Talk:Trickle-down economics

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[edit] Irrelevant and perplexing

Removed the following paragraph:

The idea that the "creative sector of the economy" created employment is rooted in the argument that the United States is successful because it is a free market and capitalist state, and that hatred of communism, and anything associated with the left in general, is a political virtue. Being a political, rather than an economic, term, both sides in the debate demonized the others as being heartless and in league with the forces of greed.

I'm not sure what the thesis of this paragraph is, but it doesn't seem to have much to do with trickle-down theory. It seems to state that supply-side economics is rooted in hatred of the left, while I would think that the converse is much more true. Either way, it's a partisan generalization, and a strawman slur on economic theory that has much more credible arguments against and for. 69.202.77.44 29 June 2005 08:08 (UTC)

== Read Smith before you quote him == and even then, do him justice; and even then, opinions and personal or political interpretations are not encyclopedic - they are political and belong on this discussion page, or on a politics site. I come just short of advocating a complete removal of all the Smith material, except that these sorts of argument have been made for two decades in mainstream politics. It is relevant because of the politics, not because of any genuine intimate connection between Nations and trickle-down. A genuine connection to Kurzets and Keynes is actually less problematic, but that's not how the politics fall.

  • "lowest ranks of the people" is completely misrepresented. It has nothing to do with trickle-down. It is in the very next sentence that Smith writes about laborers - not rich people. And it is in this entire chapter that Smith writes about laborers dividing and combining their labor. There is absolutely no "trickling down". Regardless of the merits of trickle-down, chapter one is not about trickle down. Quite the contrary; Nations embraces a free market for everyone and as the lower classes are more numerous, and more motivated by the mother of invention than the liesure class, it is they who will account for the lion's share of a powerful and lively economy. This is not communism, as they are entitled to the fruits of their labor in proportion the quality and quantity of that labor - Smith was a strong advocate of such a meritocracy, and "well governed society" is a reference to that entitlement. Nor is it trickle-down; to abolish apprenticeships would increase the supply of tradesmen, lower prices and improve the economy - but at the unquestionable immediate expense of the upper classes. It is far more accurate to say that Nations is Trickle-up. Because the lower economic classes are more numerous, and because they are exactly those laborers/owners who will benefit the most from abolition of the collusion (fetters) of Smith's day, Nations is actually quite the counter-example to trickle-down. Further more, dividing supply side from demand side is anachronistic. To Smith, supply and demand two faces of the same coin. There will be an increase in laborers (supply) only if there is demand to motivate such. In fact, Smith is one of the most influencial authors to use and demonstrate the relativity of supply verses demand. Your supply is my demand, and visa versa. Money like all other things is a commodity, and if I want a lot of gold I can purchase it with my labor or other goods.

[edit] Karl Marx voted for Reagan ?!!!

The concept was also discussed by Karl Marx. For example,

Capital can multiply itself only by exchanging itself for labor-power, by calling wage-labor into life. The labor-power of the wage-laborer can exchange itself for capital only by increasing capital, by strengthening that very power whose slave it is. Increase of capital, therefore, is increase of the proletariat, i.e., of the working class. And so, the bourgeoisie and its economists maintain that the interest of the capitalist and of the laborer is the same. And in fact, so they are! The worker perishes if capital does not keep him busy. Capital perishes if it does not exploit labor-power, which, in order to exploit, it must buy. The more quickly the capital destined for production -- the productive capital -- increases, the more prosperous industry is, the more the bourgeoisie enriches itself, the better business gets, so many more workers does the capitalist need, so much the dearer does the worker sell himself. The fastest possible growth of productive capital is, therefore, the indispensable condition for a tolerable life to the laborer.

I removed this section from the main article because I don't see the direct relevance. The only direct relevance of Marx is that anti-communist rhetoric is often used in advocacy of trickle-down. However, this is rhetoric, not reason. And this is actually relevant to the Soviet style of communism, not Marxism.

I originally added it to the text because it supports the economic thesis. When even your ideological enemies agree with you then you should give them a little room. Did Adam Smith vote for Ronald Reagan!!! Of course he did not. If there is no discuss on this within the next week I'll put the text back. TERJE 26-JUNE-2004.

