Middle Out Economics: The Trickle Down Killer

Great Debates
101

You’re demonstrably wrong that no one believes it. The GOP constantly referring to employers as job creators is proof positive of that.

And this point is proven incorrect by virtue of the fact that no matter how badly you want to make money, you won’t hire any workers if there’s no demand for your product or service. And unless you’re making yachts or Bentleys, the overwhelming majority of demand comes from the middle and working classes.

Don’t believe me? Ask venture capitalist Nick Hanauer.

Raise Taxes on Rich to Reward True Job Creators: Nick Hanauer
*I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)

Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be. *

No. As shown above, jobs are created only when demand requires jobs to be added. I may be able to offer enormous value to your business, but if there are no consumers for your product, even with my awesome value, you will close your doors regardless.

Nonsense. The amount of wages is due to the massive power the biggest employers have on tamping them down, setting the “market rate” that everyone else competes against. Hence, the billions spent destroying the one advocate workers have had to get their fair share of pay: the Labor Unions.

Wrong. Worker productivity has been on a CONSTANT rise for at least the last half century. And for decades, worker wages were increased on the exact same trajectory as their productivity. But around the mid 1970s, though productivity continued to rise, wages stagnated, and they’ve stayed stuck at 1965 levels ever since.

The 40-Year-Long Wage Stagnation Problem In America

The notion that improved productivity will naturally result in improved wages is demonstrably false. Look at the charts at the link.

Everything he suggests will absolutely make jobs easier to get and workers more productive. Middle Out Economics is an economic fact.

102

Maybe, but that’s not “Middle Out” economics as the OP described it. That’s, I guess, trickle up…you give the money to poor people and then count on that to help the economy.

Have you noticed, though, that everyone talks about the middle class nowadays. Nobody says “We need to help the poor”, it’s “we need to protect the middle class.”

103

Well part of that is “middle class” is a bullshit political construct. Most people self-identify as middle class. Really what we are talking about is most work-a-day Americans who aren’t CEOs, celebrities, high powered investment bankers, and so on. “Poor” people are generally unskilled people who don’t produce much and often require government assistance. The reason we talk about helping the “middle class” is because thay are the people who work and buy stuff and otherwise drive the economy.

That was hyperbole.

The top 1% own about 30%.
The top 10% own around 75%.
The lowest 50% collectively own about 1-2% of all wealth in the US.

The problem when too much wealth resides in the hands of too few people is that those people typically use that wealth to serve their own needs and detatch themselves from the rest of society. You see this in countries like Brazil and South Africa. Those with money sequester themselves behind walled communities with private armed security. They send their kids to private schools and have private health care. Everyone else just eeks out a living.

Your statement reflects the attitudes of the wealthy elite Mitt Romney types, the wanabee elite Ayn Rand acolytes and others who feel that elitist sense of entitlement.

It also shows a distinct lack of understanding of how a business works and how wealth is created in the first place. Without a healthy, functioning economy, there is no wealth or capital.

The problem with thinking that only capital is important is that it treats those without capital as having no value. Like they are surfs or peons whose only usefullness is to perform whatever tasks are needed to increase their capital.

What is more important? Having smart people who come up with new ideas for products and services? Or having morons who have the power to write them checks to fund their enterprises?

104

[QUOTE=msmith537]
Your statement reflects the attitudes of the wealthy elite Mitt Romney types, the wanabee elite Ayn Rand acolytes and others who feel that elitist sense of entitlement.
[/QUOTE]

Ah, thanks for the insult. I won’t respond in kind, however, and just say that I don’t believe my statement reflects any such thing.

Again, letting go the ‘you are clueless’ aspect, I’ll just turn this around and say that without wealth and capital there won’t be any business either. Capital is the heart of any functioning economy, and you need it above anything else if you want to have one.

The ACTUAL problem is that you are reeling off a tape recorder, talking to a strawman argument that I didn’t make, and that you didn’t actually bother reading what I DID write. I’ve already corrected the ‘only’ part of this several times, and gone to some length to point this out, yet here you are with the strawman again.

