Do trickle-down economic theories work?

[LeafByNiggle]

Objective law applies to ALL equally.
The consequences of breaking this law could be anything the lawmakers propose.
It would be enforced the same as any law of the land.
No, it would not be a tax. (I don’t like taxes)
It could be a fine, or jail time or flogging or water-boarding… whatever works as a deterrent…

What is a fine but a tax that is applied only to those who break the law? And what are objective laws about pollution but just well-written regulations? It seems you have more objections to certain words than to certain concepts.

 

[LeafByNiggle]

I am sorry if you understood it that way. I did not make myself clear. My fault.
When I use the word “economy” I am referring to an economy based on Free Market principals. I will be more specific in the future.

Well, then, I have an issue with your posting #384 where you said:

The way I see it, and the way any logical thinking person would understand…the economy grew in spite of government controls. PROVING the strength of a Free Market.

If “the economy” mentioned here really means “the economy based on Free Market principals”, then that particular kind of economy did not grow in the 114 year period you mentioned. That kind of economy shrank. The economy that did grow was the regulated economy.

That could be true if a “good” regulation increased production, lowered costs and improved profit.

No, a “good” regulation need not do any of these things to be considered good. If it accomplishes some other worthwhile goal, like spreading of the Gospel or reducing pollution, or promoting justice, it may still be considered good.

A government’s role is to function as it was established by the individuals who needed a government…

That may be the stated goal of a particular government, as set out in a constitution or similar document. But there are roles of government in general, as set out in the Catechism, that supersede any such document.

Again, if I condemned ALL regulations, that was not my intent. Sorry about the confusion.
Just to be clear…a FREE MARKET needs no government regulation.

It is not the Free Market as an impersonal institution that needs regulations. It is the people who need the benefit of the regulations. You are trying to set up the Free Market like some kind of an idol that needs to be served. But if the Free Market is any good, it exists only to serve people. And if the people need regulations to protect them from excesses of that or any other institution, they are within their rights to institute such regulations.

So I am curious about something. If you do not condemn ALL regulations, give me some examples of regulations that you do not condemn. My guess is they must be regulations that have absolutely no effect on any activity of the Free Market. But practically every regulation that I can think of does have a potential effect on the Free Market, hence my puzzlement.

 

[sallybutler]

Not entirely true!

In a true Capitalist society, individual rights are sacrosanct. Polluting, in any form, is violating the rights of others (and not very healthy for the polluter).

It simple would not happen.

But who decides the individual with more rights? I need to burn wood and coal to create steel. I also need water to clean out the ovens I burned the wood in. I let the smoke go into the air, resulting in asthma for others. After I clean the ovens, I put the water back into the river, causing problems for people downstream hundreds and hundreds of miles away.

Am I responsible for all those people with asthma? Am I responsible for those people who don’t have fish to catch. Am I responsible for those people who don’t have potable water?

Who decides that I am or am not responsible? How do I compensate them for the damage I caused? How do I get compensation if someone upstream from me uses the water so I can’t clean out the ovens?

You are describing a Utopian world that can not exist because each individual’s rights will, at some point, clash with someone else’s rights.

 

[freeRadical]

Well, so many people on these forums seem to think that keeping taxes low for the rich will somehow make the economy better. The situation in the 1950’s shows that if you tax the rich, the economy won’t necessarily collapse. It was better than ever back then!

Are you claiming that the reason the economy was doing well in the 1950’s is because the rich were taxed at a higher rate?

I don’t believe keeping taxes low for the rich will somehow make the economy better, I believe keeping taxes low for everybody will definitely make the economy better.

I also don’t understand the justification for taxing income or wealth period, much less at a progressive rate. Why should one’s income be taxed in the first place? And why should a person who earns more income be taxed more? Furthermore, why should income that has already been earned, wealth, be taxed again? It was already taxed once as income, where is the justification for taxing it again. The US should have never started taxing income to begin with.

There is no such thing as trickle down economic theory, at least not among economists.

