Missed the edit.
The so-called trickle down policy of the 80s didn’t work because even if all of the tax cuts were put back into the economy the demominator is the sum total of all existing infrastructure and the increase was insignificant as a percentage.
And this cannot be stressed enough: Even in purely economic terms, government is not some kind of non-productive parasitic growth on the private sector. Both are part of the economy, providing goods and services; and government spending factors in GDP just like your spending does.
I understand. But what is better for the economy? You and I spending our money, or the government spending our money? When you and I spend our money, we are doing so in a competitive environment. Plus there’s no middle man. And it gives you and I the *freedom *to choose how we want to spend our money. It’s efficient, and it fosters liberty.
Being able to travel without an all terrain vehicle is efficient and fosters liberty too. You and I aren’t going to individually pay for new roads but our society as a whole will. Investing in infrastructure has been proven throughout history to be good for the economy.
Have we addressed the question of what a “good” economy is?
To wildly oversimplify, suppose we have a population that is 60% somewhere between modestly comfortable and the shits-diamonds-and-wipes-with-gold class. The rest are somewhere between dirt poor and dead. Is that a good economy, because the majority of citizens are reasonably to insanely well off?
Compare to an economy where very few people are grossly rich, but 95% of the remainder have modest, simple, but healthy lives. Would that economy be improved if the number of the remainder goes down to 90%, but the number of grossly rich people triples? if the overall economy generates more wealth (good!) but only a small minority of people actually see a major benefit?
I will take this one step further and say that demand will be the first step in your example - no jobs will be created unless there is some sort of demand for the product or service that company produces. In the above, the Pentagon is stimulating demand by ordering more widgets, which creates the need to hire more people, with the end game being more profit for the company. Throwing money at companies thru tax breaks is not going to create jobs if there is no demand. How to stimulate demand - but more money in more people’s pockets.
There are two theories on stimulating job creation, the way I see it. Demand, or Investment. I suspect either of them may be right at various times given the economic environment, but in our current situaiton, we need to stimulate demand more than investment.
I started a thread a long time ago asking this exact question and from my memory a bunch of people told me I was wrong but didn’t have very compelling reasons why it was so much more important to have a small pocket of mega-wealthy than a broad middle class and a smaller number of the mega wealthy, and I was called naive and a few other names.
That sounds good and means nothing.
It has electrolytes!
Another question I would love to have a definitive answer on is the extent to which conservative benefactors can influence the state of academic economics. Politics and wealth don’t have much influence on academic physics, for instance, the electron spins or it doesn’t, you take it to the lab and there’s your answer.
Most of you already know about this:
Billionaire’s role in hiring decisions at Florida State University raises questions
Just for an instance, how many academic economist signed off on the Laughable Curve? Which Ph.D.s are on the Heritage Foundation’s list of pets, and which aren’t? What influence do they have in terms of what is accepted as “standard” economic models?
But but… It’s twirling, twirling twirling towards freedom! Why do you hate Freedom?
(1) We are talking about tax cuts for the rich. The rich do not spend every extra dollar that they get. The poor (and probably some of the middle class) do. Hence, giving tax cuts to the rich is a particularly inefficient way to stimulate demand.
(2) In fact, government can spend money to invest in things that the free market will not because of externalities. For example, lots of infrastructure that benefits everyone and not just the person / company who builds it, which means that the free market tends to under-produce it. Markets are a good way of allocating resources in many situations but they are far from perfect.
(3) When the government spends money, it quickly ends up in the private sector anyway. E.g., if the government decides to build a bridge, they have to hire companies and people to do the work, and those people then go buy stuff at Walmart, and so on, and so forth.
But what happens if most of that money stays in the DC metro area? The DC metro area has been growing richer while the rest of the country has grown poorer(with a few exceptions).
