So something struck me. If the vast majority of the stimulus is going to be spent on “construction”, health care projects, R & D etc etc., how is this any different from a bailout or a tax break for the rich?
The guy that owns the company that is doing the construction is likely pretty well off and he/she is going to see FAR FAR FAR more benefit than is his or her workers. I doubt that much if any of this money is going for R & D for some guy in his garage so again major corporations, universities …you know “The evil rich folks”?
For all the whining and moaning about “Trickle down doesn’t work”, isn’t this the same thing? Isn’t the money going to the same people? The only difference is that here were handing them a check rather than allowing them to keep their money.
For all the whining and moaning about “Trickle down doesn’t work”,
It’s not whining, the numbers bear out this truth. For the past 30 or so years since the top marginal rates have fallen significantly the idea of trickle down economics and cutting taxes at the top increasing overall government revenue has proven to be a fallacy. It doesn’t work, revenue doesn’t increase in proportion to the cut. When top marginal rates were cut significantly many years ago there was some impact, now slashing a few points off the top does nothing but decrease revenue.
So there, I’ve answered that half, I’ll let someone else come in and defend the current proposal
Fine but that doesn’t answer the point of the post. Whether you believe that trickle down works or doesn’t how is this any different than trickle down?
The money is obviously not going to the people that need it, outside of the low end tax cuts and rebates and will only get there thru those that already have it AKA “The rich”. In order for the stimulus to get to the poor the “Rich” will have to spend it, spend it wisely and in a method that generates “Jobs”.
In construction and pretty much any process the best “Bang for the buck” is to eliminate labor as much as possible so the cheapest quote will like be the most efficient and had figured out a way to do the most with the fewest people. The “Owner” will hang onto the biggest chunk, the next biggest chunk will be spent on equipment (Made by people who own other companies) and then labor.
What I’m saying is believe in trickle or not, how is this different?
My thoughts on this are which will be more benefitial to the workers that will get hired on these projects, work or a tax cut? The business owners will alway benefit, that is the nature of owning the business, they get more money for managing the work than the person actually doing the work.
It’s not that complicated, supply side tax cuts (for the past couple of decades) have lead to little reinvestment, ie. give the rich some money back, and then they sat on it. Funding a construction project or something similar, sure it’s going to go to the low bidder, but the project still gets completed by someone, this someone (a construction company) will employ people, engineers, crane operators, laborers of various trades, etc. These laborers now have jobs and a paycheck, they use that paycheck to maybe go to the store and buy some boots to wear on the job, the boot store just sold a pair of boots. The laborer maybe takes his wife out to dinner, the restaurant just sold a meal. The restaurant owner competes in triathlons, with all these construction workers coming in to eat he can buy that new Cervelo P4.
Obviously this is simplified, but do you see the multiplier in action?
No. This is giving money (and when I say “give,” I mean buying services) in the same proportions that people in a business usually receive them. ie, if my company gets hired on addiyional governmennt projects (which is probably 85% of the work we do directly), then the money gets used the way it typically does. I get the same salary I always get and so does everyone else. More work means more people hired, or less people laid off. Potentially salaries go up if demand for certain type of work goes up…which happens when more work is created. In the end the business grows.
Trickle down, on the other hand, is allowing our company owner to keep more of his personal income. Does he hire more people with that? No, not directly. Owners don’t hire people because they have more personal income sitting in their pockets. They hire people because they have work for them. Do they pay them more? No. Owners don’t pay people more because they have more personal income sitting in their pockets. They pay them more if their demand goes up.
So how does trickle down work? Well, what our owner is supposed to do with his money is go out buy a yacht, increasing the demand for yachts which then gets the yacht company to hire more people. In turn, they will go and buy more hamburgers which gets the restaurants to hire more people. They then shop at Walmart which gets them to hire more people. Etc.
Now, of course, there are a couple of issues here. #1, you rely on the hope that our owner will buy a yacht with his tax refund instead of hoard his money and wait for the economy to improve. You also assume that his purchase of a yacht put any more money into the economy or significantly increases the number of jobs more than simply giving the refund to the people waiting tables. You also assume that he’ll be buying a yacht from an American company.
But yes, in the end, the owner ends up with more money than the rest of us. One method directly creates jobs. The other method just gives him more money and hopes that it trickles down to the rest of us.
Reagan’s own financial guy wrote in a book that supply side was a bunch of BS.
