In college, I studied Ronald Coase's famous 1920s papers. The major application ATT was infrastructure stuff.
Coase's argument was that "given 0 transaction costs," it doesn't matter who owns what property or right. The market will achieve efficient solutions as firms sell each other radio spectrum or whatnot. Policy should focus on minimizing transaction costs and let the market organize itself.
Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised.
What Coase actually meant is that (1) transaction costs tend to be high (2) this explains the clearly observable inefficiencies of such markets. Literally the opposite of what I was taught as "Coase Theorem."
He meant that because market are imperfect, it really matters what the starting position is. Trickle down economics is the same kind of error. If we are extremely confident that markets work the way efficiency-assuming models do... Trickle down makes sense. It doesn't really matter where the money starts, the market will deal with allocation efficiently. If not it does matter where the money starts.
In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises.
The actual equality dichotomy is ROIs vs labour/income.
God this article is bad on so many levels I don't know where to start.
First, income inequality doesn't measure income mobility. Places like the US that have a huge number of unskilled illegal and legal immigrants constantly entering at the bottom level will always have high income inequality. The question is, what happens to each individual over the course of their lives?
83% of Americans will earn more than their parents.
73% of Americans will spend at least 1 year in the top 20% of income earners in their lifetime.
Also, there is no such thing as "trickle down economics", that is an insult leveled by critics of the idea you should let people spend and invest their own money rather than the government. The results speak for themselves and are astounding. The poorest person alive in a first world country today lives better than the richest 100 years ago. This was all because of investment. Clearly investment, or "trickling down" (as its critics like to call it) isn't just effective, it is the only thing that works to make people's lives better.
Trickle-down economics didn't start with Reagan. One reference to it from 1896:
> There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.[19]
> Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'[33]
Anyone who knows with any sophistication how economics works isn’t telling: they’re pocketing the difference working at RenTec or Jump or whatever. A child knows that privatizing profits and socializing losses is only good for rich people, but a Nobel laureate can’t prove it.
So what we get is a bunch of “those who can’t, teach” social science economics. Greenspan in front of Congress talking about “flaws in conceptual frameworks” rather than “me and Summers shouldn’t have squished Brooksley Born like a fucking bug when she tried to institute some sanity in derivatives markets”. California and electricity. Repeal of Glass-Steagall. Top work guys.
Sometimes I think that HN will literally be the last place where temporarily embarrassed billionaires are pseudo-intellectualizing about pseudo-science economics when the tent-camp people under the 101 interchange finally head over to South Park and rig up a guillotine on that grassy bit.
HN might be such a place even if most people here agree with you.
My snarky comment critical of trickle-down[1] has been flagged and hidden when it reaches a score of 66; and the admins have threatened me with a ban.
I don't mind this strict adherence to the "be kind, don't be snarky" rule, but I haven't seen it so vigilantly enforced on fumigation from fiscal conservatives, which I routinely see here.
I feel like it reflects a dynamic in which flagging is used to steer a discussion, instead of improving its quality.
I would be curious to see the stats on people to flag comments. Do they comment themselves? Do people agree with them?
But I digress. I'm surprised your comment is still here, but that's a good sign.
The East India company/ies pretty much won much of the world for Britain & Europe. Europe was neither wealthy nor technologically more advanced than India. But the Church with its christianising mission and doctrine of christian discovery allowed the pooling of resources. Concentration of wealth is important and the wealth did trickle down to other countries of Europe.
A modern take within India is of Reliance which has made cheap telecom services accessible for much of the population. Or the TATAs who have created a local automobile ecosystem competitive based on vertical integration. Trickle down does happen in the long run as long as corruption is limited. Concentration or pooling of wealth is important especially for developing countries.
Personally I do not care for inequality, and care more for dignity and wellbeing. The metric that matters most especially with developing countries is if their productivity has increased and if they have moved from low skilled to medium to high skilled job.
Europe was more technologically advanced than India. I know it is popular with revisionism, because people like to explain away Western dominance as if being alone about excelling at being a bigger asshole than everybody else.
Reality is that Europe conquered the world because it was economically and technologically superior to all other nations. Neither India nor China had modern science that developed in Europe in the age of enlightenment. There was nobody like Galileo Galilei, da Vinci, Kepler, Newton, Leibniz, Descart, Pascal, Christiaan Huygens, James Watt, Newcomb etc outside of Europe. This is just a small selection of European thinkers from that era. These was a huge number of them involved in all areas of science and engineering.
All this stuff meant Europe could mass produce high quality guns, cannons, warships etc. It meant Europe could mechanize all sorts of production. Produce steam engines etc.
I am not writing this to suggest that Indians or Chinese are somehow inherently lesser people. Development fluctuates over time. In periods India and China was more developed than Europe. However many developments happened in Europe which caused European development to get supercharged and move ahead. This wasn't colonization. Rather colonization was made possible due to technological, economic and social development which gave Europeans and advantage over their competitors.
You're basically saying - In a country of 100 people, concentration of wealth is great. Concentration like for every 100$, 5 people taking 95$ and the rest 95 taking the 5$ is fine. Your rationale seems to be the fact that the 95 people have more than 5$/95 than before. Now, you keep accelerating this and you'd notice a 99-to-1 ratio eventually.
It's interesting that you call this dignity and well being. You're basically saying that the time spent by the 95 people is orders of magnitude less valuable than the time spent by the 5 people.
Speaking from a historical perspective, over the last 50 years or so, almost all productivity gains have gone to capital gains not salaries, i.e. it is only the rich benefiting from productivity gains. This is in stark contrast to the time before the 1980s [1,2].
I guess I’m not surprised that a bunch of folks who have made a career out of advising politicians on income inequality….discovered income inequality in their study.
The two questions in my mind are:
1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed? Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
It's quaint that there are people out there who believe that income at the top strata of society is primarily earned.
