Does Trickle Down Economics Work?

[XT]

From David Simmons

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.

Well, I certainly agree that historical trends may NOT hold up in the future. I think that some of the more radical aspects of our technology will certainly break those trends and alter human work at a fundamental level. Like I said, I for one can’t picture what will emerge from that, but its something I think about also.

From David Simmons

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.

Well, I’d say that CAPITALIST systems (free markets are an aspect of capitalism) have and continue to help subsistance-level workers IN THE LONG TERM in non first-world (an in first world) countries. I think this has been born out historically for nations that embrace capitalism, and I’m confident that nations like India will move up the tiers also…maybe even China if they ever throw out the last vestiges of their own repressive regime. It won’t happen tomorrow mind you, or even next year, but it WILL happen IMO, albiet it may take decades.

You are correct that the excesses in capitalist countries has been blunted by incorporating elements of socialism (I assume this is what you mean), making the system we have today which is a hybrid. Historically countries seem to initially be more oriented towards pure capitalism, but as they (as a whole) become more wealthy, socialist aspects tend to creep in. This is a GOOD thing IMO, as pure capitalism is a cruel and harsh system for the working classes. I think its one of the true advantages of capitalism that its been able to adapt (or been FORCED to adapt as the case may be) and incorporate many of the more humane aspects of socialism into itself.

From David Simmons

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.

As I said, this also concerns me. I simply can not envision (without resorting to science fiction) how these changes will effect not only the US but the world. Fortunately for myself, I’ll be out of the work force by then (or more likely dead :)), so it will be my childrens and their childrens worry. I’m sure they will manage as humans have always managed before.

As to the second part of your statement, I see a lot of historic precidence for political and economic leaders working out solutions to crisis caused by technology and innovation in the past and have confidence that they will (that WE will) in the future as well. Think of industrialization replacing the older apprenticeship system and mom and pop manufacturing, and how radical and disruptive THAT was. Look at the luddite movement and the panics over assembly line manufacturing. Look at the internal combustion engine replacing traditional animal powered systems for transportation and other work, and the displacement of workers then. Think of how mechanization and other innovations that increased crop yields and lowered manpower requirements in the agricultural sectors and how disruptive THAT has been.

Somehow (and often painfully) they managed to work things out. In the short term such displacements were VERY hard on the folks of those times, no doubt about it, and many folks fell through the cracks or were even destroyed by them. But over all, and in the long term, things improved for the majority. One has only to look around to see that things are better OVERALL in the US for the MAJORITY of people than it was, say, at the turn of the century.

Its something we will HAVE to face and overcome somehow. I’m reasonably confident that we (as a species) will figure something out, though I’m sure it will be painful for those poor bastards that have to live through it in the short term. It will be painful for US poor bastards that have to live in the inbetween times we are currently in, as well.

-XT

[jshore]

@KidCharlemagne

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.

Boy, I have heard lots of wacky theories on this board, but this has to be right up there with the best of them. Can you find any reputable economist who subscribes to this notion that, not only is a certain amount of inequality necessary to create the right incentives for people (which is perfectly reasonable) but that this amount of inequality must be continuously increasing over time?!?!

By the way, I think the poors gains over the last 20 years or so are so marginal as to be almost nil. Note that the bottom quintile saw its after-tax income increase by 9% from 1979 to 2000 and that was before the current recession which may well have erased much of that gain. So, it is pretty close to the poor treading water and the rich getting way, way richer.

[jshore]

@pervert

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.

I understand your first way of doing it but I don’t understand the second way or, more precisely, how the second way differs from the first. Look, let’s assume we had a big Excel file with everybody’s name and income and whatever else we want. If we told it to sort by income and then chose the 1% at the top, that is what we would be talking about.