Having morons who can write the check, of course. Because without that, you don’t GET those smart people making anything. Without someone finding the capital, we don’t get Ford or the Ford Motor Company, we don’t get Edison and the Edison Electric Light Company, and we don’t get all the rest. Someone has to find the capital, which seems to be a dirty word on this board but really only means the resources, to do ANYTHING. Without that, all the smart workers in the world can’t do a damned thing.

Not every company has a genius that starts it or that drives it to become a top tier company…or even successful. Be EVERY company in the history of the world started off with someone finding the capital to make it a reality. It’s the one thing you absolutely have to have. If you don’t have it, no company. Even if you are in communist Russia, hell even North Korea, you have to have someone find the capital to create anything at all. Whether the capital comes from The People™ and the government, the Wise Ruler(arr) or from some moron writing a check, it is the basis for everything and without it nothing can or would ever get done.

I see several others also wrote similar things, though thankfully they weren’t nearly as insulting, but I figured this pretty much covers the responses. If I missed anything that someone wants me to cover, I’d be happy to do so…hopefully this isn’t hijacking the thread, but it seems the original thrust of the OP has pretty much been addressed already.

105

What you say is true. But capital alone isn’t enough. Capital can just sit somewhere in some safe investment, essentially doing nothing. Progress comes from risk capital. Progress generally comes from capitalists looking to make fortunes not capitalists who’ve made their fortune.

106

Oh hogwarsh. How many businesses tell their rags to riches stories of starting in their garage or basement and managed to build their businesses without any “infusion” of capital? There are banks that lend money, there’s family (whom Romney told all us plebes to go to), and the Small Business Administration, to name a few options.

I wonder if there are any current Republican business owners who are on record as starting in their garage and using the SBA and other government loans to become massively wealthy. Hmmm. Why yes, yes there is! Allow me to introduce you to Shar Valenzuela, the famed “We Built That (Without Government Assistance) (Which Was A Blatant Lie)” speaker at last year’s RNC:

"The 58-year-old, who is running for lieutenant governor in Delaware (she lost), started an upholstery business with her husband in their garage more than a decade ago to pay for their son’s autism treatments. …

“First State Manufacturing, Valenzuela’s company, has received more than $2 million in federal loans, according to a Small Business Administration document. Among the loans is $20,000 in SBA-backed credit that Valenzuela and her husband received to get their business started. In addition, Valenzuela borrowed $1.8 million in government-backed funding to build her firm’s 66,000 square-foot facility, where at least 40 technicians work today.”

But wait. I know you might not want to believe that because, after all, it was reported by that left wing loony site Huffington Post. So I’ll tell you what, I’ll let Mr. and Mrs. Valenzuela and their business partner tell you themselves, in their own words:

Talk about straw men. That one was ridiculously easy to knock down. Got any more?
107

I agree, and thought I had gone to pains to say this. Sorry if there was confusion. I’m also sorry that it seems that any time someone brings up the word ‘capital’ that automatically they are a crazy right winger who doesn’t understand anything about economics and who is a knee jerk worshiper of capital-ISTS and The Rich™…or something. I was just trying to make the rather pedantic point that capital is the most crucial part of any venture, certainly not that it’s the only part or that there are no other important parts aside from capital.

108

As I point out above, capital doesn’t have to come from some fat cat writing a check. Take out a loan. Use your savings.

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” ~ Abraham Lincoln

109

[QUOTE=Shayna]
Oh hogwarsh. How many businesses tell their rags to riches stories of starting in their garage or basement and managed to build their businesses without any “infusion” of capital? There are banks that lend money, there’s family (whom Romney told all us plebes to go to), and the Small Business Administration, to name a few options.
[/QUOTE]

Oh hogwarsh. :stuck_out_tongue: How is this in any way different than what I said? Well, it is because I’m a crazy right winger, obviously, who doesn’t know anything about business or economics, of course.

You realize that ‘Having morons who can write the check’ is completely synonomous with ‘banks that lend money, there’s family (whom Romney told all us plebes to go to), and the Small Business Administration’, yes? Or, maybe you don’t.

110

No it isn’t. Pretending now that that’s what you meant is completely disingenuous.

111

I’m sorry you feel that way man, since that’s EXACTLY what I mean.

