I cant get this math right. $7500.00 X 1 miillion is an increase in corporate “profits”/earnings of $7,500,000,000, and with market multiple of 15 times earnings, it translates into an increase in stock market values of $112,500,000,000.
if we outsource 10 million jobs, corporate “profits” increase by up to 75 billion dollars, and stock market “values” increase by over a trillion dollars, increasing by $1,125,000,000,000.
Anyways, if my math is still not right , you get the general idea. Its extremely more profitable to outsource to foreign labor.
Okay, I left the arithmetic as an exercise to the reader. Here it is: The top 1% saw their income increase by an average of $576,000 (in year 2000 dollars). If you took this and distributed over everyone, it would come out to $5,760 per person (because the group “everyone” is 100X larger than the group “top 1%”, so you divide by 100…You don’t need to know what the actual numbers are; you get the same answer if you have a society of 100 families or 100,000,000 families).
Noone said that their taxes decreased in dollar amounts…What was said in the cite you quoted, as near as I can tell, is that their “effective tax rate”…i.e., the fraction of their income they pay in taxes decreased by 18%. At least that’s the way I read it.
I don’t understand what the difference is.
Why do you need population numbers? The book tells you that the top 1% of income earners earned 21% of all reported income. That is their income share. Who cares what the population is? It’s irrelevant. I think you are confusing yourself over things that are more straightforward than you are making them perhaps because you desperately want to look at this in a way that makes it sound like it is not so inequitable. Good luck!
Well, yes, there is the issue of income mobility. That is harder to study and there is less data on that. I think Sam Stone pointed to some data once and I found a study from the Sphere Institute (?). However, it is particularly dicey to try to separate what I would call “real” income mobility from “faux” income mobility. E.g., I’ve gone from probably the lowest quintile in grad school to the second highest or highest quintile now but I don’t really think that is a measure of mobility that I think is very meaningful. E.g., my parents are upper-middle-class and I am too. (On the other hand, my grandparents came over to the U.S. and Canada very poor and their children all became upper-middle class…That is more real mobility in my view.)
Of course, that is only true if you are talking about 1% of the population instead of the top 1% income level. Which FTSOA I am willing to grant.
Also, that figure is the gain over 20 years, is it not? Won’t you have to spread the $5760 out over the same period?
When you say you double the raise of everyone else, you mean it goes from 10% to 20%. If there are no deliterious economic effects (which might have changed both increases) then why not. But can you guarantee that such a large transfer of wealth would have no effect?
Of course, we have to remember that given the mobility discussed below, we are not talking about the same people at the begining and end of the period in question.
Which gets translated as “DCJ shows how the tax burden on the top 400 has gone down”. Technically correct, but certainly not the whole story.
Well, how many people earn income in the top 1% of the income level. Is this really 1% of the population?
That is always possible.
How, and why? How is moving from one income bracket to another less mobile in one case and more mobile in another. Don’t you pay varying tax rates regardless of your parent’s tax bracket? Isn’t the idea that we want to encourage as much mobility as possible? doesn’t that mean that we should encourage both kinds of mobility? More importantly, doesn’t that mean that we should avoid policies which discourage both kinds of mobility?
Again, what I object to is the obfuscation on both sides of this debate.
Yes, noone said otherwise. But, that is irrelevant. The whole discussion has been over gains over that period, i.e., the difference in annual after-tax income in real terms between 1979 and 2000.
Well, yes, this was meant as a hypothetical exercise to illustrate a point…namely that your claim that the amount the top 1% gained is so miniscule because it is such a small group of people that it doesn’t amount to much when considered in the context of the whole population.
Yes, some of the people in the 1979 group will even be dead and won’t be in the 2000 figures at all.
Well, you haven’t really pointed out anything that needs to be added to the story to make it any more enlightening, as near as I can tell.
What are you talking about? The top 1% is the top 1% is the top 1%. Why is this concept so confusing to you? I have not for the life of me been able to figure out but one interpretation of this “top 1%” idea that makes sense.
Well, I suppose but one mobility speaks much more to issues of inequality and the notion of equality of opportunity than the other notion, in my view.
Just to clarify, these numbers are gains in annual income. They are not “spread out” in the sense that they represent total aggregate gains in money over the whole period. So, the $5760 number means that the annual after-tax real incomes of everyone would have been $5760 higher in 2000 than in 1979 if this hypothetical spreading out I talked about had occurred.
