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How Trickle-Down Economics Works · Stuff You Should Know

0:00
Speaker 1: Welcome to Stuff you Should Know from house Stuff Works
0:03
Speaker 1: dot com. Hey, welcome to the podcast. I'm Josh Clark
0:12
Speaker 1: and there's Charles W. Chuck Bryant and Jerry and they're
0:16
Speaker 1: snickering and tittering, and that makes this stuff you should know. Yeah,
0:21
Speaker 1: we've got sidetracked before talking about things that trickle. Names,
0:26
Speaker 1: names that trickle. Yes, like the famous race car driver
0:29
Speaker 1: Dick Trickle. You say, your road dude, I swear to
0:32
Speaker 1: God look him up. I will don't image search and
0:37
Speaker 1: just look him up. Okay, guys specify race car. Yeah, okay,
0:43
Speaker 1: that's a good idea. Your Google Master with your Google fou. Yes,
0:48
Speaker 1: and we the three of us, are apparently all eight
0:50
Speaker 1: years old again. Uh, speaking of trickle, Chuck, Hey, happy birthday.
0:56
Speaker 1: That would be quiet. Jerry, you have a big mouth.
0:59
Speaker 1: You're always talking. Well. I usually remember, but I don't
1:02
Speaker 1: didn't today, So happy birthday. Thank you. I appreciate it.
1:06
Speaker 1: And this will be out several weeks later. But right,
1:08
Speaker 1: I'll get to relive my birthday all over again. Thanks man.
1:14
Speaker 1: Have you Chuckers ever seen the movie Ferris Bueler's Day Off? Yeah,
1:19
Speaker 1: and then we'd go there at some point in this one. Yeah,
1:23
Speaker 1: because of ben Stein. Yeah, okay, good, so you know
1:26
Speaker 1: the answer then something the o economics anyone who do economics? Yeah,
1:33
Speaker 1: when they're an ECON class. The guy says, Bueller, Bueller,
1:37
Speaker 1: that's ben Stein. Remember he had that show when ben
1:39
Speaker 1: Stein's money which was really his money? Yeah it was,
1:43
Speaker 1: wasn't it? I think so? I think le Yeah, I
1:46
Speaker 1: think maybe like they gave it to him if it
1:48
Speaker 1: wasn't one or came out of a salary, who knows. Um.
1:52
Speaker 1: But before that show came on, he was in Farris
1:55
Speaker 1: Bueller's day off as an ECON professor. And I believe
1:57
Speaker 1: he does have a degree in economics. He's also just
2:01
Speaker 1: a great actor and vizine pitchman. But what are he
2:05
Speaker 1: was talking about in there? He was clear? Clear, I
2:08
Speaker 1: thank you? Clear? Is awesome. Yeah, that's right. That sounded
2:12
Speaker 1: like not ben Stein. That's as steiny as I get. Anyway,
2:17
Speaker 1: he was talking about voodoo economics, and voodoo economics was
2:22
Speaker 1: another name for trickle down economics a k a. Reaganomics.
2:26
Speaker 1: And the person who coined the term voodoo economics do
2:29
Speaker 1: you know John Hughes No, Yeah, it was George Bush
2:33
Speaker 1: sr h W. Remember that Yeah. He he was running
2:37
Speaker 1: in the primaries against Reagan and for the election before
2:42
Speaker 1: he came on as his vice president, and he was
2:45
Speaker 1: deriving Reagan's economic policies, specifically his belief and trickle down
2:50
Speaker 1: economics as voodoo economics because there's some apparently, some sort
2:55
Speaker 1: of magic to the whole thing that makes it work
2:58
Speaker 1: rather than sound economic principle. Yeah, it occurred to me
3:02
Speaker 1: today when I was studying the stuff that John Hughes
3:06
Speaker 1: picked this very topic to represent the most boring thing
3:10
Speaker 1: you could talk about. I guess so. And uh, it
3:14
Speaker 1: took me a few times to to figure it out,
3:17
Speaker 1: because you know, I don't My brain doesn't skew towards
3:20
Speaker 1: understanding economics. It's it's tough to do. But I finally did,
3:24
Speaker 1: and I was like, you know what, it's not the
3:25
Speaker 1: most boring thing ever, it's uh, it's pretty interesting. If
3:29
Speaker 1: I came around. That means anyone can now it's just
3:32
Speaker 1: our um our burden to make it interesting to everybody else, right,
3:38
Speaker 1: which we've already failed that spectacularly. That's right. So let's
3:43
Speaker 1: talk about this idea first of all, trickle down economics. Um,
3:47
Speaker 1: we'll explain the whole thing in detail starting in just
3:51
Speaker 1: a moment. But we should probably say that the disclaimer
3:53
Speaker 1: if you want to drive a fiscal conservative or a
3:58
Speaker 1: conservative economists, or just to conservative in general. Crazy mentioned
4:04
Speaker 1: trickle down economics. Like call what they call supply side
4:07
Speaker 1: economics trickle down economics. It drives some bonkers. There's like,
4:11
Speaker 1: there's no such thing as trickle down economics. It's a
4:14
Speaker 1: derisive term. It's um it doesn't capture the spirit or
4:18
Speaker 1: the thought behind supply side economics, which is what they've
4:22
Speaker 1: come around to call it. But back in the day,
4:24
Speaker 1: it was definitely called trickle down economics. And the whole point,
4:27
Speaker 1: the reason why it was called trickle down economics, is
4:30
Speaker 1: that the idea behind it is if you place wealth
4:36
Speaker 1: with the wealthiest people, this idea goes they will take
4:41
Speaker 1: that money and invested into the economy, which will get
4:45
Speaker 1: things running again, and as a result, that economic engine
4:49
Speaker 1: revving up will create more wealth at the top that
4:52
Speaker 1: trickles down to the lower working and middle classes. Yeah, like,
4:57
Speaker 1: who better to stimulate the economy than the super rich,
5:01
Speaker 1: and they will like maybe open a business to put
5:05
Speaker 1: people to work, and then those workers will benefit and
5:08
Speaker 1: uh directly from that investment that that person made right.
