Okay, there seems to be some sort of misunderstanding here. I never said anything about increasing welfare. I think I confused everyone by using the phrase:

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That is, instead of giving the money to the rich to invest back into the economy, we gave it to the poor instead?

Which makes me sound like some sort of socialist Robin Hood, which certainly was not my intention.

What I was suggesting (or trying to suggest) was that instead of giving tax-breaks to the rich to stimulate the economy, it may be a better idea to give tax breaks to "poorer" people instead. Now by poor I'm not talking ghettofied / white-trash poor, I'm talking, say, people in the lower 30% of incomes. Now having checked the site Occrider provided, though, it seems that the system in the US is quite different from the system in Australia, so my idea may not work quite as well (as the lower 25-30% in the US hardly seem to pay any tax at all). In Australia, as soon as you begin to earn $AU 6,000 per annum (only $US 4,500 or so) you begin to pay tax, and the more you earn the higher the tax goes (it's similar to the US in that regard I presume?). I, for instance, only work a shitty part time job and would earn between $15-20,000 a year - every dollar I earn above $6,000 is taxed at 17%. Now I still live at home and even then I'm spending as much as I'm earning. I shudder to think how people living on their own earning less than me are getting by.

I suggested tax-cuts to the "poor" (by which I mean the lower 25-30% of incomes - myself included ) instead of the rich on the basis that the poor are paying tax (regardless of how much they're getting back via welfare and so on) and that by reducing that tax we're increasing the amount of money directly reinvested back into the economy (as the poor have a greater need to reinvest their money back into the economy than rich people). Whether or not low-income tax cuts would work as effectively in the US as Australia (I figured the systems were fairly similar) I cannot say, but I still question the logic that suggests that the trickle-down theory is valid, whereas the opposite (based on the same principle of higher spending / greater liquidity) is less valid.

Anyway:

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1. the poor are fairly uneducated, I'm not exactly certain what effect this has on economic spending but I'm sure there is some.

I don't think economics distinguishes between "educated" purchases and "uneducated" purchases - a purchase is a purchase. Whether someone's spending $1,000 on a car, a boat, or a years supply of Burger King supersize meals, it's all the same to the economy. What goods the money is spent on affects nothing but where resources are allocated in production. It cannot, immediately at least, affect the size or performance of the economy.

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2. the poor are more likely to spend on illegal or criminal goods; guns, drugs, etc... one reason why some poor are poor. Your not going to get your money back if it goes off to Columbian drug lords...

Yeah, that's a bit of a stereotype I think. While drug use can be a problem amongst low-income people, the vast majority would not be giving this extra money to "Colombian drug lords". Even if we presume that the extra money goes on more legal vices such as cigarettes and alcohol (which is, again, a bit of a stereotype) then - while it may not be in the best long term interests of a given society - it's still money back into the economy.

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3. I believe, the poor are more likely to save then the rich.. but this is just speculation.

No, like I said, it's the other way round. Couldn't find any statistics on savings vs income, but this is the theory (the Marginal Propensity to Save) I'm talking about :

http://www.tutor2u.net/economics/co...vings_ratio.htm

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Well thats my thoughs (even not many are PC) on it, but I agee with you perhaps trickle up can work as effectively as trickle down. The only question then is how trusting are you with giving your money to the poor in this regard.. will they really spend it back, and on what?

AS I've said, yes the poor are more likely to spend and less likely to save compared to the rich and what this money is spent on, from an economic stand-point, doesn't make much difference.

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i dont know if i agree with that... someone who is investing his money in stocks, is basicly helping a company grow, they are paying a little (or a lot) of their money so that this company can advance and make more money. this fuels the economy by allowing the companies to hire more jobs [ie more payrolls (ie more desposible income)]. hopefully the company is successful in growing and makes more money, thus the stock has grown and the original stock holder has more money too.

Yep, sorry, you're completely right. I'm not sure why I put stocks in that list as they're obviously a form of private investment and reinvest money in back into the economy almost as quickly as consumer spending.

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Ok, well here's my more elaborate opinion on "trickle up" economics. Essentially, I think it's not much different from government spending. Yes it will boost consumption and pump more liquidity into the market, however, it is only a short term benefit as the personal savings rate will decrease.

But if the savings rate in this bracket is already low, how much real difference would these tax cuts make? Wouldn't extra money encourage the lower-income brakcets to increase personal savings?

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A good tactic to pull out of recessionary periods, however a poor long term stimulus. Ostensibly, the money would eventually make its way up to producers and what not, however, the money would simply be sucked out again through the higher tax rate thus the government would still be "crowding out" private capital investments to some degree.