112

I’m not really arguing with most of what you’ve said. Capital is generally a necessary ingredient in economic growth.

I was arguing against the extreme position that capital is the sole answer to all economic problems. The claim was made that if rich people have capital they will use it to create jobs and the more capital they have the more jobs they will create. Such an extreme position is just nonsense.

113

I should point out I’ve never heard anyone expound quite that view, but wealth cannot help but find productive uses, unless it’s physically stuffed into the mattress. And on that same point, we always lack enough capital - we ideally we want ten times - a thousand times what we do now.

114

I agree that extreme positions, including the one you are arguing against, are often nonsense…such as the OPs. I honestly didn’t think my brief nitpicking response would draw out all of this commentary, and am a bit surprised by some of the assumptions and argument over such a seemingly innocuous and, well, basically pretty evident and as I said more than a little pedantic reply I gave.

115

The way you phrase the argument stacks the chips in your favor. You speak of “capital” as some sort of Platonic ideal. It’s not just some venture capitalist somewhere, it’s the whole concept of resources that can be brought to bear. When you compare that to some guy starting a company in his garage, of course it’s going to look more important, but it’s not an apples-to-apples comparison. You can say that the guy is interchangeable; if not him, somebody else would have come along with the same idea eventually, but the noble theory of capital is supreme. It would be more fair to compare capital to other amorphous concepts, like science, education, labor, or inventiveness. Or to compare a business to an individual moron writing a check. If he’s not smart enough to invest in my business, I’ll find someone who is. The morons are at least as interchangeable as anyone else.

116

Really? This is the first time you’ve encountered the “job creator” argument?

Fortunately, you won’t have to go far to find an example of it. It was used in this thread:

117

I wouldn’t take puddleglum as a coherent expounder of any theory. Republican desire to have low taxes is based on the general principle that lower taxation encourages economic growth, that this doesn’t much change depending on wealth class, that aggressive taxation of any group is generally unwise and unwarranted, and that the definition of “rich” is remarkably flexible and somehow always meansd exactly what the speaker needs to it mean at that particular moment.

I would also point out that while you managed to get such a quote, it seems that puddleglum has a more complicated argument than reducing it to just that line. And I did say argument - I know of noone who simply says, “Rich people need lower taxes” with nothing more to add. But I know a lot of people who believe with solid evidence that raising taxes on the classes above the upper-middle is more or less counterproductive, as you bite into capital, not consumption. it may not be fact; it may be too variable depending on time and circumstance to say; the evidence may not be unassailable. But it is absolutely not an unreasonable belief even when simplified.

118

I suspect pretty much everyone agrees with that statement. What is at issue is whether we need more capital or more consumption. Given the large amounts of underutilized capital today, and the still depressed level of consumption, we think it is more useful to move the money from the rich to those who will spend it. Those of us who remember the late '70s and early '80s are quite aware that an investment shortfall is perfectly possible.

119

Money isn’t wealth. Money is merely a medium of exchange. When you say underutilized capital youre really just talking about hoarded money right? If we shifted a ton of money to the lower classes, they would simply be bidding up prices on the same number of goods. The only way to increase the standard of living is to increase the number of available goods, right?

I suspect you will say that when you give money to the lower classes and they spend it, this gives businesses more money to expand production, hire people etc? My question is why would you take money from the investing class, and give it to the consuming class in the hopes that it will end up being used for capital investment (by the investing class) after the consumer class spends it? Why not cut out the middle man? The only argument I can think of would be that the consuming class, when they get this influx of money and spend it, is sending signals to the investing class on where to deploy their capital. In this case, the problem is not that the consuming class doesn’t have enough money, it’s that the investment class is unable to get reliable signals from the market on where to deploy their capital.

Could the reason be that government intervention into the economy, including distorting the rate of interest through monetary policy, is causing these unreliable signals?

120

As you noted, it was a quote, which I think is as fair a way as possible to explain someone’s position on an issue.

I realize there’s an argument to be made for lowering taxes. I’m just pointing out there are no simple rules in economics. Anyone who claims something as simple as “lowering taxes is always good” or “government spending is always bad” is true is spouting nonsense.We shouldn’t let our desire for a simple policy cloud the fact that what we need is a correct policy.