5:12
Speaker 1: So this is the whole tree behind it. We should
5:14
Speaker 1: also disclaim even further that economics as a field is
5:20
Speaker 1: so far from science it's preposterous. Um. Most economic theory
5:27
Speaker 1: that you ever will run into from John Maynard Keynes
5:30
Speaker 1: or Adam Smith or um Jean Baptiste, Um. These guys
5:36
Speaker 1: are talking about pure economies the United States, and I
5:42
Speaker 1: don't think there's any economy in the world that is
5:45
Speaker 1: a pure economy, free market economy. The United States has
5:49
Speaker 1: things like tariffs, and um, we have things like government intervention,
5:56
Speaker 1: tax policy, monetary policy. There's intervention in the markets. So
6:00
Speaker 1: you can't ever say. We can't say really what causes
6:05
Speaker 1: recessions and what brings us out of them, or whether
6:08
Speaker 1: trickle down economics is effective or if it's not, or
6:11
Speaker 1: if it is effective, is it effective in the long
6:13
Speaker 1: run or the short run? And what about the opposite way,
6:16
Speaker 1: is that effective in the long run or the short run?
6:18
Speaker 1: We don't know. People think they do though. That is
6:21
Speaker 1: the thing. That's why like this kind of stuff can
6:24
Speaker 1: get people's blood boiling. So like the point of this
6:26
Speaker 1: one is to just talk about trickle down economics and
6:28
Speaker 1: the theory behind it and why it may or may
6:30
Speaker 1: not work, and um, on the caveat that we don't know,
6:35
Speaker 1: and neither do economists. Yeah, I think I left this
6:38
Speaker 1: at a little frustrated after my research because I thought
6:41
Speaker 1: I would come away with an answer. Um. But I mean,
6:45
Speaker 1: if you look up Reaganomics, which is another name for
6:47
Speaker 1: Reagan's version of the supply side economics, you will find article,
6:54
Speaker 1: well more than that, but hundred articles on how what
6:57
Speaker 1: a great success it was and then the abject failure
7:00
Speaker 1: of reagonomics, and no one is going to agree. I
7:03
Speaker 1: looked at some of these theories and said, well, that
7:05
Speaker 1: makes sense in an ideal world. Then I look at
7:07
Speaker 1: the opposite and think, well that makes sense in an
7:09
Speaker 1: ideal world. And I don't I don't know if you,
7:12
Speaker 1: like you said, I don't know if you can. I
7:14
Speaker 1: don't know if there is an answer. Even though everyone
7:16
Speaker 1: thinks that they're right, both people can't be right both sides. No,
7:20
Speaker 1: it's true, because these are very opposite in most cases ideas. Yeah,
7:24
Speaker 1: but what I did find was a bunch of articles
7:27
Speaker 1: after digging further that said the failures and successes of Reaganomics.
7:34
Speaker 1: And I think, to me, that's probably a little more
7:35
Speaker 1: accurate because it is in a black and white situation. Well,
7:39
Speaker 1: the part of the problem is is if you point
7:42
Speaker 1: to Reagan's tax policies, right, and and Reagan is tied
7:47
Speaker 1: to trickle down economics, and we'll get into the history,
7:50
Speaker 1: like we'll clear all this up. But he's not really
7:52
Speaker 1: the first one to implement this, but he's he's tied
7:55
Speaker 1: to it. But if you look at reaganomics, the problem
7:58
Speaker 1: is this, Chuck. If if you say, well, the nineties
8:02
Speaker 1: were very prosperous with the dot com boom um and
8:06
Speaker 1: the the Nasdaq hit like like a record ten thousand
8:11
Speaker 1: points at like in the nineties, all that was from
8:14
Speaker 1: Reagan's policies, Well you can't say that that was from
8:16
Speaker 1: Reagan's policies. We we don't know. We just simply don't know.
8:21
Speaker 1: Was it something short term that the Clinton administration was doing,
8:24
Speaker 1: or was it the long term effects of Reagan's text cuts.
8:29
Speaker 1: We don't know. Yeah, and we're going to get scores
8:32
Speaker 1: of email from people saying what we do know, but
8:35
Speaker 1: we don't know, So just send your email. It's fine,
8:38
Speaker 1: but you're wrong. Uh, well, I guess we should go
8:42
Speaker 1: ahead and say too that just the name trickled down
8:45
Speaker 1: was coined by Will Rogers, famous Humorous in the nineteen twenties.
8:50
Speaker 1: It is not a nineteen eighties thing. It had been
8:53
Speaker 1: around for a while and he said, quote the money
8:55
Speaker 1: was all appropriated for the top in hopes that it
8:58
Speaker 1: would trickle down to the needy. And that's where started
9:01
Speaker 1: to get it a derogatory feel around that name for sure.
9:06
Speaker 1: Since the twenties and and over time, um, especially since
9:10
Speaker 1: the eighties, the people who champion trickle down economics or
9:16
Speaker 1: this this particular version of trickle down tax policy have
9:20
Speaker 1: tried to distance themselves from the term trickle down because
9:24
Speaker 1: it does seem elitist and it seems like a big
9:26
Speaker 1: wealth transfer, which in fact it is. Um. Let's let's
9:31
Speaker 1: talk about this. Trickle down policy isn't necessarily um associated
9:39
Speaker 1: with Reagan's tax cuts. The whole idea is behind trickle down.
9:44
Speaker 1: As I said already, as you take wealth and you
9:46
Speaker 1: give it to the wealthiest people, that's that's what's done.
9:52
Speaker 1: It's a wealth transfer, and it's usually done at a
9:55
Speaker 1: time when you're in an economic slump, so you're hoping
9:58
Speaker 1: to revitalize things. Yeah, it's the g we're meant trying
10:00
Speaker 1: to smooth out the rough spots in the national economy,
10:04
Speaker 1: like a k A. Recessions. Um, so you're transferring wealth.
