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SYSK Selects: How Trickle-Down Economics Works · Stuff You Should Know

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