What nonsense. The stagflation of the 70s was caused by the disruption of oil supplies, which rendered previously productive industries suddenly unprofitable, and the steel crisis, which did the same.
If you’re going to make up a number, at least make up a believeable one. Mr. Smashy and I once played a game wherein we looked at the ten richest Americans to determine if they were born wealthy or not. Guess what? All but two were.
Now, they were all naturally far wealthier than they were when the wealth became theirs (except the Waltons), but the point remains that not having wealth doesn’t demonstrate that you can’t handle it; it demonstrates that your parents didn’t have it.
They’re not poor people, either. And if they don’t have their own savings, they generally borrow the money from someone who does. Therefore, none of this activity is really generated by the poor by themselves without the help of people who have managed to save significant amounts of money.
But if we select out that group of entrepreneurs were WERE successful, you’ll find the majority of them to be rich. Therefore, the subset of small businessmen who are rich have demonstrated a higher than average ability to utilize wealth to its best advantage.
I’ve been involved in small business startups. Even the smallest of businesses generally require some capital. Sometimes you borrow from parents, or you take on investment partners - a cousin who’s a lawyer might kick in ten grand for a share of the company or for a promise of repayment at good interest. Either way, you need capital, and it doesn’t grow on trees. It comes from saved wealth. You know - wealth that exists because we didn’t convince someone to blow all their money to ‘increase demand’.
Which has nothing to do with the argument, which is whether it’s better for the economy to give cash to poor people or to allow rich people to keep it.
The fact is, the VAST bulk of R&D money in America is raised from private capital. The number is in the hundreds of billions of dollars per year. Government contributions to R&D are much smaller. If we convinced everyone to consume every nickel they have, and taxed the rich everything to give to the poor to stimulate ‘demand’, there would be no more savings, no more bond sales, no
more venture capital, and no economic growth.
How about, “If you make good decisions, you are more likely to become rich than if you make bad decisions. Therefore, the rich as a group has demonstrated the ability to make better decisions than the poor.” Subject to the suitable disclaimers that there are always individual exceptions, and maybe a lot of them. But in the aggregate, I believe this statement to be true.
That was the cause of the initial downturn. Wage and Price controls imposed by Nixon in a futile attempt to legislate away supply and demand caused further supply shocks. The ongoing stagflation was the result of the government expanding the money supply to attempt to offset this. This caused a long period of a sick economy with both low growth and high inflation. This wasn’t corrected until the fed, initially under Jimmy Carter and continued under Reagan, reversed it’s policy and tightened the money supply, allowing high interest rates to correct the fundamantal imbalances in the economy.
I call BS. The ten richest Americans changes from time to time, but it generally includes Bill Gates and Warren Buffet - both of whom are self-made men. Buffet is an investing genius who makes my point. He lives a middle class life, too. Gates came from a middle class family, and had to borrow money to start Microsoft - which also makes my point.
Larry Ellison usually makes the list. He founded Oracle wth a bunch of partners and venture capital. Also makes my point.
Michael Bloomberg was a stock broker and then made his fortune by creating a media company. He did not inherit his wealth.
Charles and David Koch inherited their engineering company from their father - but both of them have advanced degrees in engineering and built the company up with skill and knowledge until it was far bigger than what their dad had managed. They also make my point.
In fact, the only people on the list who can be said to come from big inherited wealth is the Walton family. But even they aren’t a bunch of rich gadflys living on their family’s inheritance. The Waltons took over the business and grew it into the largest retailer on the planet.
Are you suggesting that money held by ANY of these people would not be invested more wisely than money given to any random person in the bottom income quintile?
Again, remember that we’re not talking about social justice here. We’re talking about the loss to economic output that occurs when you tax people with a proven track record of smart investment and give it to people with no such record. It may be the right thing to do on the grounds of social justice and fairness and all that, if you believe in that kind of justice. But that doesn’t change the fact that such wealth transfers will move money from more productive uses to less productive uses, which is all I was saying.
It’s certainly true that it’s easier to be wealthy if you start out wealthy. It’s also true that people with no wealth have a harder time climbing through the income quintiles than people who have a support system of wealthy parents and relatives to help them along. But that’s not the dominating factor. The majority of wealth in America is not inherited. This is especially true when you look not at the rarified top ten or top 100, but if you compare say, the upper middle class to the lower class.
There was a famous “Marshmallow Experiment” by Walter Mischel at Stanford University that observed the behavior of 4-year olds. There was 1 marshmallow on the plate. They were instructed that if they waited 20 minutes to eat the marshmallow, they’d get rewarded with 2 marshmallows. If they ate it before the 20 minutes, they would only get that 1 marshmallow. It turns out that the children with impulsive behavior had negative outcomes 14 years later (lower grades, lower SAT scores, etc).
