Restrictions on welfare

[Urabus GodofTraction]

The CBO did extensive modeling of supply-side economics and it didn't hold up. If I can find the study, I'll edit this post so check back. Parts of it do hold up, but its around the edges where it doesn't work.

What has been described so far in this thread is just Say's Law, which is not supply side or trickle down, its just economic activity.

Also, supposed supply-side policies by the Reagan administration were just policies to cater to the wealthy, as admitted afterwards.

And yes, you'll always find economists who won't agree because it is more of a social science than a mathematical science, so many things are open to interpretation and can be influenced by societal and political views.

*edit* Still looking for the report, but here's an article than ran in the WSJ about the report.http://www.freerepublic.com/fo...posts

Modified by smockers83 at 4:08 PM 11/12/2008

We're talking about a few different things, here.

The CBO's study wasn't about supply-side economics and it's effect on the economy, it was on it's effect on government income (or so your linked article as lead me to believe). "Oh, but they're connected" it could be said: well, not enough to "disprove" supply-side economics.

Say's Law does not take government tinkering into account (from what I've read about it). That's where "trickle down" and supply-side economics come into play. As long as people tinker with the economy, supply-side economics does exist. I think an understand of Say's Law leads to supply-side policies (and the internet told me Laffer had good things to say about Say).

Keynesisans would disagree that Say's Law is even relevant these days, though. If I didn't get sick even reading Keynes'es work, I'd flush that arguement out.

While we're in the "Politics Etc" sub-forum, supply-side economics does exist. IE: reduction of taxes on the wealthy leads to more money for everyone (but maybe the goverment [**** 'um!]). No goverment makes supply-side economics nearly useless, but that would be ignoring a giant elephant in the economics room.

Learning is fun, though. I so rarely stop and think about economics as a pure ideal.

[smockers83]

Furthermore, wealthy people reproduce less because they want to. They want to plan everything out, and a lot of them wait until after college to reproduce, and therefore reproduce later. Furthermore they have better access to birth control

All true as well, I was just getting at the foundation and basics.

I can't believe I'm about to do this...Well, here goes...

Isn't this fun?

That's rediculous. By that logic, Keynesian theories don't exist either.

A little over the top, I agree, but that response was in response to what I was referring to about Say's Law.

Excluding "trickle-down economics" because it's a political theory is missing the whole point of economics! Economics is enherently political! Certainly "trickle-down" is political, but it's built off of supply-side economics, which is a theory of macroeconomics. Perhaps you're so ingrained with supply-side economics that you see it as a fact. In that case, saying there's no theory behind it makes sense.

Trickle-down theories existed before supply-side, they were just given different names. It becomes political/societal when detached from empirical research. For what the initial argument was that sparked this, there really isn't a whole lot of theory behind it. When extrapolated, yes there are theories for the economy as a whole as to who, what, why, where, and how.

Doesn't exist, ha. Thomas Sowell can write all he wants (and I will poke at that book)

Please do find the book. He makes a very good argument against it.

I am able to prove the theory of supply-side economics any more than I am able to prove the theory of evolution. I believe that using the data and evidence gathered, I can make an excellent case supporting supply-side economics. I originally got on you because you claimed "trickle-down" was disproven. You can't. If you can, please, please get with me and we'll co-author a paper and win the Nobel Prize.

Supply-side works in certain cases. In our case, it doesn't necessarily. So the theory itself fails because it cannot explain it all. Supply siders say even today that tax cuts can in fact pay for themselves and increase tax revenues while increasing economic activity. Where we are at right now, tax cuts don't pay for themselves anymore and the growth in the economy due to the tax cuts are quite small.

We also need to get together and win the Nobel Prize. You've got all the answers that nobody else seems to have.

As they always say, two heads working together is better than one. If you want to win a Nobel Prize, let me know and we'll come up with some cool economics project after we become Ph.Ds.

