Middle Out Economics: The Trickle Down Killer

[Little_Nemo]

@WillFarnaby

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?

But the same questions can be asked about the “job creator” argument.

I suspect you will say that when you give money to the upper classes and they invest it, this gives businesses more money to expand production, hire people etc? My question is why would you take money from the consuming class, and give it to the investing class in the hopes that it will end up being used for paying wages (to the consuming class) after the consumer class gets hired for new jobs? Why not cut out the middle man?

This is the central issue of economic policy: what are we trying to achieve? If our goal is for rich people to have more money, then lowering their taxes is a good idea - it produces that result directly. But obviously, most people aren’t going to see rich people getting richer as a vital goal. So the argument was advanced that the goal is to create jobs for non-rich people and lowering taxes on the rich is just a means to that end. And if that’s the case, we have valid grounds for asking how well that policy works in achieving that goal and whether a different policy might work better.

[smiling_bandit]

@Little_Nemo

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 don’t see his argument as anywhere near that simplistic. It’s always possible to cherry-pick obnoxious quotes from anybody. And while puddleglum might not be the best person to find considered conservative thought on economics, he’s also shown a lot mroe depth than the one, extremely brief quote.

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.

Then the OP’s policy is pretty much the worst possible. It’s grossly simple: it could be summed up as “the North Korean road to wealth.”

This is the central issue of economic policy: what are we trying to achieve? If our goal is for rich people to have more money, then lowering their taxes is a good idea - it produces that result directly. But obviously, most people aren’t going to see rich people getting richer as a vital goal. So the argument was advanced that the goal is to create jobs for non-rich people and lowering taxes on the rich is just a means to that end. And if that’s the case, we have valid grounds for asking how well that policy works in achieving that goal and whether a different policy might work better.

So, just to recap here: one post back you cherry-pick a quote to complain about puddleglum, complain about people having “simplistic” economic views, and then set up a strawman and pretend it’s what your opponents are saying.

[Little_Nemo]

@smiling_bandit

So, just to recap here: one post back you cherry-pick a quote to complain about puddleglum, complain about people having “simplistic” economic views, and then set up a strawman and pretend it’s what your opponents are saying.

Except I feel I’ve given an accurate summation of the “job creator” and “trickle down” argument. Its advocates may dress it up but that’s its central idea: feed money to the top of the pile and it’ll benefit people further down the pile.

The OP is raising a valid point, even if I don’t agree with his specific proposals. If the goal is to benefit people further down the pile, why not feed the money directly to them?

[msmith537]

@WillFarnaby

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?

Typically it’s economic uncertainty that triggers businesses to hoard cash and wait for signals as to where they should spend it. And this serves to exacerbate the situation as job growth declines and purchasing decreases.

Keynesian economists (like Krugman) believe that when the private sector can’t or won’t provide capital to grow the economy, the only other place it can come from is government spending. This is counterintuitive to people who equate balancing the federal budget to balancing their home budget. What happens when countries try to do that (ie austerity), typically services get cut and unemployment increases as government jobs are cut.

[Voyager]

@WillFarnaby

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?

Not right. First, the money isn’t hoarded, really. The money is waiting until productive investments come along. Don’t make it sound like we are accusing the rich of being Scrooge McDuck with piles of dollar bills to dive in. They are making rational decisions about investing.
Second, the problem isn’t availability of goods - there is overcapacity already. The problem is consumers having the money to spend on goods they desire. Will it drive up prices? Perhaps to some extent, the way greater demand for cars means there are fewer rebate programs. But it is not like this is going to cause any large amount of inflation. And using the full capacity of existing manufacturing may even decrease the cost of goods by making factories be more efficiently utilized.

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?

Because it makes business sense for this money to be invested given increased demand. And they will invest only as much as needed to meet increased demand, and increased expected demand.

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.

They have very good signals already. The problem is not the availability of the signals, it is the information the signals convey. If you do not sell out your production run, you don’t make more.

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

Why do you think the signals are unreliable? Is there consumer demand that investors are not seeing? Remember, a lot of this information comes from the internal sales of companies. Macy’s does not need the government to tell them that their merchandise isn’t selling.

Consider housing as an example. If an investor sees that homes for sale stay on the market for six months, and many of them are empty, is he going to invest in new home construction? Is giving him more money going to change this? What would change it would be to make it easier for people to buy houses through incentives or lower mortgage rates (or more money) so that inventory shrinks and demand for new houses increases.