People who have poor discipline in time preferences will always be poor (stuck with 1 marshmallow instead of 2.)
This experiment was recently done again and Joachim de Posada presented his comments in a short 6-minute TED presentation about it:
Fans of the Reagan Revolution forget that the Reagan Revolution did not turn out as planned.
Who is that guy so thoroughly trashing the Supply-Side economic model? How about the guy who saw to its passage under Reagan:
I have cited earlier that “jobless recoveries” are seemingly the norm these days. The “trickle down” really is as advertised…a trickle.
So, you are giving the rich money, jobs are NOT created, US debt has increased massively and income inequality in the US is at all time highs. The rich are not reinvesting in the economy, they are keeping most of what they get.
I am not saying take $1,000 from Bill Gates and give it to some welfare person. I am saying your supply-side notions have been disastrous. You can cite economic theory till you are blue in the face. Theory fails in the harsh light of reality which shows it for the disaster it is.
Sure, you were worried that there would be a shortage of resources to do the stimulus projects. Unfortunately, you were wrong - unfortunately because we’d be in better shape now if you were right.
Definitely a flight to safety. I’d say the uncertainty comes in large measure from the fear of another recession, and the desire to keep balance sheets as lean as possible.
A bill every six months? Lawdy, where are the brakes! If I were worried about inflation, I’d lock in a loan at today’s low rates for investment. That is what is happening in the housing market, for those of us who still have equity, at least. The Fed doesn’t have room to stimulate the economy to cut rates more, but they have tons of room to cool it down by increasing rates.
Of course they don’t like any of those things, which reduce short term profitability for the good of the economy and the nation as a whole. They are not in business to improve the economy and nation as a whole. I’m not one who says the crash was due to evil CEOs. The crash was due to the maximization of short term profit while increasing exposure to long term risk - which eventually caught up to companies, as it always does. Say we put in rules 4 - 6 years ago requiring documentation for all mortgages. Countrywide would have screamed bloody murder, since it would have hurt their bottom line. Investors who were getting high returns from buying packages of high yield supposedly safe mortgages would have screamed also. But wouldn’t have this been for the best? If regulations did not prevent a business from doing something that is in its short term financial interest, there would be no need for regulations.
Lack of investment was a result, not the cause, of high inflation. Sorry if I wasn’t clear. That we do know how to tame inflation is a good reason not to be overly concerned about it right now. But we don’t have inflation now, and we’ve run out of room for monetary policy alone - which is clearly the first thing to try. Do you content that the economy would improve if the Fed raised interest rates? I don’t think you are saying that, but I want to be sure.
Then it’s a good thing we’re not talking about supply side economics. Please limit yourself to the topic of this thread, which is the very narrow assertion that one effect of distributionist taxation is to move money from people with a better demonstrated ability to invest it to people without that demonstrated ability. I cited that and deadweight losses due to taxation as contributors to the cost of government. I stipulated that there may be other benefits of government that outweigh these costs, but any that any honest analysis will weigh the costs against benefits, and not just assume that any increase in taxation or in the size of government is an unmitigated good.
In any event, it doesn’t even follow that if supply-side intervention is bad, then demand-side intervention is good. It may be that, other than in the direst of emergencies, NO intervention is the best policy of all.
Huh…well, it is in the OP that quoted you saying (bolding mine):
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"People who have high incomes have, on average, demonstrated that they are better stewards of money than people with lower incomes. This especially applies to investment capital, and which is why many supply-side advocates focus on capital gains and dividend taxes.
If Businessman A takes $1,000 and uses his superior knowledge to invest it in high-productivity uses, the economy benefits. If poor person B takes the same $1,000 and blows it on smokes and booze, it doesn’t. So some would argue that progressive taxation removes money from the most productive sectors of the economy and gives it to the least productive. I think there is some truth to this, but I don’t know how to quantify it."
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While your example of “wasting” money on hookers and blow (as it ultimately gets pumped into the economy) is not an extreme example enough to demonstrate the lesson, I’ll refer to it anyway.
The issue of “waste” is what Same Stone is arguing for. The issue isn’t that the money ultimately goes back into the economy, the issue is how it goes back into the economy. If the money is circulated in “unproductive” or “non-wealth/value” creating markets, then that money is considered to be wasted. Sam Stone is ultimately arguing, and I agree, for increases in productive capacity (apologies if I oversimplify). As more and more goods and services become a commodity (or as I like to say “commoditized” which apparently isn’t a word), the more society will benefit. This is because we all become wealthier as goods and services that were once only for the rich are now more commonplace and easier to afford. Spending money on hookers and blow (well, maybe not those examples as because government regulation has created a black market for these goods and services), does little to increase that wealth.
