they changed the name maybe I would like it more.

Very complicated question that might be beyond 'yes' or 'no' answers. I think the answer must tie in with one's worldview.

[XT]

The other side of your mouth is saying that we are richer than our parents.

Is it? To me, the 'other side of (my) mouth' is saying we pay less for (many) goods and services today than we did in the past, and that anyone categorically saying that ONLY the rich benefit from today's economy (which was the comment I was responding too originally with my own statement) is basically attempting to blow smoke up our collective assess, or has been totally captured by their own rhetoric...take your pick.

Of course, what you may be READING from what I'm saying and what I'm intending could be two different things, as I'm not exactly the most coherent poster in the universe...and when I'm drinking sometimes even I forget what my point was. Could you quote the part of what I've said that seemingly has me lying (or talking out the other side of my mouth, if you will)?

Assuming for a moment that staples do indeed cost less in real dollars than they used to, and that the median person's income hasn't dropped to a degree to make the cheaper staples irrelevent, then there's another problem - not everything has gotten cheaper across the board. Correct me if I'm wrong but certain critical things like houses, medical, and retirements are no longer as affordable to the average joe. And when those are out of reach, the deal you got on that nifty T-shirt is poor consolation.

No, you are quite correct...housing, medical, even transport has all increased. It's not an across the board bonanza of goodness and light, and over all I think that our standard of living has been fairly stable for a while now. Which is another way of saying it's been stagnating at a certain fixed level, or even dropping slighting, depending on ones skill set, experience and career or job type.

-XT

[begbert2]

Is it? To me, the 'other side of (my) mouth' is saying we pay less for (many) goods and services today than we did in the past, and that anyone categorically saying that ONLY the rich benefit from today's economy (which was the comment I was responding too originally with my own statement) is basically attempting to blow smoke up our collective assess, or has been totally captured by their own rhetoric...take your pick.

Of course, what you may be READING from what I'm saying and what I'm intending could be two different things, as I'm not exactly the most coherent poster in the universe...and when I'm drinking sometimes even I forget what my point was. Could you quote the part of what I've said that seemingly has me lying (or talking out the other side of my mouth, if you will)?

Certainly.

And this leaves aside the fact that we ALL (including our theoretical worker bee) enjoy the benefits of the increase in productivity because we all pay less for products and services today than we did 20 years ago.Like I said, this is a statement that we have increased purchasing power than our parents - that because prices have dropped, real wages are higher than what our parents got, despite the fact that we're making the same or fewer actual dollars. Which is to say, you're asserting that we've had negative inflation since the time of our parents.

The thing is, of course, that if some prices have gone up and some have gone down, then you can't just point at the ones that have gone down and say that we're richer. If my tshirts are 20% cheaper and my rent (which I spend orders of magnitude more on per year) has gone up 10%, then I'm poorer, plain and simple.

Personally, I don't think we've had negative inflation.


No, you are quite correct...housing, medical, even transport has all increased. It's not an across the board bonanza of goodness and light, and over all I think that our standard of living has been fairly stable for a while now. Which is another way of saying it's been stagnating at a certain fixed level, or even dropping slighting, depending on ones skill set, experience and career or job type.

-XTI think that the magnitude of expenses for housing, medical, and transport kicks the ass of the amount we spend on beer and peanuts. Seriously, I think that "stagnating" is very much an optomistic statement about how the change in all prices has played out. But maybe that's just my impression as somebody who only makes five digits...

[XT]

Like I said, this is a statement that we have increased purchasing power than our parents - that because prices have dropped, real wages are higher than what our parents got, despite the fact that we're making the same or fewer actual dollars. Which is to say, you're asserting that we've had negative inflation since the time of our parents.

You are really inserting a lot of extra language into my statement that is not only there but that I didn't intend to be there either. I never said anything about how our theoretical workers wages have increased, nor that they are better off than their parents...what I said was that everyone benefits from increased productivity and lower costs for goods and services than they did 20 years ago. And I don't see the quibble...we DO pay less for a wide range of goods and services than we did 20 years ago. No where did I say, afaik, that this translates into a higher standard of living across the board, or indicates 'we've had negative inflation since the time of our parents'...that's all extra stuff you are reading into my statement, and extra stuff that I'll say right here that I neither intended nor believe.