My thoughts on this are which will be more benefitial to the workers that will get hired on these projects, work or a tax cut?
I’ll ask you the same question I asked in a different thread, how did those tax rebate checks work out in the spring? How did the multiplier work? Hint…it didn’t.
So we are pretty much out of monetary policy options, we tried rebate checks and people sat on them, the idea of a fiscal stimulus is pretty much the only option we haven’t tried. All of the other options have failed, we need to do something. And hey, even if this one fails like the others…at least we get some new bridges and roads!
Classic trickle down theory is used to justify lowering tax rates on the rich. This means you “give” money to the rich (more accurately you let them keep more of their money), without asking for anything in returnj. They are free to spend it on trips to Europe, save it in Swiss banks, or buy and hold gold; none of those things does much for our economy. Government spending, as proposed, might be as you said: giving money to the rich. The difference is that they are being asked for stuff (roads, bridges, etc.) in return. They have to use much of that money to actually accomplish what is asked. Unless their employees are also rich, it is the not-so-rich that also receive money in the form of jobs and increased income.
That’s why (and every economist I’ve read agrees) that government spending has more stimulative impact than tax cuts of an equal size.
I’m sure you wouldn’t approve of stipulations in the bill that would require some of the money to go to non-rich. You know, minorities, smaller businesses, stuff like that. God forbid we should increase the percentage of the money that goes to the non-rich.
Fine but that doesn’t answer the point of the post. Whether you believe that trickle down works or doesn’t how is this any different than trickle down?
The money is obviously not going to the people that need it, outside of the low end tax cuts and rebates and will only get there thru those that already have it AKA “The rich”. In order for the stimulus to get to the poor the “Rich” will have to spend it, spend it wisely and in a method that generates “Jobs”.
In construction and pretty much any process the best “Bang for the buck” is to eliminate labor as much as possible so the cheapest quote will like be the most efficient and had figured out a way to do the most with the fewest people. The “Owner” will hang onto the biggest chunk, the next biggest chunk will be spent on equipment (Made by people who own other companies) and then labor.
What I’m saying is believe in trickle or not, how is this different?
You are REALLY using backward logic here. When companies get hired to do work, they have to hire employees to do the work. You are somehow insinuating that once they get all this work, they’ll decide that all of the sudden they are going to streamline and lay people off. Like they were sitting around thinking, “Gosh, we have no work to do. No point in laying people off to streamline. Oh, now we have all this work to do. Lets fire a bunch of people.”
It’s not that complicated, supply side tax cuts (for the past couple of decades) have lead to little reinvestment, ie. give the rich some money back, and then they sat on it.
The only possible way this could happen is if they litterally stuffed it in a mattress. “The rich” did something with it and likely invested it somewhere or something. Even if stuffed in a bank that money was lent out for something.
At that point you are right back at funding a construction project, so no I don’t see a difference in “Multiplier”. It’s the same cycle to different effect unless you are claiming that “The rich” literally hide there money in coffee cans and bury it in the back yard.
This is the difference, and even you are not usually this obtuse, thats usually left to D from Florida.
If I give you a tax rebate (and for the purposes of this you are a billionaire so it satisfies your point), you take it, place half in savings and buy BA airline tickets and have a blow out in London.
Alternatively I say I am going to give you this money and that in return you need to build a bridge, you say “but I might crack a nail” and you think to yourself, what I will do is going and hire someone to do it for me and take a percentage…also known as profit for the share holder (in this instance you).
The difference between scenario 1 and 2, is that in both instances some money may end up in the hands of the wealthy, but in scenario 2 for them to get their greedy little mitts on it, they need to pass a significantly larger proportion on directly to someone else, you can see that right?
They are free to spend it on trips to Europe, save it in Swiss banks, or buy and hold gold; none of those things does much for our economy.
Please explain how none of these things do anything for the economy. If I go and buy a vacation, I’ve just employed someone. If I buy gold some just got cash to spend because they just sold me the cash. If I put the money in a Swiss account they are going to invest that money somewhere.
**That’s why (and every economist I’ve read agrees) that government spending has more stimulative impact than tax cuts of an equal size. **
It may or may not have “More” or “Less” stimulative impact and I suppose depending on what you value and how you “Rate” the impact we could go on and on about this all day long. The point is that it’s not all that entirely different.