What "higher tax rate"? I agree that low-income tax cuts - if they do reduce the income/savings ratio substantially - may lead to higher interest rates (a point you made earlier) but there would be no need for fiscal intervention from the government. It may be a necessary for a later switch in monetary policy to fix the income/savings gap, but this won't affect future fiscal policy.

On the monetary-side hindrence though, isn't one of the greatest hazards to economic sustainability in the US the trade deficit/net foreign debt? Even if we presume this worst case scenario to be accurate (that is, that low-income tax cuts are likely to increase interest rates due to a decrease in the income/savings ratio) it, at the very least, encourages foreign investment to balance out the deficit somewhat. Wouldn't you agree that this benefits rather than hinders long term sustainability?

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Another factor is to consider what would be purchased. The cheapest products, which would likely be imported products

Are you sure that's accurate?

In any case, would you say that low-income people are more likely to buy imports than high-income people?

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and products such as food or shelter of which is already in great abundance. Therefore it is doubtful that such a surge in consumption in those areas of the economy would spur job growth and capital investment.

Does the issue of whether they're "in abundance" or not matter a great deal though? Surely there is always room for growth? If money spent on food increases by 5%, wouldn't this, by necessity, translate into growth for both food manufacturers and primary producers by a similar amount? Wouldn't this allow for the expansion of these markets and thus bring in more jobs?

Besides, would the type of spending encouraged by high-income tax cuts be any more certain to end up spurring "job growth and capital investment" in the sectors this money ends up in? On what basis do you decide whether or not a sector is likely to experience growth and investment given an increase in demand for the products/services provided by this sector?

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Trickle up economics looks to me like it is simply a redistribution of wealth plan which I am stringentely against both morally and in my belief that it would aid the the country economically. Improving the economy by taxing citizens and increasing welfare seems like some kind of socialist pipe dream to me

My intentions were never to enforce a "socialist" agenda on everyone (as I can only say so many times, I'm a capitalist) merely to question why we so often hear about the "trickle-down" theory but never the "trickle-up" theory. If the trickle-up theory is economically invalid, then I'm quite happy to dismiss the idea. However, it seems to me that it is no more "dubious" in its benefits than the trickle-down theory is.

Having said that, I'm happy to be proved wrong. I don't "know" that the trickle-up theory is a valid idea, I'm just wondering why it wouldn't be (in comparison to the trickle-down theory anyway).

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http://eschatonnow.blogspot.com/

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Originally posted by Yoepus 1. the poor are fairly uneducated, I'm not exactly certain what effect this has on economic spending but I'm sure there is some.

Im poor, and so are most of my friends, and we all go to college. of course being poor in California is like being middle class in the rest of the country

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2. the poor are more likely to spend on illegal or criminal goods; guns, drugs, etc... one reason why some poor are poor. Your not going to get your money back if it goes off to Columbian drug lords...

I better add bong, an ounce of weed to my shopping list then, thanks! Seriously though this is why you legalize drugs, and stop this ridiculous war on drugs. Columbian money also comes back to the states though, just look at Citibank

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As you said the poor will spend on nessecities, food, tv, and so on (majority NOT made or grown in America). The USA is a service industry you want rich people spending on insurance, banking fees, lawyers, accountants... etc..

Damn I should tell my mom to stop buying stocks, and stop paying her insurances. Maybe even message my sister in texas to stop hers too. As well as stop using banks!

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3. I believe, the poor are more likely to save then the rich.. but this is just speculation.

LOL if this was true, I would have alot more in my bank account, along with all of my friends. Most of what I get, its spent right away.

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By giving to the middle class you face the chance of increased savings, something I don't think the rich or poor would do.

Lots of middle class I consult for, are ALWAYS buying. Just last week, I went to setup a network and upgrade some computers, the lady of the house starts complaining why they dont have a pool. The husband then replies "we don't have another 50,000 to do that right now" I'm just listening, and wanting just to have 1/10th of that so I can put a down payment on a BMW or MINI LOL

this thread is a good read though, and still going through it. thanks!

Guys, let me clarify my statements a bit more as they didn't seem to come off very clear on this subject.

What I was trying to do was like Renegade, find out why trickle up wouldn't work - for this reason I had to come up with a comparison of the "poor" group to the "rich" group.

I outlined three possible difference;

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Originally posted by Yoepus 1. the poor are fairly uneducated, I'm not exactly certain what effect this has on economic spending but I'm sure there is some.

It is true, the more educated you are the more likely you are to be wealthy... you can search for this but it is common knowledge, that has been researched and upheld.

Yes, I don't know what effect this has on economic spending (as I said above) but I am sure some correlation might be uncovered if anyone here wants to write a thesis paper...