To use a more extreme example, imagine instead of trading in dollars, we had a barter economy – but in this example, we can trade reasonably perfectly, i.e. we know 1 cow equals 10 chickens, and 1 car = 100 hours of lawyer service, etc. In order to stimulate the economy, the government is attempting to buy things with its service, and in this example it uses digging and refilling ditches and repaving holes (that it created) to buy goods. Now, as there is no money, what are you willing to trade for those government services? I would trade nothing.
Capitalism is a broad brush. Commoditizing food, shelter, medical services, basic needs etc., is a good thing. But, without precision, we as a society also end up commditizing tvs, mp3 players, blue-rays, etc. Intervention into the market to prefer one thing over the other often leads to worse results.
That’s not what I said. I said that I feared that the stimulus would not go to the areas that had the most available resources, but that it would be spent in areas that have the most political pull. I also said that labor isn’t fungible enough to be able to translate an overall unemployment rate into the ability to just hire labor for any project you need, and therefore in many circumstances a stimulus project would crowd out other investment.
Finally, I said that I questioned whether there were enough ‘shovel-ready’ jobs that were both easy to start up and that represented real value in terms of infrastructure improvement.
I was right on all three counts. I’m living proof of the crowding out effect. My team has been moved from current projects to new ones to capture stimulus money. I was not unemployed or under-employed.
That’s certainly part of it. But we have the words of the businessmen themselves that they are equally worried about the policies of the Obama administration. Not just the Chamber of Commerce, which always opposed the stimulus, but the Business Roundtable, an Obama-friendly collection of CEOS who were actually cheerleading for him earlier in his presidency. They’ve flipped and now say the administration is doing more harm than good.
Hell, even Mort Zuckerman, who was a big Obama cheerleader before the election, who stumped for him and who even wrote one of his speeches, has now flipped and said that the administration’s anti-business legislation and rhetoric are now doing active harm to the recovery. Jeff Immelt, CEO of GE and one of the biggest supporters of Obama’s ‘green’ initiative and the stimulus, has now flipped and is criticizing the administration for its anti-business behavior.
Not just ‘a bill’. The biggest reform of government/business relations since the 1930’s. Which was preceded by one of the largest bills in American history in the health care reform bill. And now Democrats are saying that they might ram through energy reform and card check in a lame-duck session if they feel they will lose control of the house and/or Senate.
Interest rates aren’t going up in the U.S. for a long time. The economy is too weak. On the other hand, here in Canada we’re looking at our second straight interest rate hike because our economy is growing so fast. I wonder how that happened, given that we didn’t go for the big stimulus Obama asked us to do, and we’ve actually lowered taxes? It’s a mystery!
Funny though that the financial reform bill actually doesn’t have anything in it that would have prevented this crash. Instead, as usual it’s a gigantic laundry list of regulations meant to appease lobbyists like big labor and appeal to the personal hobby-horses of various Democratic politicians.
No, I don’t. I think the best thing the government could do right now to improve the economy would be to move from a program of regulatory change and stimulus and all that, and explicitly focus on stability. The health care bill and financial reform bill should never have been passed in the middle a recession. They shouldn’t even have been debated. Both policies are things that you do when the economy is ticking along smoothly or even when it’s showing signs of overheating, when you don’t mind injecting a little uncertainty to act as a brake and make speculators think twice. Ramping up regulations in the middle of a recession is insanity, and the unemployed in the U.S. are paying the price for it.
I think the Obama administration should go ahead and let the Bush tax cuts lapse. The market has already priced them in. Then it should announce a moratorium on new regulations, announce that its focus will be on the stability of the dollar and long-term deficit reduction. To grow the economy, it should start an aggressive round of trade negotiations with anyone willing to reciprocate. I’d include dropping the Cuban embargo in that.
This is essentially what we’ve been doing in Canada. We kept the deficit below the rate of GDP growth, and our government has been busy working out trade agreements around the world, rather than meddling in the domestic economy.
This is not the sum total of supply-side economics, and you know it. This debate is related to the much narrower notion that if you allow people to keep capital gains, you’ll stimulate investment. I believe that to be true, but that doesn’t necessarily mean that ‘supply side economics’ is true, if you define is in the narrow way of believing that all tax cuts are self-financing, or even that stimulating production and investment is always the correct thing to do.
Yes, they would. Once you are rich enough it’s pretty hard to lose your money. It’s not that hard to destroy everything you touch and come out richer than before when you are already rich; other people pay the price.
And there’s another problem with expecting the rich to fuel the economy; even when they spend lots of money, it’s mostly spent narrowly. Luxury goods are only a narrow segment of the economy; even a really rich guy isn’t going to buy thousands of microwaves or tons of food. What would he do with them?