The only other possibility I can imagine is that you are trying to explain the following idea: Say that the maximum income anyone earned was $1,000,000. Then you’d define the top 1% as anyone making over $990,000, i.e., having an income within 1% of the maximum income. If this is what you mean, I’ll tell you that noone in their right mind does or would use this definition. It is an insane definition for a distribution like income which is so sparse in the tails. I would venture to say that even out of the order of 100,000,000 tax returns, you might not find anyone else whose income is within 1% of the highest person’s income. At any rate, this whole thing would be very sensitive to the fluctuations at the very top of the scale and thus of no use whatsoever. So, if this is what you were thinking of, I suggest that you forget totally about it.

[KidCharlemagne]

@jshore

Boy, I have heard lots of wacky theories on this board, but this has to be right up there with the best of them. Can you find any reputable economist who subscribes to this notion that, not only is a certain amount of inequality necessary to create the right incentives for people (which is perfectly reasonable) but that this amount of inequality must be continuously increasing over time?!?!

No, but that’s not what I meant. It’s not that income inequality must occur in order for new investment to happen; it’s that income inequality will occur when new investment happens and is therefore not necessarily a sign that something is wrong. Income inequality isn’t the cause of investment incentives as you seem to say, it’s the result. It’s the prospect of gains in future income that create investment. While the last line of mine that you quoted says “necessary for,” I assumed that people would know what I meant from my preceeding explanation. You would do well to stop looking for reasons to jump down people’s throats. If it still needs to be spelled out : Those who save will get richer than those who don’t. A man who puts $1000 in the bank at 5% will be
5% more wealthy, ceteris paribus than the man that lives hand to mouth and saves nothing. That 5% compounds into a growing disparity. Both men can reap the fruits of a growing economy, but the person who saves will grow richer relative to someone who doesn’t. Likewise, the person who invests in a successful new venture will grow richer than the person working as an employee for that new venture. The venture capitalist will get paid for bearing the risk and will generate superior returns.

By the way, I think the poors gains over the last 20 years or so are so marginal as to be almost nil. Note that the bottom quintile saw its after-tax income increase by 9% from 1979 to 2000 and that was before the current recession which may well have erased much of that gain. So, it is pretty close to the poor treading water and the rich getting way, way richer.

I’ve seen some wacky theories on this board, but this has to be right up there with the best of them. Poor treading water? I honestly don’t know where to start. I’m hesitant to quote statistics, even those that are in favor of my position, since they are virtually always assessed in a vacuum but:

[S]tudies of relative mobility have produced remarkably consistent results, with regard to both the degree of mobility and the extent of changes in mobility over time. Mobility in the United States is substantial according to this evidence. Large proportions of the population move into a new income quintile, with estimates ranging from about 25 to 40 percent in a single year. As one would expect, the mobility rate is even higher over longer periods—about 45 percent over a 5-year period and about 60 percent over both 9-year and 17-year periods. (emphasis added).

Furthermore, this lengthier Urban Institute report contains an interesting tidbit from a 1992 Treasury Department study on mobility during the 1980s, which was a decade in which by static measures the rich got richer and the poor got poorer:

The Treasury study uses income tax return data between 1979 and 1988, tracking the adjusted gross income of a group of households that paid income taxes in all ten years examined. The study finds that 86 percent of individuals who were in the bottom quintile in 1979 had moved up by 1988. An individual in the bottom quintile in 1979, in fact, was more likely in 1988 to be found in the top quintile than in the bottom one.

[KidCharlemagne]

@David Simmons

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?

By providing the majority of people with a less expensive product leaving them more money to spend on other goods or invest. It’s really important to seperate the economics from the politics. I don’t know any reputable economist who would deny that the overall wealth of the US economy would increase in the medium/long term by allowing free trade. Some economists would, however, disagree with the equity of the distribution of that wealth. But that’s a seperate problem and confusing the two creates more problems.

Outsourcing computer chip manufacturing saves Intel about 50% in labor costs, 30% of which gets translated to the consumer. Of course X thousand Americans lose potential jobs to Asia. But what about the effect of a 30% savings in computer chip prices for ALL consumers? How many more people can now afford computers who wouldn’t have been able to previously? How does this expand the market for online retailers and how in turn does that expand the market for web page developers and e-commerce solution businesses? How does this effect the number of people working for publishers of “How to Program in HTML” books? Where were all these jobs before the computer revolution? They didn’t exist. The beneficial effects of cheaper products are pervasive and cascading.

The question is, Should EVERYONE benefit a good amount at the “expense” of a few people being financially crushed? I personally don’t want to see anyone crushed but preventing outsourcing isn’t the way to help them. Mind you that other instances of price control have contributed to the problem in the first place, ie, the minimum wage, tariffs, etc., it’s just that the effect isn’t linear or obvious. The key is this: Don’t fuck with the inner mechanisms of the economy. If you must, fuck with the end product: profits. Rather than stop companies from outsourcing, raise everyone’s taxes and pay unemployment to those who lost their jobs. That way, everyone shares the burden and nascent industries aren’t nipped in the bud by prohibitive wage costs. Screwing with the inner workings of the economy to achieve political goals is like throwing sand on the gears of a motor to get it to slow down.

[jshore]

@KidCharlemagne

If it still needs to be spelled out : Those who save will get richer than those who don’t. A man who puts $1000 in the bank at 5% will be
5% more wealthy, ceteris paribus than the man that lives hand to mouth and saves nothing. That 5% compounds into a growing disparity. Both men can reap the fruits of a growing economy, but the person who saves will grow richer relative to someone who doesn’t. Likewise, the person who invests in a successful new venture will grow richer than the person working as an employee for that new venture. The venture capitalist will get paid for bearing the risk and will generate superior returns.

Well, you’ve given a good explanation of why the easiest way to make money is to have money…And, I don’t disagree with that. But, your original claim applied not only at the individual level but at the societal level…at least, I assume so, since all the data we were discussing on inequality was at this level. I still don’t see why at a societal level, we have to tolerate a society in which the inequality (e.g., in the sense of the ratio between incomes at the top and those in the middle or at the bottom) continues to grow larger and larger.

I’ve seen some wacky theories on this board, but this has to be right up there with the best of them. Poor treading water? I honestly don’t know where to start. I’m hesitant to quote statistics, even those that are in favor of my position, since they are virtually always assessed in a vacuum but:

Well, I was talking about static measures…i.e., how the overall structure of the society and the ratio between incomes of the rich and poor is widening. Dynamic measures is another matter…But, the whole issue there is pretty complicated. First, as kimstu and I have noted, that sort of mobility includes lots of different sorts of mobility including this mobility of the fact that nearly everyone at some point in their life is not earning much income. I mean, most teenagers don’t land a $100,000 a year job their first time into the job market. There are also various issues involved in following people through careers that one has to be careful of, as the Sphere Institute study points out: Their data is biased toward people who have worked steadily in the workforce…or at least were in there at the beginning and the end…and one way they compare (the way those who want to show lots of mobility, like the WSJ editorial page quote), in which they see what quintile these people finally end up in is a strange comparison because they are comparing a group of people who, by the end of the study, are now very different demographically (e.g., older with more years of work experience)from the flat demographic profile that are used to compute the quintiles. An alternate way of doing it, where they create the quintiles using only the group they follow shows considerably less mobility than this other method. [They call this “absolute mobility” and “relative mobility”.]

Where is your quote from, by the way?

Final notes:

(1) Books such as “The Winner-Take-All Society” by Robert Frank and Philip Cook would argue that too great an inequality in incomes is bad for society irregardless because it causes inefficiency.

(2) Even if there is a fair bit of mobility, I think there is little doubt that there are some groups in our society (the urban poor, Appalachia) where poverty has been remarkably persistent. And, the gap between these groups and the wealthy just continues to widen and widen.

[pervert]

@jshore

By the way, I think the poors gains over the last 20 years or so are so marginal as to be almost nil.