I’m sure you wouldn’t approve of stipulations in the bill that would require some of the money to go to non-rich.
I would be against any stipulation that was not meant to increase the efficiency of the return. It makes no sense to have a job done based solely on artificial criteria if that is not the best method. So for the most part it makes no sense to make criteria based on factors that do not influence the outcome. Race and sex would be a couple of those. Size of company would not be. Smaller companies are better and more efficient at certain tasks than larger companies. I don’t really care if that company is owned by a female, minority or dog as long as they do the best job.
Please explain how none of these things do anything for the economy. If I go and buy a vacation, I’ve just employed someone. If I buy gold some just got cash to spend because they just sold me the cash. If I put the money in a Swiss account they are going to invest that money somewhere.
How about this, Matt. By your reasoning, explain to us how the money isn’t already in the economy. If its not in the “economy,” then where is it? Who’s got it?
They are free to spend it on trips to Europe, save it in Swiss banks, or buy and hold gold; none of those things does much for our economy.
Please explain how none of these things do anything for the economy. If I go and buy a vacation, I’ve just employed someone. If I buy gold some just got cash to spend because they just sold me the cash. If I put the money in a Swiss account they are going to invest that money somewhere.
**That’s why (and every economist I’ve read agrees) that government spending has more stimulative impact than tax cuts of an equal size. **
It may or may not have “More” or “Less” stimulative impact and I suppose depending on what you value and how you “Rate” the impact we could go on and on about this all day long. The point is that it’s not all that entirely different.
I’m sure you wouldn’t approve of stipulations in the bill that would require some of the money to go to non-rich.
I would be against any stipulation that was not meant to increase the efficiency of the return. It makes no sense to have a job done based solely on artificial criteria if that is not the best method. So for the most part it makes no sense to make criteria based on factors that do not influence the outcome. Race and sex would be a couple of those. Size of company would not be. Smaller companies are better and more efficient at certain tasks than larger companies. I don’t really care if that company is owned by a female, minority or dog as long as they do the best job.
~Matt
Are you being deliberately obtuse? If I take the gubmint money and spend $20 large in Paris, how many jobs in the US of A did that create? If I buy gold from London, how much tax revenue for the IRS did that generate? If I stash it in a Swiss bank, how much will be available to small businesses in Peoria?
You can go on all day about more or less, but the economists agree that the multiplier effect is greater for spending than for tax cuts.
You are REALLY using backward logic here. When companies get hired to do work, they have to hire employees to do the work.
The number of employees hired will be significantly less than the total outlay in cash for several reasons.
Let’s say we spend all 825$B at once on day one and it all goes for construction projects. Let’s also say this company is slow, their people are working 32 hours a week and when at full time can handle about 600$B a year.
The first thing this company does is not “Hire people” but bump everyone already working there to the max, they now are working 50-60 hours a week. The next thing they do is get more equipment so that their people can work more efficiently. If new positions open up they more than likely will “Move people up”.
The end result is that the “Bulk” of their hiring is done at the bottom rungs.
The 825B sent out to each individual would have been ~2750 per person. Going thru the “Construction” method I’d guess a very small portion of that goes out in wages in “New Jobs” in the first rung of the cycle. The money that actually gets to the “unemployed” is far less, on average, than if you just sent them 2750$.
You are somehow insinuating that once they get all this work, they’ll decide that all of the sudden they are going to streamline and lay people off.
No what I’m suggesting is that the people getting these contracts will only spend a fraction of the amount on actual new hires. The “Bulk” will go to new equipment, wages for existing employees and horror or horror, additional profit.
These contracts aren’t going to be going to “Start up companies” but well established companies.
Are you being deliberately obtuse? If I take the gubmint money and spend $20 large in Paris, how many jobs in the US of A did that create?
No not at all I just think one has their head in the sand if they believe we can operate the US economy outside of the global economy. I think we clearly saw the effects of the global economy on the US in this recent dump. In fact I would say it’s our ignoring this aspect that is a good part of the problem.
No, but there is some subtlety to this that our discussion is missing. Obviously the effect of the multiplier varies, but with marginal tax rates where they have been for the past several decades, the multiplier is greater when used for fiscal stimulus, especially in a time of declining consumer confidence like we have now.
As I said, we are over-simplifying this which is leading to confusion, but in terms of reinvestment, pumping the money directly into projects results in a greater multiplier than handing it back to people.
Let’s start here: