Bottom up economics - trickledown doesn't work

Great Debates
1

We need a major overhaul of the economy. Modern industrial economics is showing the limits of what it can create since it has been so successful at increasing productivity. Productivity that requires less and less labor every year. That is a good thing for industry and the general standard of living. It is not good for laborers than need to earn an income to have that standard of living.

Waiting for industry to create jobs will be a pointless endeavor. They will not be able to create a supply to meet the demand. Already most work in industrial societies is make-work - the entertainment and tourism industries being the prime examples. This is a good thing also. The less people we need to work in primary and secondary sectors allows us to devote our resources to create more services, conduct research, develop technology and to produce non-essential goods like entertainment and tourism.

The hard part is it is more difficult for people to earn an income in those sectors since jobs often have higher educational requirements.

So instead of giving tax breaks and subsidies that are geared toward large industrial enterprises and traditional businesses, we need to give them to people at the bottom to allow them to earn non-wage income and not rely on the labor market.

So what we need is to create a semi-formal economy. Individuals would be exempt from all taxes and non-safety regulations for any self-owned business than nets less than the poverty level, for example, and is less than two years old (maybe longer). Let them learn how to run a business and earn all the profits for a bit, then worry about complying with normal regulations.

To implement that cities could set up ‘trader markets’ - similar to farmers markets, but open to any type of business. Trader would just rent stalls rather than have to deal with all the costs of opening a stand alone shop. This would make easier for those that would rather be artisans or craftsmen than a laborer. A common workshop could also be part of the market to allow people to build and sell crafts.

Currently cities and other governments crack down on the informal economy, discouraging people from trying to make their own living since the costs of starting a traditional business have risen too high for most people. And most people do not want that level of responsibility. I think many people would jump into the semi-formal economy.

To make it work though, we would have to have a strong social net to protect those individuals - the biggest hurdle is health care. It is our largest expense next to housing, and is what keeps most people tied to labor income rather than take the risk of self-employment.

So I would expand Medicaid eligibility to the self-employed on a sliding scale basis.

So what kind of hornet’s nest did I just stir up?

2

What taxes are people below the poverty level paying now?

It sounds to me like you want to legitimize the black market. And you need to better define what the “strong safety net” is. If it’s really “strong”, I’m not going to be bothered to start a business that puts below the poverty level. I can get that for nothing.

3

Trickle-down works perfectly for the people it’s supposed to work for. Supply-side is the biggest goddamn hoax ever perpetrated on the American people.

4

Cutting taxes for the rich and expecting them to start hiring people is like pushing on a string. Unless they have more customers they will put the money in the bank, or spend it on personal luxuries. Do you want a job as a footman? Neither do I.

Franklin Roosevelt reduced the unemployment rate by hitting the rich hard with tax increases, and hiring people directly at government expense. The money of the rich will not do us any good until the government takes it from them and spends it in ways that benefit us.

5

The black market is dealing with illegal goods - this is more about legitimizing the grey market where goods are legal, but the vendors operate without a license.

The social net would mostly need to allow this semi-formal income to not count against them in determining eligibility for benefits - right now, one’s income or assets can be too high to qualify for benefits, but not high enough to allow them to become self-employed. So they go back to work at a crappy job just to pay their bills.

I would put strict limits on employees allowed also - family members okay, a couple assistants to help out, but not much more than that. If they are successful enough to hire more than that, they need to transition to the formal economy.

6

Can you give a concrete example of someone operating in this model? Something that someone can’t do now, operating out of their home?

And you still haven’t explained how tax breaks are going to help people who don’t pay taxes.

7

I’m curious as to if the OP is basing any of this on any actual economic theory or is just pulling stuff out of his ass based on personal bias and wishful thinking.

I mean what are all these nebulous “trader jobs” of which you speak? Really what it sounds like is that you are just suggesting a tax break for people who stand in line wating for the truck to come by and pick up a few unskilled day laborers.

8

The services would be similar to home-based and informal roadside businesses - but many people live in apartments that have restrictions on using them for a business. But concrete examples would be part-time hairdressers who might want to rent a stall for the weekend, but not a monthy rate on a chair in beauty salon, or handmade furniture and other woodwork. Tailoring services, small food stalls like the taco and tamale vendors in Chicago. Small vendors like flea markets, but trying to avoid the negative connotations of that, and simplifying the process for vendors.
The tax breaks are on the net profits of the business. They could pay themselves a salary (which would not affect their benefits eligibility if less than the poverty level) and reinvest their gross profits on better equipment, flyers, etc. For most people this would be a second income at first. I would follow the limits on 990s for non-profits. If gross revenue is less than 25K, they are exempt. If gross revenue is less than 100K they would only have to file an informational return. If they pass that mark, they have to register as a normal business.

It is based on reading about the informal sectors in developing countries and how they are trying to legitimize those markets, and looking at successful bazaars and farmers markets in various countries.

It is about easing creation of micro-businesses as opposed to small businesses. Nothing to do with day laborers or who hire them.

The trickle-down failure is based on reading from several economists about the jobless recovery and why it is occurring. I’ll look for cites, but it is not original thinking.

9

Wow, Las Vegas must be on the cutting edge of whichever economic theory you are basing your idea on because we’ve had thisfor a long time.