Those dividend payments, rents and capital gains (realized) that make up the bulk of top earner incomes happen while they sleep.
A minimum wage is earned. A doctor's wage is earned. A golden parachute after a CEO ruins a company? Somebody with a trust fund? A person living off dividend income? Not so much.
It's one in a series of ways the .1% try to rhetorically conceal themselves. Another is that article the other day that complained about an overproduction of "elites" (referring to college degreed starbucks baristas).
>'Should we trust the government to spend the money more wisely than the folks who earned it'
This is a false opposition. Taxed money does not have to be spent at the point of the state. A sovereign wealth fund could raise funds from wealth taxes and assign a share to every citizen in the country. It could then use its interest-bearing assets to pay out a dividend to all shareholders every year. It could be run by an independent but publicly supervised body - like the Norwegian wealth fund - and the money would be disbursed straight into the bank accounts of citizens.
In any case we live in democratic societies in which legislated changes to the structure and distribution of wealth would then bind politicians via the rule of law. We do not have to depend on the individual virtue of politicians. On the margin I would generally prefer states whose remit includes the public interest to spend another dollar than I would private entities ruled by financial profit.
Think of how productive thousands of people would be if they weren’t staring down at death or disability daily because some ambitious motherfucker decided to make a cheap commodity like insulin a monopolized product, essential for life at a usurious price.
Sure sounds like you swallowed the neo-liberal arguments bait, hook and sinker. Let me guess; you probably find 'Atlas Shrugged' to be a profound work of reason?
> 1. Should we trust the government to spend the money more wisely than the folks who earned it?
Ah, the neo-liberal myth of the maker, the builder, the job creator. Let me tell you this; our economy/ies are built on the back of low-wage workers that are always, always, always getting only a share of their value addition. A fraction. So, unfortunately, the people "earning" the money already don't get it. So we could at least increase the taxes on the moochers that keep them subservient and make sure that the actual makers and builders don't get bankrupted just because of an unexpected illness.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
I guess that would be hunger and the need to pay for a roof over the head. Because that's what it is like for the vast, suffocatingly overwhelming majority of people. They work at insane rates because they are paid a starving wage and don't have to luxury. Far too many are forced to work insane hours, far too many are even doing multiple jobs at the same time because pay is so bad.
> long hours and sacrifices
Haha, that was a good one.
I'm terribly sorry, but the way you write makes it sound as if you would learn a lot from working a few months in a low-wage environment while having to pay your living expenses exclusively from that low-income wage. Without the option of going back home to your parents and cry. It might give you some perspective!
> Should we trust the government to spend the money more wisely than the folks who earned it?
Yes.
> Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
Transparent auditing of taxpayer funds. Presumably this exists to some degree in your country.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
This is a loaded question, as it implies that incentives beyond survival/comfort exist under the incumbent model of operation.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
To what end? The proposal is an alternative model of living which lifts the baseline quality of life, thus reducing this incorrect perceived need for an extreme financial safety net.
> 1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
govt could be corrupt regardless of the spending levels (industry deals, favorable laws, other bribes etc)... maybe corruption and spending are orthogonal concern?
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
i dunno, but there are lots of working poor that work insane hours (and multiple jobs) too who wouldn't get a much more even if tax was set to zero.... probably for them, a more fair distribution (a.k.a whatever the opposite of trickle-down would be) might be more favorable choice...?
Politicians and the democratic government have at least a tacit responsibility to serve the people and to not let them starve; billionaires do not. It's no coincidence that open hostility to democratic values has risen along with the number of billionaires.
> What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed? Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
There are at least three kinds of people working insane rates.
First, there are people working insane rates because they need the money for essentials. They are in low hourly rate jobs, and have to put in insane hours to get enough money for basic things like food and shelter for their families.
Second, there are people working insane rates because they like what they are doing. These are the people that if what they liked was painting would be your classic "starving artist" types, but if they happen to like doing something that people will actually pay a lot for like programming they can end up doing great financially as a welcome side effect.
Third, there are people working insane rates because they want to accumulate vast wealth.
My guess is that the vast majority of people working insane rates are in the first two groups, and that much of those in the third group are working at things for which it would be an improvement if we had less people doing them.
You seem incredibly naive. People who earn $1m+ salaries do not work long hours or make sacrifices. You will never be wealthy if this is what you think. Most CEOs that I've known are out the door well before everyone else.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
I'm paid more than ten times what the local movers are paid. I'm very confident that they work harder, with fewer breaks, and less control over their hours than I do. My wife is a professor. In the evening she is consistently grading papers while I am messing around on the internet. Her salary is like 15% of my income.
I have not observed a correlation between harder work and higher pay.
1) There are certain issues which are unlikely to receive spending due to well-known economic effects. For example: building highways and public transportation are things unlikely to be funded by individuals because they are public goods.
2) There is little evidence that the high tax rates in the middle of the century led to decreased productivity. Tax rates are marginal, meaning that more effort leads to more reward, still.
Lastly inequality as it grows more extreme is a problem in and of itself. Unless you posit that the effort put in by the top 1% has increased a lot, then what we have is a situation that seems unfair. And this is demotivating, and will lead to instability in society even more than it already has. Why would you try to push forward your society if it seems like no matter what you do, wealth inequality is just going to increase, and the top 1% are going to capture most of the rewards? It's true that it's a rising tide that floats all boats, but if some are being floated much more than others then there are issues around power that are concerning. We already see evidence that increasingly the government is less responsive to those without wealth and more responsive to those with wealth. Wealth may be a zero sum game, but power is not. If we allow wealth to concentrate, then power concentrates.
The question is more on whether you want to pay government to give you health care, police, fire protection, education, child care etc. Or would you want to pay somebody who primarily wants to profit from you. Who will look after your health better? The one profiting from your bad health or the one who looses money if your health is bad? For-profit health care profits from your bad health. Government loose money when your health is bad if they finance health care.
