This comment was made in my thread, “How does lowering taxes increase revenue?” And I definitely think it represents a divide in how to view the economy. Perhaps a key distinction between liberal and conservative.
I’d like to be clear that I’m not posting this to shit on Sam Stone. I’m not really sure what my view on the subject is. As he says in the last sentence, is there a way to show this? I know there will be a lot of disagreement over this, but I think the logic is there: those that are rich know better how to get richer–and that is good for the economy.
This is an issue I think needs to be addressed. When discussing economic stimulus, or lowering taxes, we could split them into three possibilities: large tax cut/stimulus for the rich, small tax cut/stimulus for everyone, large tax cut/stimulus for the poor.
Is there a way to show what would provide the best result? As an example, let’s say the government wants to either give $224billion stimulus or tax cut. We could give everyone in America $700.
Or instead, we could give people below $17,499 (16% of the population) about $4300
Or give people give people $100,000 or more (15.73% of the population) $4480.
Any thoughts on what would produce the most economic gain?
What are you trying to stimulate, rich people to bother becoming more rich when they don’t need to, consumption of the basics of modern life , savings, etc?
Noting that your hypothetical assumes that the rich population won’t blow it on fancy-shmancy consumer goods, this sounds like it’s asking to compare supply-side (putting money in the hands of investors) or demand-side (putting money in the hands of the purchasers) economics.
I prefer demand side from a mild egalitarian point of view. One of the powers of capitalism is that it gets prices and productivity “right.” Compare this to, say, a form of a state-controlled economy where so-called experts decide what to invest in, what to produce, etc. Lacking adequate price signals, even the best of minds with the best of intentions are incapable of optimizing production.
While there is tremendous overlap and nuance to be found, the overall supremacy of capitalism over other market models is inherent in the democracy-like aspect of aggregate demand curves.
It’s always been my understanding that giving money to the poor and especially middle class is much more productive for the economy. For one thing, they are consumers in a consumer driven economy. For another, the rich are much more likely to hide their money out of the country, or sink it into real estate or otherwise remove it from circulation. And we are presently living though an example of how the behavior of the rich are anything but good for the economy. How are rich people who move from business to business, destroying them for short term profit and leaving wrecked companies, unemployment and general economic disaster better for the economy?
It is pretty obvious (isn’t it?) that some people are better with money than others.
If you hand some people $1000 the money will be gone in a week with nothing to show for it. I will demonstrate if you like.
Give the same money to other people and they can do amazing things with it. They can make it grow in ways I don’t even understand. They might invest in projects that profit themselves and also create jobs for others, for example.
The question is: how do we tell these people apart before we start handing out the money? One way is to just assume the people who are already successfully handling large sums must know what they are doing and that those who have no money don’t know what they are doing. It’s a heavy handed solution and it is easy to find counterexamples but government spending is heavy handed by its nature. The alternative assumption, that the poor are good money managers and the rich are not, is hard to swallow.
Indeed. The smoke and booze manufacturers have families to feed, too. I suppose some percentage of the working poor would use a windfall to escape the cycles of payday loans and whatnot, and instead of distributing cash, I’d rather see vouchers given out, usable to pay down consumer debt. I have no illusions, though - for most people already burdened by such debt, the windfall might give them a few months of breathing space but they’ll end up back in the same position anyway. Overall, I’d side with the rich as being more likely to put the money to better use.
Is it possible that you’re conflating good money management with good earning potential/inheritance? To stay afloat, a poor household with two kids has to be much more careful with what they spend money on than a well-off family of the same size.
I see no reason to think they are any worse. They, unlike the rich can’t squander what they have and still prosper. They aren’t the same position to exploit others on such a huge scale, they aren’t given such license to run roughshod over others and exploit them while the law looks the other way.
When you are rich, you can go though life leaving a trail of disaster behind you, of failure after failure and still remain wealthy; Bush II being a case in point. He ruined everything he touched, but he stayed wealthy and was still handed one position of responsibility after another until we got all the way to President - twice - and was an utter disaster at that, too.