The thing is, of course, that if some prices have gone up and some have gone down, then you can't just point at the ones that have gone down and say that we're richer. If my tshirts are 20% cheaper and my rent (which I spend orders of magnitude more on per year) has gone up 10%, then I'm poorer, plain and simple.

Assuming you make no more today than you did 20 years ago, and assuming that the composite of all the goods and services you use that, adjusted for inflation and that cost less today are outweighed by the other goods and services that you regularly use that cost more, then you are correct. However, if you are speaking from the perspective of the country as a whole I'd need some compelling data to show me that the country is poorer than it was, over all, in the past (and other than a comparison between today, during a major recession, and the 90's, during a major boom).

Personally, I don't think we've had negative inflation.

Frankly, neither do I. So, where does that leave us in our little side discussion here?

I think that the magnitude of expenses for housing, medical, and transport kicks the ass of the amount we spend on beer and peanuts. Seriously, I think that "stagnating" is very much an optomistic statement about how the change in all prices has played out. But maybe that's just my impression as somebody who only makes five digits...

And my own perception, and what I seem to recall from reading on this subject, seems to indicate that I'm not being overly optimistic at all, and that at worse US standards of living have leveled off, neither increasing by any large degree nor decreasing by any large degree. Of course, INDIVIDUALLY things vary widely, with some segments of the working population doing a lot better, some being stagnant, and some decreasing, depending on how marketable ones skills and experience are and what profession one is in.

Of course, that's just my impression as someone who has gone from being on welfare and food stamps and working multiple jobs to make ends meet to...not being on those things...

-XT

[begbert2]

You are really inserting a lot of extra language into my statement that is not only there but that I didn't intend to be there either.I guess I was assuming you had a point you were trying to make. Because otherwise I'd have to assume that your point was, "People's wages don't go any further and in fact in practical terms they're poorer than they used to be, but at least their t-shirts are cheaper!", and that would be a silly thing for you to mean.

That's what I get for assuming, I guess...

And according to this (http://lospadrescounty.net/et/inflation.html) (found after a quick google), the CPI has been increasing steadily. You may dispute the veracity or relevence of the numbers if you like, I suppose.

[Wesley Clark]

Of COURSE it matters....assuming I'm correct. Big assuming, to be sure. If one is buying a PC and it costs $600.00 (in today's dollars), that's a hell of a lot less of ones income than paying $3000 (in 1990's dollars)...which is pretty much why more people today have PC's than they did in the 90's. Clothing also costs less today...if one pays $15 for Levis blue jeans (which is what I pay, anyway), then that is less than paying $30 for them in the 90's in both absolute terms and in adjusted terms. Food is also cheaper, in similar ways and for similar reasons. Even if we factor in housing and things like gas, my guess (and I admit it's only a guess...could be wrong and probably am) is that over all we pay less (adjusted for inflation) today for every day staples than we did 20, 30, 40 etc years ago.

-XT

Some things are more expensive, some less.

In the past 30 years things like clothes, food, appliances, etc. have gone down in cost because reliability/lifespan has gone up and price has gone down.

However real estate, education, health care, child care, regressive taxes and transportation (since most families have 2 people in the workforce, so they need 2 cars) have gone up.

http://www.gold-speculator.com/attachments/john-lounsbury/5805d1259943704-elizabeth-warren-end-middle-class-98115-125984636910344-john-lounsbury_origin.jpg

According to Warren, a far larger % of our incomes go to necessary staples (housing, health care, education, taxes) than it did 30 years ago.

[msmith537]

Was there actually a time when the working and middle classes felt they made enough money to make ends meet? Because my own personal theory is "no". It seems logical to me that any increase in wages would soon be offset by a corresponding increase in prices, resulting in little real gain. It's sort of like if we suddently paid everyone an extra $10,000. More people would be able to buy stuff so stuff would rise price.

[CalMeacham]

Was there actually a time when the working and middle classes felt they made enough money to make ends meet? Because my own personal theory is "no". It seems logical to me that any increase in wages would soon be offset by a corresponding increase in prices, resulting in little real gain. It's sort of like if we suddently paid everyone an extra $10,000. More people would be able to buy stuff so stuff would rise price.