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2. the poor are more likely to spend on illegal or criminal goods; guns, drugs, etc... one reason why some poor are poor. Your not going to get your money back if it goes off to Columbian drug lords...

The statement is based on the fact that more poor people then rich people are arrested for criminal activity and held in jail (go to some human rights group web site if you don't believe me); hence I rationalized more poor people then rich are involved in criminal activity.

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As you said the poor will spend on nessecities, food, tv, and so on (majority NOT made or grown in America). The USA is a service industry you want rich people spending on insurance, banking fees, lawyers, accountants... etc..

rizen, show me a poor person that spends $225/hour for a lawyer...

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3. I believe, the poor are more likely to save then the rich.. but this is just speculation.

Again speculation and I state this - I have no facts to back this up, but I have a hunch that poor people have more incentive to save then the rich.

I think the more reasons we can come to define the "poor" group, and uncover possible characteristics we will be able to find for Renegade, a true answer why trickle up economy is not as effective as trickle down.

As for some comments;

Rizen your not poor get over it, and if you are, after you graduate college you will not be so anymore (since you will be educated).

Renegade, your a capitalist?? wow welcome aboard

Occrider, quit your job and go work for Greenspan.

But this is a good discussion lets keep it going...

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Originally posted by Renegade But if the savings rate in this bracket is already low, how much real difference would these tax cuts make? Wouldn't extra money encourage the lower-income brakcets to increase personal savings?

No ! Because a large part of your argument for "trickle up" economics was that the poor would have greater incentives to spend money because they need money. Therefore they would have less incentive to save money as a middle class/wealthy person would.

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What "higher tax rate"? I agree that low-income tax cuts - if they do reduce the income/savings ratio substantially - may lead to higher interest rates (a point you made earlier) but there would be no need for fiscal intervention from the government. It may be a necessary for a later switch in monetary policy to fix the income/savings gap, but this won't affect future fiscal policy. On the monetary-side hindrence though, isn't one of the greatest hazards to economic sustainability in the US the trade deficit/net foreign debt? Even if we presume this worst case scenario to be accurate (that is, that low-income tax cuts are likely to increase interest rates due to a decrease in the income/savings ratio) it, at the very least, encourages foreign investment to balance out the deficit somewhat. Wouldn't you agree that this benefits rather than hinders long term sustainability?

Yea, the tax rate wouldn't necessarily be higher than what it was, but it would be a higher tax rate compared to the levels of what it could/should be. Essentially, trickle up economics would specifically tax more to give to the poor of what they would otherwise not spend. True, monetary policy could be adjusted to accomodate the artifical savings rate, however, that change is artificial in itself. Lowering the federal reserve rate over long periods of time will in itself cause banks to lower their own interests rates which will provide less incentive for people to increase their savings. Therefore the natural savings rate itself would be lower than what it should be. Being a laissez-faire economist, I believe that the government is an inefficient market operator. Their purpose is to push or prod the economy in a particular direction. In managing a particular long term economic goal they are grossly incompetant. There is nothing more efficient than free markets, and as such governments should try their utmost to stay out of it. Of course they have an obligation to provide a public good, however, their committment towards public goods is often what capitalists and socialists disagree upon. I think that YES there should be welfare, however, organizing the economy around a distribtution of wealth system such as trickle up economics would be artificial and detrimental to the overall state of the economy.

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Are you sure that's accurate? In any case, would you say that low-income people are more likely to buy imports than high-income people?

Well, my reasoning is that poor people are going to resort to the cheapest common denominator. From my personal perspective the cheapest common denominator are japanese goods/electronics. Not exactly a scientific analysis so much as it's simply my own personal opinion

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Does the issue of whether they're "in abundance" or not matter a great deal though? Surely there is always room for growth? If money spent on food increases by 5%, wouldn't this, by necessity, translate into growth for both food manufacturers and primary producers by a similar amount? Wouldn't this allow for the expansion of these markets and thus bring in more jobs?

Hmmm I would say no not really. As it stands, America and Europe are overproductive when it comes to foodstuffs and housing. There's a reason why there are huge farm subsidies to support above quota production in order to remain competitive with the world markets. Therefore an increase in demand for abundant necessities such as foodstuffs would unlikely affect the overall climate of those industries. However, a significant change in demand to the services industry could very much likely have a significant impact on the economy.

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Besides, would the type of spending encouraged by high-income tax cuts be any more certain to end up spurring "job growth and capital investment" in the sectors this money ends up in? On what basis do you decide whether or not a sector is likely to experience growth and investment given an increase in demand for the products/services provided by this sector?

Well, like I kind of mentioned above ... I don't base growth among expenditures alone. If growth could be acheived through simple spending, then the ideal economic policy would be for the government to buy everything and give it out to people for free. What is actually needed for growth as opposed to sustained development is improved productivity/capital. And this is only acheived when businesses have the necessary funds to invest in R&D, technological advancment, etc. To be honest there is no perfect formulae for acheiving the desired economic effects. I'm simply arguing that the best formulae we have seen to date have been to let free markets take their course.

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My intentions were never to enforce a "socialist" agenda on everyone (as I can only say so many times, I'm a capitalist) merely to question why we so often hear about the "trickle-down" theory but never the "trickle-up" theory. If the trickle-up theory is economically invalid, then I'm quite happy to dismiss the idea. However, it seems to me that it is no more "dubious" in its benefits than the trickle-down theory is. Having said that, I'm happy to be proved wrong. I don't "know" that the trickle-up theory is a valid idea, I'm just wondering why it wouldn't be (in comparison to the trickle-down theory anyway).

I apologize for insinuating that you're a mad socialist . To me, it simply looked like the fundamental basics of trickle up economics is a redistribution of wealth in the guise of economic improvement program. My personal opinion is that the ideal economic means of improvement is a trickle down system or some other laissez-faire type system. Alleviating social inequality (of which I am for) should be a completely separate entity altogether. To me, the goal should be to maximize economic efficiency and then utilize some of that surplus to achieve social welfare/equality rather than combine the two and limit your overall utility ... a concept that I think some socialists fail to grasp.

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Retro ...

Last edited by occrider on Oct-17-2003 at 02:24

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Originally posted by Yoepus rizen, show me a poor person that spends $225/hour for a lawyer...

i dont anyone who has a lawyer, thats how poor i am seriously though, none of my family or friends have gotten into anything serious to hire lawyers

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Originally posted by Yoepus Rizen your not poor get over it, and if you are, after you graduate college you will not be so anymore (since you will be educated).

you probaly missed this...

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Originally posted by rizo Im poor, and so are most of my friends, and we all go to college. of course being poor in California is like being middle class in the rest of the country

trust me im poor, i know middle and high class people ...im not one of them as for college, i hope you dont think that i actually go to stanford, santa clara, sjsu, or any UC here in california. I actually go to a community college

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someone who is investing his money in stocks, is basicly helping a company grow, they are paying a little (or a lot) of their money so that this company can advance and make more money. this fuels the economy by allowing the companies to hire more jobs [ie more payrolls (ie more desposible income)]. hopefully the company is successful in growing and makes more money, thus the stock has grown and the original stock holder has more money too.

For the most part buying stock in a company doesnt really affect its ability to grow because for the most part you will be buying the stock from another stockholder(as opposed to buying the stock in a float)

The point is buying stock only benefits other stock holders. It is quite possible for you to buy stock in a company whose profits go up as other things in the economy go down, by downsizings, layoff or reductions in the levels of service.

The idea that tax cuts are an effective solution to economic problems in the current context is very foolish. You cant dramatically increase spending and cut taxs at the same time especially when their is such a high level of individual, corporate and government debt.

To pay for the tax cuts requires the government to issue bonds to pay for them. The only people on the are rich people, are foreign central banks, and workers through their pension funds.

With bond yields at a record low their is a limit to how willing people will be willing to buy them especially when their value will worsen not improve due to the depreciation of the US dollar.

Inevitably they will be required to increase interest rates which will only worsen the already bad debt and would worsen not improve investment.

I think it would be more appropriate to call Bush's supply side theories the "Tinkle Down Economics". Basically, Bush takes a tinkle on the lower class, while the rich zips up his zipper. Sooner or later, however, his little pee pee is going to get caught in the zipper. And then he's gonna bleeed, man.

HE'S GONNA BLEEEEEEED!

Where the hell did I come up with that sh$t? Too much Niquil.

___________________
Whence September dusk grows crisper still,
with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...

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Originally posted by Yoepus no thats not true, the poor don't pay taxes, so therefore they proportionally pay less then anyone who does pay taxes, say the rich or middle class.

Yes, it is true. The poor do pay taxes – well they do in the UK anyway.

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Originally posted by Spin Doctor Yes, it is true. The poor do pay taxes – well they do in the UK anyway.

and you guys have the nerve to call yourselves socialists!! Pathetic!

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Originally posted by Yoepus and you guys have the nerve to call yourselves socialists!! Pathetic!

And what’s that supposed to mean?

Look, everyone pays taxes. Income Tax, Council Tax, Value Added Tax – the list goes on.