 

[freeRadical]

Objective law applies to ALL equally.
The consequences of breaking this law could be anything the lawmakers propose.
It would be enforced the same as any law of the land.
No, it would not be a tax. (I don’t like taxes)
It could be a fine, or jail time or flogging or water-boarding… whatever works as a deterrent

I wish you would go into this “objective” law theory a bit more. What kind of law would it be? Would it be illegal to pollute period or would businesses be allowed to pollute a little?

Isn’t government fining businesses for polluting government regulation? Isn’t a government fining a business for pollution actually the government intervening in the market to correct the extranality? If the market was capable of correcting the extranality itself then there would be no need for government to intervene to stop pollution.

Because we do not have a true pure Free Market.
Politicians can be bribed to look the other way. Favors can be granted to certain corporations.
In a true pure Free Market, individual rights are respected by all. If a factory were polluting a river. that violates the rights of those downstream. If there were no laws against pollution for the government to enforce, those downstream would be well within their rights to go upstream and close the factory down. The factory owner would have no recourse.

So, you are saying that if a business is polluting and the government isn’t doing anything about it, ie correcting the extranality through government intervention, then the people have the right to force the business to close down? That’s anarchy. I see a common parallel between your thoughts and those of anarcho-capitalists, are you one?

Let’s take depressions and recessions as market failures.

In the history of our country every depression or recession corrected itself on its own in less time than any one that had government interference.

Depression and recession are not market failures. Do you know what a market failure is?

 

[freeRadical]

So I am curious about something. If you do not condemn ALL regulations, give me some examples of regulations that you do not condemn. My guess is they must be regulations that have absolutely no effect on any activity of the Free Market. But practically every regulation that I can think of does have a potential effect on the Free Market, hence my puzzlement.

I know this question wasn’t directed at me but I want to answer it anyway because I feel as if maybe you misunderstand my position on government intervention in a free market.

Most free-market economists are not against all government intervention. What we are against is government setting wages and prices, influencing supply and demand, influencing saving and investment, or subsidizing businesses. Those are things best left up to the market because it is better at determining those things then government or people are. I believe Milton Friedman said it best, “If we were smart enough to set wages and prices we would be central planners.” I believe most people, yourself included, would agree that central planning is bad. Frederich Hayek summed up the purpose of economics very elegantly, “The curious task of economics is to demonstrate to men how little they know about that which they imagine they can design.” I am opposed to government trying to “design” an economy.

Where I, and most economists, differ from Zoltan is on government intervention in the case of market failures. Sometimes a market can correct a failure on its own, sometimes it is unable to or it inefficient for the market to do it. Whenever what two people do effects a third person, know as third party effects or extranalities, there is always a case for government to intervene to protect the third person. Where economists differ is the best way to go about correcting the extrranality. But we would also warn of the cost of government intervention. Sometimes government intervenes too much, too little, or they don’t take into account the unintended consequence of certain interventions. Sometimes government intervention results in a different outcome then the one unintended. And of course, you have to worry about government having a vested interest in certain industries as corruption can quickly take hold. Taxation and regulation always impose a burden on a market and on society The question is what is the best way to correct market failures while imposing the least burden on society as possible?

Pollution is a classic example of a negative extranality. There is a case to be made for government to intervene to protect third parties from pollution. But the argument is, what is the best way to go about it that is the least burdensome to society and lest restrictive on people’s freedoms?

 

[LeafByNiggle]

I know this question wasn’t directed at me but I want to answer it anyway because I feel as if maybe you misunderstand my position on government intervention in a free market.

Most free-market economists are not against all government intervention. What we are against is government setting wages and prices, influencing supply and demand, influencing saving and investment, or subsidizing businesses. Those are things best left up to the market because it is better at determining those things then government or people are. I believe Milton Friedman said it best, “If we were smart enough to set wages and prices we would be central planners.” I believe most people, yourself included, would agree that central planning is bad. Frederich Hayek summed up the purpose of economics very elegantly, “The curious task of economics is to demonstrate to men how little they know about that which they imagine they can design.” I am opposed to government trying to “design” an economy.