It is pretty easy to see the health outcomes. Americans have for-profit health care and they have some of the worst health outcomes in the western world. Scandinavians all have socialized health care and some of the best health outcomes.
There is no natural law that says government must be corrupt. Corruption varies immensely between countries. Nordic countries have some of the largest governments and lowest level of corruption.
But regardless, you don't necessarily need to reduce inequality through higher taxes. You can also push legislation benefitting regular people more: Stronger unions to give workers better bargaining power. Worker representation or corporate boards so they can better influence how companies are run. In Norway where I live, we have worker participation in company decision making as part of the constitution.
The idea that only shareholders should make decision about how a company is run is just a political decision. In Germanic countries there is a long tradition of seeing companies as part of a community and having a wider responsibility to that community beyond maximizing value for shareholders.
We have a choice. The way an economy operates and is optimized is a choice. It is not a law of nature.
Do you seriously believe that income or wealth is strongly correlated with the amount of hours one puts in? In fact one of the clearest things shown by the pandemic is that many of the most crucial workers in society, which often put in insane ours, and without whom much of society would stop working are also the most underpaid. I can tell you nobody would notice if wall street investment bankers would stop working for a couple of months, but everyone would notice if the rubbish collectors would stop working.
Research shows that inequality is largely due to starting conditions and some luck. In fact some research shows that if we don't work against it (i.e. tell people how they spend their money) inequality just grows [1]. Also it's funny, how many say we should not take the money from the rich and "tell them how to spend the money", but at the same time are quite happy with a large buerocratic apparatus dictating every aspect of live for poor people.
1. ”More wisely” is crazy subjective and it’s hard not to get into a really unproductive conversation about it. The issue is more that money is hoarded rather than spent.
2. This is a similar argument to those claiming that electric cars will never work because “what if I want to drive 12 hours straight without stopping?”. It’s possible but an extreme outlier.
We need less government and better taxation policy.
I believe the inequality comes from the fact that individuals and companies with large sums of money can shape policies in government better than any individual or group of individuals.
I agree you shouldn't pay 90% tax rate but you shouldn't be paying zero either.
> 1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
The folks that have a lot of money don't spend it. Out of all of Buffett's, Gates', and Bezos' fortunes how much is being spent 'productively' and how much is just sitting around collecting interest on interest. The velocity of money hasn't been doing much in recent decades, which seems to indicate it's just sitting in accounts:
'Coïncidentally' wealth inequality has been rising in the same time period. Perhaps the link of stagnant money and a lack of activity are linked?
There's plenty of old bridges, dams, locks, transit, airports, etc, that need to be repaired and that money could be used for those upgrades providing good pay jobs.
"Bezos’s ex-wife MacKenzie Scott can’t give her billions away fast enough", and she is worth 'only' US$ 60B (21st richest person):
Further, this is not (or does not have to be) an either-or situation: it's not like all the money goes to the government or stay with the wealthy. If (e.g.) 2-5% of someone's wealth over (say) $10B is taxed annually, they still have 98-95% to do whatever with.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
What motivates someone with $1B to work more? Is it really to make another $10M? Is Bezos working the hours he is because of money? Is Buffett? Musk? I think the people who get to this level work because of of intrinsic motivation rather than extrinsic rewards.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
Do you understand how marginal tax brackets work? When someone makes $1M + 1 dollars, the government does not take $900K in this hypothetical 90% margin rate: they take 90¢ of the last $1. The rest of the money is taxed at lower rates:
And a 70% top tax rate isn't unheard of in the US: it's what it used to be during the 1950s and 1960s, and economic growth was just fine. 70% isn't a bad rate to start looking at:
And perhaps by having ridiculously high top tax brackets will send a signal to people that instead of send money to the top, perhaps the 'little people' should get some of it too:
> Should we trust the government to spend the money more wisely than the folks who earned it?
When the aristocracy watched as the new-born communist Russia brutally executed its royal family, in their hearts they knew their narrative of birthright and nobility would no longer be accepted. They needed a new reasoning to justify their positions of power, to convince the peasantry that their lords were just and inevitable. Thus was the narrative of 'meritocracy' born in a world where there is obviously no possibility of such a thing.
I don't know what the original "trickle down" theory is but if it is all about money, then both the theory and its rebuttal are just circular reasoning.
The way I understand the "trickle down" idea is that the global economy is not a zero-sum game and when rich people build something, the poor indirectly take advantage of it, even if the wealth repartition curve doesn't change. For example, a rich person may use his wealth to make cheap computers, which sell well, so he becomes even richer, the poor don't become richer, but now they have computers, so in the end, even if wealth inequality didn't change, or maybe even became worse, the poor are better off, thanks to computers being cheaper. If we didn't let the rich entrepreneur get rich, there would be no cheap computers and while the poor may be wealthier on paper, they still won't have computers.
But if we only care about money, then yes, of course inequality causes inequality, and if the "trickle down" theory says otherwise, then it is simply illogical, just as its debunking is circular reasoning.
The study is not worthless, it is an interesting observational study, but I don't see how it disproves the more interesting non zero-sum version of "trickle down". For that it should also use indicators that are not money, like health, education, etc...
I think one point missing in these discussions is access to markets and wealth creation. As a “thousandaire” I’m not too concerned about what percentage of whatever anyone else has, as long as I have the ability to provide for my family and better my situation. My personal experience is that I have had incredible access: came from lower middle class, taught myself to code, make decent income, invest with low fees. I definitely had help and “privileges” along the way. But in general that experience makes me look for solutions to these issues that parallel my experience: education, business incubation, and investment.
In a watershed, rain falls and distributes water far and wide. It then trickles downward to where the water is most concentrated.
This one is easy. If the monetary system was a watershed, the rich would be at the bottom. You can't dump a billion litres at the mouth of the Amazon and reasonably expect it to make its way to the rest of the rainforest.
The article makes a weird jump between pointing to global wealth inequality and claiming that this disproves trickle-down effects.
But trickle-down doesn't claim that wealth differences between rich and poor should decrease! Rather, it's about absolute gains, where poor people get higher incomes the richer other people are. (I.e. increasing wealth inequality is good if it is the rich getting richer, instead of the poor getting poorer.)
A disproof would be something like finding a lot of poor people who got poorer as everyone else around them got richer.
Well, if you're gonna have rich people that's gonna have to mean that those rich people have much more money than not-rich people. Otherwise, you can't have rich people as a special category- if everybody is rich then nobody is.
Then of course the more money you have as a society, the more money the rich people of your society will have. And if you have a large population, the difference between those who are rich and those who are not is gonna have to be very large just because there's so much more money to be divided between the necessarily few rich people (again: if many people have lots of money then you don't have a special class of "rich").
So to summarise, if you're gonna have a rich society, you're gonna have to have rich people who are much more rich than not-rich people.
Problem is, that's not about inequality, nor about the richess of socieities, but about amibition. You see, everyone wants to be rich. Translated: everyone wants to have more than almost everyone else. So everyone supports an economic system that supports rich people, and therefore, wealth inequality.
Which is funny because the vast majority of people who support that kind of system are necessarily going to have to be not-rich.
So in order for most people to be able to dream that, one day, they'll be filthy rich, most people have to spend their entire lives in relative (or absolute) poverty.
One observation I have on this topic and how the corp. media (vox, et al) handles the topic:
The proposed solutions are always along the lines of increased income taxes, which impact people who are getting wealthy (high earning doctors, execs, entrepreneurs, etc). I rarely see discussion from corp. media on wealth taxes, which would impact the already wealthy. It is not widely known that billionaires don't have large "incomes" and therefor don't pay large relative amounts of income tax.
The interesting outcome of this policy approach, is it's actually protecting the ultra rich from more competition (more wealthy people competing for influence & assets). Which means billionaires can maintain more socio-political control with their wealth with very high marginal income tax rates. Billionaires (who want to maintain power) do not want a lot more millionaires.
The next time a progressive advocates for high marginal income tax rates, ask them why they want to protect the 1% from competition. :-)
Edit: My personal preference is a 0.05% tax on any transfer between a LLC and it's owners (dividend, buyback, payroll to stockholders, or equivalent). I would also insist that this new tax be only allowed to flow to a direct citizen payment fund e.g. universal income (as I don't believe the captured bureaucracy will use it effectively or not just end up redirecting it back to billionaires).
And for my liberty minded friends, think of it as a payment for limited liability protection for the owners (something that doesn't exist in a true free market. a government intervention that helps crony capitalism in some manner). If owners of a company want to avoid the tax, they can incorporate where their wealth is at risk for the damages their org does.
Here is an example of the opposite of "trickle down":
I am self employed so I get paid everything then have to pay my own tax. Aside from the sticker shock this has some effects.
Toward the end of the year when my marginal rate cracks 50% I get a lot more generous. I tend to but more kit, and hire people for gigs. I may even hire an EA next year and pre-pay her at the end of this year. If faced with either saving an extra 20k or hiring an EA and paying her 50k, I am more inclined to the latter.
I thought trickle-down economics worked because I have seen how much better things have become in my lifetime. The cheapest food available today is so much higher quality than the cheapest available in the 90s. A bog standard car today comes with features that would have been considered luxury in the 90s. But these are all consumables.
The difference between income and wealth has only become clear to me recently. I am a top 10% earner in the UK, according to the statistics. But it made no sense to me because I can only barely afford to buy a house (now in my mid-30s) and the amount that others seem to spend on cars etc. is truly baffling to me. So I look up the other statistic. Well it turns out I'm in the bottom 30% when it comes to wealth.
Having wealth means someone could afford my lifestyle on a fraction of the income. There are millions of people who are trapped in a cycle of renting and borrowing who aren't building up any wealth at all. Meanwhile, people who started off with wealth in the first place find it easier and easier to keep building.
I'm probably not the only person who makes this mistake between income and wealth. Income can give you a nice lifestyle today. But the moment you stop working, you're out on the street. Wealth is what really matters.
This is just the effect of extremely low interest rates. When interest rates goes to 0 it means that the cost of any productive asset goes to infinity. That doesn't mean that all that value was actually created the past decade, Tesla for example hasn't created even close to a trillion worth of value, that is just the expected future value produced by Tesla including inflation. Do you think that Tesla will produce a trillion worth of value, not adjusted to inflation, in the next 50 years? Yes, I do, Tesla generated billions of operating profit last year, accumulated that over 50 years and Tesla is already worth more than money. Then Tesla isn't over valued.
So the lower the interest rates the more "wealth" actually means future wealth. If interest rates were 5% today as it was steadily 50 years ago then future money gets valued much less and asset valuation would go down. It would cause inflation of course, but I don't think that is a bad thing.
Well, duh. If you can't even fund enforcement for investigating wealthy tax cheats, not only is there a wealth transfer from everyone else to the wealthy via unbalanced tax burdens, it's also an indication of how deeply captured by wealthy interests out government truly is.
I haven't heard a politician advocate trickle-down since the Reagan era.
This seems like one of those strawman political football arguments.
Also, the methodology here is a bit flawed. I think that economic data that cherry picks the start of the covid-19 pandemic is deeply flawed. 2020 will always be known as an economic outlier. It's like selecting 2008, or September 2001. These are data points that should be eliminated from your data set - not highlighted in your conclusions.
Seems like just another anti-billionaire political hit piece, frankly. No real substance.
Also, a nitpick - the STUDY didn't take 20 years. The DATA was from a 20 year period. The title builds the study up to imply far more effort than was actually expended.