During the 1950s, I think. Postwar prosperity ran pretty high. I know lots of people in blue-collar jobs who bought second homes then (generally vacation homes) and luxuries like motor boats. I can't see most of the folks I know nowadays getting a vacation home.

[Icerigger]

Yes I agree, and are childern going to have a better life than their parents? The answer is no for the most part and that was the heart of the American dream which has been outsourced to India, to quote George Will "American's should not be doing those jobs anyway".

[Blalron]

And, although this is never a popular position, maybe the guy who's losing his house should get rid of the cell phone. Barring a catastrophe like a job loss, perhaps one of the reasons he's losing his house is because he has too much crap, and didn't save or pay down his mortgage.


If you used $4 daily lattes as an example I'd be cheering on in agreement, but I can't let this slide.

There's a lot of useless shit people purchase, but in this day and age cell phones are very cheap and have a lot of utility. Without going into too much detail about my personal life, I am very poor (I have a job, but I'm very underemployed). I eat a lot of rice, beans, potatoes, lentils to save money. Even the dollar menu at fast food places are a luxury to me. I've cut out just about every unnecessary expense from my life that I can think of, and I've even been delaying necessary stuff.

But one thing I won't do is get rid of my cell phone.

The initial purchase price of my cell phone was $20. I pay 25 cents a minute. I keep it around for only two reasons: 1. Potential employers calling. 2. Emergencies. I don't use it for chatting with friends about crap.

Even if I were homeless, I'd still keep it around. How the hell else is an employer supposed to contact me?

[Wesley Clark]

Was there actually a time when the working and middle classes felt they made enough money to make ends meet? Because my own personal theory is "no". It seems logical to me that any increase in wages would soon be offset by a corresponding increase in prices, resulting in little real gain. It's sort of like if we suddently paid everyone an extra $10,000. More people would be able to buy stuff so stuff would rise price.

Why would an increase in wages result in higher prices. The goal is to shift productivity gains downward rather than send them all to the top. So over the next 20 years maybe half the economic gains will go to labor and half will go to capital. It'd be different than the 95% going to capital like it has in the last 30 years, but I'm not sure why that would make prices go up.

If you gave people an extra 10k I don't think everyone would spend it. I think many would pay down debt or save it. As it stands we have become a debtor nation over the last 15 years or so. I don't think people would still be as deeply in debt, but put the extra 10k into new stuff too.

As far as the history of the middle class, I really don't know. I am under the impression that economic security in the 50s and 60s was higher than now. But the fact that the rates of bankruptcy and debt have increased dramatically combined with the fact that more and more people have to have 2 people in the workforce to make ends meet shows something is going wrong. Forty years ago one person in the workforce was enough to pay the bills and have a decent savings rate. Now 2 people in the workforce means higher rates of debt, bankruptcy and negative savings rates.

http://dinomite.net/2009/03/personal-savings-rate.png

If you have an hour

http://www.youtube.com/watch?v=akVL7QY0S8A

Either way, various staples of life (health care, education, real estate) consumes a bigger % of gross income than it did 40 years ago.

[Wesley Clark]

If you used $4 daily lattes as an example I'd be cheering on in agreement, but I can't let this slide.

There's a lot of useless shit people purchase, but in this day and age cell phones are very cheap and have a lot of utility. Without going into too much detail about my personal life, I am very poor (I have a job, but I'm very underemployed). I eat a lot of rice, beans, potatoes, lentils to save money. Even the dollar menu at fast food places are a luxury to me. I've cut out just about every unnecessary expense from my life that I can think of, and I've even been delaying necessary stuff.

But one thing I won't do is get rid of my cell phone.

The initial purchase price of my cell phone was $20. I pay 25 cents a minute. I keep it around for only two reasons: 1. Potential employers calling. 2. Emergencies. I don't use it for chatting with friends about crap.

Even if I were homeless, I'd still keep it around. How the hell else is an employer supposed to contact me?