=== There was no context supplied with the quote, === and it seams to me that this very quote is a counter-argument to trickle-down. Are you saying Marx's position was that the capitalists (owners) weren't getting a fair deal. The idea of trickle-down is relief for the upper classes. This is the first time I have ever heard someone say Marx wasn't saying the opposite: that the working class wasn't getting a fair deal - that he was advocating relief for the lower classes. This article has a lot on politics, but is sorely lacking in facts and theories. For example, improvements have historically manifested in the upperclasses before manifesting in the lower classes. P.S. "When even your ideological enemies agree with you then..." implies that your point is a point of debate, not a point of theory or fact. So if you're going to reintroduce the work are you going to give it context? and if that context is as a point of debate, will you label it as such? I'm not saying don't put it in, just it should be relevant. And maybe you should spell it out - for those of us who don't yet see Marx as a proponent of the idea that the upper classes (owners) aren't getting a fair deal.

I don't think the Marx quote makes any comment on who is getting what deal. It is first and formost an economic observation. Namely that an abundance of capital leads to a better wage deal for workers. As such it is a quote that supports the trickle down argument. Would you be happy for me to put the quote back in if I added some more context around it? TERJE 28-JUN-2004.

[edit] Yes, I would be happy if you explained it.

The idea that something can be good for everyone is not the question though. Trickle-down is very specific - that, by a process benefits to the upperclasses trickle-down to the lower classes. So if you could explain how Marx demonstrated trickling-down, that would make the quote a much stronger addition to the article. This quote seems to be saying that the relationship between labor (lower classes) and capital (upper classes) is reciprical - that there is no argument leaning trickle-up, nor trickle-down. Until the last sentence; to improve the working condition of the working classes is the fastest (I presume best) way of stimulating the entire economy. That sounds like trickle-up in that the capital will be more productive and profitable after an improvement to the conditions of the working classes. That, by a process, benefit trickles up from the masses into the upper classes. So if you could explain how this quote translates into the idea that incentives for the wealthy, by a process, trickle down to the masses, that would be great. Also, where is this quote from?

Many major economists have said that to improve the lowest ranks of the economy is the best and fastest way to improve the economy as a whole; that to benefit the economy is to benefit everyone. For example Smith in Nations said that apprenticeships were a drag on the economy; that labor would be more motivated to enter a trade and to work hard and often if only they were free to do so and paid in direct reward for the quality and quantity of their labor. Keynes is credited with "demand-side" economics, that more money in the pockets of the masses will stimulate capitalist growth in the economy as a whole. And here, in this quote by Marx, Marx advises us to improve the working condition of the laborer. But this is all trickle-up. What is the theoretical body of trickle-down? Who has said it? and what is the merits of this theory? &nbsp - For example, the quote of Smith; who said this is an advocation of trickle-down? did Reagan say it? and if so, when and where?

P.S. Kuznets was added back in by someone with the addition of that which made Kuznets relevant to this article - improvements have hit the upper classes before the lower classes.

== Horse and Sparrow Economics == I removed this from the article

John Kenneth Galbraith has summarized trickle-down theory as "horse and sparrow" economics: "if you feed enough oats to the horse, some will pass through to feed the sparrows."

I think it is humerous and has a point, but I don't think its encyclopedic - at least, not in this article. I have put a link to John Kenneth Galbraith because it is relevant to trickle-down, just not central. P.S. a web search for "Horse and Sparrow" finds a lot of articles on trickle-down.

[edit] inappropriately credited to Galbraith?

The link you see above links to someone else's writing; while Galbraith is quoted in it, and I'll presume that Galbraith really did make the analogy, I think there is a better source of that information than the link above. I'm going to remove the link in the article. If you disagree, please tell me why and go ahead and readd the link to the article.

[edit] NPOV

I think supadawg pruned a little too much. It now seems less balanced, and less NPOV than before. The points made to refute Adam Smith's endorsement are basically correct, and to compleatly remove them instead of improving them seem counter-productive to NPOV. Therefore I added these points back in, and I will make efforts to clean them up and improve them.

I think a better approach to improving NPOV of this article is to clean up and improve the position of both sides.

I did leave out the section "criticisms of the reaganite pitch". This part seemed redundant and less well written. I invite people to look at the history and read that part and add it back and clean it up. It is not entirely without merit.

Is the blockquote in the middle the source of NPOV problems? Who is this attributed to? Can someone point to or reproduce David Stockman's speach?

On a related NPOV note, I just removed a line that seemed unsupported and wildly opinionated. Further corrections welcome -- I'm fairly new at this. --tgeller (talk) 23:19, 8 December 2007 (UTC)

[edit] Kuznets' Law

Is this really relevant to trickle down economics. Is it accurate to imply that he is anti-Keynes?

I removed this from the article:

Other variants include Kuznets' "Law", which says that increases in income inequality that occur in the early stages of industrialization are followed by increases in income equality. Ironically, this is close to some of Karl Marx's theories. A more general version argues that increases in gross domestic product are almost always good for the poor.