This is a variation on the economic democracy argument: that the free market is inherently democratic (a dollar is a vote, you vote to stimulate markets you support). However, I disagree with both the premises and the conclusions of such an argument. At best, a free market would be meritocratic, if wealth adequately tracked merit (the wealthy have disproportionate number of votes under such a system). There would still be several factors impeding individual decision making caused by private ownership of property. For instance, it may be that Slurm is objectively the best drink and for it to enjoy a minority share in any given market due to the opportunity costs of purchasing it (transport costs, diminished marginal utility from smaller scale production, strictures of convention due to existing contracts between the larger manufacturers and retailers). It may also be the case that major employers do not enjoy popular support for their executive decisions, but the endemic form of rent and wage labour cause people to enter into employment with such institutions. Then there’s the effect of advertising, an unproductive segment of the economy designed to create irrational actors.
If government were more democratic (and in fact, the concept of governance may be undemocratic, but if people could form autonomous corporations to make decisions), then we could alight at a rational basis for our economic policy.
Tax cuts for the rich do no more to stimulate the economy than tax cuts for anyone else or the government simply handing out money. As mentioned already, more money in the hands of the rich does less to stimulate the economy than it does in the hands of others because the rich don’t have to spend the money they have.
This is all kind of odd because the theory isn’t the title of the OP. The theory is that the rich will invest their tax savings in economic growth, not stimulus, which is just increasing the liquidity of money. The rich invest their money in themselves, not the economy. The economic conditions have been redesigned over the past three decades to remove all incentives for the rich or anyone else to invest in growth, leaving a system where it’s very easy to draw money out of the economy. Investment in growth is risky, and not done by those who already have money without the incentives that have been removed.
I will try to answer the OP in the best way I can. First, we have to look at the language of the question, and see that the question, as stated, is already politically skewed. The 'Bush Tax Cuts" were passed in 2001 and 2003 to stimulate the economy during the recession following the 9/11 attacks. The cuts were across the board cuts, for everyone that pays income tax. The only people who would see no benefits from the cuts are those who do not make enough money to pay income tax, and the very rich who make very little in salary, and most of their money from capital gains. The tax cuts were set to expire in 2010, but were extended after much Congressional wrangling. The Administration wanted to compromise and extend the cuts for individuals whose taxable incomes were less than $200,000 and couples whose taxable incomes were under $250,000. The Republicans said no, all or nothing and threatened to not extend the debt ceiling. The entire package was extended, and now we are debating the same point again. So what we are really arguing is whether it is better to cut taxes for everyone, or for everyone but the rich.
The following graph illustrates the Republican arguement:
http://en.wikipedia.org/wiki/File:Federal_individual_income_tax_receipts_2000-2009.png
I know that it is from wikipedia, but I am at work right now, and don’t have time to do deeper research.
What this graph shows to me is that after the recession that started in 2001, revenue started to rise again in 2004, and it passed the highest previous point by 2006, and continued to rise until the housing bubble burst in 2008.
This might be oversimplifying it, but the graph does show an increase in government revenue after the Bush Tax Cuts of 2001 and 2003, to a point where the government was receiving more money under the Bush plan than the Clinton plan, despite the setback of the 2001 recession. Government revenue implies economic activity, and economic health.
But the more important fact to me is the language which turns this into a class warfare issue, since President Bush cut everyone’s taxes, and the current administration wants to extend these cuts to everyone but the rich.
Why on earth would you assume that government stimulus spending would stay in the DC metro area? What evidence do you have to support such an assertion? You sound like you’re grasping at straws with this.
Missed edit window:
The “rich” I mentioned in the last sentence are professionals who earn high salaries, not the uber-rich like Mitt Romney, who make most of their money from capital gains.
The evidence is that DC is getting richer while most of the rest of the country is getting poorer. It’s the wealth gap that many don’t want to talk about:
The reason a lot of stimulus money stays in DC is because that’s where the lawyers, contractors, and lobbyists are and they all get a big cut.
You’re talking about a tiny fraction of the total disproportionately enriching the DC area. That is not ‘a lot of stimuls money’, it’s a ‘liitle bit of stimulus money’, and no change to a pattern over 200 years old.