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Question about Supply Side Economics/Trickle Down Economics/Horse and Sparrow theory

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  1. #1

    Default Question about Supply Side Economics/Trickle Down Economics/Horse and Sparrow theory

    I run into these firm believers of this "theory" all the time. And if I bring up, say, restoring taxes to the historic burden the wealthy had between 1945-1981, it always gets shot down as a "bad idea". Basically the wealthy, economically hold this country hostage, they will leave, if they pay higher taxes, and then that's bad for the country because the wealth holders just leave with all the country's money rather than pay taxes.

    The idea is when the wealthy, get very wealthy, their "pots boil over". A "rising tide lifts all boats". The whole premise of Trickle Down Economics, is in order for the economic theory to be successful, the wealth has to trickle down. If the wealth consolidates, then it's easily argued, that the economic theory is a failure, and the measures to implement should have never been made public policy in the first place.

    According to Supply-Side supporters, a wealthy person/business owners "motivation to work" is irrevocably tied to how much income they make. So if we, essentially, give this economic class, more money, they will be even more motivated to work, and that helps everybody. On the opposite of the economic spectrum, the poor, if they get "help" with basic living needs, their motivation to work goes down.

    So in essence, the poor "have too much" and the wealthy "don't have enough".
    But I don't know I look at the results. In 1960's Baby Boomers were getting Middle Class jobs out of high school, buying brand new cars, houses, by the 70's and 80's starting families. If you were born in the 40's, you stood a 90% chance to make more money and have a better standard of living than your parents.

    The Millenials who have grown up with Supply-Side economics in place for decades, our college graduates have a combined debt of $1.3 trillion. Workers incomes, in terms of purchasing power, have remained stagnant for about 30 years. If you were born in the 80's, you stood a 50% chance to make more money and have a higher standard of living than your parents. Millennials well into their 30's, still live with their parents, while the Baby boomers were buying houses.

    Meanwhile the wealthiest 1%, 0.1%, and 0.01% have been economically doing great. But according to Supply-side supporters, "not good enough". Congress has passed a bill, that wants to remove health coverage for over 20 million lower income Americans, to implement another tax cut on the wealthy, because they truly believe this is the best way to improve the American economy, and the ordinary American's life.

    I don't really understand this theory, and why it's so overwhelmingly popular in America. It sort of boggles my mind, after a tax cut is passed, and the ordinary American's life hasn't improved drastically, the answer always seems to be to double down further on the economic theory, and pass even more tax cuts on the wealthiest Americans. I guess my question is "When will the wealthy, be wealthy enough, for Trickle Down Economics to work, and improve the ordinary American's life?"
    Clearly 400:1 CEO to worker pay ratios, is still not enough, judging by the economic state of say Millennials, vs Baby boomers at this time in each others lives.
  2. #2
    OngBonga's Avatar
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    because the wealth holders just leave with all the country's money rather than pay taxes.
    This might be a problem if the person in question is investing, but not if he's saving. And if he's investing, why would he leave? He has investments to concern himself with.

    If I have £200m in the bank, and I leave the country because I don't want to pay more tax, then the state hasn't lost the £200m I had in the bank because it's in the bank. If I were using that money to support internal economies, and that ceased due to me leaving, then we have an economical impact.

    That's individuals. Let's look at companies. If McDonalds suddenly decide their tax burden is too big in the UK, and they pull out, is that bad for the British economy? Nope. Burger King would make more money, and so would all the independant buger joints in small towns. People won't stop eating junk food. And if they did, well that's a health bonus.

    The problem isn't so much high tax... it's that high earners resent paying for social policies that benefit the poor. "Why should I..." is the most common question a wealthy individual will ask when talking about social policies. I do kind of get it... they've worked hard to get where they are, they feel a sense of entitlement to what their hard earned money provides for them. I just don't agree that education and health are things that should be reserved for the welathy.

    Another problem with wealthy people is that more often than not, their money is invested in profit. Someone with £200m, their money isn't trickling down if they are a good businessman because their £200m has been invested, and will be £250m by the end of year one, £300m by the end of year 2 etc. Where's the trickle down? It's trickling up.

    The whole "trickle down" theory is a myth, and that's why the wealth gap is increasing.

    If you tax the hell out of the rich, and they leave, in a great many cases that opens up new opportunities for local businesses that don't intend to leave, and when money leaves the country, it was dead money anyway. It's like me taking my pokerstars bankroll elsewhere for better rakeback. Is that actually a bad thing? It's bad for pokerstars, but it's not necessarily bad for the player pool on pokerstars. It only would be if I sucked at poker.
    Quote Originally Posted by wufwugy View Post
    ongies gonna ong
  3. #3
    OngBonga's Avatar
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    It's like me taking my pokerstars bankroll elsewhere for better rakeback. Is that actually a bad thing? It's bad for pokerstars, but it's not necessarily bad for the player pool on pokerstars. It only would be if I sucked at poker.
    This analogy can be expanded.

    If lots of successful poker players left pokerstas, this might make the site more appealing for amateurs. Granted, one single top player pays more rake than one single bad player, but in percentage terms they don't, so it's better for pokerstars to have lots of bad players instead of a few good players. Thus, good poker players taking their money elsewhere isn't necessarily a problem for pokerstars, either.

    Regardless, an average player is going to benefit from a better player at their stakes moving up or moving to another site. Pokerstars' "tax" revenue may or may not go down, depending on economic dynamics after the good players leave, but the players who remain are better off.
    Quote Originally Posted by wufwugy View Post
    ongies gonna ong
  4. #4
    There is no theory such as trickle-down.

    The supply side approach to economic policy is one that ALL economists -- count it: ALL -- think works. A divide among economists comes in that they use some different models where some imply it is easier to, via policy, influence demand than influence supply, and vice versa. The unfortunate aspect of this is that a good deal of the rationales used for which models to choose and how to interpret them is based on political preference of each economist.

    My capstone is particularly enjoyable since it involves a good deal of detailing why some of the models economists use are poor and have resulted in some very bad events that happened in recent economic history.
  5. #5
    I personally subscribe to what I call "Demand Side Economics". Increasing the disposable income, and the purchasing power of those most likely to spend it is actually very good for an economy. Also I'm a firm believer in investing in the class of consumers that have a "high velocity of money" as opposed to those with a "low velocity of money".

    Warren Buffet, probably doesn't spend 10% of his yearly earnings. Probably not even 1%. But for simplicity lets put him at 10%. Give him a tax cut, that money won't wind up, back in the economy, for a very long time. If he's spending 10% per year, it can take as long as 10 years for that money to wind back up sloshing around in the economy.

    Now take a poor person. That person spends 100% of their take home pay. Give them money, and it immediately gets spent. The velocity of money for low income, and poor people is very high. Increasing these peoples incomes, there's more economic growth the be had. This helps demand, which helps businesses that provide supply, I think it's a better class of consumers to invest in if your goal is economic growth.
  6. #6
    You think that Buffet getting money doesn't create more wealth and jobs amongst those people? You've decided that because he's not buying another million dollars worth of goods with his extra money he isn't out there creating more jobs, better paid jobs, more opportunities. If anything he's invest 100% of his extra money into other things rather than saving which is what others have to do.