The CBO's study wasn't about supply-side economics and it's effect on the economy, it was on it's effect on government income (or so your linked article as lead me to believe). "Oh, but they're connected" it could be said: well, not enough to "disprove" supply-side economics.

How isn't it supply-side related? Of course they are connected. It doesn't blatantly say supply-side, but its definitely supply-side. Tax cuts in order to increase revenues and speed up the economy. Sounds pretty supply-side oriented to me. You haven't had the chance to read the CBO's report apparently since you posted and I edited, which talks about economic effects.

Say's Law does not take government tinkering into account (from what I've read about it). That's where "trickle down" and supply-side economics come into play. As long as people tinker with the economy, supply-side economics does exist. I think an understand of Say's Law leads to supply-side policies (and the internet told me Laffer had good things to say about Say).

Initially we weren't talking about government intervention, which is why I brought in Say's Law. However, Say's Law can be misinterpreted into supply-side economics. Supply-side economics is that production/supply is key to prosperity wherein demand simply follows or is a causality of the supply created. In other words, supply-side says "If you build it, they will come." Say's Law says that a supply of one good/service creates a demand for other goods and services. They say completely different things.

Keynesisans would disagree that Say's Law is even relevant these days, though. If I didn't get sick even reading Keynes'es work, I'd flush that arguement out.

There is some merit to Keynes' work. Its not the greatest work, but there is merit to it, which is why its still taught. For instance, the Clinton years were Keynesian years.

While we're in the "Politics Etc" sub-forum, supply-side economics does exist. IE: reduction of taxes on the wealthy leads to more money for everyone (but maybe the goverment [**** 'um!]).

I never said supply-side didn't exist. However, do you really believe it? The Bush Tax Cuts were supply-side based. We have seen economic growth during his tenure and the rich have gotten wealthier, but the question remains and I think everyone here can answer it. Has everyone else seen the benefits of the economic growth? Real wages have remained essentially flat since 1990 but we've seen tons of growth since then. I can provide empirical research to that (the wages part). That's my own proof that supply-side doesn't work in our case.
Modified by smockers83 at 2:10 PM 11/14/2008

[smockers83]

Last week the employment cost index for the third quarter was released by the BLS. It showed that real wages and salaries dropped by an astonishing 1.8% in the third quarter compared to a year earlier.

In fact, real wages and salaries peaked in 2003, and have been trending downwards since then.-- http://www.businessweek.com/th...bound, Nov 3, 2008

More evidence against supply-side economics in the US. Supply-side says that in order to increase living standards and income, supply/production has to increase. We saw economic growth between 2003 and now, but if incomes were falling, why is it that supply-side failed in this respect?

Its not that I don't agree with supply-side and some of its concepts, its just that its a theory and it doesn't always hold up, which is why I said it fails as a theory. One thing you'll learn as an econ major, theory almost never holds up in real life. Supply side has worked before in this country when top tax rates were astronomical, but in the US today, maybe we're right around the vertex of Laffer's curve?

[audtatious]

What about consumer-side economics? Put money in the consumers hands and they will spend it, thus trickle-up?

[smockers83]

That is relatively what Sowell says in his argument against trickle-down.Here, in Capitalism Magazine, he touches on the trickle-down and supply-side theories.http://www.capmag.com/article.asp?ID=4183

[smockers83]

Prove it.

That's all I'm asking.

P.S: You can't.

P.S.S. I think I just did. Just takes some critical thinking and a looksie at real-world data. The fact that you think I couldn't prove it wrong must mean you are the one who is so ingrained in supply-side economics that you see it as fact.

History also teaches us that supply-side no longer works in this country and that a shift more towards Keynesian economics would suit us better in this day and age. The thing about the two theories is that they were created in response to what was going on in the economy during their times.

[WDRacing]

Is it me or are the same things being repeated over and over...LOL.

What happened to the Welfare thread?