Yep. A prepaid cell phone and internet access combined probably add up to $20-30/month. But they are two of the most important investments you can make. Its not the same as spending $30/month on video games or movie tickets.

[Voyager]

Some things are more expensive, some less.

In the past 30 years things like clothes, food, appliances, etc. have gone down in cost because reliability/lifespan has gone up and price has gone down.

However real estate, education, health care, child care, regressive taxes and transportation (since most families have 2 people in the workforce, so they need 2 cars) have gone up.

http://www.gold-speculator.com/attachments/john-lounsbury/5805d1259943704-elizabeth-warren-end-middle-class-98115-125984636910344-john-lounsbury_origin.jpg

According to Warren, a far larger % of our incomes go to necessary staples (housing, health care, education, taxes) than it did 30 years ago.

The CPI basket changes over time. One reason people make the mistake of thinking we are richer because we can buy a certain thing easier is that any given product goes through a life cycle, beginning as expensive thing and becoming cheaper over time until it becomes a commodity. Saying that more people can afford product X than they could ten years ago says nothing at all about wealth. Things that are already commodities, like the things you mention, are much better indicators of how people are faring.

[Strassia]

The CPI basket changes over time. One reason people make the mistake of thinking we are richer because we can buy a certain thing easier is that any given product goes through a life cycle, beginning as expensive thing and becoming cheaper over time until it becomes a commodity. Saying that more people can afford product X than they could ten years ago says nothing at all about wealth. Things that are already commodities, like the things you mention, are much better indicators of how people are faring.

Right. Just because poor people in the 70s could afford black and white TVs bigger the richest person could buy in the 40s doesn't mean that they weren't poor.

On the OP, the biggest problem with trickle down is it assumes that any excess money in the hands of big business will be spent in ways that generate jobs in the U.S. With globalization and the growth of derivatives that is a huge assumption. Since the 80s companies have taken subsidies and moved jobs overseas. The trickle down is falling somewhere else. Since at least the 90s they have been taking that money and moving it around in ways that make it grow without ever actually producing anything.

[Cat Whisperer]

I have some anecdotes for this discussion; like most people, my husband and I have worked all of our lives for companies that do business the usual way - you get your salary, you get a few benefits (that you pay for out of your salary usually), and that's it. All the profit the company makes goes into company growth and shareholder profits. My husband has been working at an employee-owned company for the last five years, and the differences are like night and day. Instead of the profits being funnelled away from the company, they are returned to the actual employees, at every level, and they have been making some very good profits.

I completely agree that the idea that excess money in most corporations is spent on job generation is incorrect; mostly it is given to shareholders, and I don't consider rich people employing a maid and buying expensive things to have the same overall benefit as a company actually returning its profits to its employees, like my husband's employee-owned company does.

[Voyager]

I completely agree that the idea that excess money in most corporations is spent on job generation is incorrect; mostly it is given to shareholders, and I don't consider rich people employing a maid and buying expensive things to have the same overall benefit as a company actually returning its profits to its employees, like my husband's employee-owned company does.

To be fair to big companies, or any company, it is absurd to create new jobs when there is no work for new employees to do. When businesses who want to expand cannot do so because of lack of capital, then tax cuts for them make sense. If they are not expanding because of lack of demand, then tax cuts to encourage new production make no sense at all.

To respond to Strassia's comment, money is going to chase areas of greatest return. That is often not things which create new jobs. In the past few years it was mortgage backed securities and exotic derivatives, which did the country as a whole no good in the long run. You can't blame investors for that, but the right shouldn't pretend that throwing money at them is going to result in some desired social good. I'm assuming that the right thinks unemployment is bad, some of the their policies make me wonder.

[Robot Arm]

I completely agree that the idea that excess money in most corporations is spent on job generation is incorrect; mostly it is given to shareholders, and I don't consider rich people employing a maid and buying expensive things to have the same overall benefit as a company actually returning its profits to its employees, like my husband's employee-owned company does.If it's an employee-owned company, and they're returning profits to the employees, that's the same as giving it to the shareholders.

[Dread Pirate Jimbo]

If it's an employee-owned company, and they're returning profits to the employees, that's the same as giving it to the shareholders.