Demonstrably not true. A significant number of people in the top income quintile fall into the lower quintiles over the years.
A good test case for this would be to look at the experience of people who gained wealth through means other than sound investment - celebrities. How many young celebrities who are rich today do you think will die rich? How many of them will have their children die rich?
Michael Jackson was heavily in debt before he died, and needed to earn a real income from his art to survive. Mike Tyson went broke. A whole host of rappers and pop stars have lost everything they earned. And many of the people who don’t go broke hang on to their money because a studio or record company or an agent will help them find financial management.
Hollywood is full of formerly-rich people who blew their fortunes.
There’s an old saying, “Shirtsleeves to shirtsleeves in two generations.” If your parents are wealthy, they may leave you enough money for you to be wealthy too. But if you don’t learn to put that wealth to productive use like your parents did, YOUR kids will be back to square one.
Obviously this does not apply to the small handful of wealthy dynasties like the Rockefellers and the Kennedys. But those families generally put sharp constraints on their heirs - they are born into a familial system that protects wealth and invests it, and they are raised in traditions that cause them to carry the torch forward.
The point is that the ones who stay rich don’t just spend their money. They invest a large percentage of it. But even if they build a $10 million mansion, it employs the same plumbers, carpenters, drywall layers and electricians that a building project does. A Learjet factory hires the same welders and engine mechanics as a Cessna factory. A luxury Yacht builder hires the same people as a factory that makes fishing boats for the middle class. And the rich also hire gardeners, nannies, maids, accountants, trainers, publicists, secretaries, etc.
And Denmark has some of the highest capital gains taxes in the world and they are doing fine (considered the second happiest nation on earth). Mexico has zero percent…not doing so well. According to this Canada has all of a 0.5% lower capital gains tax than the US. Whatever the reason for your better economy this would suggest (again) that capital gains taxes are not the problem.
The facts on the ground for the US remain and you are dodging the question. Bush lowered taxes right and left, put the government into massive debt and we had a jobless recovery. The US Fed is currently almost giving away money (to the point there is hardly any room left for monetary policy based on that), we have historic low tax rates and capital gains rates and it is not helping as you suggest it should.
We can debate the reasons for this all day long, but perhaps the OP should read something like
“The Poor (or Middle Class) who have worked hard over long periods of time to become Rich are better stewards of money than the Poor.”
The general theme seems to be people who have undergone a huge, rapid increase in wealth are often overwhelmed by it.
They have a hard time understanding or appreciating exactly what is driving their increase in wealth, what risk factors could materialize to cause it to go away, or even the simple math behind how fast they are depleting it via their spending habits.
Someone who started a family business from nothing, and has spent 30 years building it up to something worth $10 million has a far greater appreciation for the trials, tribulations, opportunities and risk to their cash pile then someone who made $10 million on a one-hit wonder music song, or signed for a $10 million bonus out of high school to play in the NBA.
The former is far, far less likely to blow his life’s work on a bad decision. The latter two, not so much.
The former are also far, far more likely to get pissed off at our socialists in D.C. for presuming that the latter are better equipped to seize that wealth and distribute it to others who have not earned it, rather than allow the creator of the wealth to keep it for their children.
It’s a good thing no one in Washington is doing that since, as cited several times earlier, they are enjoying historic lows in income tax and capital gains taxes today.
Move to Denmark, 2nd happiest nation on earth, with a 45% capital gains tax rate and the most heavily taxed income at up to 59% (cite).
Damn socialists making their people happy! Must be awful there and they just don’t know it.
Wasn’t the ‘jobless recovery’ at a time when unemployment rates were already pretty low (below 6% IIRC)?
I agree with your overall premise here that the tax rates are not needing a downward adjustment, but I don’t know how many jobs COULD be recovered during the time frame you are seemingly talking about there. Certainly continued massive spending by the Obama administration doesn’t seem to be working out very well, but there is a lot more room today for improvement employment wise than there was there, at least ISTM.
I agree…the way things are today I don’t think there would be any benefit in lowering those things further. That said, the stimulus doesn’t seem to be working all that well either…really, no better than Bush’s tax cuts.
The things is, ‘happiness’ isn’t really an objective trait…it’s going to mean different things to different people and is difficult to quantify. You may have noticed that Denmark is slightly different than the US…or, IOW, do you really expect that most American’s would be ‘happy’ at those taxation levels? :dubious:
I don’t believe that the level of taxation is what makes the folks of Denmark believe or feel that they are ‘happy’, nor that, if we had taxes set to those levels we’d magically be ‘happy’ or that it would solve any of our problems…quite the opposite on both counts.