OWM / Smockster,

You guys should make a new thread that discusses tax brackets, capital gains...basically all the various tax and money info that you guys seem to be hording. I personally would love the info and enjoy discussing this with you guys vs an accountant I don't know. I'll be starting up my own business within the next couple years, or sooner depending on the world. My wife and I will jump up a few tax brackets when she gets out of the USAF and starts in the civilian world, and I'm sadly fairly ignorant when it comes to investing, taxes etc. I simply do not trust firms with my money, especially these days.

WD

[smockers83]

Is it me or are the same things being repeated over and over...LOL.

What happened to the Welfare thread?

OWM / Smockster,

You guys should make a new thread that discusses tax brackets, capital gains...basically all the various tax and money info that you guys seem to be hording. I personally would love the info and enjoy discussing this with you guys vs an accountant I don't know. I'll be starting up my own business within the next couple years, or sooner depending on the world. My wife and I will jump up a few tax brackets when she gets out of the USAF and starts in the civilian world, and I'm sadly fairly ignorant when it comes to investing, taxes etc. I simply do not trust firms with my money, especially these days.

WD

Yeah, I've been kinda repeating myself, trying a variation of the subliminal message thing.

The welfare thread ended when OWM and I last conversed about it unfortunately. I tried only spending a paragraph on these theories, but people called me out on it because they either didn't believe me or wanted more info.

The info we're hording, a lot of times you have to pay money for that information. If you want, you can start the thread and ask the questions so we know what exactly you want to talk about and I'm sure we'll find all the tangents.

[480sx]

It would be nice if a mod could take all this economics stuff and move it into a thread called Trickle down Economics while leaving the posts about welfare.

They are both good subjects, just a clusterfvk of a thread going on here now.

[Urabus GodofTraction]

P.S.S. I think I just did. Just takes some critical thinking and a looksie at real-world data. The fact that you think I couldn't prove it wrong must mean you are the one who is so ingrained in supply-side economics that you see it as fact.

History also teaches us that supply-side no longer works in this country and that a shift more towards Keynesian economics would suit us better in this day and age. The thing about the two theories is that they were created in response to what was going on in the economy during their times.

I'm back! (Cox Internet sucks da waaaaang).

You've been harping this Sowell guy like crazy. In my internetless downtime, I checked out his book out from the library. I'm sorry, you're going to have to find more sources than one dude. It'd be like taking your economic knowledge solely from "Voodoo Economics." I mean, how does this guy stack up to Mundell and Friedman (though they hand out Nobels like candy these days)?

Sorry, but Tomas Sowell isn't the end-all of economics. Well educated and makes a compelling argument, maybe. I'm not buying what he's selling.

Ingrained? Yep. *Zombie arms*

[smockers83]

Alright, lets think about what "trickle-down" says and what actually happens. The theory behind it is that you cut taxes on the rich so that they save more because their marginal propensity to save is higher. So they invest in a venture because a new tax cut now makes an investment look more attractive. A rich person puts up $10 million for this new company and lets assume that he/she funded the whole start-up and is then the owner. The money is paid out to the new employees, to supply the new firm, to the contractors who build the firm, and the consultants who advise on the new venture. So yes, the initial outlay has a trickle-down effect in that it gave other people money and they can now spend that money. As the business grows and ages, they keep using the $10 million until the business can sustain a non-negative cash flow. As the sole investor in the venture, as profits come in, the sole investor/owner, receives that money. The money is now flowing up. The investor/owner can either take that cash for him/herself, reinvest it into the company, or a combination of the two. Lets say he/she reinvests initially in order to grow the company more in order to make higher profits sooner to regain the initial outlay. Lets say after reinvestment, the total investment is $11 million. The investor/owner now reaps all the profits after all expenses are paid. The business is self-sustaining by producing positive cash flow, in which its paying for itself. The owner is no longer paying these people with his own money, therefore the trickle-down effect is no longer. As he/she continues to take in the profits, the cash flow is still moving up as the investor/owner regains the $11 million investment and then proceeds to receive money on top of that as long as the business produces profits.