Yes and no. Because the shareholders in my company are also employed by the company, they are directly invested in ensuring that the company be as successful and profitable as possible, since that directly affects each person's bottom line. The profits actually do trickle down to the people who caused them and not to a bunch of faceless investors who care only about their dividends and not one whit about whether the company is acting in the best interests of its employees are its own sustainability. In our company, people don't face massive cost-cutting layoffs to improve dividend cheques for investors because the employees are the investors and the company recognizes that hiring the right people -- in sufficient numbers to do the work -- strengthens the company and gives it the best chance for long-term growth and success. As a result, the company just recently celebrated it's 102nd year in business and is currently the 7th largest construction management company in North America. AND, while business has slowed down during the recent crunch, my ROI this year and last year and in 2008 was right around 60%. I'm not saying our way of doing things is recession proof, but I feel a lot more confident in my long-term future with these guys than I would in a publicly owned company, where slashing jobs for the sake of hanging on to investors seems to be the name of the game in difficult economic times.

[Cat Whisperer]

Dread Pirate Jimbo is my husband, in case anyone doesn't know that.

[RickJay]

I have some anecdotes for this discussion; like most people, my husband and I have worked all of our lives for companies that do business the usual way - you get your salary, you get a few benefits (that you pay for out of your salary usually), and that's it. All the profit the company makes goes into company growth and shareholder profits.
Just out of curiosity, where else could profits go? Money given to employees is not profit. It's, you know, pay. Which is an expense.

And it might surprise you to know what a lot of successful companies DON'T give profits to shareholders. At one point Microsoft went 18 years without paying a single dividend.

[msmith537]

I completely agree that the idea that excess money in most corporations is spent on job generation is incorrect; mostly it is given to shareholders, and I don't consider rich people employing a maid and buying expensive things to have the same overall benefit as a company actually returning its profits to its employees, like my husband's employee-owned company does.

Understand that the purpose of a company is not to create jobs for people. It is to generate wealth for its owners and shareholders by selling a product or service.

[Cat Whisperer]

Understand that the purpose of a company is not to create jobs for people. It is to generate wealth for its owners and shareholders by selling a product or service.
Oh, I do. My point is that when the employees are the shareholders, that money gets spread around to people who don't normally see tasty dividend cheques.

[RickJay]

Oh, I do. My point is that when the employees are the shareholders, that money gets spread around to people who don't normally see tasty dividend cheques.
Or the employees could hold shares in other companies and get dividend cheques even if the company they work for's doing crappy.

"Employees owning the company" sounds great but in practice it's not really much of a solution to anything. A company that is mostly or entirely employee-owned - a collective - has its own problems with how to manage itself. Dread Pirate Jimbo's point that the employees are motivated to make sure the company succeeds is fine if it's a small company, but once the company gets big an employee can just as easily slack off, knowing the difference between him giving 100% and giving just enough to stay employed isn't going to affect the share price or dividend by any appreciable amount. There are LOTS of real life examples; did United Airlines suddenly become a paragon of wonderful customer service when it became employee-owned?

Similarly, if it's just a case that the employees own some shares, but don't control the company, the effect of their efforts on share prices and dividends are even less likely to be significant enough to affect the dividends they receive. (My best friend, a longtime employee of Cisco, has realized almost no gains at all from his many shares in the company, and would have realized the same minimal gains even if he'd put less effort in.) If you have spare money, it's generally a wiser strategy, for most people, to pay off debt and then invest in index funds.

I'm not answering the OP by saying "Trickle down economics works" because "Trickle down economics" is usually code for "Tax cuts and government contracts for my rich friends," which of course doesn't help anyone but the rich friends. However, you seem to be going a bit further and suggesting that having shareholders realize benefits from owning shares is bad. That's just not the case. You have to have shareholders to have corporations, and practically speaking you have to have corporations to run a modern economy.

As has been pointed out in a zillion books by a million economists, shareholders do not "own" a company the way you, say, own your car, and contrary to popular belief, corporations are not motivated purely by the desire to create dividends. (See the example of Microsoft above.) In fact, in the heirarchy of people who get money out of a company, shareholders are lowest on the list. Debtors and employees and suppliers all have to be paid first or else the company will go bankrupt or cease to function. A company can sail along happily for years and never pay a single dividend. Heck, you can have big corporations that don't even have any shareholders at all.