"The rich are taking most of the gains for themselves"
No, stock in certain valuable companies rose a lot when their inherent value did (especially in relative terms), and stockholders thus hold a lot more wealth on paper.
The thing about trickle down is that even the water analogy is backwards!
It's combining many small streams that make up the big rivers... as in: give money to the lower classes, they will consume stuff and so the money will end up in the pockets of whoever produced the goods (usually large companies -> the sea?), and there the money will flow back up as income (clouds/rain?) and that will feed the small streams over again.
In that analogy, the wealthy act like a dam, not as a source, cause the wealthy can only consume so much...
Trickle-down is literal. The wealth trickles down, just like it says. The common conception is the definition of "trickle-down" is "flow down" like the wealth flows in a cycle like the rain into the snow, the snowmelt in the river, and the river into the ocean. That's flow. But we are talking about "trickle", like a faucet trickling, meaning it can be shut off easily, or you need a fixer to fix it, or it merely causes a bit of mold and warps the parquet. Trickle.
[+] [-] netcan|4 years ago|reply
Coase's argument was that "given 0 transaction costs," it doesn't matter who owns what property or right. The market will achieve efficient solutions as firms sell each other radio spectrum or whatnot. Policy should focus on minimizing transaction costs and let the market organize itself.
Circa 2005, I heard a podcast with 90-something Ronald Coase. He has pissed. Everyone had been teaching his theorem backwards for decades, backed with the "chalkboard economics" he despised.
What Coase actually meant is that (1) transaction costs tend to be high (2) this explains the clearly observable inefficiencies of such markets. Literally the opposite of what I was taught as "Coase Theorem."
He meant that because market are imperfect, it really matters what the starting position is. Trickle down economics is the same kind of error. If we are extremely confident that markets work the way efficiency-assuming models do... Trickle down makes sense. It doesn't really matter where the money starts, the market will deal with allocation efficiently. If not it does matter where the money starts.
In any case, the "wealth disparity" discussion is almost always badly anchored. The first thing to understand about wealth disparity is that it maps pretty much to wealth. More wealth, more wealth disparity... almost universally. Many or most people have no wealth, depending on your semantics of "wealth." Therefore, if the value/quantity of wealth rises, wealth disparity rises.
The actual equality dichotomy is ROIs vs labour/income.
[+] [-] mrjangles|4 years ago|reply
First, income inequality doesn't measure income mobility. Places like the US that have a huge number of unskilled illegal and legal immigrants constantly entering at the bottom level will always have high income inequality. The question is, what happens to each individual over the course of their lives?
83% of Americans will earn more than their parents. 73% of Americans will spend at least 1 year in the top 20% of income earners in their lifetime.
https://fee.org/articles/income-mobility-data-show-america-s...
Also, there is no such thing as "trickle down economics", that is an insult leveled by critics of the idea you should let people spend and invest their own money rather than the government. The results speak for themselves and are astounding. The poorest person alive in a first world country today lives better than the richest 100 years ago. This was all because of investment. Clearly investment, or "trickling down" (as its critics like to call it) isn't just effective, it is the only thing that works to make people's lives better.
[+] [-] throw0101a|4 years ago|reply
> There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.[19]
* https://en.wikipedia.org/wiki/Trickle-down_economics
See also:
> Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'[33]
* Ibid.
[+] [-] Digit-Al|4 years ago|reply
> In America, trickle-down was exemplified by President Ronald Reagan's tax slashes.
[+] [-] benreesman|4 years ago|reply
So what we get is a bunch of “those who can’t, teach” social science economics. Greenspan in front of Congress talking about “flaws in conceptual frameworks” rather than “me and Summers shouldn’t have squished Brooksley Born like a fucking bug when she tried to institute some sanity in derivatives markets”. California and electricity. Repeal of Glass-Steagall. Top work guys.
Sometimes I think that HN will literally be the last place where temporarily embarrassed billionaires are pseudo-intellectualizing about pseudo-science economics when the tent-camp people under the 101 interchange finally head over to South Park and rig up a guillotine on that grassy bit.
[+] [-] romwell|4 years ago|reply
My snarky comment critical of trickle-down[1] has been flagged and hidden when it reaches a score of 66; and the admins have threatened me with a ban.
I don't mind this strict adherence to the "be kind, don't be snarky" rule, but I haven't seen it so vigilantly enforced on fumigation from fiscal conservatives, which I routinely see here.
I feel like it reflects a dynamic in which flagging is used to steer a discussion, instead of improving its quality.
I would be curious to see the stats on people to flag comments. Do they comment themselves? Do people agree with them?
But I digress. I'm surprised your comment is still here, but that's a good sign.
[1]https://news.ycombinator.com/item?id=29483790
[+] [-] naruvimama|4 years ago|reply
The East India company/ies pretty much won much of the world for Britain & Europe. Europe was neither wealthy nor technologically more advanced than India. But the Church with its christianising mission and doctrine of christian discovery allowed the pooling of resources. Concentration of wealth is important and the wealth did trickle down to other countries of Europe.
A modern take within India is of Reliance which has made cheap telecom services accessible for much of the population. Or the TATAs who have created a local automobile ecosystem competitive based on vertical integration. Trickle down does happen in the long run as long as corruption is limited. Concentration or pooling of wealth is important especially for developing countries.
Personally I do not care for inequality, and care more for dignity and wellbeing. The metric that matters most especially with developing countries is if their productivity has increased and if they have moved from low skilled to medium to high skilled job.
[+] [-] socialdemocrat|4 years ago|reply
Reality is that Europe conquered the world because it was economically and technologically superior to all other nations. Neither India nor China had modern science that developed in Europe in the age of enlightenment. There was nobody like Galileo Galilei, da Vinci, Kepler, Newton, Leibniz, Descart, Pascal, Christiaan Huygens, James Watt, Newcomb etc outside of Europe. This is just a small selection of European thinkers from that era. These was a huge number of them involved in all areas of science and engineering.