Yes, the economy grew and jobs were added because of the investment (Y=C+I+G+NX). The initial outlay was given to other people, but in the end the money is flowing up. So who is gaining from the growth? Not the middle class (except for the few that were newly hired for the company) but the rich.

[audtatious]

Couple things.

First is that the investor took all the risks. It was his 10million to lose if he made improper choices. In your instance he "made it big" thus he should be able to reap the rewards. Realize that the money he makes is not going to simply sit under his bed either as either he will spend it as a consumer of products and services of other companies or he may invest it elsewhere.

Second, after he is earning a profit, he is not simply living off the backs of the consumer. The company is still purchasing services or "parts/widgets" from other companies.

[smockers83]

Couple things.

First, risk is relative to the expected rate of return. A higher rate of risk, a higher expected rate of return. These will all be known to someone who has that amount of money as they will have advisers or will already have that knowledge and then can determine how much to leverage. They would only invest it elsewhere if there was an investment with the same amount of risk and the same or more amount of return or if there was an investment with other acceptable rates of risk and return. If the venture didn't succeed, the venture would still use a lot of the $10 million and everyone who was paid out of that $10 million would get paid out of it whether it was successful or not, so the supposed trickle-down effect would occur either way.

Second, if the company is earning profits, it already purchased the services or "parts/widgets" from other companies.

What does this have to do with the theory?

[smockers83]

From the CBO report that I quoted:

Importantly, regardless of its direction, the net effect on output through long term changes to the supply side of the economy—including fundamental "inputs” such as labor supply or the stock of capital—would probably be small. Under most assumptions, the proposals’ supply side effects would raise or lower the level of output by less than a percentage point, on average, from 2004 to 2013.

That modest effect on the economy is not surprising. Taken altogether, the proposals would provide a relatively small impetus in an economy the size of the United States’. Excluding any economic effects, CBO estimates that in 2004 the President’s proposals would reduce revenues by $117 billion, or 1.0 percent of gross domestic product, and would raise spending (including interest costs) by $21 billion, or 0.2 percent of GDP. From 2004 to 2008, the proposals would reduce revenues by $454 billion, or 0.7 percent of cumulative GDP, and increase spending by $348 billion, or 0.5 percent of GDP.

[Urabus GodofTraction]

My argument:

Trickle-down and/or supply side economics is not a defeated theory. My supporting elements are the fact you cannot produce sound evidence that it is defeated. Neat!

Keep on truckin', Bub.

[smockers83]

Last week the employment cost index for the third quarter was released by the BLS. It showed that real wages and salaries dropped by an astonishing 1.8% in the third quarter compared to a year earlier.

In fact, real wages and salaries peaked in 2003, and have been trending downwards since then.-- http://www.businessweek.com/th...bound, Nov 3, 2008

More evidence against supply-side economics in the US. Supply-side says that in order to increase living standards and income, supply/production has to increase. We saw economic growth between 2003 and now, but if incomes were falling, why is it that supply-side failed in this respect?

My question and challenge to you is, provide evidence that supply side worked in the US starting in 2000 when Bush took office and enacted his tax code which has supply side theory in it.

[smockers83]

http://www.americanprogress.or....htmlhttp://www.americanprogress.or....html

From the Cato Institutehttp://www.cato.org/pubs/journal/cj2n3/cj2n3-9 ... rn...0.pdf

In the second one from Cato, notice it goes into the strengths and weaknesses of supply-side. I don't disagree with the strengths, but the weaknesses is something that should be focused on. While reading it, keep in mind that I said that I don't completely disagree with supply-side.

[smockers83]

[audtatious]

Couple things.

First, risk is relative to the expected rate of return. A higher rate of risk, a higher expected rate of return. These will all be known to someone who has that amount of money as they will have advisers or will already have that knowledge and then can determine how much to leverage. They would only invest it elsewhere if there was an investment with the same amount of risk and the same or more amount of return or if there was an investment with other acceptable rates of risk and return. If the venture didn't succeed, the venture would still use a lot of the $10 million and everyone who was paid out of that $10 million would get paid out of it whether it was successful or not, so the supposed trickle-down effect would occur either way.

In the short term. In the long term, if the venture was successful, that would lead to growth which equals more jobs and everything that comes with an expanding company.

Second, if the company is earning profits, it already purchased the services or "parts/widgets" from other companies.

Depends on the earnings and profitability. Sure, they bought some parts/widgets but there is no guarantee that they will continue to do so nor will grow the enterprise.

It's been 4+ months since I posted a reply and I don't intend to go back over it all again so I have no idea what is relevant to anything anymore.

[Urabus GodofTraction]

http://www.americanprogress.or....htmlhttp://www.americanprogress.or....html

From the Cato Institutehttp://www.cato.org/pubs/journal/cj2n3/cj2n3-9 ... rn...0.pdf

In the second one from Cato, notice it goes into the strengths and weaknesses of supply-side. I don't disagree with the strengths, but the weaknesses is something that should be focused on. While reading it, keep in mind that I said that I don't completely disagree with supply-side.

Sorry, but you've made the outlandish claim that trickle-down/supply side no longer exists.

Your supporting arguments come from an openly "progressive" website (no agenda there, ehh)A man who didn't live to see the effects of modern trickle downAnd a 9/11 conspiracy theorist.

Would you like to correct your statement to a less outlandish "theory that has fallen out of favor"?

[smockers83]

In the short term. In the long term, if the venture was successful, that would lead to growth which equals more jobs and everything that comes with an expanding company.

Right, a company can become successful long term, but the risk is always there for failure. A firm can try to maximize the return to investors to make it more attractive to capital investments by changing the risk profile of firm by adding or getting rid of debt-financed capital. Regardless, the risk of failure is still there. Fact of the matter is, only a few companies in the world are wildly successful.

Depends on the earnings and profitability. Sure, they bought some parts/widgets but there is no guarantee that they will continue to do so nor will grow the enterprise.

Right again, there is no guarantee that they will continue to do so, which is where the risk comes in from what I just explained above. But I see what you're saying about the widgets and profits now.

[smockers83]

Sorry, but you've made the outlandish claim that trickle-down/supply side no longer exists.

I have never claimed that supply side no longer exists. If I agree with it up to a certain point, then how can I say it doesn't exist? What I have claimed though about supply side is that it didn't fully work with its application in the Bush tax cuts. I have said though that trickle-down doesn't exist because it is fundamentally basic economics, which we've recently learned that you think of the two as synonymous.

Your supporting arguments come from an openly "progressive" website (no agenda there, ehh)

Regardless of agenda, they say generally the same things as the CBO reported years before. Granted, with them pushing agenda, they try to deride the accomplishments of Reagan, which is outlandish of them.

If you read Reynold's paper, you would know that he isn't trying to say supply side doesn't work. In fact, I think he likes it at the fundamental level. I like as well at the fundamental level, and I, like him, can see some of the inconsistencies, which he talks about in the weaknesses.

Instead of blowing off making an argument against me and just saying sources, people, and data that I've presented are bad, use my sources or your own sources against me. Maybe you'll prove me wrong and I'll be the one learning something. You ask me to provide data and sources, yet you've provided nothing to support yourself. I ask you to do the same.

Every economist is wrong at some point in his life because they fail to see something they should have.

[HashiriyaS14]

What about consumer-side economics? Put money in the consumers hands and they will spend it, thus trickle-up?

LOL, maybe. Not lately. Lately, they use it to pay down debt or they sit on it.

[audtatious]

Right, a company can become successful long term, but the risk is always there for failure. A firm can try to maximize the return to investors to make it more attractive to capital investments by changing the risk profile of firm by adding or getting rid of debt-financed capital. Regardless, the risk of failure is still there. Fact of the matter is, only a few companies in the world are wildly successful.