10:08
Speaker 1: You're transferring wealth though on the premise that that money
10:12
Speaker 1: is going to be reinvested, reinvigorated, used to reinvigorate the economy. Right,
10:18
Speaker 1: So it is a wealth transferred, but with the one
10:20
Speaker 1: we're talking about today specifically, Um, we're talking about Reagan's version.
10:24
Speaker 1: So it's a wealth transferred through tax cuts. Right. So
10:28
Speaker 1: when Reagan came into office, Uh, he took over a
10:32
Speaker 1: tax policy where the highest tax rate was like seventy.
10:38
Speaker 1: The highest earners were paying seventy on their highest income,
10:43
Speaker 1: and he got that down to about fifty. Yeah, which
10:46
Speaker 1: is still seems incredibly high today in an age where
10:50
Speaker 1: we're paying like thirty the highest earners are. So the
10:54
Speaker 1: point is is Reagan did it through tax cuts. But
10:59
Speaker 1: the that doesn't mean like trickle down economics don't doesn't
11:02
Speaker 1: equal text cuts necessarily, it's it's that's that's one way
11:06
Speaker 1: of putting more money into the hands of the wealthiest,
11:10
Speaker 1: right Exactly. It's really a question of supply and demand.
11:14
Speaker 1: And I guess we can go back through time. A
11:17
Speaker 1: little bit to John bptis say who you mentioned, uh,
11:21
Speaker 1: nineteenth century French economists, and his his philosophy has been
11:26
Speaker 1: misinterpreted a lot as supply creates its own demand. It's
11:29
Speaker 1: not exactly right. What he was really saying is products
11:32
Speaker 1: are paid for with products, and money just had like
11:36
Speaker 1: a temporary function. Um. Yeah, Like if you are somebody
11:40
Speaker 1: who produces something, when you produce that something, that item,
11:44
Speaker 1: when you go make that shoe and you're gonna sell
11:47
Speaker 1: your shoe, which is with the whole reason you made
11:49
Speaker 1: the shoe in the first place, and then with that
11:52
Speaker 1: money you can go use it to buy other goods
11:55
Speaker 1: and services. So the production of that shoe created a
11:58
Speaker 1: wage for you, which in turn stimulated consumption demand from
12:04
Speaker 1: you for something else. Yeah, product is paid for the product.
12:07
Speaker 1: The misinterpretation that supply creates its own demand is it's
12:11
Speaker 1: just a bastardized version. And that basically means that there
12:15
Speaker 1: would never be a failed product, like you can just
12:17
Speaker 1: produce and produce and produce, which isn't sound No, that's insane,
12:22
Speaker 1: And I think Say would have said that that is
12:24
Speaker 1: not true as well. Well, he did he did um
12:28
Speaker 1: during his lifetime even say like, well, no, I mean
12:30
Speaker 1: there it's possible that there is such a thing as
12:33
Speaker 1: over production. Sure. I mean, like if you think about it,
12:36
Speaker 1: like during the uh the housing market crash, Yeah, it's
12:40
Speaker 1: starting a few years ago. There was a glut of
12:42
Speaker 1: homes on the market. And it's not like the people
12:45
Speaker 1: who are building homes just merely went on building homes
12:48
Speaker 1: and building homes and building homes. Like once the demand ceased,
12:52
Speaker 1: they stopped producing, and we still had a glut on
12:55
Speaker 1: the market and the ones who were still just thinking
12:58
Speaker 1: money and to build, like build, just stop basically. Yeah,
13:02
Speaker 1: And it was because there was an oversupply because demand
13:04
Speaker 1: had ceased. So the idea that that if you if
13:08
Speaker 1: you produce it, demand will come on a short term
13:11
Speaker 1: basis is this kind of a fallacy. Yeah, but in
13:16
Speaker 1: the earlier days of this country, a lot of big
13:19
Speaker 1: thinkers agreed with him, like Jefferson. Um. But the tide
13:25
Speaker 1: turned later on in our country with the introduction of
13:28
Speaker 1: Mr Keynes Keensie and economics. Yeah, so we've talked about
13:31
Speaker 1: in our audio book. Yeah, we did stuff you should know,
13:35
Speaker 1: super Stuff Guide to the Economy, Yeah, which is probably
13:38
Speaker 1: super outdated, I wonder, but there are some I think
13:42
Speaker 1: there's some evergreen content in there. Yeah. I mean it
13:44
Speaker 1: was like an economics one on one course with us. Yeah. Um,
13:49
Speaker 1: but so so. The basis of Says law is that
13:53
Speaker 1: if you stimulate um production, then you'll get the economy
13:59
Speaker 1: going again. And it was implemented for a while like
14:02
Speaker 1: some of the some of the early twentieth century presidents
14:05
Speaker 1: like Hoover, among others like Harding and Coolidge, well JFK. Later,
14:12
Speaker 1: but early on in the twentieth century, Harding and Coolidge
14:15
Speaker 1: both implemented, um, this kind of what's called supply side
14:20
Speaker 1: policy text policy right where that where if you stimulate
14:24
Speaker 1: production through lowering taxes at the top and we'll tell
14:30
Speaker 1: you in a second how those two are correlated, Um,
14:33
Speaker 1: you can get the economy going. Yet. Well, Hoover also
14:36
Speaker 1: followed the same policy, and under Hoover's watch the Great
14:40
Speaker 1: Depression happened. Yeah, which would cause any just regular thinking person,
14:44
Speaker 1: even if they don't understand economics, to think, hey, we're
14:46
Speaker 1: doing it wrong. Right, So Roosevelt came along, That's right.
14:51
Speaker 1: Roosevelt held the opposite view, and he was very much
14:53
Speaker 1: a Kinesian and he was operating at the same time
14:56
Speaker 1: that Keynes was writing and working himself, and John Maynard
15:01
Speaker 1: Kane said, no, no, no, you guys have it backwards.
15:05
Speaker 1: You don't stimulate the supply, you stimulate the demand. Then
15:10
Speaker 1: all of a sudden, if you have a housing glut
15:12
Speaker 1: and you suddenly have people who have more money to spend,
15:16
Speaker 1: they'll take care of your housing glut and then things
15:18
Speaker 1: can get back to normal. We reach equilibrium again. Yeah,
15:21
Speaker 1: he was about, uh, short term ideas, short term fixes,
15:25
Speaker 1: maybe lower interest rates, maybe taxes, fiscal policy, taxes and spending.
