Does the trickle down theory actually work?

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

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

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

Why don’t you go ahead and comment, since you started this thread and(I presume) read that other thread.

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)

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.


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.

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

As Rich-Poor Gap Grows, Class Mobility Stalls

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.

Here’s a powerful cite against the trickle down theory:

Here is the Wiki 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 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

Also from the Wall Street Journal

**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

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 **
“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
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%.

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

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.

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%

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.

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.

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.

“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.

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:


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.


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.

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.