All this stuff meant Europe could mass produce high quality guns, cannons, warships etc. It meant Europe could mechanize all sorts of production. Produce steam engines etc.
I am not writing this to suggest that Indians or Chinese are somehow inherently lesser people. Development fluctuates over time. In periods India and China was more developed than Europe. However many developments happened in Europe which caused European development to get supercharged and move ahead. This wasn't colonization. Rather colonization was made possible due to technological, economic and social development which gave Europeans and advantage over their competitors.
[+] [-] tchalla|4 years ago|reply
It's interesting that you call this dignity and well being. You're basically saying that the time spent by the 95 people is orders of magnitude less valuable than the time spent by the 5 people.
[+] [-] cycomanic|4 years ago|reply
[1] https://www.epi.org/productivity-pay-gap/ [2] https://www.weforum.org/agenda/2020/11/productivity-workforc...
[+] [-] unknown|4 years ago|reply
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[+] [-] iamgopal|4 years ago|reply
[+] [-] codegrappler|4 years ago|reply
The two questions in my mind are:
1. Should we trust the government to spend the money more wisely than the folks who earned it? Or said another way, how do you combat the almost inevitable corruption you see with large government spending? 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed? Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
[+] [-] pydry|4 years ago|reply
It's quaint that there are people out there who believe that income at the top strata of society is primarily earned.
Those dividend payments, rents and capital gains (realized) that make up the bulk of top earner incomes happen while they sleep.
A minimum wage is earned. A doctor's wage is earned. A golden parachute after a CEO ruins a company? Somebody with a trust fund? A person living off dividend income? Not so much.
It's one in a series of ways the .1% try to rhetorically conceal themselves. Another is that article the other day that complained about an overproduction of "elites" (referring to college degreed starbucks baristas).
[+] [-] Emma_Goldman|4 years ago|reply
This is a false opposition. Taxed money does not have to be spent at the point of the state. A sovereign wealth fund could raise funds from wealth taxes and assign a share to every citizen in the country. It could then use its interest-bearing assets to pay out a dividend to all shareholders every year. It could be run by an independent but publicly supervised body - like the Norwegian wealth fund - and the money would be disbursed straight into the bank accounts of citizens.
In any case we live in democratic societies in which legislated changes to the structure and distribution of wealth would then bind politicians via the rule of law. We do not have to depend on the individual virtue of politicians. On the margin I would generally prefer states whose remit includes the public interest to spend another dollar than I would private entities ruled by financial profit.
[+] [-] Spooky23|4 years ago|reply
Think of how productive thousands of people would be if they weren’t staring down at death or disability daily because some ambitious motherfucker decided to make a cheap commodity like insulin a monopolized product, essential for life at a usurious price.
[+] [-] esarbe|4 years ago|reply
> 1. Should we trust the government to spend the money more wisely than the folks who earned it?
Ah, the neo-liberal myth of the maker, the builder, the job creator. Let me tell you this; our economy/ies are built on the back of low-wage workers that are always, always, always getting only a share of their value addition. A fraction. So, unfortunately, the people "earning" the money already don't get it. So we could at least increase the taxes on the moochers that keep them subservient and make sure that the actual makers and builders don't get bankrupted just because of an unexpected illness.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
I guess that would be hunger and the need to pay for a roof over the head. Because that's what it is like for the vast, suffocatingly overwhelming majority of people. They work at insane rates because they are paid a starving wage and don't have to luxury. Far too many are forced to work insane hours, far too many are even doing multiple jobs at the same time because pay is so bad.
> long hours and sacrifices
Haha, that was a good one.
I'm terribly sorry, but the way you write makes it sound as if you would learn a lot from working a few months in a low-wage environment while having to pay your living expenses exclusively from that low-income wage. Without the option of going back home to your parents and cry. It might give you some perspective!
That's what did it for me at least.
[+] [-] bottled_poe|4 years ago|reply
Yes.
> Or said another way, how do you combat the almost inevitable corruption you see with large government spending?
Transparent auditing of taxpayer funds. Presumably this exists to some degree in your country.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
This is a loaded question, as it implies that incentives beyond survival/comfort exist under the incumbent model of operation.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
To what end? The proposal is an alternative model of living which lifts the baseline quality of life, thus reducing this incorrect perceived need for an extreme financial safety net.
[+] [-] forinti|4 years ago|reply
Anyway, I don't see why a billionaire shouldn't have a 90% bracket.
[+] [-] andrekandre|4 years ago|reply
[+] [-] jl6|4 years ago|reply
[+] [-] redkabbage|4 years ago|reply
[+] [-] tzs|4 years ago|reply
There are at least three kinds of people working insane rates.
First, there are people working insane rates because they need the money for essentials. They are in low hourly rate jobs, and have to put in insane hours to get enough money for basic things like food and shelter for their families.
Second, there are people working insane rates because they like what they are doing. These are the people that if what they liked was painting would be your classic "starving artist" types, but if they happen to like doing something that people will actually pay a lot for like programming they can end up doing great financially as a welcome side effect.
Third, there are people working insane rates because they want to accumulate vast wealth.
My guess is that the vast majority of people working insane rates are in the first two groups, and that much of those in the third group are working at things for which it would be an improvement if we had less people doing them.
[+] [-] burntbridge|4 years ago|reply
[+] [-] ZeroGravitas|4 years ago|reply
If not then not only do I want to tax you your fair share in progressive taxes, I want to fine you to stop you doing destructive things.
[+] [-] UncleMeat|4 years ago|reply
I'm paid more than ten times what the local movers are paid. I'm very confident that they work harder, with fewer breaks, and less control over their hours than I do. My wife is a professor. In the evening she is consistently grading papers while I am messing around on the internet. Her salary is like 15% of my income.
I have not observed a correlation between harder work and higher pay.