15:31
Speaker 1: Basically what you hear a lot about these days. It
15:34
Speaker 1: you know, Kenzie and economics kind of lasted a long
15:37
Speaker 1: time until probably Kennedy and then Reagan. It's like there's
15:40
Speaker 1: only been a handful of US presidents really endorse the
15:43
Speaker 1: trickle down theory. Yeah, like wholeheartedly since the twentieth century. Yeah,
15:48
Speaker 1: um so yeah, it's the Keynesian policies ruled, and it
15:53
Speaker 1: was very much about like cutting taxes for the lower
15:57
Speaker 1: and middle and working classes, increase texas for the rich.
16:01
Speaker 1: Because if you if you're a government, you still need revenue, right,
16:04
Speaker 1: so you can't just cut texas for everybody. If you
16:06
Speaker 1: cut Texas for one group, you kind of need to
16:08
Speaker 1: increase it for another because you still need your money
16:10
Speaker 1: coming in. Of course, you could also take the radical
16:13
Speaker 1: step of figuring out how to eliminate waste and blow
16:18
Speaker 1: in government. That would help a lot, but we're not
16:20
Speaker 1: talking about that in this one. We're talking about trickle
16:23
Speaker 1: down economics. So then along comes Kennedy who says, hey,
16:28
Speaker 1: or my dad was a pretty rich so I'm kind
16:31
Speaker 1: of thinking that this trickle down thing might work. So
16:35
Speaker 1: he got into supply side economics. And then when Reagan
16:38
Speaker 1: came along, he really championed this whole idea. And it
16:41
Speaker 1: was out of a result of some guys in the
16:44
Speaker 1: seventies saying, um, there's this whole other thing that we've
16:48
Speaker 1: been ignoring, which is this trickle down tax policy that
16:52
Speaker 1: we should implement, and they got Reagan into it and
16:55
Speaker 1: he implemented it. Yeah, and uh, after this message break
16:58
Speaker 1: coming up here in a sec we're going to talk
16:59
Speaker 1: a little a bit about if it doesn't sound like
17:01
Speaker 1: it makes sense to you, there's a certain curve that
17:04
Speaker 1: will explain that might clear it up for you. All Right,
17:11
Speaker 1: So we're gonna talk about the Laugher curve. Which was
17:13
Speaker 1: also in Ferry Spueller. Oh was it? Yeah, he says,
17:18
Speaker 1: Laugher curve. But in high school, I had no idea.
17:20
Speaker 1: But I was like, what are those words together? I
17:22
Speaker 1: don't understand. Laugher was a person l A f f
17:25
Speaker 1: e er and um. The Laugher curve helps explain a
17:30
Speaker 1: little bit why trickle down economics could possibly work. Is
17:35
Speaker 1: that a good neutral way to say that, I would
17:37
Speaker 1: say so. Uh. The idea of the Laugher curve curve
17:40
Speaker 1: is that the relationship between taxes and revenues is a
17:43
Speaker 1: curve instead of a direct relationship. So at a certain point,
17:48
Speaker 1: let's say you own a company making shoes and you
17:52
Speaker 1: grows ten million dollars through like the first two financial quarters,
17:56
Speaker 1: and your tax that let's say, and you know, if
17:59
Speaker 1: you make any more money than you're gonna jump up
18:01
Speaker 1: into that text uh tax category. You might slow down production,
18:07
Speaker 1: you might halt the production altogether. And so you know what,
18:09
Speaker 1: I'm gonna take off the rest of the year, maybe
18:12
Speaker 1: even put these people out of work for four to
18:14
Speaker 1: six months furlow furlough and because I don't want to
18:18
Speaker 1: be text anymore. So if you look at that on
18:21
Speaker 1: a graph, it's gonna be if you text people, they're
18:26
Speaker 1: not gonna work. If you text people zero percent, you're
18:29
Speaker 1: not getting any money. So in the middle of there
18:32
Speaker 1: is the curve, right It Basically Laughers curve suggests that
18:37
Speaker 1: the correlation between UM tax rates and tax revenue is
18:43
Speaker 1: not totally positive. At some point it starts to go
18:46
Speaker 1: back down. Yeah, that's called the prohibitive range. At a
18:49
Speaker 1: certain point, people don't want to be text in that range. Yeah,
18:52
Speaker 1: And it's not even necessarily that they are not working
18:56
Speaker 1: any longer because they resent being taxed. What laugh For
19:00
Speaker 1: was pointing out is that there is this prohibitive range,
19:03
Speaker 1: and within the prohibitive range, UM, you remove the incentive
19:08
Speaker 1: to work. Theoretically, where UM and Jay mcgrathrough wrote this,
19:13
Speaker 1: Uh gave a pretty good UM example where it's like,
19:17
Speaker 1: if you make that money and you are text that's tolerable,
19:21
Speaker 1: you're still gonna make You still get to keep fifty
19:24
Speaker 1: percent for yourself. But when you're texting that nine percentile, UH,
19:29
Speaker 1: you're let's say you were going to make another million dollars,
19:33
Speaker 1: you have to give nine thousand of it to the government.
19:35
Speaker 1: You just get to keep a hundred thousand, Well, you
19:37
Speaker 1: might decide to just go and spend the rest of
19:40
Speaker 1: the year at your beach house with the money that
19:42
Speaker 1: you did make, not because you resent being texted, because
19:45
Speaker 1: it's just not worth it to to exert that effort
19:48
Speaker 1: to make that next million dollars when you just get
19:50
Speaker 1: to keep a hundred thousand of it. So at that
19:52
Speaker 1: point in that prohibitive range, the text policy is effectively
19:59
Speaker 1: keeping people from working, inducing them to not work any longer,
20:02
Speaker 1: which is bad for an economy. And that's if you're
20:05
Speaker 1: if your work, if your income is directly related to
20:09
Speaker 1: your work, right, you could conceivably, if you owned a
20:12
Speaker 1: factory or something, and you didn't have to really exert
20:15
Speaker 1: any problems and you could still make payroll and all
20:18
Speaker 1: that stuff, it might be worth it to just leave
20:20
Speaker 1: it to these other people to make that extra hundred
20:22
Speaker 1: thousand dollars for you, rather than go off to the beachuse.