    If anything it's the middle classes that save more than they'll spend given extra money but for you to assume there is no value in this is madness. It creates the ability for them to do what they want which is massive. If they want to quit work then well that starts another job for someone, if they want to create their own business, their own ideas this all breeds competition and wealth creation.
    Last edited by Savy; 07-08-2017 at 02:02 AM.
  7. #7
    After reading your first post basically you're crying that you deserve more for the sake of it whilst other people have too much money than they could ever possibly need for themselves. Therefore they should pay for you.

    Do you realise why house prices go up? There is a set amount of land and there are more and more people and you happen to live in a part of the world which is very desirable. How many people do you know that moved to other parts of the world that are worse off than America and settled down and bought a house? There are loads of cheap places in the world to live but you feel entitled to live there whilst other people from worse off areas feel like they should work their ass off and try to improve their lives so they can live the dream.

    edit

    From our last conversation about this topic

    Quote Originally Posted by Savy View Post
    I'm fairly hungry, someone fancy sending me $15 on paypal? I mean I have money but my phone contract finishes soon and I'd like an upgrade. In fact all paypal me $1, that's fair.
    For the record no one has paypal'd me $1 and I don't have a newer phone, but I do pay 3/4 of my original bill. Ohh wait did I make a decision with my finances that is beneficial to me? Does that mean I don't get money and a better, but completely unnecessary, new phone? Do I get to spend that extra money on other things that I want to do in life? Ohh shit yeah I do. How cool is that?

    I have also enjoyed some nice take out at points over the past few months. I've even treated myself to some luxury goods like a fan. All whilst not working and all whilst claiming £0 in benefits off anyone.
    Last edited by Savy; 07-08-2017 at 02:28 AM.
  8. #8
    As trickle-down economics was sold to the American public, as a means to improve the ordinary American's life, was it not? The idea, is the wealth, is supposed to trickle down on everyone else.

    Their pots are supposed to "boil over", a "rising tide lifts all boats". You seem to be arguing against how trickle-down economics was sold, you seem to be out right admitting, that it was actually meant to enrich the wealthiest of citizenry, at the expense of everyone else in society. Nobody's life was suppose to improve under it, except the wealthy, correct?

    If trickle down economics works, we should have seen a massive growth in workers wages, and creation of upper-middle class, and middle-class jobs in this country, right?

    So basically, given your admission, you would agree that Reagan/GWB, were basically totally lying their fucking asses off, when they said that giving tax cuts to the wealthy, was going to trickle down and help everyone else in America, right?
  9. #9
    Dude I'm a 24 year old from the UK who has a slight interest in US politics since 2016 and none since before that point. I don't have a dog in the fight that you have.

    I don't really understand what you mean by trickle down economics but I don't see how anything I said was against the fact that Buffet getting given more available capital doesn't result in others getting richer too which is kind of what I assume is the point. Do I think it's the most optimal use of money, probably not but do I think it's beneficial? Yes.

    What you have to realise is I'm no fan of big business, I'm not even sure that I agree with lots of ownership laws to begin with. I'm much more of a libertarian verging on anarchism I've just been convinced that capitalism is overall a good mechanism and other things aren't so much. I don't think big business has you at heart but nor does big government and ideas that might seem like they are for you like social healthcare aren't as good as you think they are.
  10. #10
    OngBonga's Avatar
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    For the record no one has paypal'd me $1
    pm me your email address, I'll help a brother out.

    Trickle down economics is the buzzword used to explain to stupid poor people why rich people are so more important than they are.
    Quote Originally Posted by wufwugy View Post
    ongies gonna ong
  11. #11
    OngBonga's Avatar
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    I'm much more of a libertarian verging on anarchism I've just been convinced that capitalism is overall a good mechanism and other things aren't so much.
    Anarchism seems great in principle... well not great, but natural. The problem with anarchy though is it won't exist for long. Anarchy means lack of government or state. If anarchy actually took hold, it would be a matter of time before communities would begin to form their own rules. There would be some form of governance, and so the instant you sit everyone down and say "right, so stabbing people, no raping people, no robbing their food..." you cease to live in a system of anarchy.

    This is my conflict. Animals live in a world of anarchy. It's right and natural, but we're too developed to live like that.
    Quote Originally Posted by wufwugy View Post
    ongies gonna ong
  12. #12
    OngBonga's Avatar
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    Anarchy in the markets would be, in theory, a good thing. The problem now is that people are cunts and will make money selling sub standard and potentially dangerous products without any regulatory body to shut them down.

    I think the most appealing system I'm aware of is minarchism... it's means minimal state... regulations for public safety, and state control of critical infrastructure and natural monopoloies, along with laws for public protection. Beyond that, you're free.
    Quote Originally Posted by wufwugy View Post
    ongies gonna ong
  13. #13
    Jimmy's idea regarding demand-side economics gets two main things wrong. Before I explain them, note that economists don't agree with his version.

    (1) It is not true that the higher the marginal propensity to consume, the more is "returned to the economy." Examine how banks work and this becomes more than clear. Laborers are employed by producers who get loans derived from bank reserves. People like Warren Buffet play a key role in the laborer's wage by providing bank reserves (among other things). There's a lot more, but no need to get into it.

    (2) Consumption is not creation of wealth; production is. Consumption is elimination of wealth because it is turning what was once a resource into less valuable of a resource. Attempting to improve an economy by focusing on increasing consumption is getting the cart before the horse. I'll stop here because nobody yet seems capable of fully explaining what is really going on in the play between production and consumption and other stuff.


    I should point out that the demand-side ideas discussed in popular discourse poorly interpret what economists mean when they discuss it. Some economists believe in attempting to boost demand with government policy WHEN in a recession characterized by decreased demand in the private sector. The disagreement that other economists have with this (which is also what my capstone is on) is regarding the hypothesis that reduction in private sector demand is actually caused by dysfunctional monetary policy on part of the central bank.
  14. #14
    Quote Originally Posted by wufwugy View Post
    Some economists believe in attempting to boost demand with government policy WHEN in a recession characterized by decreased demand in the private sector. The disagreement that other economists have with this (which is also what my capstone is on) is regarding the hypothesis that reduction in private sector demand is actually caused by dysfunctional monetary policy on part of the central bank.
    I should note that this isn't the only disagreement. Other big ones are crowding out and expectations of tax increase. Crowding out is when an increase in government spending pushes up the interest rate and crowds out private investment that would otherwise take place, resulting in meager, null, or negative boost in demand from the increased government spending. The expectations of tax increase is that the private sector adjusts downward their consumption and investment when government increases its expenditures since the private sector expects higher future taxes and thus have perception of decreased wealth, resulting in meager, null, or negative increase in demand from the increased government expenditures.

    The crazy thing is that the backbone for why some economists believe that increasing government expenditures during a recession can boost aggregate demand is the equation they choose to use. We don't know if their consumption function reflects reality that well, but they use it nonetheless. I think they use it because of their politics mostly.
  15. #15
    CoccoBill's Avatar
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    How is Warren Buffet having $1M in the bank better than a million people having $1 in the bank?

    When a poor person spends a dollar, he is increasing demand, therefore making it possible to increase supply, creating wealth, right?

    When a rich person puts a million on a Swiss bank account or invests it in a shell company in the Caymans, he isn't doing much for the economy, right?
    Our brains have just one scale, and we resize our experiences to fit.