OK, but you can’t have it both ways. If redistributing the gains of the wealthy woudl raise the average gain by a whopping 10%, you can’t call 9% a pitance. If 9% is a pitance, then 10% is insignifacant also.

BTW, thank you for your patience with my misunderstanding of the 1% usage. I was clearly exposing my cranium to an inhospitable oriface.

[KidCharlemagne]

@jshore

Well, you’ve given a good explanation of why the easiest way to make money is to have money…And, I don’t disagree with that. But, your original claim applied not only at the individual level but at the societal level…at least, I assume so, since all the data we were discussing on inequality was at this level. I still don’t see why at a societal level, we have to tolerate a society in which the inequality (e.g., in the sense of the ratio between incomes at the top and those in the middle or at the bottom) continues to grow larger and larger.

The examples of individuals were just that, examples. But the concept is true for the society at large as well. If you’ve never heard capitalism framed in that way before (rich will get disproportionately richer) it’s because it’s not a politically expedient way to frame it. Economic arguments about “rich” and “poor” tend to be politically motivated. Karl Marx spoke of the inevitable growing disparity between the rich and the poor but believed that it must also inevitably foment revolution. Conservative-minded economists would prefer that the argument not get aired at all. No one wants to go on record saying that the rich will inevitably get disproportionately richer and that “it’s a good thing!” It’s liable to be misunderstood.

As for “tolerating” a growing disparity between the rich and the poor: Would the poor be willing to make even less money just so that the rich didn’t make even more relative to them? They’d be cutting off their nose to spite their face. The lower quintile of a capitalist society will still be better off than the lower quintile of a planned economy and the former at least offers the prospects of upward mobility. Capitalism isn’t a utopia, but it never claimed to be. If I could offer one piece of advice to the “poor,” it would be to stop finding ways to blame the government, the rich, and the economy and start finding ways to make more money. Successful entrepreneurs don’t have a world view that includes blaming others for their problems. This doesn’t mean that someone that loses their job or is undergoing economic hardship is necessarily to blame, but neither are the rich.

[KidCharlemagne]

@jshore

Where is your quote from, by the way?

Whoops, sorry.

Daniel W. Drezner NOT!

[jshore]

@KidCharlemagne

As for “tolerating” a growing disparity between the rich and the poor: Would the poor be willing to make even less money just so that the rich didn’t make even more relative to them? They’d be cutting off their nose to spite their face. The lower quintile of a capitalist society will still be better off than the lower quintile of a planned economy and the former at least offers the prospects of upward mobility. Capitalism isn’t a utopia, but it never claimed to be. If I could offer one piece of advice to the “poor,” it would be to stop finding ways to blame the government, the rich, and the economy and start finding ways to make more money. Successful entrepreneurs don’t have a world view that includes blaming others for their problems. This doesn’t mean that someone that loses their job or is undergoing economic hardship is necessarily to blame, but neither are the rich.

Well, I think you are creating a false dichotomy here. There is a middle ground between current policies and a planned economy. It is the way pursued, to lesser or greater degrees, by nearly all the other First World countries. And, it does result in less extreme poverty. I’ve lived in Canada and visited Denmark and other places and you just don’t see the extremes of poverty and dispair that you see here in the U.S. So, no, I don’t think they’d be cutting off their nose to spite their face.

Also, I think distribution of wealth matters. In ways that I don’t quite understand, vast inequalities of wealth seem to create worse conditions for the poor than their incomes would suggest. Partly it may be that the cost of living here is much higher than in third world countries. Certainly, as I argued in another thread, the cost of housing is driven up by the wealth of some so that decent housing just becomes unaffordable to others in certain parts of the country. (And, the neighborhoods without the good housing have hosts of other problems that seem to accompany poverty like crime, drugs, and broken homes.) Hell, I am one of the well-off and there are cities that I kind of doubt I’d be able to afford to live decently in.