Most of the argument seems to be semantics. Most companies are only profitable while their "product" is in demand. Jim Smith invests in a new startup called "The American Widget Company" which has just started selling a new widget on the market that is receiving good reviews and demand is starting to grow locally. TAWC needs to be injected with capitol to promote and push the widget nationally and that's where Jim and others come in. At that point, TAWC has already bought product and some companies have received money from them for the product they have. After having the injection of funds, TAWC promotes the product nationally and is picked up by WalMart, Target and others. At that point, business is booming and they are purchasing more and more product from other companies. Jim Smith and the other investors are getting back a major return on investment at this point and there is a wide-range of companies turning a profit by building, packaging and shipping the widgets out. To me, I see this as trickle-down economics. TAWC had the funds to promote the product which increased its need for the product by its suppliers. Its suppliers are working harder, being more profitable themselves and hiring more employees to keep up with the orders. Sure, the owners of TAWC are making big bux as is Joe and the other investors. Why shouldn't they?

On the opposite side, Jim Smith invests his money into TAWC and the product turns out to only be profitable for the short term in the local community. National exposure fails. TAWC eventually folds and Jim loses his investment money. In this case, there is no "trickle-down" effect.

Now, lets adjust the above somewhat. TAWC is holding its own and making some profit of its own. BUT, they are being punished by the Gov for being somewhat profitable due to Gov taxation rates. If the Gov lowers it's corporate tax rate then they will have more money to promote the business and if their widget "takes off" then they are stimulating "trickle-down".

In another view, Jim Smith is asked to invest in TAWC and sees it as viable. BUT, gov has majorly increased his tax rates as he is considered "rich". He has less liquidity to invest in TAWC so he decides to pass on the offer. TAWC in that case does not get the stimulation it needs to grow because its potential investors are being penalized by the Gov.

The above is what I would call "trickle-down" economics. Allow businesses to have more of their money to grow. Does not mean they will grow but it gives them more opportunity to do so.

Right again, there is no guarantee that they will continue to do so, which is where the risk comes in from what I just explained above. But I see what you're saying about the widgets and profits now.

There is no guarantee that they will be profitable in the long-term but at least if they get business booming they are stimulating growth of other companies which leads to more jobs, possibly better paying jobs due to demand which leads to more money in peoples pockets to purchase products.

I just see companies being penalized by Gov taxation (against the company itself or potential investors) as impeding growth in the economy. Gov sees the current economy as a way to take the money from these businesses or investors as a way to put the money directly into the hands of the "poor" via welfare-based tactics since there are less jobs in the marketplace (or due to poor choices of those people). Continuing down this path leads to less investment into the economy, less jobs and potentially even higher taxation by the Gov to continue it's stimulation of the "welfare state". They are effectively trying to stimulate trickle-up economics in this case.

[audtatious]

LOL, maybe. Not lately. Lately, they use it to pay down debt or they sit on it.

Lots of reasons for that of course. Those termed as "poor" are scared that they may not have a job soon. Unless the economy is allowed to grow then they may not.

[smockers83]

You're absolutely right in that taxes present an inefficiency to the economy and that lowering taxes makes the economy more efficient and allows more money to stay in the economy. You, like charlieo, think of trickle-down as synonymous with basic economics. I posted this in a different thread as a reply to charlieo:

Greg Mankiw, whom I think you know of charlieo, wrote this back in 2008, about cutting corporate tax rates:

Quote »Populist critics deride this train of logic as “trickle-down economics.” But it is more accurate to call it textbook economics. Students in introductory economics courses learn that the burden of a tax does not necessarily stay where the Congress chooses to put it. That lesson is especially relevant when thinking about the corporate tax.[/quote]To view the whole article, follow this link.http://www.nytimes.com/2008/06...print

Greg Mankiw is an economist at Harvard.