    You wake me up early in the morning to tell me that I'm right? Please wait until I'm wrong.

  16. #16
    If there's no demand for what's being produced, then there's no point in producing it. For example, I could go out and produce 1 million Buggy whips. But I don't think naturally, demand will catch up and buy those buggy whips off me, right?

    We're doing an experiment where we're gutting the disposable income and purchasing power of the bottom 90% or so of Americans, to enrich the wealthiest Americans. At what time will the wealthy, be wealthy enough, for that to turn into increased purchasing power and better standards of living for normal Americans?

    Germany for example, their workers make less $, but they have so many social services it makes up for it. For example, to go to college in Germany, costs a German $0. To get a degree in America, costs an American $75,000. As a result, Germans don't have an issue with student debt, while Americans have a combined debt of $1.3 trillion.
    Last edited by JimmyS1985; 07-09-2017 at 01:41 PM.
  17. #17
    Quote Originally Posted by CoccoBill View Post
    How is Warren Buffet having $1M in the bank better than a million people having $1 in the bank?
    The way in which this would affect the quantity of excess reserves used for loans the bank has is in costs associated with the different makeup of customers. I don't know which scenario would be more costly. In general, the more excess reserves a bank has the more able to pursue the next marginally beneficial loan it can.

    When a poor person spends a dollar, he is increasing demand, therefore making it possible to increase supply, creating wealth, right
    One of the factors that affects a demand curve is the perception of wealth. When there is an increase in perception of wealth, the demand curve can shift to the right (that's an increase). The increase of wealth is a cause of the demand curve shift, not an effect. The effect is producers increasing quantity supplied (this is different than supply) to meet the new quantity demanded of the increased demand curve. The increased demand curve raises the price and quantity of goods/services in the market.

    A change in demand doesn't affect supply. Supply changes for different reasons, like a change in price of raw material or labor used to create the good/service in the market. When supply increases, it also yields an increase in quantity like a demand increase does, but it does one better by decreasing price instead of increasing it, thereby increasing the amount of goods/services possible to consume at the same income. This is akin to a wealth increase, though I don't know if it technically is. It does, however, function as a prosperity increase.

    As you can see, from this is makes sense why lots of economists are big fans of supply side reforms. You get more bang for your buck by increasing supply than by increasing demand. Granted, that isn't the only concern, so it isn't always the most proposed solution. "Supply side" or "demand side" economics/economists are in my estimation misnomers. For example, the economists I agree with the most are called supply-siders yet they have what I think is the most coherent explanation for why demand has lagged and how to increase it. Does that make them demand-siders? Sure, but really the labels are just dumb in the first place.

    When a rich person puts a million on a Swiss bank account or invests it in a shell company in the Caymans, he isn't doing much for the economy, right?
    Switzerland does very well in part because of this. Economies do benefit from this behavior, it's just sometimes a question of which. The reason this topic gets a lot of play in US politics is because the perception is that the US economy loses out by offshoring capital. I don't actually know if that would be true if there was truly free trade, but if there is not truly free trade (there isn't) then it probably is true.
  18. #18
    Quote Originally Posted by JimmyS1985 View Post
    If there's no demand for what's being produced, then there's no point in producing it. For example, I could go out and produce 1 million Buggy whips. But I don't think naturally, demand will catch up and buy those buggy whips off me, right?
    From Say's law: "It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value."

    The point Say's law is getting at is that the source of demand is production. This is because when people purchase at one time, they are doing so with the value created by production at a different time. A laborer can see this in his own life. The laborer's total demand as a consumer/investor/else is equivalent to the value he gained from his labor. Perhaps a simpler way to see it is that a person can only spend $100 when he has $100 and that $100 is representative of $100 worth of production.

    We're doing an experiment where we're gutting the disposable income and purchasing power of the bottom 90% or so of Americans, to enrich the wealthiest Americans.
    Regulations and welfare tend to be the cause of this.

    Germany for example, their workers make less $, but they have so many social services it makes up for it. For example, to go to college in Germany, costs a German $0. To get a degree in America, costs an American $75,000. As a result, Germans don't have an issue with student debt, while Americans have a combined debt of $1.3 trillion.
    It's neat that you bring up Germany. Back in the 90s the country was considered the sick man of Europe. They had a real crummy economy. Then they engaged in a bunch of supply-side reforms which resulted in vast improvement such that they quickly turned everything around and became the powerhouse of Europe.
  19. #19
    We've implemented Supply side economics since 1981. Since the 80's workers wages have remained stagnant, our manufacturing jobs have been shipped overseas. We've only balanced the budget 4x in the last 36 years. At a time of stagnant wages, and having shipped our middle class and upper middle class jobs overseas our college grads have $1.3 trillion in debt.

    Kansas recently did a Supply-Side experiment. When it failed to produce the booming economy that had been promised in 5 years, and they suffered through 2 credit downgrades, they overrode a governor's veto and passed the largest tax increase in Kansas history. Upon raising taxes, they immediately got a credit upgrade.

    I'm sure if you think Germany is your model government, then you agree with them making college tuition free. Employers prefer educated workers.
    Last edited by JimmyS1985; 07-09-2017 at 04:01 PM.
  20. #20
    Wage growth has slowed since the 80s for virtually every developed economy. It has been better for the areas that went the Reagan/Thatcher route. Discussed by economist here.

    The Kansas issue has been pushed on each side by pundits who do not know what they're talking about. The policy was never sufficient enough to have much effect on incentives to immigrate to or invest in Kansas. Nonetheless, anti-tax pundit know-nothings said the proposal would result in miracle while pro-tax pundit know-nothings said the proposal would result in annihilation. Discussed by economist here.

    Rule of thumb: any time you see a statistic often in public discourse, assume that it is cherry picked and pushing a false narrative.
  21. #21
    Preference for educated workers is one of the best reasons to keep government out of the education market.
  22. #22
    Quote Originally Posted by wufwugy View Post
    Preference for educated workers is one of the best reasons to keep government out of the education market.
    Most For-Profit colleges suck compared to their Non-profit counterparts. I am so glad I got my degree at a non-profit government ran institution, instead of Sanford Brown, ITT tech, or Phoenix University.
  23. #23
    That's what happens when government issues a virtual takeover of a market such that the only viable competition is fringe. Other things that happens in that case are skyrocketing costs and plummeting performance.
  24. #24
    I read the OP and kinda skimmed/grunched the rest.

    Jimmy - by your own admissions, you have no motivation to work and have no interest in executing a superior performance in any of your life's endeavors. So fuck you if you think you deserve more and someone else deserves less.

    It's been proven, scientifically, beyond any doubt, that decreasing the tax rate increases tax revenue.

    Also, your complaints about "consolidating" wealth only holds water if all these rich bastards are hoarding their money in a mattress and keeping it out of the economy.

    The return on a mattress investment is 0%. No one gets rich in the first place by making a 0% return on investments.

    If a rich person puts his money in a savings account, then the bank turns around and lends it out to less-rich people. Those loans are used to buy houses and start businesses. The money creates jobs and generates commerce.

    If rich people put even MORE money in a savings account, then the bank can lend even more. Supply and demand principles tell you that the price of money will go down. That means loans become more accessible to a wider range of people. More commerce.