[Dread Pirate Jimbo]

<snip> Dread Pirate Jimbo's point that the employees are motivated to make sure the company succeeds is fine if it's a small company<snip>

Allow me to reiterate: I work for the 7th largest construction management company in North America. We have 24 districts spread over the continent, from Vancouver, British Columbia to Orlando, Florida, plus thriving locations in Hawaii and the Bahamas for good measure. 100% employee-owned. It's not a small company; your comment is wrong.

[MOIDALIZE]

No, trickle-down does not work because of its fundamental flaw, which is that despite the assumption that wealthy individuals and businesses with money to spare will invest that money in productive enterprises to increase their own wealth, in most cases it's in their interests to hoard their wealth, or invest it in ways that don't allow their money to circulate through the economy. Wealth keeps getting increasingly concentrated, yet the wealthy don't seem to have any grand ideas for helping the country as a whole innovate and create jobs. We need that money circulating and getting into the hands of as many individuals as possible, unique people with their own viewpoint and their own ideas as to how the money should be spent, in order to make the economy as dynamic as possible.

[gonzomax]

http://www.washingtontimes.com/news/2009/feb/19/swiss-bank-to-id-us-tax-evaders/ Yep the rich just keep plowing money into job creation. Well. other than billions in offshore bank accounts. In just Swiss banks there is over 20 billion. Add the Caymans and other havens, and you might get to real money.

[Cat Whisperer]

<snip> You have to have shareholders to have corporations,<snip> Heck, you can have big corporations that don't even have any shareholders at all.
That sounds a lot like a contradiction. Is this what you meant to say?
<snip> In fact, in the heirarchy of people who get money out of a company, shareholders are lowest on the list. Debtors and employees and suppliers all have to be paid first or else the company will go bankrupt or cease to function.<snip>
Yes, we *know* that the phone bills get paid before the dividends are calculated. Dividends come from the profit pool, which isn't calculated until the expenses are paid, and the decision to pay dividends comes from the decision-makers. It is our experience that the employee-owned company is making the decision to pay large dividends to its shareholders (the employees). Another company deciding to re-invest all its profits is not what we're talking about here.

As MOIDALIZE and gonzomax noted, the employee-owned business model that we're experiencing does just what it should; the people at every level of this very large company take their dividend cheques and basically spend them; house renovations, new cars, vacations, dinners out, re-invest in more shares, etc. They stimulate local economy, and they increase the quality of life for the employees. I would be interested in someone who is financially savvy explaining to me why this business model couldn't be adopted by more corporations. It sounds very contrary to the way business is usually done (a few bigwigs get huge salaries, shareholders may get nice slices of the pie, but the average secretary makes a wage and maybe a token bonus); it's actually a pretty sad commentary on the way we've all been trained that we *expect* someone else to take the fruits of our labour.

[gonzomax]

Buffet says it is a class war and his class is winning. He thinks it is a joke that his secretary plays a much higher rate of tax than he does. I think it is a joke that people of lower class defend the wealthy while paying a hell of a lot greater percentage of taxes.
The finance companies admit that the poor pay more for loans to help make it so the wealthy can pay less. it is stupid for a rich man to get a mortgage for practically nothing while the poor get gouged and thrown in the streets. But when you analyze who sets up the system, then it makes sense. The poor have no power and it shows.

[gonzomax]

http://www.pbs.org/wgbh/pages/frontline/creditcards/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist If you have the time, here is a Frontline on the credit card industry. They tell you the dirty tricks they do to fleece the poor.
An example is overdraft protection. The interest rate they charge for a short term loan is comparable to pay day lenders. But it is not regulated because they call it a service. That is just typical for the industry that gets to write its own legislation.

[Dick Dastardly]

Buffet says it is a class war and his class is winning. He thinks it is a joke that his secretary plays a much higher rate of tax than he does. I think it is a joke that people of lower class defend the wealthy while paying a hell of a lot greater percentage of taxes.
The finance companies admit that the poor pay more for loans to help make it so the wealthy can pay less. it is stupid for a rich man to get a mortgage for practically nothing while the poor get gouged and thrown in the streets. But when you analyze who sets up the system, then it makes sense. The poor have no power and it shows.