I am not saying that the rich are to blame for poverty. But, I am saying that it is ridiculous to be pushing economic policies that give the most to those who have done most fabulously and the least to those who are hurting the most. And, as I’ve noted, there are some people, such as the authors of “The Winner Take All Society”, that argue that the extremes of wealth-and-poverty have gotten so bad that we are in a situation where we are likely beyond an equality-efficiency tradeoff and we might be able to get both greater equality and a stronger economy overall. Even if that were not the case and we had to trade some GDP off to have greater equity, I think that is something we might want to consider. There is nothing magical about maximizing the average. One could try to maximize the median. Or, if you are John Rawls (who is a bit far left on economics issues even for my taste), you would try to maximize the standard of living of the least well-off.

This idea that we have no choice here and no choices are being made is silly. I cannot honestly believe that we have come to a point in this country where a political leader can, seemingly with fairly strong effect, silence the opposition by saying that any discussion of the distributional effect of his policies amounts to “class warfare.” (As Warren Buffett shrewdly noted, “If this is class warfare, my class is winning.”)

Thanks for the link, by the way.

[jshore]

@pervert

OK, but you can’t have it both ways. If redistributing the gains of the wealthy woudl raise the average gain by a whopping 10%, you can’t call 9% a pitance. If 9% is a pitance, then 10% is insignifacant also.

Well, okay, maybe my language gets a bit flowery, but a few points here:

(1) The redistribution I talked of resulted in a ~15% increase for the people at the median, which is a bit more bigger than 9% than the 10% figure you somehow came up with. And, that $5700 was being given across the whole scale in my hypothetical example, which would have given the bottom quintile something on the order of a 40% increase!

(2) This 15% was in addition to the gains that the median quintile had already gotten. So, 15% here, 15% here, and pretty soon you’re talking real percentages (although nothing akin to what the top 1% saw, admittedly).

(3) My point on the 9% gain for the lowest quintile was how small it was in percentage terms compared to what the wealthy enjoyed and also quite a bit smaller than what would have happened if everyone had increased by the same percentage amount, which would have been a 40% gain (as can be seen from the gain in the average income). Also, I noted that most of that gain occurred in a few years in the latter part of the 90s and I worry that much of it has now been erased…Looking from 1979 to 2000 paints about the rosiest possible picture imaginable. And, while the difference in using other end years for the wealthy may be a matter of is it 160% or is it 200%, for the poor it may be is it 9% or is it just a few percent…or nothing.

BTW, thank you for your patience with my misunderstanding of the 1% usage. I was clearly exposing my cranium to an inhospitable oriface.

No problem…Glad it is settled.

[pervert]

[QUOTE=jshore]
the 10% figure you somehow came up with.

[QUOTE]
my memory from our earlier conversation. could you post the link you are working with?

My point on the 9% gain for the lowest quintile was how small it was in percentage terms compared to what the wealthy enjoyed

But again, this is only a comparison. Have we come up with any mechanisms to produce this redistribution which are not going to affect the gain at all?

and also quite a bit smaller than what would have happened if everyone had increased by the same percentage amount

And quite a bit smaller if the new wealth which this group earned as wages was never created in the first place.

[pervert]

@jshore

I’ve lived in Canada and visited Denmark and other places and you just don’t see the extremes of poverty and dispair that you see here in the U.S.

Can you cite this for me? I don’t mean to be snippy, but I’ve heard this before and never seen a good paper on it.

[David_Simmons]

@KidCharlemagne

The question is, Should EVERYONE benefit a good amount at the “expense” of a few people being financially crushed? I personally don’t want to see anyone crushed but preventing outsourcing isn’t the way to help them. Mind you that other instances of price control have contributed to the problem in the first place, ie, the minimum wage, tariffs, etc., it’s just that the effect isn’t linear or obvious. The key is this: Don’t fuck with the inner mechanisms of the economy. If you must, fuck with the end product: profits. Rather than stop companies from outsourcing, raise everyone’s taxes and pay unemployment to those who lost their jobs.[bolding added] That way, everyone shares the burden and nascent industries aren’t nipped in the bud by prohibitive wage costs. Screwing with the inner workings of the economy to achieve political goals is like throwing sand on the gears of a motor to get it to slow down.

My thought exactly. There is a lot of discussion that everything works out in the long run. But, as economist John Maynard Keynes said, in the long run we are all dead. The downsizer, or outsourcer benefits immediately, so maybe some of those benefits should be used to cushion the dislocation that results. As has been pointed out in at least one post, and by many observers over the years, it isn’t a matter of “socialism” vs the “free market.” We, and everyone else, already has a combination and the question is what is the proper mix?

In my view such policies could very well be considered anti-violence insurance. Frustrated hopes and the feeling of getting the shaft can lead people to hijack airplanes and fly them into tall buildings. A lot of what Roosevelt did in the early 1930’s was off the mark and didn’t help. However, I don’t think it is stressed enough that a violent revolution was not at all out of the question at that time and by doing something even the ineffective FDR actions gave people the feeling that somebody gave a damn and changed what was turning into violence to a peaceful revolution.

[KidCharlemagne]

@jshore

Well, I think you are creating a false dichotomy here. There is a middle ground between current policies and a planned economy. <snip> Also, I think distribution of wealth matters. In ways that I don’t quite understand, vast inequalities of wealth seem to create worse conditions for the poor than their incomes would suggest. Partly it may be that the cost of living here is much higher than in third world countries. <snip>

I am not saying that the rich are to blame for poverty. But, I am saying that it is ridiculous to be pushing economic policies that give the most to those who have done most fabulously and the least to those who are hurting the most. <snip> Even if that were not the case and we had to trade some GDP off to have greater equity, I think that is something we might want to consider. There is nothing magical about maximizing the average.

I certainly agree that there is a middle ground. Hell, I’m Mr. MiddleGround. Some of my best friends are middle ground. I always find myself defending economic theory that I don’t necessarily agree can be directly translated into policy just like I find myself defending believers against skeptics even though I’m a skeptic.

I don’t support a regressive tax policy in theory, and if I did, I still wouldn’t support it in practice. I would much rather subsidize new business loans as opposed to just subsidizing the rich; the poor could start new businesses if loans were made based on viability rather than collateral. Sure we’d experience more corruption but there just aren’t any free lunches.

What I’m generally critical of with liberal arguments is that they don’t start from an understanding of how the economy works; they don’t see the positive economic ramifications of laissez faire nor do they see the negative economic ramifications of subsidization. I too am more than willing to trade off GDP, not for greater equity, but to keep all Americans above the poverty line.

[KidCharlemagne]

@David Simmons

My thought exactly. There is a lot of discussion that everything works out in the long run. But, as economist John Maynard Keynes said, in the long run we are all dead. The downsizer, or outsourcer benefits immediately, so maybe some of those benefits should be used to cushion the dislocation that results.

What I should have said is: Before we start increasing taxes, let’s see how can we eliminate current subsidies that increase the motivation to outsource. If you want to see how lame attempts to be helpful are incredibly harmful for everyone, take a look at the US sugar industry. It’s amazing how agreeing with the left on one issue (even though I’m really not conservative) ends up causing 10 other issues that they are equally concerned about. For example, the US sugar industry:

The US government spends $2 billion a year on loan subsidies to a few US sugar growers because they can’t compete with foreign sugar growers. The US imposes tariffs that make US sugar more than twice that of sugar for the rest of the world (There are two separate futures markets for sugar, one for world sugar and one for US sugar).

As a result of “helping” (actually hurting) a few sugar growers,

1. Kraft and Brach’s Confections closed factories in the US and moved them to Canada where they can pay less than half the price for sugar. Also, no new factories are being built in the US. Thousands of US jobs lost.