    And that's just a rudimentary example of savings & loan. Wealthy people can invest in many different ways that all help businesses grow and technology to advance.

    Are you getting how trickle down works now? You're not going to just get a check in the mail from Warren Buffet. Buffet's money is working to create jobs and opportunities.

    You've rejected those opportunities because they aren't a fast-track to easy street.

    Name one person who espouses your attitude and still got rich?

    What the fuck do you even want to happen?
  25. #25
    CoccoBill's Avatar
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    Quote Originally Posted by wufwugy View Post
    The way in which this would affect the quantity of excess reserves used for loans the bank has is in costs associated with the different makeup of customers. I don't know which scenario would be more costly. In general, the more excess reserves a bank has the more able to pursue the next marginally beneficial loan it can.
    Undoubtedly any costs incurred by the clients would be compensated in service fees. So I suppose if anything, having more smaller customers would generate more business, turnover and most likely profits for the banks, if compared to one large one.

    Sounds to me that from this aspect, handing out money to the poor would probably be the same or better for the economy than giving it to the rich.

    Quote Originally Posted by wufwugy View Post
    One of the factors that affects a demand curve is the perception of wealth. When there is an increase in perception of wealth, the demand curve can shift to the right (that's an increase). The increase of wealth is a cause of the demand curve shift, not an effect. The effect is producers increasing quantity supplied (this is different than supply) to meet the new quantity demanded of the increased demand curve. The increased demand curve raises the price and quantity of goods/services in the market.
    I meant an increase in wealth/profit for the producers, not the consumers.

    Quote Originally Posted by wufwugy View Post
    A change in demand doesn't affect supply.
    I'm sure you meant to add "directly". Increased demand surely affects price, number of suppliers, R&D investments etc. which all can affect supply indirectly. I might even argue an expected increase in demand will directly increase supply by producers ramping up production anticipating the coming price increases.

    Quote Originally Posted by wufwugy View Post
    As you can see, from this is makes sense why lots of economists are big fans of supply side reforms. You get more bang for your buck by increasing supply than by increasing demand. Granted, that isn't the only concern, so it isn't always the most proposed solution. "Supply side" or "demand side" economics/economists are in my estimation misnomers. For example, the economists I agree with the most are called supply-siders yet they have what I think is the most coherent explanation for why demand has lagged and how to increase it. Does that make them demand-siders? Sure, but really the labels are just dumb in the first place.
    If there's no demand, any added supply is wasted, leading to price drops and losses for the producers. If there's no supply but there's demand, the market will deal with generating supply, that's what it's good at.

    Quote Originally Posted by wufwugy View Post
    Switzerland does very well in part because of this. Economies do benefit from this behavior, it's just sometimes a question of which. The reason this topic gets a lot of play in US politics is because the perception is that the US economy loses out by offshoring capital. I don't actually know if that would be true if there was truly free trade, but if there is not truly free trade (there isn't) then it probably is true.
    So let's try to sum this up.

    - Regarding expenditure and consumption, it makes no difference whether the actor is rich or poor
    - Regarding investments/savings, it makes no difference whether the actor is rich or poor, except it possibly being better for banks if they're poor
    - Rich people sometimes offshore wealth hurting the economy they are participating in, the poor far less so

    So far I'm finding it hard to see why it's clearly better to give money/tax breaks to the rich, not the poor (as in the 90-99%).
    Our brains have just one scale, and we resize our experiences to fit.

    You wake me up early in the morning to tell me that I'm right? Please wait until I'm wrong.

  26. #26
    Quote Originally Posted by CoccoBill View Post
    Undoubtedly any costs incurred by the clients would be compensated in service fees. So I suppose if anything, having more smaller customers would generate more business, turnover and most likely profits for the banks, if compared to one large one.

    Sounds to me that from this aspect, handing out money to the poor would probably be the same or better for the economy than giving it to the rich.
    If we're talking tax cuts, it depends. Keep in mind that popular discourse incorrectly frames tax cuts that benefit the poor as benefiting the rich instead.

    I meant an increase in wealth/profit for the producers, not the consumers.
    It would be an increase in wealth for that particular producer but not for the economy because it would be a decrease in wealth for a different producer.

    I'm sure you meant to add "directly". Increased demand surely affects price, number of suppliers, R&D investments etc. which all can affect supply indirectly.
    A change in demand affects price but not the other two. The other two can be affected if quantity demanded/supplied and output are in disequilibrium. Virtually all non-economist pundits misuse the these terms, typically by saying "demand" when they mean "quantity demanded." A change in demand is a shift of the curve; a change in quantity demanded is movement along the demand curve. A shift in one curve doesn't shift the other, but a shift in one curve does change the quantities demanded/supplied. The curves each shift for different reasons. If we're talking aggregate demand and aggregate supply (different curves than just demand/supply), then some things can shift both, like if there is an oil supply shock, both aggregate supply and aggregate demand curves will shift left (decline).

    I might even argue an expected increase in demand will directly increase supply by producers ramping up production anticipating the coming price increases.
    You can almost never go wrong arguing for the role of expectations in economic behavior.

    So far I'm finding it hard to see why it's clearly better to give money/tax breaks to the rich, not the poor (as in the 90-99%).
    I don't know anybody who has argued for organizing tax cuts such that they disproportionately benefit the rich. Keep in mind that most of what is covered by journalists regarding tax is wrong.
  27. #27
    Quote Originally Posted by wufwugy View Post
    A change in demand affects price but not the other two. The other two can be affected if quantity demanded/supplied and output are in disequilibrium. Virtually all non-economist pundits misuse the these terms, typically by saying "demand" when they mean "quantity demanded." A change in demand is a shift of the curve; a change in quantity demanded is movement along the demand curve. A shift in one curve doesn't shift the other, but a shift in one curve does change the quantities demanded/supplied. The curves each shift for different reasons. If we're talking aggregate demand and aggregate supply (different curves than just demand/supply), then some things can shift both, like if there is an oil supply shock, both aggregate supply and aggregate demand curves will shift left (decline).
    I'd like to add something to more closely address the point you were making.

    When there is a change in quantity demanded, producers certainly try to meet it, which can result in a change in production. If it's an increase then it does mean that there is an increase in prosperity, roughly speaking. However, in the aggregate context, this does not mean that a redistribution from the rich to the poor will have that same effect. Nobody knows exactly what happens in that case. The idea that redistribution can increase aggregate demand assumes things not demonstrated. It assumes a market inefficiency that is solved by the redistribution and it assumes the fall in aggregate demand resulting from the detraction of consumption/investment from one area is more than offset by the proposed increase coming from those who were given money. It assumes even more too.