I doubt that Kuznets is directly relevant to trickle down theory and I doubt the characterizations here. Marx? A far more common characterization of Kuznets is that his work helped the "Keynesian Revolution". Yet, trickle down and supply side are anti-Keynes. A more appropriate place to mention Kuznets may be in the article on Keynes. Also, I think the wikipedia article on Kuznets is more 'encyclopedic'.

=== . . more kuznets' law === there is now relevant content form kuznets in the article: improvements occur first in the upper classes, then in the lower classes.

However, the history of kuznets in this article is a good illustration of a lack of differentiation; Kuznets has been repeatedly used as an argument for trickle-down. However,

  • Incentive to Invest: Supply side Economics is billed by advocates as a means of increasing investment. However, it is not the only means, nor the most direct or effective means of increasing investment and to equate supply side with inducement to invest is erroneous and unencyclopedic. Supply side is a subset of inducement to invest - if it is such an inducement.
    • in fact, while many economic indicators improved during the reagan era, savings and investment by wealthy individuals and businesses did not significantly increase. They pocketed the money. Therefore - ironically - if these tax cuts were the cause of improvement in the economy, then it was the result of increased "aggregate demand" - straight out of Keynes' General Theory of Employment, Interest and Money. That is, the economic effect was the same as in Roosevelt's programs; more money in consumer's pockets translates into increased demand - which is a market regulated incentive to invest for producers.
    • Other Incentives: state initiated incentives to investment are far more successful if they directly impact investment. For example, tax breaks on the interests of home loans increases demand for homes and for loans - for investment.

P.S. Tell me how the average joe was induced to invest by Reaganomics. If you can do that you can validly cite Adam Smith as an advocate of trickle-down.

[edit] From the Ministry of Truth

This is an interesting sentence, and I've seen similar sentiments for two decades:

To Smith, the "well-governed society" is one in which free markets replace state command as the main method of resource allocation. Smith's argument is that increased division of labor (specialization) raises labor productivity. This in turn leads to lower costs, which are passed on to consumers in the form of lower prices (correcting for inflation).

This blockquote may seem uninformed, but I believe its inacuracies are intentional and politically motivated.

  • "replaces state command" - Nations was written before Das Capital. Using the term "The state" instead of Nobility or Aristrocracy comes off as awkwardly anachronistic. "state command" is the language normally and appropriately used in describing controlled economies - communism. The rhetoric of the McCarthy Era. A more accurate portrait of Nations is that Smith made a solid case against corruption - as imbodied by feudal corporations, apprenticeships, monopolies, tarrifs, exclusive rights etcetera. For example, the nobility favored apprenticeships because the nobility was being paid royalties. The commerce that Smith witnessed and wrote about was a market economy, the complaint he made was that it was corrupted by special interest. Nobility (the state) - which was feudalistic, not communist - had their fingers in it along with many players outside of nobility and royalty. Any such arrangements in modern day U.S. would be illegal, and scandalous. As for "state command of resource allocation": Eisenhauer's Highway program was a state project which improved the transportation network of the United States, very much in accord with Nations, Chapter III, "the division of labor is limited by the extent of the market", wherein Smith explains how water carriage (boats) extend the market and therefore support improved productivity and dexterity of the labor force. Smith made one exception to controls / incentives in the economy: incentives to the military. And the phrase "tolerable degree of security" is frequent in the work. The U.S. military is quite impressive and it is state controlled. Further, Reagan increased military spending. On the other hand Eisenhauer warned of the 'military-industrial complex'.
  • "well-governed society" - this, and "a tolerable degree of security" are qualifications. They are not central to his themes. For example, the free market economy he describes is wonderful assuming goods aren't stolen in transport.
  • "correcting inflation" - costs were unnaturally high, not costs unnaturally rose. Whether or not inflation was a problem on top of an unfair market is a completely separate issue. Stagflation was a political hot button when supply-side economics came about, and to tack on 'inflation' to Smith's work for political points is manipulative - as is citing Smith in the first place. Quite the contrary to this orwellian interpretation, free markets often overheat and are characterized by rapid growth, heavy borrowing and inflation. In fact the Fed is currently keeping its eye on inflation due to very attractive interest rates.

== More from the Ministry of Truth == I pasted the following sentence from the article. It follows a line of reasoning that Smith advocated Supply-Side Economics.

A major variant of trickle-down theory would say that tax cuts for the rich, special benefits for them, subsidies for corporations, and in general, government/business cooperation would not simply provide direct benefits to business but would also help the middle classes and even the poor. In effect, it says that "what's good for business is good for the country."