Well, this may have been my bad. I don’t think I made that argument in this thread. I may be mistaken. I only tried to make a point that this group does not pay small amounts of taxes. I’m not sure I tried to suggest that they did not get very much richer over the period in question.
Possibly, I am trying to point out that you cannot always look at relative percentages and get a good idea that a particular conclusion is correct. I realize we are jumping around alot in this discussion. And I am certainly not trying to propose a complete debunking of the book in question. I am only trying to suggest taht the idea that the rich don’t pay enough taxes (as alluded to in the book and the OP) may not be a good analysis of the current situation.
Look. you can divide the population up in several ways. You can lay all of the incomes out and talk about the 1% of the population with the highest income. You can lay out the incomes and look at the top 1% * of income levels* and talk about how many people are earnign that level of income. As I said, the two concepts sometimes confuse me as terms are used which indicate one concept sometimes and the other at other times. After looking closely at the book in question, I am willing to grant that I think he mostly means the 1% of the population earning more than the rest of the population.
I’m not sure how, unless you are talking about education. Certainly children of parents in higher income groups will have a better chance to grow through the income groups than children of lower income groups. But when you realize the the top few percentiles is such high income levels, it may also be trye that the children from parents in these groups never do show up in the lower group. Althoug, I’m not sure how trust funds show up in income breakdowns.
Now, if you are talking about differences in opportunities between children from households in the top 25% vs those in the top 50% them sure I understand.
But in either case, it seems disengenuous to suggest that the rich get richer while the poor get poorer. I know no one in this thread has used those words. And if no one agrees with them then I appologize for any implied mischaracterization. But that does seem to be the gist of the book under discussion.
Understood. Of course, this also assumes that such a spreading out would not have affected the gain.
Have we ever discussed mechanisms to accomplish this spreading out which do not amount to barriers to gaining wealth? I’m not accusing, I just don’t remember.
Oh, now I see. I stupidly forgot to assume that if your job gets “shipped overseas” you are forbidden by law to get another job, and so you will certainly not have to pay FICA tax. My bad. :rolleyes: Well, it certainly makes do the math easy, so why question to validity of the assumption.
The phrase “trickle down” to me means that if you don’t tax employers so much they will use the money to invest in their business which will create jobs.
There was a news item on CNN just the other day speaking of the improvement in the economy for businesses. Featured was an employer who was spending quite a bit of money to upgrade his factory with modern equipment so that he could produce more with the same number of employees.
That was followed by an article in the Los Angeles Times about a rather costly seminar in New York City that instruced employers on the steps to follow in sub-contracting work to other countries.
If the employers have more money it doesn’t follow that they will spend it to create jobs.
I assume that most businesses don’t sell too many consumer products in Bangladesh. When US wages begin to approach that level who will be these businesses customers?
No, you stupidly forgot to assume that if millions of jobs are being shipped overseas, then the number of available jobs here in the US of A is being reduced, which means that people who are unable to find work because of jobs being exported don’t have to pay FICA tax.
Of course, if your well-paid job was shipped off to China, and you were able to find another job that pays far less what the one you lost did, you are of course, paying far less in FICA tax than if you were making more money.
This is just a silly argument. People not working don’t pay taxes. Is that supposed to be some brilliant revelation? The correlation between outsourcing jobs and the creation of new jobs in the US is uncertain at best, and most likely unknowable due to the complex nature of the global economy.
That statement is simply wrong. We’re talking about % here, not absolute amounts. FICA is a fixed %, up to an income maximum. If you were making $100k in a job in 2001 and are making $50k now, your current FICA will be a larger % of your income (since $100k was above the FICA cuttoff point in 2001). But that is still beside the point here. Incomes for specific individuals have fluctuated up and down over time in the entire history of our country. You’re throwing out a strawman with your “wll-paid job shipped off the China” argument. The issue here is the distribution of the tax burden througout the income categories and where the source of inequities lie.
Does Trickle Down Economics Work? Depends on what you mean by ‘work’. If you mean, does it grow the countries industries by providing the wealthy with more capital to invest, and keep the US AS A WHOLE competetive and on the leading edge world wide BECAUSE of that extra capital, then I’d say it works to a degree. If you mean that the rich will reinvest the money in various business, some of which invariably will be US flag companies, then I think this is a given…of COURSE they will, if they want to remain rich. It doesn’t necessarily follow that this will provide more jobs though, so if THAT is what you mean, then it doesn’t necessarily work very well.
The natural trend in business is to always look for ways to provide goods and services at a specified quality and quantity, while looking for ways to do it cheaper and maintain a competetive edge. Right now companies (not just in the US either) are experimenting with various ways to do this. One of them is outsourcing to countries where the wages/benifits are lower. There are problems with this in some cases (especially in the tech industry where language can be a problem), but many companies are trying it out with varying degrees of success. Another way is automation, which I see, in the long run, as changing the very nature of ‘work’ in a fundamental way…but thats for another thread and I don’t want to scare some of you more than you already are.
I always fail to see why some of the folks on this board get so excited about outsourcing. To use something that John Mace wrote in another thread, what is the difference between people losing their jobs because of automation or because of outsourcing?? Because thats the future for established jobs, folks. If it CAN be either outsourced or automated, it will be. Companies that fail to do these things won’t employ ANY workers in the long run…because they will be out of business.
So, if America wants to stay competetive with other nations, they have to continuallly innovate. Failure to do so will spell our doom as an industrial nation. Thats where this trickle down economics comes in (btw, I’m not necessarily a big fan of the theory…the OP simply asked ‘does it work’). Innovation itself, at least in theory, can CREATE new jobs, even while older more established jobs are either automated, downsized or outsourced. Companies aren’t in the business to create jobs, guys…they are in the business of making money.
So, what do rich folks do with their money? Well, some of it they spend on entertainment and luxury items, to be sure. Same as you and I do…and as a WAG, they probably spend no more of a percentage of their total income on entertainment and luxury items than you or I do (of course, 20% of a million dollars a year is a lot more than 20% of MY salary is, but then again, 20% of a million invested in stocks, etc is a hell of a lot more than my own 20% investment. Its all relative).
So what do they spend it on? Well, if they want to STAY rich, they invest a large percentage of it. And what do they invest in? Well, at least SOME of it is invested right back into their own companies in many cases (I know most of MY money goes back into my company). Some of it goes into OTHER US flag companies in the form of stocks, etc. Some of it probably goes into treasury bills and bonds I’m sure, some into comodities. Some to foreign companies. The point is, this is the money that fuels our growth and industry.
You all KNOW this happens. Hell, many of you are constantly railing at the fact that ‘the rich get richer, blah blah blah’. HOW do they get richer, folks? Well, same way you and I do…they work, they invest their money, and if they are smart and/or lucky, their investments make them MORE money, etc etc. And btw, while making THEM more money, it pours more capital back into our system in the form of stocks, bonds, etc (not to mention taxes). So, does trickle down economics work? I’ll say it again…depends on what you are measuring when you say ‘work’.
perv & j: *“How, and why? How is moving from one income bracket to another less mobile in one case and more mobile in another. Don’t you pay varying tax rates regardless of your parent’s tax bracket? Isn’t the idea that we want to encourage as much mobility as possible? doesn’t that mean that we should encourage both kinds of mobility?”
Well, I suppose but one mobility speaks much more to issues of inequality and the notion of equality of opportunity than the other notion, in my view.*
The 1 December 2003 Business Week has an article with some stats on US income mobility. Oddly enough, considering their pro-business orientation, they don’t think that current business trends are being very good for it:
So yeah, I think that while pervert is right that income mobility over one’s lifetime is often important—after all, that’s how those low-skilled workers were able to “climb into the middle class”—jshore is also right that we need to check it against income mobility over generations.
As jshore points out, it is very common for people from high-income backgrounds with high-income career prospects to spend a few years after college at quite low income levels, at entry-level jobs or internships or in graduate school. When you fall into that category, completing your planned progress back into your parents’ socioeconomic class is rather different from someone from a low-income background actually climbing out of poverty.
The bit in italics is absolutely meaningless unless you can show that the ratio of “earned” income to investment income is similiar across all economic groups (otherwise the groups most certainly do not increase wealth in the same way).
One of the main claims of the free market system is that the competition between various businesses is the best way to improve life for the majority of people. So tell me again, how does moving jobs to places where people make a bare subsistance wage and having US workers take other, and lower paying, jobs here improve the quality of life for the majority of people. In short, how does having workers compete for ever lower pay do that?
I’m far from a Luddite, but sooner or later we will have to face the fact that automation will, in the future, be able to do many jobs (including making copies of themselves), if not most of them. At the same time the present economic system requires that people work for pay in order to survive. It looks to me like those two are contradictory.
Contrary to what many think, a growing disparity between the rich and poor, while inherent to a capitalistic system, is not necessarily a sign that things are “wrong.” It’s actually a sign that the free market is working properly. It’s not that the rich get richer and the poor get poorer; it’s that the rich get richer and the poor get richer but the rich get disproportionately richer. And that’s how it must be for a free market to work. In order to stimulate investment, there must be the potential of superior returns. Why would anyone start a new business if they could make just as much money by working for an existing one? An entrepreneur risks his capital and his time while someone who works for him just shows up for work. If those who invest aren’t becoming disproportionately richer than they will stop investing. It just so happens that the rich have the extra money to invest, generally from previously successful enterprises, so they are the ones who will achieve the superior returns. It is necessary for the rich to get disproportionately richer in order for the poor to get richer.
There is a large gap between what supply-side economics (trickle down is a term of derision) could be versus how it is/has been. The problem is that the targets of supply-side policies are not necessarily the proximate cause of wealth. Supply-side policy should be targeted to those who invest, not those who make the most money. People who make the most money are more likely to invest but why not directly target investors rather than the rich? A regressive marginal tax rate is ridiculous but a reduction in the capital gains tax is merely questionable. The problem with reducing capital gains tax is that capital gains are far removed from actual investment in new businesses. Once again, the target of policy could be more specific. The idea of cutting the capital gains tax is that more people would be willing to invest in the financial markets thus stimulating investment. But in order it to stimulate more investment, this willingness to participate in financial markets must translate to an increase in the price of equities/bonds so as to induce more companies to issue initial public offerings. (I’m simplifying here). There are a lot of potential links in this chain to break. First, capital gains tax cuts must actually stimulate new investment. Second, that new investment must translate into gains in prices of financial assets. Third, those gains in financial asset prices must induce more people to risk the attempt to create their own assets so as to sell them at the inflated price. A more direct way of targeting investment would simply be to make it cheaper for people who decide they want to create their own financial assets to create them (read as: start new businesses). Subsidize new business investment specifically, not the rich in general.
Do any current or past manifestations of supply-side work? Probably a little. IMO, the biggest advantage of a de facto regressive policy is that more money is going to those who not only have probably invested it in the past (which is how they became rich in the first place), but have also done so successfully. It’s not a big gain, perhaps not worth the resentment engendered. Definitely not as equitable and effective as it could be.
No. The argument for outsourcing jobs rests solely on the competitive advantage offered to the the companies that do it. What opponents of the “outsourcing” oftem forget is that these jobs wouldn’t necessarily even exist if the companies were required to hire only American workers. Once you fouce American companies to increase their labor costs, you then have to “protect” their products from “unfair imports”. The cost of conusmer good increases, reducing demand. Reduced demand means reduced supply, which means reduced employment.
Complicated question, and complicated answer which I’m not really qualified to go through. I’ll do my best but hopefully someone more with more knowlege will come along. First of all, YOU are making the assertion that its an ever downward spiral, not me, so YOU can answer the last part of your question yourself…I don’t believe thats the case. I think these things are cyclical, with new industries emerging, creating new jobs and methods which are eventually copied and exported to other nations who can do comparable work at a lower price. This helps EVERYONE as improving those other nations has all kinds of side benifits, not least of which is its a good thing to do. Why SHOULD they be excluded and not be able to benifit, why SHOULD first world nations keep an iron grip and a monopoly on jobs? Anyway, here is my shot at explaining this fwiw.
First part: In theory, moving jobs to other countries moves capital to those other countries. Basically this is capital that does various things, namely improves infrastructure (got to have roads and communications to get the raw materials to the plants and get the finished products to the ships that will bring them to the customers, got to have telcom for all those help desk guys, etc), and injects money in the form of wages into the local economies.
What are those workers going to DO with their money? Well, to be sure initially, they are going to eat, get a decent place to live, basic necessities, etc, which in a lot of cases is a vast improvement over what they had before. However, eventually they are going to want to buy things with their wages as in most cases I’m aware of the wages paid are ABOVE subsistance levels (for the local economies at least). So EVENTUALLY these folks are going to become new markets for products and services. There is historical precidence for this…look at nations like Japan and South Korea for example…hell, look at the US itself for an example.
Second part: How does this help American workers? One aspect, in the medium term is it helps by providing new markets for our businesses, which, at least in theory, will provide new jobs here in the US. Not ALL jobs can be outsourced, and some are done better here in the US and larger markets means more jobs (in the short term) overall.
However, the real benifit of that competition you mentioned is that it forces companies to continually innovate…if they don’t, they die. It also provides THEM with the capital TOO continue to innovate, which they do by investing in things like R&D. It provides their stock holders with capital which THEY invest into the economy (rich get richer and all that).