It's like the French Revolution in reverse. Millions of blithering idiots taking to the streets to demand more power for the aristocracy.

[RickJay]

That sounds a lot like a contradiction. Is this what you meant to say?
(That some corporations do not have shareholders.) Yes, that's precisely what I meant to say. Take, for example, the Canadian Standards Association. Big corporation, no shareholders.

It is our experience that the employee-owned company is making the decision to pay large dividends to its shareholders (the employees). Another company deciding to re-invest all its profits is not what we're talking about here.

As MOIDALIZE and gonzomax noted, the employee-owned business model that we're experiencing does just what it should; the people at every level of this very large company take their dividend cheques and basically spend them; house renovations, new cars, vacations, dinners out, re-invest in more shares, etc.
So what do you think happens in other companies? The money doesn't vanish. If it's handed out to shareholders in the form of dividends, then those shareholders spend the money in their communities. If it's reinvested in the company then the money must be spent on something, and the companies that sell those things make money, the money is paid out to their employees and shareholders, and so on.

You seem to be drawing a distinction between the dividends you, Shareholder A, are getting, and the dividends that Other People, e.g. Shareholder B, are getting. But to me, Citizen C, or society as a whole, it makes no difference. That in your case Shareholder A also happens to be an employee strikes me as being of no relevance at all to society as a whole. If I were to purchase Bank of Montreal stocks, I'd be paid dividends most years. If I then take a job with Bank of Montreal, do I magically transform from a greedy capitalist into a noble worker?

I would be interested in someone who is financially savvy explaining to me why this business model couldn't be adopted by more corporations.
Thousands of corporations are run this way. I couldn't even begin to list them all. (Dread Pirate Jimbo, I did not mean to imply you worked for a small company.) There are countless employee-owned corporations out there. You've also got collectives, like Home Hardware, whose corporate assets are collectively owned and operated by the constitutent store owners. Every conceivable way of creating and running a corporation is being tried somewhere.

Interestingly, there's little evidence that employee-owned companies are run any better than other types of companies. They face precisely the same challenges.

It sounds very contrary to the way business is usually done (a few bigwigs get huge salaries, shareholders may get nice slices of the pie, but the average secretary makes a wage and maybe a token bonus); it's actually a pretty sad commentary on the way we've all been trained that we *expect* someone else to take the fruits of our labour.
Well, first of all, that is not the way business is usually done. Most businesses make no, or very little, profit. In competitive markets, the average profit is very close to nothing, and in natural monopolies profits are usually capped by regulation. Most businesses pay no dividends to the shareholders. Most businesses do not have zillion-dollar CEOs. You're creating a straw man image of how most business operates.

Secondly, the reason people get paid the wages they do is that that's what their labour is worth.

[gonzomax]

So Bank of Americas boss is about to get a 100 million dollar bonus. That is what his labor is worth as long as he is charge of the evaluation system. The banksters have fleeced us and they are laughing as they gobble up the tax money. The profits the banks mare making is roughly equivalent to the amount of bailout money they wrested from us. They are getting the money from the Federal reserve for practically nothing. Your grandmother could make money with that deal. If they charged 2 percent they would make money. They are hitting credit card users for near 30. They are charging enormous rates for overdrafts and late charges. They are exploiting the poor.

[gaffa]

But one thing I won't do is get rid of my cell phone.

The initial purchase price of my cell phone was $20. I pay 25 cents a minute. I keep it around for only two reasons: 1. Potential employers calling. 2. Emergencies. I don't use it for chatting with friends about crap.

Even if I were homeless, I'd still keep it around. How the hell else is an employer supposed to contact me?
Some sort of telephone is essential for employment, and access to the Internet is now pretty much the same.

Even fast food jobs are moving to Net-only applications. The Burger King near me has a "Take-A-Number" style device that dispenses a paper tag with a URL and a number to enter at that URL. If you don't have at least some Net access and the computer savvy to fill out forms, they have no use for you.