The really rich person buys a pair of boots, overseas, fine quality. He proceeds to wear these boots for say, ten years, until they break down.
The middle class person can’t afford these boots. So he buys a new pair of average quality boots every two years, say.
Who has put more money into the economy? The rich person with his one-time purchase or the middle class person?
I know one thing about rich people. They are good at keeping their money to themselves. Which is how they stay rich.
I don’t think poor people are better money managers, either. I think the best ones tend to be the middle class folks - the ones who maintain their families and households on a middle class income, who budget wisely and even manage to save for their retirement.
Of course everyone considers themselves “middle-class”’, even people who I would term rich!
In practice, though, the cheaper boots were probably made in Asia anyway, so that has to be taken into account when measuring the impact on the local economy. Personally, I can imagine paying for a quality custom-fitted set of footwear (that and a few tailored suits are likely to be my only clothing extravangances) which for convenience I’ll have made and fitted locally.
Chris Rock makes a useful distinction, though: “rich” versus “wealthy”. A “rich” person could be an athlete or entertainer who gets a lot of money in a short period of time and possibly, as we’ve seen over and over, pisses it away on fripperies and entourages and gold-plated tire rims when their talent fades. A wealthy person, by contrast, lives off the income of investments, often putting disposable income back into those investments. Wealth lasts forever. Rich is something you can lose after one bad summer and a coke habit.
I did say “it’s easy to find counterexamples.” Guess who I was thinking of when I said that? Somebody, somewhere was smart enough about money to be rich themselves and still support and pay for the wastage that is W for all those years - decades actually. I don’t like that person and I doubt they have my interest in mind but they sure do know how to make money work. If all the rich were like W they wouldn’t be rich for very long.
I think the idea is that if a person is given $4000 that he then spends on smokes, the money does go into circulation, but that’s just it.
If you take a step back and look at it from the small, independent, tobacco manufacturer, he won’t see that $4000. It is true that he’ll get the money and pay his employees, and farmers, which is good for the economy. I believe this is a good way to stimulate because like with the auto sector, if people delay spending, our little cigarette industrialist might have to shut down.
But at the end of the day, depending on his profit margin, he’ll only have a small portion of that $4000 to re-invest into his company. And I believe this is the point we need to consider. That profit is where he is able to expand: buy more equipment, hire more workers, expand his business. If his profit margin is small enough, that $4000 in sales won’t be enough to encourage him to expand.
Contrast that with giving him the $4000. He may also squander it, giving the execs a big bonus, paying out dividends, taking a corporate retreat to the Bahamas. All of this to me is the same as the poor guy wasting it on smokes, our rich guy is just spending it on more expensive smokes.
But there is also the potential that he’ll use this money to expand. Buying newer, better equipment to improve his profit margin. Hiring more staff. Opening more stores. These activities are ultimately what we need in order to grow the economy.
HA Maybe that’s the point. Give the money to people that buy lottery tickets. One of them will become rich and be a new steward. The other 48million will stay poor. But the government ends up getting all the money back–as increased revenue! (assuming it is a state owned lottery)
And what is it that the rich invest in? If they are investing in American business, it’s all for the good, but if the money is being exported to multinational corporations, foreign moneys and property, and goods that are no longer made here, where does “stewardship” come into the picture?
I’m not sure how to go about trying to answer that to your satisfaction. I suppose I could search for 401k statistics to see if there exists any data on what percentage is invested in non-American companies, or compile a list of the 100 richest Americans and google out where their money is.
By comparison, until recently there was a restriction on Canadian Registered Retirement Savings Plans (our 401k equivalent, I guess) limited foreign investment to 20%, but this was dropped…
Fact is, I don’t really know what the rich (or as I prefer, wealthy) spend their dough on. I do know that Wal-Mart, recently head of the Fortune 1000 list and presumably high on the list of places to shop for the middle- and lower-classes, imports the majority of its wares from Asia, so it’s misleading to suggest a wealthy person will buy foreign-made goods and not mention that a middle-class or poor person probably will, too.
As a side note, my most recent personal investment was 500 shares of Tim Horton, inc. And it’s done very well for me.