20:26
Speaker 1: But if you your effort directly um is tax then yes,
20:31
Speaker 1: it would become a disincentive towards work. Conceivably. We should
20:35
Speaker 1: point out Chuck and Jane didn't do a very good
20:38
Speaker 1: job of doing that in this In this article, Laugher's
20:41
Speaker 1: curve is a thought experiment. It's not based on data.
20:46
Speaker 1: It's not um hard and fast rule or a law.
20:49
Speaker 1: It's basically an intuitive idea of tax rates and their
20:55
Speaker 1: effect on tax revenue. Yeah, but if you don't even
20:58
Speaker 1: have to be a business owner, Let's say you're just
21:00
Speaker 1: a regular employee that makes a salary, you have a
21:03
Speaker 1: salary sweet spot as well. You know, if it's great
21:06
Speaker 1: to get promotions and to get raises, but if you're
21:08
Speaker 1: really climbing the ladder at a certain point, you might think, Man,
21:13
Speaker 1: I got a big raise, and I'm making barely any
21:16
Speaker 1: more money than i made before this big promotion because
21:19
Speaker 1: I've been kicked into a higher tax bracket. So that's
21:22
Speaker 1: the prohibitive range. And you know can apply to you.
21:25
Speaker 1: I mean you can't. You don't stop working. No, But
21:27
Speaker 1: you may say, I don't actually want that promotion because
21:30
Speaker 1: it's going to be more responsibility and really not much
21:33
Speaker 1: more money. So I'm gonna hang out right here rather
21:36
Speaker 1: than keep going in my little range or whatever it is.
21:42
Speaker 1: So that's Laugher's curve, and that's a it's a kind
21:46
Speaker 1: of the basis of trickle down tax policy. It's the
21:51
Speaker 1: idea that Okay, there is a point where you can
21:56
Speaker 1: tax too much and now you're actually slowing down the economy. So,
22:03
Speaker 1: based on Laugher's curve, when you're looking at it through
22:07
Speaker 1: um through trickle down policy, there's a point then that's that,
22:12
Speaker 1: like you said, there's a sweet spot as far as
22:14
Speaker 1: text revenue goes, and it creates this seeming paradox where
22:18
Speaker 1: if you cut tax rates at a certain point, you'll
22:22
Speaker 1: actually increase tax revenue because people will be incentivized to
22:27
Speaker 1: work more throughout the year. And the other basis of
22:32
Speaker 1: trickle down theory is that you are going to put
22:38
Speaker 1: more money or keep more money with the people at
22:41
Speaker 1: the wealthiest people who under this idea are more likely
22:46
Speaker 1: to um invest it back into the economy, right, and
22:51
Speaker 1: when they do that, supposedly allegedly, the economy booms. Yeah,
22:57
Speaker 1: what you can account for is just the single person.
22:59
Speaker 1: This is looked at in the broadest terms, because somebody
23:03
Speaker 1: could make all their money and just sit on it
23:05
Speaker 1: in the bank, which isn't reinvesting it. That is a really, really,
23:09
Speaker 1: really big point. You'll remember back at the beginning of
23:13
Speaker 1: this recession, the FED was doing everything it could to
23:16
Speaker 1: cheapen lending and still has been and uh, it didn't
23:23
Speaker 1: do anything. Like you have to take into account things
23:28
Speaker 1: like um insecurity, fear, um just being human, yes, being human,
23:35
Speaker 1: Like we're not necessarily rationally maximizing actors. Humans are like
23:40
Speaker 1: there is such thing as fear and the idea that
23:43
Speaker 1: maybe hoarding money is best. So what's possible then if
23:48
Speaker 1: you follow this trickle down tax policy, is you're taking
23:51
Speaker 1: money from everybody else and giving it to the rich.
23:57
Speaker 1: Or if your head just spun because your fiscal conservative,
24:00
Speaker 1: what you're doing is allowing the rich to keep more
24:03
Speaker 1: of their income, but they're not doing anything with it
24:08
Speaker 1: right at least as a short term fixed that's not
24:11
Speaker 1: a good idea because you can probably bet that eventually
24:14
Speaker 1: the rich are going to take that money and invested
24:19
Speaker 1: back in the economy. But it's not. Yes, but when's
24:23
Speaker 1: that going to happen? You can't really say. And part
24:26
Speaker 1: of the other problem with it is is that you
24:29
Speaker 1: are then also basically handing money out at a fire sale.
24:34
Speaker 1: You're saying, hey, here's a bunch of money invested back
24:36
Speaker 1: in the economy. And have we mentioned the bargain basement
24:40
Speaker 1: rates you can get on all of these businesses over
24:43
Speaker 1: here because the economy is in a recession. Yeah, very much, so,
24:48
Speaker 1: you know. And it's it's like it is literally a
24:51
Speaker 1: wealth transfer, and under some circumstances like the recession that
24:55
Speaker 1: we're still coming out of now, it is a wealth
24:58
Speaker 1: transfer and an asset transfer, and that the people who
25:03
Speaker 1: have the most money, the wealthy, also have the most
25:07
Speaker 1: buying power and they have the best bargains. Yeah. Thomas
25:11
Speaker 1: Sowell is a is an economist, and he um, he
25:15
Speaker 1: won't call it trickle down economics because he thinks it
25:18
Speaker 1: literally benefits the workers immediately and first because in the
25:26
Speaker 1: idealized version, they're gonna reinvest in. The very first thing
25:29
Speaker 1: that's gonna happen is they're gonna put people to work
25:32
Speaker 1: and people are gonna have jobs. Uh so, yeah, you won't.