Read the book! Incentives like these are EXACTLY what smith was critical of. It's the major theme of Nations. If an incentive benefits one group of producers over another, it's not a free market, and that's exactly what Smith's postion is.

[edit] Contention

Although we must contend that these two topics be comprised as one, we must hold for the individual user whose goals are to specifically atribute this to Reaganomics.

[edit] Stockman

Did Stockman actually use the phrase "trickle down" in defense of the policies? What was the context? Trickle down effect should be merged here, but first I want to resolve that question. Gazpacho 19:32, 13 August 2006 (UTC)

Oh heck, I'll merge it and let people add back what they can cite.

[edit] Move to trickle-down economics

It's come to my attention that the phrase "trickle-down" in politics comes from an earlier use of the phrase in regard to marketing (see trickle down effect, diffusion (business). "Trickle-down theory" can refer either to the marketing effect or the political catch phrase, so it should be disambiguated. Gazpacho 22:57, 20 August 2006 (UTC)

Moved. —Centrx→talk • 04:04, 7 September 2006 (UTC)

[edit] Placement of Thomas Sowell critique

The article states "Economist Thomas Sowell wrote that the actual path of money in a private enterprise economy is quite the opposite of that claimed by people who refer to the trickle-down theory....."

Where should this paragraph go? Currently it is in the "Proponent's views" section. I do not believe it should go there because the paragraph is in fact a critique of the alleged trickle-down theory. Perhaps, then, it should go in the "Criticisms" section since it is a criticism. I did move it to that section, but 71.231.182.24 reverted my edit. I suppose the problem is that Sowell is actually a proponent of low taxes; he has merely critised the idea that wealth "trickles down".

This makes him both a proponent of "trickle-down economics" as defined by its detractors and simultaneously a critic of the fundamental proposition of the allged trickle-down theory. So which section do you think this paragraph should go in? --69.69.186.223 19:45, 13 June 2007 (UTC)

Personally, I'm also confused. But according to his article, Sowell is indeed laissez-faire. Perhaps this quote was improperly selected, and should be replaced with one more coherent with his view of trickle-down theory (whatever it is). —Nahum Reduta (talk) 01:27, 20 January 2008 (UTC)

This makes him both a proponent of "trickle-down economics" as defined by its detractors and simultaneously a critic of the fundamental proposition of the allged trickle-down theory. So which section do you think this paragraph should go in? --69.69.186.223 19:45, 13 June 2007 (UTC)

Personally, I'm also confused. But according to his article, Sowell is indeed laissez-faire. Perhaps this quote was improperly selected, and should be replaced with one more coherent with his view of trickle-down theory (whatever it is). —Nahum Reduta (talk) 01:27, 20 January 2008 (UTC)

Sowell rejects the name "trickle-down", not the overall theory. He claims that it would be more aptly named "trickle-up". According to Sowell, when an investment is made, the benefit to those lower in the economic food chain is immediate, while the initial investor may not see a return for years. -JackieRipper (talk) 18:16, 27 March 2008 (UTC)

Those who imagine that profits first benefit business owners -- and that benefits only belatedly trickle down to workers -- have the sequence completely backward. When an investment is made, whether to build a railroad or to open a new restaurant, the first money is spent hiring people to do the work. Without that, nothing happens. Money goes out first to pay expenses first and then comes back as profits later -- if at all. The high rate of failure of new businesses makes painfully clear that there is nothing inevitable about the money coming back. Even with successful businesses, years can elapse between the initial investment and the return of earnings. From the time when an oil company begins spending money to explore for petroleum to the time when the first gasoline resulting from that exploration comes out of a pump at a filling station, a decade may have passed. In the meantime, all sorts of employees have been paid -- geologists, engineers, refinery workers, truck drivers. http://www.capmag.com/article.asp?ID=1115

[edit] Trickle down doesent work?

This is in the Article:

Proponents argue economic growth flows down from the top to the bottom, indirectly benefiting those who do not directly benefit from the policy changes. However, there is very little proof that exist to show the correlation

Should there be a citation,or refrence or something on showing that it doesen't work? Edit: This article also seems overly critical of it, although as I am not an expert on economics (merely a 'passerby' :p) the Criticism may be well founded and true. Just pointing it out. --Passerby25 (talk) 03:49, 6 April 2008 (UTC)

    • Well I don't know if seems overly critical, but the article Reaganomics is fairly unbiased. --Taybo20 (talk) 02:14, 15 May 2008 (UTC)

[edit] Tax Rate 18%

Can we get a source that says that the tax rate is 18%? I guess I just want to know where this figure came from.--Taybo20 (talk) 02:15, 15 May 2008 (UTC)