Where I, and most economists, differ from Zoltan is on government intervention in the case of market failures. Sometimes a market can correct a failure on its own, sometimes it is unable to or it inefficient for the market to do it. Whenever what two people do effects a third person, know as third party effects or extranalities, there is always a case for government to intervene to protect the third person. Where economists differ is the best way to go about correcting the extrranality. But we would also warn of the cost of government intervention. Sometimes government intervenes too much, too little, or they don’t take into account the unintended consequence of certain interventions. Sometimes government intervention results in a different outcome then the one unintended. And of course, you have to worry about government having a vested interest in certain industries as corruption can quickly take hold. Taxation and regulation always impose a burden on a market and on society The question is what is the best way to correct market failures while imposing the least burden on society as possible?

Pollution is a classic example of a negative extranality. There is a case to be made for government to intervene to protect third parties from pollution. But the argument is, what is the best way to go about it that is the least burdensome to society and lest restrictive on people’s freedoms?

I agree with you. The good and proper regulations I have been referring to are those that protect people from what you call negative extranalities. Of course taxation and regulation impose a burden on anyone and anything subject to them. But if done justly, it is a good and proper burden. I have never advocated letting the government pick winners and losers in the market through subsidies or price controls. Sometimes regulations do affect who wins and who loses, such as when an industry that pollutes is called to account, while some other industry that does not pollute is left alone. But in that case the effect is a side effect of compliance and not the main purpose of the regulation.

 

[sallybutler]

Are you claiming that the reason the economy was doing well in the 1950’s is because the rich were taxed at a higher rate?

I don’t believe keeping taxes low for the rich will somehow make the economy better, I believe keeping taxes low for everybody will definitely make the economy better.

I also don’t understand the justification for taxing income or wealth period, much less at a progressive rate. Why should one’s income be taxed in the first place? And why should a person who earns more income be taxed more? Furthermore, why should income that has already been earned, wealth, be taxed again? It was already taxed once as income, where is the justification for taxing it again. The US should have never started taxing income to begin with.

There is no such thing as trickle down economic theory, at least not among economists.

Taxes are, in theory, how we pay for government. They are what pay for safety(military, police service, fire service, etc), roads (even the ones that don’t lead to Rome), fresh water, sewage, snow removal, etc.

If we want those services, we have to pay.

As for double taxation, what a bunch of baloney. Everything is taxed multiple times. When I buy something, I am taxed. The money I used to pay for the item was already taxed, so that is double taxation. The store owner has to pay taxes on their profits from that sale. That is triple taxation. If the store owner had to pay inventory tax on the product before I bought it that is quadruple taxation. Money gets taxed and relaxed all over the place.juju m

The bigger problem with taxes is not what we tax, but what we don’t tax. Why should money earned through physical labor be taxed higher than stock dividends? Why should businesses be taxed on domestic earnings, but not foreign? Why should employers have to pay taxes for domestic employers, not foreign? Why should people with car loans have to pay interest without a tax deduction, while people with a home loan get a tax deduction?

 

[Zoltan_Cobalt]

If you think that is going to happen strictly by the forces inherent in the Free Market, you are engaging in a fantasy. How are the downstream people going to go upstream and close down the factory? By force of arms? If so, you have just crossed into anarchy. Or is it by force of a government? If so, you have just sanctioned regulations.

No, I am sanctioning LAWS. A basic objective law, created by an elected legislature, outlawing pollution and applied equally to all, individuals, groups, corporations and the government itself. Not a “regulation” suggested by a particular special interest group, corporation or industry to be administered by bureaucrats for the purpose of actually benefiting that industry, corporation or the desires of a special interest group.

I know you see no distinction between laws and regulations…but there is a difference.

 

[Zoltan_Cobalt]

Well, then, I have an issue with your posting #384 where you said:

If “the economy” mentioned here really means “the economy based on Free Market principals”, then that particular kind of economy did not grow in the 114 year period you mentioned. That kind of economy shrank. The economy that did grow was the regulated economy.

I can agree with that. But let’s remember the contrast of the robust growth of the “pre-regulated economy” as compared to the last 114 years.

No, a “good” regulation need not do any of these things to be considered good. If it accomplishes some other worthwhile goal, like spreading of the Gospel or reducing pollution, or promoting justice, it may still be considered good.