25:37
Speaker 1: He's not gonna call it trickle down theory because he
25:39
Speaker 1: thinks it works literally the opposite way. Now. He I
25:41
Speaker 1: read a column in the National Review by him, and
25:44
Speaker 1: he's like, you will never find a legitimate economist, um,
25:49
Speaker 1: a history of economic theories and policies and analysis. You'll
25:53
Speaker 1: never find trickle down economics anywhere. Like it drives him
25:57
Speaker 1: crazy that people call it that because it has such
25:59
Speaker 1: a um a negative association, an elitist wealthy association. Yeah.
26:04
Speaker 1: And you know when you if you're during election time
26:07
Speaker 1: or during if you see these big tax cuts for
26:09
Speaker 1: the wealthy, if it makes your blood boil because you
26:12
Speaker 1: think they are these people are obviously in the hip
26:14
Speaker 1: pocket of the politician. That may be true, but you
26:17
Speaker 1: can still remove yourself from that and look at the
26:20
Speaker 1: theory itself and does it work or does it not?
26:24
Speaker 1: And we will do that after this message. So Chuck,
26:42
Speaker 1: let's let's do just that, um passionless run down of
26:49
Speaker 1: how it trickled down supply side tax policy works. Yeah.
26:54
Speaker 1: I mean, it's got to be passionless with me, because
26:56
Speaker 1: I have no idea. I like, I can't argue hard
26:59
Speaker 1: for any side because I read so many articles disputing
27:03
Speaker 1: one another completely that I have no idea. So okay,
27:07
Speaker 1: so you're we're in a recession and there's a discussion
27:11
Speaker 1: is it supply or demand that you want to stimulate? Well,
27:15
Speaker 1: with supply side economics, trickle down is what you call
27:19
Speaker 1: it in the vernacular. You want to stimulate the supply
27:24
Speaker 1: because under this belief, if you stimulate the supply, them
27:30
Speaker 1: the people who are producing stuff will have stuff for
27:34
Speaker 1: sale and people will buy it, and more money will
27:39
Speaker 1: enter the economy and things will get back to normal,
27:43
Speaker 1: because the basis of this is that people still work
27:48
Speaker 1: during recessions, and since they're working, they have money to
27:53
Speaker 1: buy things. Not everybody's working, But you can handle the
27:57
Speaker 1: idea that not everybody's working by getting production going again,
28:01
Speaker 1: because that creates jobs and that in turn generates even
28:04
Speaker 1: more income. It's passionless. So how do you do that?
28:09
Speaker 1: According to trickle down supply side tax policy, you cut
28:14
Speaker 1: the tax rates of the wealthiest people. You incentivize them
28:19
Speaker 1: to keep working harder and harder because they get to
28:22
Speaker 1: keep more and more of it themselves on the hope
28:26
Speaker 1: that rather than keeping it themselves hoarding, they will inject
28:31
Speaker 1: it into the economy through things like investing, expanding their businesses,
28:38
Speaker 1: hiring more people, opening new businesses, and taking that investment
28:42
Speaker 1: and making more money themselves. But in the meantime spreading
28:47
Speaker 1: the wealth around through things like wages and tax revenues
28:52
Speaker 1: through minimum wages. So that is supply side tax policy,
28:59
Speaker 1: and why where it works or not, the jury is
29:01
Speaker 1: still out. I did find something from um fair Economy
29:06
Speaker 1: dot Org, which I have to say, I don't know
29:10
Speaker 1: whether they're nonpartisan or liberal. They definitely didn't strike me
29:14
Speaker 1: as conservative, but um, so take it however you want.
29:19
Speaker 1: But they took the UM tax rates, the top tax
29:24
Speaker 1: rate and it's changes from nineteen fifty four to two
29:28
Speaker 1: thousand two, and they took the changes to that tops
29:32
Speaker 1: tech top tax rate, the highest tier, which is the
29:35
Speaker 1: one you're supposed to cut under this this type of
29:38
Speaker 1: text policy, and they juxtaposed it against four different economic indicators,
29:44
Speaker 1: growth in the gross domestic product, which is kind of
29:47
Speaker 1: like the indicator of the overall health of the economy, UH,
29:51
Speaker 1: income growth rate, which is, you know, how the average
29:54
Speaker 1: Americans wealth grows, UM, I think, changes to employment, and
30:01
Speaker 1: the growth of the hourly wage. And they found that
30:04
Speaker 1: the correlation was basically statistically non existent. That when you
30:11
Speaker 1: lower tax rates or raise tax rates, but specifically in
30:15
Speaker 1: this case, when you lower the highest tax rate, it
30:18
Speaker 1: does nothing to improve the GDP, to improve hourly wages,
30:23
Speaker 1: to improve median wealth, um. Just just statistically speaking, over
30:29
Speaker 1: the course of the two lowering the tax rates did
30:34
Speaker 1: nothing for those things. So speaking from that, and you
30:39
Speaker 1: can say, well, it doesn't really do anything Yeah. Well,
30:42
Speaker 1: with with Reaganomics, I think, well again, I say, most
30:45
Speaker 1: people agree, but no one agrees. Uh, it did help inflation,
30:51
Speaker 1: if he was it was because of his policies, but
30:54
Speaker 1: tax revenues didn't seem much change at all under those policies. Uh,
30:59
Speaker 1: we're not even into you know, the part of Reaganomics
31:03
Speaker 1: where he kind of shut down trade with a lot
31:06
Speaker 1: of countries, keep it in house and the effect that had.
31:10
Speaker 1: And I I've gotten varying answers on how long after
31:14
Speaker 1: presidency can you even look back and with a good
31:18
Speaker 1: judgment um of like the policies really take effect ten
31:22
Speaker 1: years later when you're gonna see or no, it's more
31:24
Speaker 1: like twenty years or no, you can see it immediately
31:26
Speaker 1: with short term fixes. So it's the whole thing is
31:30
Speaker 1: very frustrating because no one agrees. Everyone thinks they're right. Yeah,
31:34
Speaker 1: that's the frustrating part is everybody thinks they're right. Like
31:37
Speaker 1: Obama's policies are almost virtually the exact opposite of Reagan's. Well,
31:42
Speaker 1: that's funny you say that, because that's not necessarily true.