    This idea is plausible, but in my estimation (and of lots of economists), it is bad economist-ing. The idea doesn't fall in line that well with economic principles and the empirical evidence is quite inconclusive. The idea's legitimacy among economists is due to derivation from functions that make up the GDP equation. The functions are arbitrary and not agreed upon by all economists. A big issue here is that the functions are wrong and economists can explain why, but none know how to create more rigorous and less controversial functions. This has resulted in some economists treating the functions as if they are correct enough to treat as virtual truth.
  28. #28
    Quote Originally Posted by wufwugy View Post
    When there is a change in quantity demanded, producers certainly try to meet it, which can result in a change in production. If it's an increase then it does mean that there is an increase in prosperity, roughly speaking.
    I forgot to add that this is only an increase in total production if it comes from something like an increase in wealth. Even if a poor person with a small savings account pulls out of that savings account to consume currently more than he typically does, it's not an increase in total production due to the detraction of saving and all that goes along with that. In some cases -- I think in most cases -- that would actually result in a decrease in total production.
  29. #29
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    Ok I think I understand what you mean by demand vs quantity demanded, makes sense. Quantity demanded is directly affected by price, so if something gets cheaper, people want more of it. What I meant was demand, not that. From what I understand, if the demand goes up, for whatever reason, say the consumers suddenly have more purchasing power due to a tax break, surely that would make current producers invest more in their products or their production, and attract more producers in the market? I of course don't mean a linear correlation, but a strong incentive.

    Taking money from the rich and giving it to the poor probably isn't economically optimal in many cases. Then again, intuitively I don't see how just buffing the supply side and ignoring demand would be either. Let's say friendly aliens come to earth and either a) give a gram of gold to 1000 poor people or b) give a kilo of gold to one rich guy, the economy at the bare minimum would not be worse off in scenario a), and quite likely would be better off, would you agree?
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  30. #30
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    Quote Originally Posted by wufwugy View Post
    I forgot to add that this is only an increase in total production if it comes from something like an increase in wealth. Even if a poor person with a small savings account pulls out of that savings account to consume currently more than he typically does, it's not an increase in total production due to the detraction of saving and all that goes along with that. In some cases -- I think in most cases -- that would actually result in a decrease in total production.
    Doesn't this depend entirely on what type of goods we're talking about? 1000 poor people probably use more toilet paper than 1 rich guy, but the 1 rich guy probably always buys more private jets. Coke and bitches might be a toss-up.
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  31. #31
    Quote Originally Posted by CoccoBill View Post
    Ok I think I understand what you mean by demand vs quantity demanded, makes sense. Quantity demanded is directly affected by price, so if something gets cheaper, people want more of it. What I meant was demand, not that. From what I understand, if the demand goes up, for whatever reason, say the consumers suddenly have more purchasing power due to a tax break, surely that would make current producers invest more in their products or their production, and attract more producers in the market? I of course don't mean a linear correlation, but a strong incentive.
    This is not something I think economists have explained well. I've had to go back over some old textbooks to put some pieces together. Even though a shift in demand seems to never be characterized as causing a shift in supply, it certainly makes sense to me why it could. It appears that economists don't apply that logic to S/D models but possibly do in a roundabout way in firm specific models. Though I might be wrong about that. I really don't have an answer here.

    Back to the original point, an increase in demand has to have a reason in order to be a credible increase. It, along with its effects on suppliers, is characterized well by Say's law, where at the fundamental level, demand is derived from supply.

    Taking money from the rich and giving it to the poor probably isn't economically optimal in many cases. Then again, intuitively I don't see how just buffing the supply side and ignoring demand would be either. Let's say friendly aliens come to earth and either a) give a gram of gold to 1000 poor people or b) give a kilo of gold to one rich guy, the economy at the bare minimum would not be worse off in scenario a), and quite likely would be better off, would you agree?
    I don't think focusing on supply while not demand is a good idea either. Fortunately neither do economists, though they do have different views on how to best address each. The 1000 poor people vs 1 rich person example isn't a supply vs demand thing. Supply and demand isn't a sort of thing like investment/consumption divide. In the models that mainstream economists like to use, aggregate demand includes both consumption and investment.

    Anyways, if you mean the gold as a commodity people hold, then all the aliens would be doing is deflating its price, making those individuals who get it wealthier while everybody else who holds it poorer. To the degree that gold is a good like jewelry, there would be a real GDP increase to the degree that the people the aliens gave the gold to sold it such that total output of gold increases. There would be what I like to call "implicit GDP" increase. Economists don't talk much about this because they can't quantify it. It's like how a home cooked meal doesn't go into GDP numbers but eating at a restaurant does. For obvious reasons, the GDP measurement in those scenarios don't assess the actual value of the behavior.

    Here's the great way of understanding the alien analogy: it functions like imports in our current world. Here's the domestic economy GDP equation: Income = consumption + investment + government spending + exports - imports. We subtract imports to avoid double counting since all imported goods are already counted in "consumption". When a country imports a good/service, the transactions of that good/service go to the GDP. How do we get imports in the first place? Are they distributed directly to the multitudes of consumers, or are they filtered through individual entities who then distribute to the multitudes? The answer is the latter. Likewise, if aliens give to a small number of people, assuming they don't squander, they would sell to others. This may raise the question: but isn't it more efficient if the aliens gave to the multitudes instead? The answer is YES. That would certainly be more efficient, but also it wouldn't count as GDP, at least not to us but maybe to the aliens it would. One of the challenges is in how to create greater efficiencies. Given this, I'd say it might be better for 1000 people to get a "magical" increase in wealth than for 1 person because there might be efficiency gains since there might be less need for transactions in the same way that if imported milk could just magically show up in your refrigerator instead of going through loads of steps would increase efficiency. Granted, this can go the opposite direction, where it's more efficient for 1 person to get a "magical" increase in wealth than for a 1000, due to efficiency gains like that for venture capital, where a single person with a lot of wealth can more effectively invest than if that wealth was instead very dispersed.. Really, which way the efficiency goes depends on lots of factors.
    Last edited by wufwugy; 07-10-2017 at 09:13 PM.
  32. #32
    Quote Originally Posted by CoccoBill View Post
    Doesn't this depend entirely on what type of goods we're talking about? 1000 poor people probably use more toilet paper than 1 rich guy, but the 1 rich guy probably always buys more private jets. Coke and bitches might be a toss-up.
    If we assume the same amount is spent in each case, I don't know of any models economists have that would show a difference in effect on the economy. Though there WOULD be a difference, it's just a guess as to what the difference is. GDP equations treat a $1000 spent on toilet paper the same as $1000 spent on materials to help build a large water vessel.
    Last edited by wufwugy; 07-10-2017 at 09:14 PM.
  33. #33
    Quote Originally Posted by CoccoBill View Post
    Let's say friendly aliens come to earth and either a) give a gram of gold to 1000 poor people or b) give a kilo of gold to one rich guy, the economy at the bare minimum would not be worse off in scenario a), and quite likely would be better off, would you agree?
    Completely disagree. Cuz of inflation. It's why the government doesn't just print a whole bunch of cash to pay off the national debt. The aliens are just diluting the value of gold. I don't see how anyone is better off.

    When Reagan introduced "trickle down", inflation was like...12%.

    The economy would likely be far better off if the aliens gave the kilo of gold to the rich guy. Of course, it doesn't help if the rich guy just buries the gold in the ground and doesn't tell anyone about it. But then again, it doesn't really hurt anyone either.

    Assuming he does something with the gold, it's probably best to give it to him.

    People with small sums of money, spend it. People with large sums of money invest it.

    Spending helps, but not as much as investing. When you spend, your money supports the supply chain that delivered a good or service to you. But it ends there. When you invest, usually the idea is that the investment will continue to generate returns in perpetuity.

    If the aliens gave the gold to the rich guy, and he uses it to open a business. And that business is profitable. ANd those profits go to expand employment an increase wages, all the while not consuming the original kilo of gold, then surely that's better for everybody in town.

    Now I know what you're gonna say,

    Maybe he doesn't expand employment, or increase wages. Maybe he keeps the gold for himself. Isn't that bad?

    Again, it's only bad if he buries it in the ground and doesn't tell anyone about it. If he invests it in another business, or a stock, or a mutual fund, or a savings account, then the money goes right back into the economy, generating more jobs, and increasing wages.

    I don't know why folks are so miffed at the existence of an income gap. In a healthy economy, investments grow faster than wages. That's just a fact of life. If the opposite were true, and wages grew as fast as investments, then you'd likely have a world with rampant unemployment. Try living in that world and tell me how you like it.

    So yes, when the economy booms, the rich get richer. But they aren't doing so at the expense of the poor. That's a key element of this discussion that seems to into one of Jimmy's ears and out the other.

    Income equality is overrated. Income mobility is what matters. I'm quite sure we've discussed this before. In America, the vast majority of folks in the bottom fifth of earners have kids who rise above, and often far above, that bottom fifth. At the same time, a fair amount of folks in the top fifth, have kids who fall all the way to the bottom.

    Income mobility. I really don't know what else a citizen could ask for.

    If a guy like Jimmy wants more money, there are plenty of opportunities out there for him to do so. You can't blame the rich because you're lazy.
    Last edited by BananaStand; 07-11-2017 at 09:05 AM.
  34. #34
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    I know what inflation is, and inflation in both a and b are identical. I've also read about marginal propensity to consume and marginal propensity to save. It might very well be that the rich are more likely to invest and the poor are more likely to save, but likewise the rich are more likely to offshore.

    Here's an interesting discussion: http://econlog.econlib.org/archives/...ng_on_con.html

    We are really coming down to ethics. What's the objective of an economy? To create as much growth or wealth as possible, or to create as much happiness/well-being for it's participants as possible? I know what you're gonna say and yes, these two are related, but not the same. A rich guy gaining $1000 creates far less cumulative happiness/well-being than a poor guy gaining the same $1000, or even 1000 poor guys gaining $1. I absolutely think effort should be rewarded, but as long as we do not have enough wealth to comfortably cover everybody, some means of redistribution are imo justified, and lead to a better outcome.
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  35. #35
    Quote Originally Posted by CoccoBill View Post
    I know what inflation is, and inflation in both a and b are identical. I've also read about marginal propensity to consume and marginal propensity to save. It might very well be that the rich are more likely to invest and the poor are more likely to save, but likewise the rich are more likely to offshore.

    Here's an interesting discussion: http://econlog.econlib.org/archives/...ng_on_con.html

    We are really coming down to ethics. What's the objective of an economy? To create as much growth or wealth as possible, or to create as much happiness/well-being for it's participants as possible? I know what you're gonna say and yes, these two are related, but not the same. A rich guy gaining $1000 creates far less cumulative happiness/well-being than a poor guy gaining the same $1000, or even 1000 poor guys gaining $1. I absolutely think effort should be rewarded, but as long as we do not have enough wealth to comfortably cover everybody, some means of redistribution are imo justified, and lead to a better outcome.
    Good article and discussion. I read that back when he first posted it. Per usual, I tend to only understand about 60% of what Sumner writes about.

    A point I'd like to make relevant to the OP: note how he mentions the relationship between money supply and aggregate demand. This is a good example why the classification of supply-siders and demand-siders is silly. Sumner is a market monetarist; most economists are Keynesians. They both agree on a whole lot of stuff regarding monetary policy, though they have difference in emphasis. These days, Keynesians are considered demand-siders and they de-emphasize the monetary policy impact on recent economic events (like the 08 crisis), and market monetarists are considered supply-siders and they emphasize the monetary policy impact on those events. That emphasis is a demand focused thing.
  36. #36
    I'm pretty sure the introduction of more gold would deflate its price. The alien introduction of gold would be a supply increase which would reduce the price and increase the quantity. If gold was used as money instead of a good itself, more of it would inflate the overall price level of other goods.
  37. #37
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    I just framed it as aliens bringing it from the outside to avoid it being redistribution, just looking at the effects of different segments of the economy gaining wealth.

    Quote Originally Posted by BananaStand View Post
    Income equality is overrated. Income mobility is what matters. I'm quite sure we've discussed this before. In America, the vast majority of folks in the bottom fifth of earners have kids who rise above, and often far above, that bottom fifth. At the same time, a fair amount of folks in the top fifth, have kids who fall all the way to the bottom.

    Income mobility. I really don't know what else a citizen could ask for.
    Income mobility has been in a steady decline since WW2.



    The reasons suggested for that are:

    - Decline in unions. Organized labor was once better able to negotiate pay raises for their members, whatever their career stage.
    - The number of jobs at the bottom and the top of the pay scale is increasing, while the number of jobs in the middle isn’t. If there were more employment growth in the middle, those who start out at the bottom might have a better shot at moving up.
    - Income inequality. The earnings of the people in the top decile are much higher than they used to be, compared to the overall population. That means it is increasingly harder to reach those top ranks. “In the presence of increasing inequality,” they conclude, “falling mobility implies that as the rungs of the ladder have moved farther apart, moving between them has become more difficult.”
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  38. #38
    Add the world economy to that and the picture changes. Mobility has vastly improved in places like China, in large part due to some of the elements that are reducing it in the US (migration of job types).

    Also, lots of stuff correlates with the decline in wage growth. No economist says they have the right answer. A popular one is the "traumatized worker." It is when workers fear trying to better their work situations since they are replaceable and they live paycheck to paycheck. This is probably mostly a product of globalization, and also regulation and welfare.


    Anyways, mobility and earnings are doing extremely well when you look at the entire world. Western media typically does not look at the entire world.
  39. #39
    And it's more than just looking at more data. It's also about understanding the data. Example: immigration from a poor country to a rich country can lower wages in the rich country while also increasing total prosperity. As to whether or not it absolutely does lower wages, it's complicated and depends on lots of factors.

    In general I fall on the side that wage and mobility issues of the last several decades are a product of poor monetary policy and regulation. Growth in aggregate demand has been weak because the Fed has been keeping it subdued. Regarding regulations, here's but one example: tons of bargaining power for laborers is lost due to the vast healthcare regulations that make it so that laborers are afraid of losing their healthcare if their current labor is disrupted. It's the traumatized worker.
  40. #40
    Quote Originally Posted by wufwugy View Post
    tons of bargaining power for laborers is lost due to the vast healthcare regulations that make it so that laborers are afraid of losing their healthcare if their current labor is disrupted. It's the traumatized worker.
    A response to this is for universal coverage. Yeah, that can fix a handful of problems, but at the expense of introducing even more problems and at the opportunity cost of not opting to fix even more problems by choosing a better solution.
  41. #41
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    Yeah was gonna say that. What problems do you see universal coverage creating?
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  42. #42
    Quote Originally Posted by CoccoBill View Post
    Income mobility has been in a steady decline since WW2.
    Do you have any statistics from this decade?

    Or maybe the last one?

    Or maybe the one before that?