2. Soft drink companies switch from sugar to high-fructose corn syrup, a vastly inferior product. We get shittier tasting Coke than Pakistan gets and sugar growers sell half the amount of sugar and end up defaulting on loans to the US government which costs us another $1 billion a year. High Fructose corn syrup is cheap because of the PIK program. Cheap corn syrup is cited as a main cause for obesity and diabetes. The people who are most in support of the sugar subsidies is Archer-Daniels Midland, a maker of corn syrup because it makes their product relatively cheaper!

3. The US government is forced to accept payment in sugar for the industries loan defaults. That sugar must be stored at a cost of $12 million dollars a year to US taxpayers.

4. The US sugar industry is utterly destroying the Florida Everglades.

Here’s what we can do:

Pay all the sugar growers in the US 2 million bucks a year and give them a house and a car if they promise to never work another day again in their life. The sugar growers will be much happier, we’ll create jobs in the US by bringing back the competitiveness of ALL the industries that depend on sugar, US consumers will pay less than half the price for sugar, have a cleaner environment, preserve a national treasure, have better tasting coke and cheaper Life Savers.

How is THAT for a subsidy?

Get rid of the PIK program for corn and we’ll be thinner and healthier as well.

[jshore]

@pervert

my memory from our earlier conversation. could you post the link you are working with?

It’s still http://www.cbpp.org/9-23-03tax.htm Look at Table 2. If you take the $576,400 that each of the top 1% gained and distribute it evenly, everyone gets an additional $5764. So, the middle quintile of the population which saw their real income go up by 15% would have instead have seen it go up by 31% under this admittedly-hypothetical scenario.

Again from Table 2, you can see that the overall average income went up by 40% which means that if the same gains had been made in the economy but they were distributed equally in percentage terms, so that inequality remained constant, then everyone would have seen a 40% increase in real income. Instead, the top quintile saw a considerably larger percentage increase and the bottom 80% saw a considerably smaller one.

@pervert

But again, this is only a comparison. Have we come up with any mechanisms to produce this redistribution which are not going to affect the gain at all?

Yes…This is only a comparison but one that gives an idea of the magnitude of the money involved. As for how to produce a more equitable society, I don’t really have the answers. I think this is something that we ought to be having a national discussion about. (In fact, such a discussion is long overdue and I think the only reason we are not having it is because so few people know the facts to begin with.)

Instead, the current Administration is doing its damnest to aggravate the problem. And, the WSJ is doing its part by constantly harping on misleading figures (like the increasing share of the federal income tax burden paid by the top 1%, without bothering to explain that this is actually a symptom of the exploding inequality) in order to justify these “trickle-down” policies by implying that the rich are over-taxed.

So, my first answer would be to invoke the Hippocratic Oath: “First, do no harm.” There are various positive suggestions made in “The Winner-Take-All Society” book, including more progressive taxation but also several other ideas that I should remember but don’t at the moment.

And quite a bit smaller if the new wealth which this group earned as wages was never created in the first place.

Well, that is what separates supply-siders from the rest of us, namely a profound belief that anything we do to restore any equality to our economy will immediately cause all of these gains to magically evaporate. It is not only positing an efficiency-equality tradeoff but an extreme one where we fall off of an efficiency cliff if we move in the direction of greater equality. Needless to say, evidence for this belief is lacking…And, in fact, there are some arguments that we have reached a point of inequality where there is no longer even a tradeoff at all and we could do things that would decrease inequality and increase efficiency.

[pervert]

Thanks for the link. I’m going to have to add a jshore folder to my favorites.

@jshore

If you take the $576,400 that each of the top 1% gained and distribute it evenly, everyone gets an additional $5764.

Right. But without the means, this sounds so small. What you are talking about is an average of an additional 67% tax on the income of the top 1% of earners. If that would not slow down the economy, I don’t know what will.

Again from Table 2, you can see that the overall average income went up by 40% which means that if the same gains had been made in the economy but they were distributed equally in percentage terms, so that inequality remained constant, then everyone would have seen a 40% increase in real income.