Why do you think that this would actually change anything on a large scale? The issue isn’t having people set up their own businesses, it is having *demand *for the services those people offer. Since the market for artisans and craftsman isn’t huge the demand for it seems to be small. Having more people enter the market isn’t going to increase demand but will increase supply which would hurt those already in the market.

Slee

10

I guess I’m not clear as to what you are proposing or what you think it will accomplish. Sort of a subsidy program for cottage industries and “single with a shingle” type entrepreneurs?

One glaring issue that comes to mind is that I don’t believe the vast majority of impoverished people are poor because they don’t have the money to start a small business. It’s because they don’t have the knowledge or skills. Someone who is a waitress or a metal die machine operator can’t really find much use for their skills outside of the organization they work for.
If it were up to me, I would raise taxes on the wealthy (defined as people who earn much more than me;)) but reduce or eliminate corporate taxes.

11

I like this idea, but the question is, what can small entrepreneurs provide that big business does not, at competitive prices? I mean, I buy most stuff because I need it, at the best price I can get for the value. Most clothes are made in China with pretty close to slave labor for cheap, by big American corporations. Most consumer electronics, the same. Agribusiness has replaced the family farm. Energy is once again, huge international firms. Real estate? A pawn of the legally invulnerable thieves who now run our fiance industry.

Food, clothing, shelter, all covered by big international firms. This leaves the small portion of the market known as “discretionary income” for all these small time entrepreneurs to work in. And I seriously wonder if there’s enough money there to support a huge portion of American workers.

However, I do like and generally agree with your analysis. The question I would have is, how do we crack the hold the big international firms have on the really big markets? Is it even possible, given their ability to hire something pretty close to slave labor, by American standards?

The product categories that are

12

Y’know, as a kid in the late 70s, I recall hearing about how capitalism had played itself out, and the era of growth was over and we needed to meet the Soviets halfway. The we got inflation fixed and the boom was on.

Then in the early 90s, I heard all about how the Reagan era was over, never to return, and we needed to move to Scandinavian socialism. Then the Internet happened.

And after the dot-com bust, we heard how Wall Street was irretriveably broken. Then we had growth in the 2000s.

Now, right on schedule, we’re in a down cycle, and capitalism is broken again.

13

Yeah, a boom-bust cycle is such a great thing…

14

Alcohol, tobacco, and gasoline excise taxes, sales tax, Social Security tax, and Medicare tax just to name a few. But please don’t let facts get in the way of a good rant.

15

Couple of things -

Could you provide a cite on how much Social Security tax people living below the poverty line pay?

And could you describe how we exempt poor people from paying taxes on alcohol?

Regards,
Shodan

16

The goal is not to shift the vast majority of the poor from laborers to entrepreneurs, but make it as easy as possible for those that want to, and which also removes them from competing from against those that want to remain in the labor market. And a lot of poor people don’t lack business skills. They can hustle with the best of them, but their big score is a couple grand, not a couple million like investment bankers. And they can’t score much more than that or ‘cousins’ or exes start showing up expecting to party.

Per Robert Reich

He also notes that what jobs are being created are at much lower wages.

Or about $18 - 25K per year.
Enabling someone to earn their own income above those wages is a win-win.

And reducing corporate taxes will do nothing to encourage faster growth or offer higher wages. Large businesses and the banks have all the cash they need to start new development and create jobs, but have shown no signs of doing so and definitely not at the rate above, and small businesses are still having a hard time getting access to capital to expand.

The only way I see out of it is expanding the opportunities for self-employment, for both the bottom, middle and upper class. Whether it is guys selling clothes off the back of a truck, or fashion students designing those clothes, or ex-middle management starting import-export companies and contracting with Asian factories to sew those clothes and bring them in.

It does not have to be enough to support a huge portion, a large enough portion to lower unemployment and increase demand for those who wish to remain laborers. Current disposable income is $11 trillion. I’ll go low and assume only 10% is discretionary. So a bit over $1 trillion available Take 10% of that, so $100 billion to support 300,000 new entrepreneurs a year, for example - that would give an average revenue of about 35K. Not too bad. Not great, but I am not expecting high levels of net income. And that only relieves one month of job creation, but the goal is not to replace normal job creation, but supplement it.

17

No, Wall Street had growth in the 2000s. We not so much.

And this is encouraging capitalism and free enterprise. Of course we could just grant everyone a Basic Income, and deal with the problem that way.

I know, it’s shocking that a socialist is proposing the former and not the latter. But I am a believer in free enterprise, and a strong social net. (And even there, I think more of that net could be provided by non-profits than relying on government programs - I don’t like big government anymore than I like big business. Too much power in any one sector is never a good thing.)

18

Wow. A simple question now becomes a “rant”? Who knew?

While I can see that the OP might have been thinking of FICA, I certainly hope he wasn’t talking about exempting these folks from “Alcohol, tobacco, and gasoline excise taxes”, as well as sales tax.

19

They pay the same rates on their income as everyone else. Did you not know that? It’s a flat rate, with a cap. Do you want a cite on the sun rising too?

I never said we should or could. I was just responding to the absurd claim that people below the poverty level don’t pay taxes. I know you hear it on FOX all the time, but that doesn’t make it true.

20

Actually, a negative income tax or basic income such as the one Milton Friedman and many other libertarians favor, is much more market-oriented and capitalism-friendly than the complicated scheme you’re proposing. It would distort the labor market somewhat, but a single broad, simple distortion is better than the kind of complicated central planning and record-keeping and incentives to game the system that your proposal would entail.