Het trickle-down-effect

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"Kill The Poor"

Efficiency and progress is ours once more
Now that we have the Neutron bomb
It's nice and quick and clean and gets things done
Away with excess enemy
But no less value to property
No sense in war but perfect sense at home:

The sun beams down on a brand new day
No more welfare tax to pay
Unsightly slums gone up in flashing light
Jobless millions whisked away
At last we have more room to play
All systems go to kill the poor tonight

Gonna
Kill kill kill kill Kill the poor:Tonight

Behold the sparkle of champagne
The crime rate's gone
Feel free again
O' life's a dream with you, Miss Lily White
Jane Fonda on the screen today
Convinced the liberals it's okay
So let's get dressed and dance away the night

While they:
Kill kill kill kill Kill the poor:Tonight

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The "Trickle Down" Economics Straw Man
by Thomas Sowell (September 27, 2001)

Among the suggestions being made for getting the American economy moving up again is a reduction in the capital gains tax. But any such suggestion makes people on the left go ballistic. It is "trickle down" economics, they cry.

Liberals claim that those who favor tax cuts and a free market want to help the rich first, hoping that the benefits they receive will eventually trickle down to the masses of ordinary people. But there has never been any school of economists who believed in a trickle down theory. No such theory can be found in even the most voluminous and learned books on the history of economics. It is a straw man.

This straw man is not confined to the United States. A critic of India's change from a government-dominated economy to more free market activity in the 1990s accused those behind this change of having "blind faith in the 'trickle-down' theory of distributing the benefits of economic growth among different socio-economic groups in the country." But free-market economics is not about "distributing" anything to anybody. It is about letting people earn whatever they can from voluntary transactions with other people.

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.

Nor is the oil industry unique. No one who begins publishing a newspaper expects to break even -- much less make a profit -- during the first year or two. But reporters and other members of the newspaper staff expect to be paid every payday, even while the paper shows only red ink on the bottom line.

In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a "trickle-down" theory. As for capital gains, some countries don't tax capital gains at all. They tax a business' earnings, but not capital gains, which are harder to define and sometimes illusory.

The real effect of a reduction in the capital gains tax rate is that it opens the prospect -- only the prospect -- of greater future net profits. But that is enough to provide incentives for making current investments. Reductions in the capital gains tax rate tend to draw money out of tax shelters like municipal bonds and into creating jobs and productive capacity. That's the point!

As with all taxes, a distinction must be made between tax rates and tax revenues. Tax revenues went up while tax rates went down in the 1980s. Similarly in the 1960s and the 1920s. That is because incomes rose more than tax rates fell. But still it will be claimed that we cannot "afford" to cut tax rates because it would create deficits. Spending creates deficits -- and it is big spenders who fight hardest against cutting tax rates.

It is not faith but empirical evidence that is overwhelming on the actual track record of tax cuts and free markets. By the 1980s, this mounting evidence convinced even left-wing governments in various parts of the world to cut back government operations and sell government-owned enterprises to private industry. Faith had nothing to do with it.

In India, in the decade since the 1991 economic reforms which were condemned as "blind faith," the country's economic growth rate has soared. It has been estimated that the real blind faith -- in government planning -- had cost the average Indian hundreds of dollars a year in income during the decades when socialist dogma ruled. In a poor country like India, this was income they could not afford to miss. Even in a prosperous country like the United States, there is no need to forego economic benefits for the sake of a political phrase.

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Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole. To be sure, the economic indicators examined in this report are dependent on a variety of factors, not just tax policy. However, what this study does show is that any attempt to stimulate economic growth by cutting taxes for the rich will do nothing -- it hasn't worked over the past 50 years, so why would it work in the future? To put it simply and bluntly, Bush's top-bracket tax cut is an ineffective attempt at stimulus that will cause not cause any growth -- unless, of course, if you're talking about the size of the deficit.

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Ooit sprak de grote John Galbraith de volgende wijze woorden:
Trickle-down theory. The less than elegant meaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows.

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Op vrijdag 10 februari 2006 15:18 schreef Heerlijkheid het volgende:
Edit: ik kan maar beter reageren op de komediant voor mij. Wat ik wil is dat we allemaal gebruik van elkaar maken: wij goedkopere producten (=meer bestedingsmogelijkheden), zij meer werk en inkomen (=meer bestedingsmogelijkheden). En dat heet een win-win situatie.

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Op dinsdag 14 februari 2006 12:37 schreef Argento het volgende:
Het is toch vrij evident dat ontwikkelingslanden geholpen worden door decadente westerlingen die daar voor één fles champagne een bedrag uitgeven waar de serveerster en haar familie een jaar van kunnen leven? En dat is dan niet ethisch?

Ik heb me op dat punt (en wel meer) ook zitten ergeren aan L&J.

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Op dinsdag 14 februari 2006 12:38 schreef MrBean het volgende:

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Ja. Het is toch van de zotte dat terwijl Afrika weg ligt te kankeren, het Westen alleen zijn bed uit komt voor een flesje champagne.

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Op dinsdag 14 februari 2006 12:40 schreef Floripas het volgende:

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Leg eens uit waarom dat evident is?

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Op dinsdag 14 februari 2006 12:41 schreef Argento het volgende:

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Dat is niet waar het hier over gaat.

De vraag is of wij ons een schuldgevoel moeten aanmeten als we daar een bedrag uitgeven dat het jaarsalaris van de gemiddelde werkneemster overstijgt. Mijn antwoord is nee.

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Op dinsdag 14 februari 2006 12:45 schreef Floripas het volgende:

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Dus jij ontkent de gehele economische theorie en de praktijk dat dit soort effecten niet bestaat?

Ik zou een nobelprijs aanvragen, brainiac.

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Op dinsdag 14 februari 2006 12:48 schreef MrBean het volgende:

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Mijn antwoord is ja. Dat is een gezond schuldgevoel. Het is niet erg om je schuldig te voelen als jij het beter hebt dan iemand anders.

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Op dinsdag 14 februari 2006 12:48 schreef MrBean het volgende:

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Mijn antwoord is ja. Dat is een gezond schuldgevoel. Het is niet erg om je schuldig te voelen als jij het beter hebt dan iemand anders.

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Op dinsdag 14 februari 2006 12:58 schreef Floripas het volgende:

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Wat ethisch is moeten mensen zelf weten, maar ik zou moeite hebben met mijn buik rond eten als er op gehoorsafstand een kind staat te huilen van de honger.

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Ecenomische groei komt in ieder geval niet door een westerse manager die mensen exact genoeg betaalt om niet dood te gaan en de winst weer mee terugneemt naar eigen land. Hoe zou dat groei veroorzaken?

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Pas als hij meer loon zou gaan betalen, een fair loon, als de vakbond niet verboden zou worden, als er een CAO was, als mensen meer konden gaan uitgeven, als ze zouden delen in de winsten, dan krijg je pas groei.

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Op dinsdag 14 februari 2006 13:00 schreef Floripas het volgende:

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Wat doe jij dan om mensen te helpen?