    Try this:
    http://www.foxnews.com/opinion/2014/...nequality.html

    First, there seems to be some dispute over how things actually looked in 1985. The chart you cited paints a pretty bleak picture. But what about this:
    Economists at Harvard and Berkeley crunched the numbers on 40 million tax returns from 1971-2012 and discovered that mobility is pretty much what The Pew Charitable Trusts reported it was 30 years ago.
    So what exactly does that picture look like?
    Today, 64 percent of the people born to the poorest fifth of society rise out of that quintile -- 11 percent rise all the way into the top quintile. Meanwhile, 8 percent born to the richest fifth fall all the way to the bottom fifth.

    Yes, over the last 30 years, incomes of rich people grew by more than 200 percent, but according to the Congressional Budget Office, poor people gained 50 percent. That growth should matter more than the disparity.
  43. #43
    We should clarify the type of universal coverage. Universal health savings accounts or universal catastrophic coverage come with fewer problems and more benefits than universal comprehensive coverage.

    The core problem that arises with universal comprehensive coverage is a loss of efficiency. Ways that tends to happen tend to derive from loss of skin in the game. An example of that is that when taxes pay for regular treatment of diabetics, it reduces some of the costs of behaving in such a way that you become diabetic, which in turn increase healthcare costs due to more diabetics. It also increases the cost of treatment for diabetics since the price tag is paid regardless of how high it is. With universal coverage comes a significant amount of rules, which results in reduction in entrepreneurship and innovation for revolutionary treatments or administrative efficiencies that would ultimately reduce costs. The rules also constrict supply of practitioners, thereby increasing labor costs and thus price tags of treatment. Really, there is an unlimited list of things we could get into, but I'll stop here.

    What we've seen in real time from regions with universal comprehensive coverage is rationing and low growth in innovation of care. This result makes sense given economic theory. The supply restrictions and cost constraints pretty much give governments no choice but to ration.

    The main benefit of universal comprehensive coverage is that there is a reduction in adverse selection, which results in lower insurance costs. It's not enough to make the net a reduction in costs, however. The adverse selection problem arises in healthcare because people who want to buy insurance are typically more expensive to cover, so when covering healthy people who don't want to buy insurance is mandated, there is a reduction in the cost of this adverse selection. This was a focal goal of Obamacare, yet as we can see it was not powerful enough of a cost reduction to counter the vast cost increases that came along with all the rules and regulations that increased costs. An example of a rule that did so is mandating plans cover more than what people want to buy.

    Keep in mind that Obamacare is a universal comprehensive reform. When you hear about how the proposed GOP plans would reduce the amount covered, what's actually happening is that those people would simply drop insurance due to having the choice to. They're covered now even though they don't want to be. Another thing rarely mentioned regarding Obamacare is how the effective coverage is much lower than people think because a key way insurers have dealt with the big cost increases is hiking up deductibles. Now lots of people are paying for coverage that they never use because the deductibles are so high. That's on top of the premiums rising a lot. Cheap catastrophic plans, like the one I used to have, don't exist anymore due to regulations.

    Even though I prefer government staying out of healthcare, I certainly can make a case for how government can construct a healthcare system that would knock the socks off any in the world (probably even Singapore's, which is much better than any other). It would involve all government transfers going towards health savings accounts instead of Medicare and Medicaid and multiple tax/employment subsidies. A similar approach appears to be the main innovation for why Singapore's system is so much better than others. The government would also need to deregulate things like licensure and against crossing state lines, allowing people to supply the care they want and consumers to choose to buy what they want. This is a BIG problem. On the supply and demand diagram for the healthcare market, the price level is higher than it should be due to the supply curve being further to the left than it should be. An example of this problem is that there are a bunch of people with skills that are not allowed to practice because they haven't jumped through hundreds of thousands of dollars worth of hoops in order to make it legal. Derivative problems from this include things like price tags not even applied before the sale of treatment.

    I don't consume healthcare because of these problems, and I certainly would consume it if those problems went away. I am not unique in this regard. I read a study a while back that demonstrated an increase in dental health after deregulation such that people without typical expensive pedigree and licenses were allowed to offer care and consumers were allowed to buy it. This resulted in lower costs and thus more dental care, resulting in improvement in dental health.

    In short, the price of healthcare is quite high for two main reasons: (1) demand is pushed right due to payment not coming from the individual. This can be solved by shifting to health savings accounts, where people pay for their own coverage, resulting in incentive to not consume too much and even incentive to live healthier. In Singapore, if they live healthy enough long enough, they are allowed to use the savings to pay for other things. This is a huge cost saver. (2) Supply is pushed left due to regulations that benefit relatively wealthy incumbent providers at the expense of everybody else. This can be solved by making it legal for people to choose what is best for them instead of the government's severely restricted choices.


    The mess will probably not be solved because people really believe the government should be setting rules here. The fear of botched treatment is so pervasive in voters' psyche that they favor just about any restriction the government can think of even though the unintended consequences are a decrease in health and increase in suffering.
  44. #44
    Something you might like that my labor professor told us: the phenomenon of inequality is such that the same general shape exists in virtually every possible subset you can think of. It's not even just 20th percentile in a country versus 80th percentile, because the same shape exists in 20th percentile of Harvard law graduates and 80th percentile of Harvard law graduates.

    There's something else going on that isn't reflected by popular discourse IMO.
  45. #45
    Oh I forgot to mention the free market approach to the adverse selection problem of no universal coverage.

    Independent Health Pools. Businesses already function as these pools, in large part due to subsidies the government gives them for doing so. Anyways, the pools are when organizations pool people together for reasons other than specific ailments and buy insurance for all of them. Examples of this could be church or neighborhood pools. Some pools could get into the millions of members level and others could just be several dozen. Consumers would have access to several different pools. This idea trumps the universal coverage option because it solves some lack of competition problems on top of the adverse selection problem. I don't know exactly why these pools don't exist now, but it sounds like there are regulations against them. Also the subsidization for these pools in business hurts any potential non-business pools.

    It could be helpful to think of them like unions, but instead of trying to increase payments from business owners to laborers via the multitude of ways unions do, they would try to decrease payments from insurees to insurers by solving the adverse selection problem for the insurers, reducing their costs and ultimately increasing their profits.
  46. #46
    Perhaps the most sinister effect of government paid healthcare is that it breeds sickness. When a benefit/subsidy comes only when there is dysfunction, the system over time evolves towards perpetuating dysfunction. I suspect this will be something Nassim Taleb will cover in his new skin in the game book. Though the skin in the game idea exists within economics, it doesn't get discussed much. The form this use of skin in the game exists in economics is the idea that if you want more of something, subsidize it, and if you want less of something, tax it. Subsidizing healthcare is in effect subsidizing sickness since the typical consumption of healthcare arises from sickness. A double edged sword emerges from the subsidy being a benefit, where if people avoid it they have a higher opportunity cost than they otherwise would if it were unsubsidized. We see this problem in the employer system, where people often opt to get more expensive healthcare to avoid a tax. Subliminally this should result in people taking greater risks with their health too, which gets us to the other side of the adverse selection problem: the moral hazard problem, resulting in increased incentive for the subsidized to take on greater risks with their health.
  47. #47
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    I'm still digesting your earlier posts but on the last one, hm I'm not sure I agree. Sure, someone being covered by universal healthcare probably has a nominally greater risk appetite than someone who isn't covered, but I have a hard time believing that's a large margin. Would be interesting to see a comparison between privatized/public healthcare countries and their normalized rates of admission per capita. Doesn't sound like something that's easy to reliably measure though.