31:45
Speaker 1: He a lot of ways they are. Well, he in
31:47
Speaker 1: that he kept the Bush era tax cuts going he's actually, well,
31:53
Speaker 1: that's true, kept lower um tax rates than Reagan did.
31:57
Speaker 1: And Reagan's always pegged with the trickle down economic theory, right,
32:02
Speaker 1: Obama's got this other one going. It's called quantitative easing.
32:07
Speaker 1: So with Reagan it was trickled down tax policy. Under
32:10
Speaker 1: Obama it's trickled down monetary policy, and by pumping money
32:16
Speaker 1: into the markets through the FED, it's actually helping because
32:21
Speaker 1: of this income inequality. It's helping the wealthiest Americans by
32:27
Speaker 1: far without anything trickling down really to the um lower,
32:32
Speaker 1: working in middle class Americans. So trickle down policy doesn't
32:36
Speaker 1: necessarily just mean tax policy. You can also mean monetary policy.
32:41
Speaker 1: And we've got a very specific trickle down policy being
32:46
Speaker 1: carried out under Obama's entire two terms so far through
32:50
Speaker 1: quantitative easing. Either way, there's a vast transfer of wealth
32:55
Speaker 1: going on right now, just as there was in the eighties. Yeah,
32:59
Speaker 1: I suggest people it up on their own if they
33:02
Speaker 1: want to jump in this argument. This one kind of
33:04
Speaker 1: also once you really start looking into it, especially if
33:08
Speaker 1: you go beyond like what helps and really step back
33:14
Speaker 1: and look at what's being done and the effects of it.
33:17
Speaker 1: Forget you know, well, my idea is the best way
33:21
Speaker 1: to to cure recession Theoretically, like if you if you
33:24
Speaker 1: just get out of that mindset and you look at
33:27
Speaker 1: economic policies and you look at them through the lens
33:30
Speaker 1: of income inequality, then suddenly conservative and liberal and Democrat
33:37
Speaker 1: and Republican all just kind of fade away, and basically
33:40
Speaker 1: everybody has reason to feel like they're being talked out
33:44
Speaker 1: of something very valuable. Yeah, I came up with an idea.
33:47
Speaker 1: I'm sure I'm not the first person to come up
33:48
Speaker 1: with it. Uh, Josh and Amix, I wonder if if
33:53
Speaker 1: you did cut down on the tax rates for the
33:57
Speaker 1: wealthy to to about where they are now. This this
34:00
Speaker 1: is like bargain basement tax rates. Frankly, it used to
34:04
Speaker 1: be at in the sixties ninety was the highest. Now
34:08
Speaker 1: it's thirty five under Reagan. Much of the world pays
34:11
Speaker 1: a lot more taxes than we do. Oh yeah, so
34:15
Speaker 1: I think it is fair for everybody. You to say
34:18
Speaker 1: the least, if not unfair because it's so low, but
34:21
Speaker 1: let's say that it's fair. You keep the tax rates
34:26
Speaker 1: low on the wealthiest earners and you let them build
34:29
Speaker 1: up as much money as they want in their lifetime,
34:32
Speaker 1: but when they die, you tax their estate like there
34:36
Speaker 1: is no tomorrow. And I wonder, first of all, you
34:40
Speaker 1: increased revenue, but you also prevent dynasties. Uh, you want
34:46
Speaker 1: to prevent dynasties. Sure. I read an article about how
34:49
Speaker 1: UM the those who inherit wealth tend to invest it less.
34:55
Speaker 1: They tend to hoard it more because they didn't have
34:57
Speaker 1: any means of accumulating wealth other in a windfall. I
35:01
Speaker 1: think if you just look at it statistically speaking, and
35:04
Speaker 1: you look at rather than again on an individual basis,
35:07
Speaker 1: if you look overall, when wealth is inherited rather than earned,
35:13
Speaker 1: the inherited wealth is less often invested in ways like
35:17
Speaker 1: um that create new jobs then the wealth that's earned.
35:22
Speaker 1: And it's the same thing like if you won the
35:24
Speaker 1: lottery or something like that. You should be terrified of
35:27
Speaker 1: losing that money because you didn't do anything to earn it.
35:30
Speaker 1: So there's no guarantee whatsoever that you will ever earn
35:33
Speaker 1: that money or have that money again once you spend it.
35:35
Speaker 1: If you amass a fortune in industry and lose it,
35:40
Speaker 1: you did it once, there's a likelihood that you could
35:42
Speaker 1: go do it again, but you're more likely to take
35:46
Speaker 1: more risks with that wealth, but people work to take
35:48
Speaker 1: care of their families for generations to come, like that's
35:51
Speaker 1: what their goal is, right. So let's say you have
35:53
Speaker 1: a hundred million dollars state and you have one kid,
35:59
Speaker 1: and your state is taxed at when you die, your
36:05
Speaker 1: kids still gets ten million dollars. If your kid inherited
36:11
Speaker 1: ten million dollars, you're a wealthy person and your kid
36:14
Speaker 1: inherits ten million dollars. I think you can get your
36:17
Speaker 1: eternal rest easy knowing that your kid's gonna be okay
36:22
Speaker 1: with the ten million bucks for the rest of his
36:24
Speaker 1: or her life. I think that's fair. That's enough to
36:28
Speaker 1: set them up in business for sure. That's enough of
36:30
Speaker 1: a leg up that most people don't have. I uh,
36:34
Speaker 1: that's fine. You don't have to agree with me. Yeah,
36:36
Speaker 1: I think it's I think it's like when I hear
36:38
Speaker 1: about Bill Gates is only gonna leave his kids so
36:41
Speaker 1: much money or whoever was it Bill Gates or Warm
36:44
Speaker 1: Buffet or someone they both are, they pledged like a
36:47
Speaker 1: significant amount of their their estates right to not get leave.