But this is overly simplistic as well. We do not have a collective economy. We have a free economy. So, unless you are proposing massive confiscatory taxes, I’m not at all sure what you are suggesting. Also, lets not forget which quintile took the greatest risks to create all that wealth in the first place. Remember, when you look at the gains of the top 1%, you are only looking at the winners. Several of those individuals who were in the top 1% backed the wrong horse, so to speak, and are no longer in that group. Would you like to spread that risk around to the other groups as well? How about if we make salaries dependant on compay performance.

As for how to produce a more equitable society, I don’t really have the answers. I think this is something that we ought to be having a national discussion about.

I agree. But we cannot have a rational discussion without agreeing on some of the terms used. I understand that looking only at the WSJ’s harping on the amount of money the rich pay in taxes is not the answer. But looking at the income gap does not seem to get at the answer any better. Both systems seem to leave something essential out of the equation.

Instead, the current Administration is doing its damnest to aggravate the problem.

Ok, but you have to be more clear here. Are you claiming that the gap itself is the problem? Or are you more concerned about poverty in general?

including more progressive taxation

Ok, but how much more. If the tax is mostly flat now (and by that we mean flat as a percentage of income), how progressive do you want it?

a profound belief that anything we do to restore any equality to our economy will immediately cause all of these gains to magically evaporate.

Well, I guess it was my turn to use “flowery” language. I did not mean that tiny tax increases would destroy all wealth creation.

But lets be honest here. You are not talking about tiny tax increases. The hypothetical we have been bandying about amounts to an additional 67% tax (that is they pay around 30 some percent now, so you would ask for 90% tax on these guys) on the top 1% of wage earners. A tax, BTW which your hypothetical would not use to improve schools, roads, defence or any of that stuff. It would be a straight redistribution of wealth. So, I’ll stop saying that wealth creation will be endangered under your plan if you stop trying to confiscate most of the wealth of the richest of us. Deal?

[jshore]

pervert, I think you are taking my hypothetical examples a bit too seriously. I am not proposing a tax of the sort I am talking about. What I am doing is noting how different things would be if the gains our society had made over the 21 year period from 1979 to 2000 had been shared more equally rather than going primarily to a few. That is by way of illustrating a problem for which I do not have a definite solution. However, I do think it is something we need to have a national dialogue about. Right now, it is hardly on the radar screen!

And, like I said, in the immediate present, I would just be happy if we were not implementing tax policies explicitly designed to excerbate the situation, as has been done over the past few years! There are actually people, some right here on this message board, who believe we are currently (or at least were before the Bush tax cuts) “soaking the rich” too much.

I am always better at diagnosis than I am at therapy…So, I don’t know what the solution is. But, the first step, as they say, is acknowledging we have a problem. And, we as a society don’t seem to have gotten that far yet.

One point that is notable from that CBPP report: While the gains were very unequally shared in the 1980s, the gains in the 1990s were actually much more equally shared (in the sense of everyone’s income increasing by about the same relative percentage so that inequality did not change very much). So, that is at least a hint that the economic policies of the 1990s are probably better than those of the 1980s from an equity standpoint. (They also may have been better from an efficiency standpoint since everyone gained more in the 1990s than the 1980s.) On the other hand, as folks note, correlation does not imply causation, and so this needs to be studied much more closely to try to pin down the link between policy and inequality.

Can you cite this for me? I don’t mean to be snippy, but I’ve heard this before and never seen a good paper on it.

Unfortunately, this is based more on personal anecdotal evidence from living in or travelling in these places than any good study that I know of. I would highly recommend that you travel to such places…preferably staying long enough to get a good feel! I think we Americans are generally much more ignorant of how issues are handled and life is lived in other countries than is true of many other First World citizens. And, we are the poorer for it.

I am sure there are studies out there but off the top of my head what comes to mind is some indirect evidence, like child mortality rates.

[jshore]

Here is one link I found making comparisons between the U.S. and other nations in terms of child poverty.