[+] [-] dontreact|4 years ago|reply
Lastly inequality as it grows more extreme is a problem in and of itself. Unless you posit that the effort put in by the top 1% has increased a lot, then what we have is a situation that seems unfair. And this is demotivating, and will lead to instability in society even more than it already has. Why would you try to push forward your society if it seems like no matter what you do, wealth inequality is just going to increase, and the top 1% are going to capture most of the rewards? It's true that it's a rising tide that floats all boats, but if some are being floated much more than others then there are issues around power that are concerning. We already see evidence that increasingly the government is less responsive to those without wealth and more responsive to those with wealth. Wealth may be a zero sum game, but power is not. If we allow wealth to concentrate, then power concentrates.
[+] [-] socialdemocrat|4 years ago|reply
It is pretty easy to see the health outcomes. Americans have for-profit health care and they have some of the worst health outcomes in the western world. Scandinavians all have socialized health care and some of the best health outcomes.
There is no natural law that says government must be corrupt. Corruption varies immensely between countries. Nordic countries have some of the largest governments and lowest level of corruption.
But regardless, you don't necessarily need to reduce inequality through higher taxes. You can also push legislation benefitting regular people more: Stronger unions to give workers better bargaining power. Worker representation or corporate boards so they can better influence how companies are run. In Norway where I live, we have worker participation in company decision making as part of the constitution.
The idea that only shareholders should make decision about how a company is run is just a political decision. In Germanic countries there is a long tradition of seeing companies as part of a community and having a wider responsibility to that community beyond maximizing value for shareholders.
We have a choice. The way an economy operates and is optimized is a choice. It is not a law of nature.
[+] [-] cycomanic|4 years ago|reply
Research shows that inequality is largely due to starting conditions and some luck. In fact some research shows that if we don't work against it (i.e. tell people how they spend their money) inequality just grows [1]. Also it's funny, how many say we should not take the money from the rich and "tell them how to spend the money", but at the same time are quite happy with a large buerocratic apparatus dictating every aspect of live for poor people.
[+] [-] brtkdotse|4 years ago|reply
2. This is a similar argument to those claiming that electric cars will never work because “what if I want to drive 12 hours straight without stopping?”. It’s possible but an extreme outlier.
[+] [-] aNoob7000|4 years ago|reply
I believe the inequality comes from the fact that individuals and companies with large sums of money can shape policies in government better than any individual or group of individuals.
I agree you shouldn't pay 90% tax rate but you shouldn't be paying zero either.
[+] [-] unknown|4 years ago|reply
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[+] [-] unknown|4 years ago|reply
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[+] [-] usrusr|4 years ago|reply
[+] [-] throw0101a|4 years ago|reply
The folks that have a lot of money don't spend it. Out of all of Buffett's, Gates', and Bezos' fortunes how much is being spent 'productively' and how much is just sitting around collecting interest on interest. The velocity of money hasn't been doing much in recent decades, which seems to indicate it's just sitting in accounts:
* https://fred.stlouisfed.org/series/M2V
'Coïncidentally' wealth inequality has been rising in the same time period. Perhaps the link of stagnant money and a lack of activity are linked?
There's plenty of old bridges, dams, locks, transit, airports, etc, that need to be repaired and that money could be used for those upgrades providing good pay jobs.
"Bezos’s ex-wife MacKenzie Scott can’t give her billions away fast enough", and she is worth 'only' US$ 60B (21st richest person):
* https://www.thetimes.co.uk/article/bezoss-ex-wife-mackenzie-...
* https://archive.md/ZzeMI
Further, this is not (or does not have to be) an either-or situation: it's not like all the money goes to the government or stay with the wealthy. If (e.g.) 2-5% of someone's wealth over (say) $10B is taxed annually, they still have 98-95% to do whatever with.
> 2. What will incentivize people to work at insane rates if the vast majority of their income and wealth is taxed?
What motivates someone with $1B to work more? Is it really to make another $10M? Is Bezos working the hours he is because of money? Is Buffett? Musk? I think the people who get to this level work because of of intrinsic motivation rather than extrinsic rewards.
> Would I be willing to put in the long hours and sacrifices usually required to work up to a $1m+ salary if it’s taxed at a 90% rate?
Do you understand how marginal tax brackets work? When someone makes $1M + 1 dollars, the government does not take $900K in this hypothetical 90% margin rate: they take 90¢ of the last $1. The rest of the money is taxed at lower rates:
* https://www.vox.com/policy-and-politics/2019/1/7/18171975/ta...
And a 70% top tax rate isn't unheard of in the US: it's what it used to be during the 1950s and 1960s, and economic growth was just fine. 70% isn't a bad rate to start looking at:
* https://www.vox.com/policy-and-politics/2019/1/4/18168431/al...
And perhaps by having ridiculously high top tax brackets will send a signal to people that instead of send money to the top, perhaps the 'little people' should get some of it too:
* https://www.vox.com/2014/4/18/5620702/case-for-confiscatory-...
[+] [-] AnIdiotOnTheNet|4 years ago|reply
When the aristocracy watched as the new-born communist Russia brutally executed its royal family, in their hearts they knew their narrative of birthright and nobility would no longer be accepted. They needed a new reasoning to justify their positions of power, to convince the peasantry that their lords were just and inevitable. Thus was the narrative of 'meritocracy' born in a world where there is obviously no possibility of such a thing.
[+] [-] GuB-42|4 years ago|reply
The way I understand the "trickle down" idea is that the global economy is not a zero-sum game and when rich people build something, the poor indirectly take advantage of it, even if the wealth repartition curve doesn't change. For example, a rich person may use his wealth to make cheap computers, which sell well, so he becomes even richer, the poor don't become richer, but now they have computers, so in the end, even if wealth inequality didn't change, or maybe even became worse, the poor are better off, thanks to computers being cheaper. If we didn't let the rich entrepreneur get rich, there would be no cheap computers and while the poor may be wealthier on paper, they still won't have computers.