36:51
Speaker 1: It just lead that to their children. I think that's
36:54
Speaker 1: that's great, But I think that's like it should be
36:55
Speaker 1: a person's choice and the government shouldn't make that decision
36:58
Speaker 1: for them. Like government making decisions like that just that
37:01
Speaker 1: makes my blood boil. But that's tax policy, man, Like
37:05
Speaker 1: they can make that decision while you're alive or when
37:08
Speaker 1: you die. It's still there your income being taxed. In
37:12
Speaker 1: the other way, it's like are they taxing your inheritance
37:14
Speaker 1: before your death or well, But it isn't tax policy
37:18
Speaker 1: because josh An nomics isn't. No. But the very fact
37:21
Speaker 1: that there are taxes and then it's progressive means that
37:24
Speaker 1: the wealthiest people pay more. The more you learn, the
37:28
Speaker 1: more tax you pay. So why does it matter whether
37:31
Speaker 1: it's now or when it's when you die? And I
37:35
Speaker 1: that's not an entirely that's kind of a globe interpretation
37:38
Speaker 1: because I realize what I'm saying is normal taxes now
37:41
Speaker 1: and then a heavy tax when you die to prevent
37:44
Speaker 1: dynasties and to increase revenue. I just don't think it
37:47
Speaker 1: will disincentivize work because I think while you're alive, you
37:50
Speaker 1: still want to make money. People's those the people who
37:54
Speaker 1: are dedicated to amassing hundreds of millions or billions of
37:58
Speaker 1: dollars that's not going to prevent them from making money
38:01
Speaker 1: while they're alive. It's not you don't think they're still
38:04
Speaker 1: alive and their kids still get a slice of the pie.
38:09
Speaker 1: But what about their kids kids and their kids kids. Well,
38:12
Speaker 1: then it's up to their kid to go out and
38:14
Speaker 1: through his own effort or her own effort, yeah, amass
38:17
Speaker 1: their own fortune just like everybody else's. Everybody gets to
38:21
Speaker 1: start at zero, although those rich kids still get that
38:24
Speaker 1: leg up of ten percent of the estate. It's it's
38:29
Speaker 1: just my idea. I got your Josh and omics, Josh
38:32
Speaker 1: ms Man, we're gonna get some letters for that one.
38:35
Speaker 1: You got anything else? Uh? And hey, let me say that, like,
38:39
Speaker 1: I think people should be able to live much more
38:41
Speaker 1: meagerly than they do. I'm not a proponent of people
38:45
Speaker 1: leading these lavish, wasteful lifestyles, but I think if you
38:49
Speaker 1: know you've made your money in a legitimate way, then
38:51
Speaker 1: that's your right to do so. I guess you know, yeah,
38:56
Speaker 1: I wouldn't want some government putting their hand in my
38:58
Speaker 1: pocket and saying, hey, you worked really hard for all that,
39:00
Speaker 1: give me it. Well, I mean, who does Nobody wants that?
39:05
Speaker 1: Especially when you when you look at government wastefulness or
39:09
Speaker 1: if you don't want a fund war or something like that, like,
39:12
Speaker 1: then it makes it even harder to bite. The whole
39:15
Speaker 1: thing makes me want to drop out and move to
39:17
Speaker 1: an island or someplace in the woods, very quiet, to
39:21
Speaker 1: where I don't have to even think about any of
39:24
Speaker 1: this stuff. I got my little garden and got my
39:26
Speaker 1: chickens and my goats. You need to go make some
39:28
Speaker 1: money so you can do that. Yeah, I want just
39:32
Speaker 1: a little nine bedroom house on like with the staff. Yeah,
39:40
Speaker 1: all right, are we done with this? We're done with
39:42
Speaker 1: trickle down economics. If you want to learn more about it,
39:45
Speaker 1: you can read this article on how stuff works dot com.
39:48
Speaker 1: Just type trickle down economics into the search bar. And
39:52
Speaker 1: since I said search bar's time for listener mail, I'm
39:56
Speaker 1: gonna call this one. The waiting is the hardest part. Hey, guys,
40:01
Speaker 1: just found your podcast a few months ago and I
40:03
Speaker 1: love it. Um. The reason I'm thanking you is because
40:07
Speaker 1: I have a bit of a worrying problem. I just
40:09
Speaker 1: sent out my application to dental school and now I'm
40:12
Speaker 1: playing the waiting game. Through my waiting, I always find
40:15
Speaker 1: myself worrying and wondering what could happen, even though I
40:18
Speaker 1: know it's not the best thing for me. Through my
40:19
Speaker 1: long days at work this summer, listening to you guys
40:22
Speaker 1: really helps me, uh not only take my mind off
40:24
Speaker 1: the process, but helps take the bite off my worrying
40:28
Speaker 1: mind and even makes me laugh out loud while people
40:31
Speaker 1: look at me like I'm on crack, which, by the way,
40:34
Speaker 1: I know all about through your crack podcast. That was
40:37
Speaker 1: a good one. Um. So thanks for what you do.
40:39
Speaker 1: You're informative and your humorous podcast makes my day easier,
40:43
Speaker 1: helps me through the waiting game, and teaches me so
40:45
Speaker 1: much about what I do not know. By the way,
40:48
Speaker 1: I know it's a long shot, but if by any
40:50
Speaker 1: chance you read this on listener mail, please give a
40:53
Speaker 1: shout out to my fiance Elizabeth. We have less than
40:56
Speaker 1: a year before a big day. And that is from
40:59
Speaker 1: Kay of Davis Indicator. I n is that Indiana? Yes?
41:05
Speaker 1: So Caleb was just making sure there wasn't some new
41:08
Speaker 1: state I didn't know about Indo Ho. Yes, um so
41:12
Speaker 1: Caleb and Elizabeth from Indo HO. Congratulations and Caleb, I
41:17
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41:19
Speaker 1: follow up with us, does it? Caleb bright Ess frequently.
41:22
Speaker 1: Is that the Caleb I'm thinking of? No, that is
41:25
Speaker 1: not you're thinking of the Caleb that won our contest
41:27
Speaker 1: and at lunch with us? Is that the same Caleb
41:30
Speaker 1: that writes us sometimes follows us on Twitter? Yeah? I
41:33
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41:36
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41:39
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41:44
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41:46
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41:48
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