“Regulations” pertaining to “spreading of the Gospel”

If such regulations exist…what on earth does that have to do with the Free Market?

That may be the stated goal of a particular government, as set out in a constitution or similar document. But there are roles of government in general, as set out in the Catechism, that supersede any such document.

There are also roles of government spelled out in the koran. Which should we dwell on?

It is not the Free Market as an impersonal institution that needs regulations. It is the people who need the benefit of the regulations. You are trying to set up the Free Market like some kind of an idol that needs to be served. But if the Free Market is any good, it exists only to serve people. And if the people need regulations to protect them from excesses of that or any other institution, they are within their rights to institute such regulations.

You are right to say that the Free Market serves the people who participate in it. One of the beauties of a Free Market is freedom. People are free to choose what they want. If an “excess” existed, people are free to avoid it. If a business were charging a high price for shoddy goods or services, it would not last long. No need to 'regulate" it and other legitimate business out of business.

So I am curious about something. If you do not condemn ALL regulations, give me some examples of regulations that you do not condemn. My guess is they must be regulations that have absolutely no effect on any activity of the Free Market. But practically every regulation that I can think of does have a potential effect on the Free Market, hence my puzzlement.

Oh, let’ see…I suppose if the National Park Service were to arbitrarily regulate the color of automobiles allowed to enter the parks so as not to disturb the animals…I would have no problem with that.

 

[freeRadical]

Taxes are, in theory, how we pay for government. They are what pay for safety(military, police service, fire service, etc), roads (even the ones that don’t lead to Rome), fresh water, sewage, snow removal, etc.

First off, when I said keeping taxes low I was referring to income taxes and payroll taxes. We were discussing income tax rates of the rich. I would prefer not to have income taxes and payroll taxes at all, as I see no justification for either, but that will never happen.

Second, as per the military. There is a justification for spending on military. I benefit from the military so I should have to pay for it. It is a benefits-received tax and it is okay. Not to mention, the Constitution specifically gives Congress the power to have a military.

Third, as for police and fire. Again, I benefit from police and fire protection so I should have to pay. It is also a benefit received tax In most municipalities, these are paid for with a property tax. Very little federal revenue, if any, goes toward local police and fire, they are financed by local and state governments which is as it should be.

Fourth, as per roads. They are paid for through the gas tax. It is a consumption tax, which is okay. The more I use the roads, the more I benefit from them, the more I should pay which is what happens with a consumption tax.

Very little federal revenue goes toward the above, they are mostly financed through local and state governments. The majority of federal revenue is spent on transfer payments. Most federal revenue comes from income taxes so the majority of income taxes is spent on transfer payments, not police, fire, and roads.

If we want those services, we have to pay.

We do but we pay for them through property taxes and consumption taxes, not income taxes.

As for double taxation, what a bunch of baloney. Everything is taxed multiple times. When I buy something, I am taxed. The money I used to pay for the item was already taxed, so that is double taxation.

And you are okay with that? If there was no income tax, then there would be no double taxation. It is ridiculous for your money to be taxed twice, it is even more ridiculous for your income to be taxed twice, much less once.

The store owner has to pay taxes on their profits from that sale. That is triple taxation. If the store owner had to pay inventory tax on the product before I bought it that is quadruple taxation. Money gets taxed and relaxed all over the place

Again, and you are okay with this triple and quadruple taxation? That is ridiculous. I see no justification in taxing profits, it is no different then taxing income or wealth.

The bigger problem with taxes is not what we tax, but what we don’t tax. Why should money earned through physical labor be taxed higher than stock dividends? Why should businesses be taxed on domestic earnings, but not foreign? Why should employers have to pay taxes for domestic employers, not foreign? Why should people with car loans have to pay interest without a tax deduction, while people with a home loan get a tax deduction?

Why should money earned through labor be taxed at all?

Why should business earnings be taxed at all?

As for the mortgage rate deduction, I see no justification for that either. It is government trying to influence investment and they have no place doing that.

 

[freeRadical]

No, I am sanctioning LAWS. A basic objective law, created by an elected legislature, outlawing pollution and applied equally to all, individuals, groups, corporations and the government itself. Not a “regulation” suggested by a particular special interest group, corporation or industry to be administered by bureaucrats for the purpose of actually benefiting that industry, corporation or the desires of a special interest group.

I know you see no distinction between laws and regulations…but there is a difference.

You seem to be caught up in semantics to justify your beliefs. Isn’t government making a law to make pollution illegal government intervention in the market? If the market could correct the extranality on its own, there would be no need for a law. Pollution is a negative extranality, it is a market failure. The fact that you have to make a law to stop pollution means the market could not correct the failure on its own. If it did, there would either be no pollution or the people affected would be compensated by those polluting.

 

[Zoltan_Cobalt]

But who decides the individual with more rights? I need to burn wood and coal to create steel. I also need water to clean out the ovens I burned the wood in. I let the smoke go into the air, resulting in asthma for others. After I clean the ovens, I put the water back into the river, causing problems for people downstream hundreds and hundreds of miles away.

Am I responsible for all those people with asthma? Am I responsible for those people who don’t have fish to catch. Am I responsible for those people who don’t have potable water?

Who decides that I am or am not responsible? How do I compensate them for the damage I caused? How do I get compensation if someone upstream from me uses the water so I can’t clean out the ovens?

You are describing a Utopian world that can not exist because each individual’s rights will, at some point, clash with someone else’s rights.

One person’s rights do not clash with an other’s. No one, or group, has more rights than others.

In a Free Market, rights are respected and protected. One of the few roles of a proper government is to protect rights. If you violate the rights of others (burn wood that causes asthma) you are in the wrong. Not for burning wood, but for violating rights.
The government can’t tell you not to burn wood but if you do and it violates rights, you are in trouble. The point here is that “government wood burning regulations” are not necessary. It would be in your own best interests to find a way to “cleanly” burn wood so as not to violate the rights of the asthmatics.

To take this a step further, let’s say the government. via the EPA. came in and told you that you can’t burn wood to make your steel. Then they told you that coal and oil fired furnaces were out also. Your only recourse would be to convert to natural gas and that would be very expensive and subject you to more costly regulations. You are about to give up, when you see a small ad in the Wall Street Journal. The little country of Elbonia wants heavy industry to relocate. It promises an eager workforce and a very attractive tax structure. Guess what…you move offshore.

 

[Zoltan_Cobalt]

You seem to be caught up in semantics to justify your beliefs. Isn’t government making a law to make pollution illegal government intervention in the market? If the market could correct the extranality on its own, there would be no need for a law. Pollution is a negative extranality, it is a market failure. The fact that you have to make a law to stop pollution means the market could not correct the failure on its own. If it did, there would either be no pollution or the people affected would be compensated by those polluting.

See my explanation to Sallybutler about rights.

 

[freeRadical]

See my explanation to Sallybutler about rights.

I did, and you are engaging in sophistry. The fact that you have to have a law that limits the amount of pollution means the market could not correct the extranality and government had to intervene to do it.

 

[Zoltan_Cobalt]

I did, and you are engaging in sophistry. The fact that you have to have a law that limits the amount of pollution means the market could not correct the extranality and government had to intervene to do it.

It is not sophistry. I am not using false reasoning.

I believe that Free Market outcomes may, on occasion, be improved by limited, judicious regulation. But it is never worthwhile to suppress the market.

 

[freeRadical]

It is not sophistry. I am not using false reasoning.

I believe that Free Market outcomes may, on occasion, be improved by limited, judicious regulation. But it is never worthwhile to suppress the market.

Oh, so now you are admitting that there is a case for regulation. It seems that you have backpedaled from your original claim.

 

[sallybutler]

First off, when I said keeping taxes low I was referring to income taxes and payroll taxes. We were discussing income tax rates of the rich. I would prefer not to have income taxes and payroll taxes at all, as I see no justification for either, but that will never happen.

Second, as per the military. There is a justification for spending on military. I benefit from the military so I should have to pay for it. It is a benefits-received tax and it is okay. Not to mention, the Constitution specifically gives Congress the power to have a military.

Third, as for police and fire. Again, I benefit from police and fire protection so I should have to pay. It is also a benefit received tax In most municipalities, these are paid for with a property tax. Very little federal revenue, if any, goes toward local police and fire, they are financed by local and state governments which is as it should be.

Fourth, as per roads. They are paid for through the gas tax. It is a consumption tax, which is okay. The more I use the roads, the more I benefit from them, the more I should pay which is what happens with a consumption tax.

Very little federal revenue goes toward the above, they are mostly financed through local and state governments. The majority of federal revenue is spent on transfer payments. Most federal revenue comes from income taxes so the majority of income taxes is spent on transfer payments, not police, fire, and roads.

We do but we pay for them through property taxes and consumption taxes, not income taxes.

And you are okay with that? If there was no income tax, then there would be no double taxation. It is ridiculous for your money to be taxed twice, it is even more ridiculous for your income to be taxed twice, much less once.

Again, and you are okay with this triple and quadruple taxation? That is ridiculous. I see no justification in taxing profits, it is no different then taxing income or wealth.

Why should money earned through labor be taxed at all?

Why should business earnings be taxed at all?

As for the mortgage rate deduction, I see no justification for that either. It is government trying to influence investment and they have no place doing that.

My point was that money is usually taxed more than once. Once I’ve paid tax on a dollar, why should anyone else get to collect a tax on it. If I get paid with money that was taxed, no matter who paid the tax, or who collected it, why should it be taxed?

So, no taxes on earned income. So what is left? Use fees only? Does that mean you have no problem with taxing unearned income (interest, capital gains, inheritance, windfall profits)?

By the by, lowering taxes may mean that people and corporations have more to spend, but it doesn’t mean they spend more. Lowering the taxes on employers does not mean they will share it with their employees. It doesn’t even mean (in the case of corporations) that they will share it with their shareholders.

 

[sallybutler]

One person’s rights do not clash with an other’s. No one, or group, has more rights than others.

In a Free Market, rights are respected and protected. One of the few roles of a proper government is to protect rights. If you violate the rights of others (burn wood that causes asthma) you are in the wrong. Not for burning wood, but for violating rights.
The government can’t tell you not to burn wood but if you do and it violates rights, you are in trouble. The point here is that “government wood burning regulations” are not necessary. It would be in your own best interests to find a way to “cleanly” burn wood so as not to violate the rights of the asthmatics.

To take this a step further, let’s say the government. via the EPA. came in and told you that you can’t burn wood to make your steel. Then they told you that coal and oil fired furnaces were out also. Your only recourse would be to convert to natural gas and that would be very expensive and subject you to more costly regulations. You are about to give up, when you see a small ad in the Wall Street Journal. The little country of Elbonia wants heavy industry to relocate. It promises an eager workforce and a very attractive tax structure. Guess what…you move offshore.

Would the company have to pay for the asthmatic’s medical bills? If not, it never was a free market for everyone. Only the company that polluted up one country, then when told they were moving to another country to violate other people’s right to breathe had anything close to a free market. The people downwind in either country aren’t being compensated for the costs they are paying.

 

[LeafByNiggle]

There are also roles of government spelled out in the koran. Which should we dwell on?

Well, since you are Catholic and I am Catholic and this is a Catholic social justice forum, and we are talking about right and wrong aspects of government, as a wild guess I would say the Catholic teaching on the role of government. I realize that in a pluralistic society we cannot force the view of any one religion on the form of government. But we can certainly desire that views in keeping with Church teaching be adopted, and peacefully advocate for the same.

You are right to say that the Free Market serves the people who participate in it. One of the beauties of a Free Market is freedom. People are free to choose what they want. If an “excess” existed, people are free to avoid it. If a business were charging a high price for shoddy goods or services, it would not last long. No need to 'regulate" it and other legitimate business out of business.

If you look carefully at what I have written you will see that our views on regulation are not really that different. I have never advocated regulations that pick winners and losers with subsidies or price controls, or that favor one group over another.

Oh, let’ see…I suppose if the National Park Service were to arbitrarily regulate the color of automobiles allowed to enter the parks so as not to disturb the animals…I would have no problem with that.

Aren’t you afraid such a regulation might be written by the paint lobby?