    What I've seen first hand though is that with privatized healthcare the hospitals have great incentives to perform every tests and operation imaginable to all patients, since they're all covered by the insurance. This probably is a big reason for the current high costs and premiums. With a public single-payer system this isn't an issue.
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  48. #48
    Quote Originally Posted by CoccoBill View Post
    I'm still digesting your earlier posts but on the last one, hm I'm not sure I agree. Sure, someone being covered by universal healthcare probably has a nominally greater risk appetite than someone who isn't covered, but I have a hard time believing that's a large margin.
    I agree. I think if we were to measure the effect over a short term it might appear non-existent. I think the effect would take a long period and would come in forms not necessarily predicted. Risk preferences and cultures don't change overnight, but they are more likely to change over long time periods.

    What I've seen first hand though is that with privatized healthcare the hospitals have great incentives to perform every tests and operation imaginable to all patients, since they're all covered by the insurance.
    Though I think this is in a large part a problem of regulation and where the funds come from, I will say that it is also an inherent problem to healthcare. There is so much unknown about the body and peoples' fear of health problems is so great that producers and consumers are overly cautious as well as some producers can act in underhanded ways. Nobody breaks the bank at Toys R Us but they will at the hospital. Granted, I don't think this is a system breaking problem. There are lots of ways to address it.

    One way the problem you mention is nurtured is by the eradication of cheap catastrophic plans and health savings accounts, and subsidization of comprehensive employer plans. This is because employer based plans are usually pretty good and people who have them have incentive to use them since the benefits are not taxed. These have made the instantiation of payment differentiated from instantiation of consumption to a large degree. An example for how we could address this is stop giving tax breaks to employment insurance plans, deregulate plans such that it is legal to pay for the kind of coverage you want, and replace lots of transfer with health savings accounts. Then we would find a significant drop in the behavior you mention and a movement towards transparency in price tags, which would result in cost reductions across the board. Regardless it is true that healthcare has a unique problem since we know so little about what works and people are willing to still pay a lot.
    Last edited by wufwugy; 07-12-2017 at 12:58 PM.
  49. #49
    Quote Originally Posted by wufwugy View Post
    I agree. I think if we were to measure the effect over a short term it might appear non-existent. I think the effect would take a long period and would come in forms not necessarily predicted. Risk preferences and cultures don't change overnight, but they are more likely to change over long time periods.
    He's an illustration of the type of moral hazard I'm thinking of that I estimate can happen when healthcare is subsidized: a small percentage of parents will one day be in a situation in which they are considering the type of dietary choices to be made for their kids. The situation could be triggered by something like a visit to the doctor informing them that the child has early stages of diabetes and that if changes aren't made he will have to go on treatment. Some parents will have trouble paying for that treatment and a subset of those will consider the option of avoiding payment by way of fixing the child's lifestyle. However, if the same set of parents have expectation that the government will pay for the child's treatment regardless, then the consideration of lifestyle change in this small subset of scenarios would happen less often.

    Fixing the moral hazard problem that arises from people having an entitlement to government healthcare may only solve some small problems or it may solve some really big ones. It's hard to tell. But the moral hazard problem is not one to take lightly. For example, the government guarantee of bank deposits instantiated by the FDIC is widely thought of as a good thing that improves the economy and improves peoples' lives and there is very little discussion about the bad it could do. Yet, I have seen some economists make the case that the FDIC is at the heart of the cause of the subprime housing crisis that eventually led to great calamity years ago. Policy often looks like it doesn't bring with it moral hazard up until a significant event few people predicted instantiates from a little-understood extra risk-taking incentivized by that policy.
  50. #50
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    Quick vid



    Is he wrong?
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  51. #51
    I read the paper his report is sourced on. The details are scant regarding why and how they're coming to the numbers they are. The models and interpretations of how the taxes work are not fully understood, in some cases poorly understood, and in other cases under bias by the scorer. An example is that it might be the case that these scorers are applying the cut in the corporate tax rate to the shareholders of the corporation; yet, what is much more likely to happen with a cut in the corporate tax rate is the goods and services provided by the corporations have a price reduction, thereby the cut ultimately benefits the consumer more than it looks at first glance.

    I wish I could give a more direct response, but the paper does not go into detail as to why they score the way they do.
  52. #52
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    OK,

    The outline of the Trump-Cohn-Mnuchin plan promises as follows:


    • Collapse the seven income tax brackets into three: 10, 25, and 35 percent
    • Double the standard deduction, e.g., from $12,000 to $24,000 for couples
    • Repeal the alternative minimum tax, the estate tax, and the 3.8 percent Obamacare tax on investment income for the rich
    • Add a new deduction for child care expenses
    • Cut the corporate rate to 15 percent
    • Treat “pass-through income” as corporate income taxed at 15 percent, rather than individual rates
    • Exempt foreign income from corporate tax
    • Impose a one-time “repatriation” tax on assets US companies hold overseas
    At a quick glance, those seem to be an awful lot of breaks for the rich, not anything meaningful for the poor or middle class
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  53. #53
    As you can see, that is a list. The paper doesn't look at the economics of the situation and instead just calculates some statutes. The economic incidence of a tax is frequently felt by people who are not statutorily affected by a tax. The corporate rate is a good example. Statutorily, the corporation pays it; incidence-wise, consumers pay it.
  54. #54
    Quote Originally Posted by Jack Sawyer View Post
    At a quick glance, those seem to be an awful lot of breaks for the rich, not anything meaningful for the poor or middle class
    Jobs muthafucka

    You fail to realize that the poor and middle class people to whom you are referring already pay 0% in taxes.
  55. #55
    Good point. A reduction in tax on investment benefits the less wealthy the most even though it appears at a quick glance to benefit the wealthier.
  56. #56
    It's possible that the numbers showing that tax plan benefiting the wealthy and not the non-wealthy is a product of the repatriation clause. Non-wealthy don't hold capital overseas, and if there is repatriation then the wealthy will get a giant chunk of money while the non-wealthy get little. If this is relevant to where the paper gets its score, it shows the uselessness of the paper's analysis.
  57. #57
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    Non-wealthy dgaf about the estate tax either
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  58. #58
    Quote Originally Posted by Jack Sawyer View Post
    Non-wealthy dgaf about the estate tax either
    The wealthy don't either. If you die owning anything, you're pretty dumb.

    You can set up a trust on legalzoom.com in like, eight seconds. Then poof, you're technically broke.

    Raise the estate tax to 99.99999% if you want. Anybody with an IQ above 30 should be able to die with an estate that's worth $0
  59. #59
    Quote Originally Posted by BananaStand View Post
    The wealthy don't either. If you die owning anything, you're pretty dumb.

    You can set up a trust on legalzoom.com in like, eight seconds. Then poof, you're technically broke.

    Raise the estate tax to 99.99999% if you want. Anybody with an IQ above 30 should be able to die with an estate that's worth $0
    Economics isn't about dealing with the way people *should* be, but with the way they are. Even if what you say is true, the estate tax is costly for a variety of reasons that include some of the world's most productive people don't like lawyers and accountants and get shafted by taxes even when loopholes exist, incentivizing end-of-live wanton consumerism, and creates greater trouble for those who are not smart like you say or have elder age issues.

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