But if we only care about money, then yes, of course inequality causes inequality, and if the "trickle down" theory says otherwise, then it is simply illogical, just as its debunking is circular reasoning.
The study is not worthless, it is an interesting observational study, but I don't see how it disproves the more interesting non zero-sum version of "trickle down". For that it should also use indicators that are not money, like health, education, etc...
[+] [-] shireboy|4 years ago|reply
[+] [-] Fricken|4 years ago|reply
This one is easy. If the monetary system was a watershed, the rich would be at the bottom. You can't dump a billion litres at the mouth of the Amazon and reasonably expect it to make its way to the rest of the rainforest.
[+] [-] yorwba|4 years ago|reply
But trickle-down doesn't claim that wealth differences between rich and poor should decrease! Rather, it's about absolute gains, where poor people get higher incomes the richer other people are. (I.e. increasing wealth inequality is good if it is the rich getting richer, instead of the poor getting poorer.)
A disproof would be something like finding a lot of poor people who got poorer as everyone else around them got richer.
[+] [-] YeGoblynQueenne|4 years ago|reply
Then of course the more money you have as a society, the more money the rich people of your society will have. And if you have a large population, the difference between those who are rich and those who are not is gonna have to be very large just because there's so much more money to be divided between the necessarily few rich people (again: if many people have lots of money then you don't have a special class of "rich").
So to summarise, if you're gonna have a rich society, you're gonna have to have rich people who are much more rich than not-rich people.
Problem is, that's not about inequality, nor about the richess of socieities, but about amibition. You see, everyone wants to be rich. Translated: everyone wants to have more than almost everyone else. So everyone supports an economic system that supports rich people, and therefore, wealth inequality.
Which is funny because the vast majority of people who support that kind of system are necessarily going to have to be not-rich.
So in order for most people to be able to dream that, one day, they'll be filthy rich, most people have to spend their entire lives in relative (or absolute) poverty.
Funny old world, eh?
[+] [-] jpadkins|4 years ago|reply
The interesting outcome of this policy approach, is it's actually protecting the ultra rich from more competition (more wealthy people competing for influence & assets). Which means billionaires can maintain more socio-political control with their wealth with very high marginal income tax rates. Billionaires (who want to maintain power) do not want a lot more millionaires.
The next time a progressive advocates for high marginal income tax rates, ask them why they want to protect the 1% from competition. :-)
Edit: My personal preference is a 0.05% tax on any transfer between a LLC and it's owners (dividend, buyback, payroll to stockholders, or equivalent). I would also insist that this new tax be only allowed to flow to a direct citizen payment fund e.g. universal income (as I don't believe the captured bureaucracy will use it effectively or not just end up redirecting it back to billionaires). And for my liberty minded friends, think of it as a payment for limited liability protection for the owners (something that doesn't exist in a true free market. a government intervention that helps crony capitalism in some manner). If owners of a company want to avoid the tax, they can incorporate where their wealth is at risk for the damages their org does.
[+] [-] bojangleslover|4 years ago|reply
I am self employed so I get paid everything then have to pay my own tax. Aside from the sticker shock this has some effects.
Toward the end of the year when my marginal rate cracks 50% I get a lot more generous. I tend to but more kit, and hire people for gigs. I may even hire an EA next year and pre-pay her at the end of this year. If faced with either saving an extra 20k or hiring an EA and paying her 50k, I am more inclined to the latter.
[+] [-] globular-toast|4 years ago|reply
The difference between income and wealth has only become clear to me recently. I am a top 10% earner in the UK, according to the statistics. But it made no sense to me because I can only barely afford to buy a house (now in my mid-30s) and the amount that others seem to spend on cars etc. is truly baffling to me. So I look up the other statistic. Well it turns out I'm in the bottom 30% when it comes to wealth.
Having wealth means someone could afford my lifestyle on a fraction of the income. There are millions of people who are trapped in a cycle of renting and borrowing who aren't building up any wealth at all. Meanwhile, people who started off with wealth in the first place find it easier and easier to keep building.
I'm probably not the only person who makes this mistake between income and wealth. Income can give you a nice lifestyle today. But the moment you stop working, you're out on the street. Wealth is what really matters.
[+] [-] Jensson|4 years ago|reply
So the lower the interest rates the more "wealth" actually means future wealth. If interest rates were 5% today as it was steadily 50 years ago then future money gets valued much less and asset valuation would go down. It would cause inflation of course, but I don't think that is a bad thing.
[+] [-] gttalbot|4 years ago|reply
[+] [-] q1w2|4 years ago|reply
This seems like one of those strawman political football arguments.
Also, the methodology here is a bit flawed. I think that economic data that cherry picks the start of the covid-19 pandemic is deeply flawed. 2020 will always be known as an economic outlier. It's like selecting 2008, or September 2001. These are data points that should be eliminated from your data set - not highlighted in your conclusions.
Seems like just another anti-billionaire political hit piece, frankly. No real substance.
Also, a nitpick - the STUDY didn't take 20 years. The DATA was from a 20 year period. The title builds the study up to imply far more effort than was actually expended.
[+] [-] Wolfenstein98k|4 years ago|reply
"The rich are taking most of the gains for themselves"
No, stock in certain valuable companies rose a lot when their inherent value did (especially in relative terms), and stockholders thus hold a lot more wealth on paper.
[+] [-] d--b|4 years ago|reply
It's combining many small streams that make up the big rivers... as in: give money to the lower classes, they will consume stuff and so the money will end up in the pockets of whoever produced the goods (usually large companies -> the sea?), and there the money will flow back up as income (clouds/rain?) and that will feed the small streams over again.
In that analogy, the wealthy act like a dam, not as a source, cause the wealthy can only consume so much...
[+] [-] daniel-cussen|4 years ago|reply