So, it makes the rich richer, but how does it help US (and other first world) workers? Let me put it this way: All those third world countries we are outsourcing too are geared up for TODAYS jobs, i.e. manufacturing, telco support, etc. If, say, some company in the US (or even Europe or Japan, etc) comes up with some radical new idea that spawns an entire industry (like, say, the telco revolution of the mid 80’s through the 90’s) then who is going to do the work most likely? Initially it will be the workers in the first world, as THATS where the idea is most likely to come from. Third world countries simply aren’t flexable enough to jump right in to some radical new technology work…yet. Eventually, those countries we think of as being in this class will move up the tier and they WILL be able too. Of course, when that happens they will be closer to the cutting edge, their workers will be paid more, and it will be the NEXT generation of countries where the cheap labor comes from.
It will (in theory) follow the same pattern as before: There will be a ramping up by the companies poised to enter the new field, then a boom in that industry with a scramble to fill too many jobs with too few skilled laborers, folks will orient towards this new field seeing how lucrative it is, there will continue to be a shortage of workers for the new field driving up their market value, then eventually other nations will gear up to get in on it and fill the gaps, undercutting the higher priced first world labor by providing comprable service for less cost (this take time to do…look how long the telcom boom lasted before countries like India got fully involved and were able to start making serious inroads), there will be a time of parity and then decline in THAT industry (for workers) in the first world nations as the work is (again) outsourced (or automated) in an effort to cut costs.
Ok, I’m sure you and other are rolling your eyes at me by now David Simmons, so I’ll break off here. My question to you is: Whats the alternative? Force companies to employ people in high priced (the ‘good’) jobs? Companies forced to create make work for people? The government? Force US flag companies to use only US labor? What do you see as the effect this would have on US business in the future? Force other (third world) nations to have the same labor rates and practices, thus making them unattractive as sources for labor and keeping them out of the game?
From David Simmons
In the long term, you’ve touched on the heart of the issue. I’m no luddite either, but this very question concerns me, and I’m a big free market guy (as you could probably tell :)). What will we do when automation or even nano-technologies potential for self assembly comes into play? Certainly all manufacturing jobs at that point will go out the window. What will we do with the vast displacement of workers THEN? Even in the high tech field we are creating systems that don’t require high degrees of specialization like they used too (an example for anyone in the network infrastructure business: Look at the difference in configuring a router or switch now, or designing a variable subnet architecture, than say 5 or 10 years ago. CLI verse GUI, and now expert systems that do most of the donkey work for you. No wonder they can outsource this stuff now).
I haven’t got a clue as to what will happen when 90% of the jobs in the world can be done through either automation, self assembly or by expert semi-intellegent systems that anyone with even a little knowledge can use. Maybe human workers will always be needed as we continue to innovate, but it looks to me as if this won’t be the case. I think a time will come (not in our lifetimes I don’t think) where MOST people don’t work, because the ‘jobs’ are done automatically. If that happens we’ll need a new model, to be sure.
Again though, whats the alternative here and now? To make US companies stop working on automation, expert systems and nano-tech? To force US companies to continue to employ human workers and at high paid ‘good’ jobs…just because? What effect will THAT have on US companies do you suppose? Or maybe the idea is to impose such things world wide on ALL companies? How do we accomplish that? Force of arms?
Good answers. However, they are based mostly on theoretical models developed on historical trends which may not hold in the future. Our problem is that economics and politics are an interconnected feedback loop and we can’t break the feedback and study the open loop response. I least that’s my take.
I would point out, though, that the free market system doesn’t seem to be improving the lot of the subsistance-level workers in non first-world countries. In the US and Britain, the excesses of the late 1890’s (child labor, unsafe working conditions like in mines and factories with open-belt line shafts all over the place) were not corrected by the free market but by governmental action.
One problem is that I look at my grandchildren and wonder how they will manage. However, what looks like a difficult and strange thing to me will be normal for them so I suppose they will manage somehow. Just the same I don’t see any solid record by political and economic leaders, past or present, to work on possible solutions to any of my questions in advance of a crisis that forces action.
And high tech jobs aren’t all that secure. In this morning’s {i]Los Angeles Times* business section there is the story of a Southern California company that does financial work for other companies. They are installing computing equipment now that will enable them to complete their reports in 90 min. compared to 25 hours presently without any increase in the number of employees. And, as Al Jolson used to tell the crowd at the Winter Garden, “You ain’t seen nothin’ yet!”
