Discussion on Trickle Down Economics

A personal note on a quora discussion about trickle down economy. I put it here as notes to my thinking about the subject per 12 Jan 2018.

Quora Question:

As a conservative, what do you wish liberals understood?

Link’s to Ron Rule’s Answer:

https://www.quora.com/As-a-conservative-what-do-you-wish-liberals-understood/answer/Ron-Rule?share=cae9fe5b&srid=9j01

Sendy’s response to Ron Rule’s Answer:

Ah, the assumption that if the wealthy have more money from reduced local tax, they will spend it and put it back to the local economy, instead of hoarding the wealth or investing it outside the country or spending outside the country.

Anonymous’ answer to The GOP claims that the proposed tax cuts for the wealthy and for corporations will trickle down in the form of higher wages, jobs, and healthier retirement plans for the middle class. Has this idea ever worked?

Ron’s comments on Sendy’s response

Again, you’re fixated on the actions of multi-billion dollar companies. That’s precisely what I’m saying the left doesn’t understand. Small and mid sized businesses don’t operate that way. And it’s the small and mid sized that are the employers of middle America.

If Google saves $1 billion on their taxes, it doesn’t affect their operations. But if a small business doing $2–10 million per year gets a $1 million tax cut, that directly impacts that businesses ability to expand. Same thing in the $20–50 million range with a larger cut. Their communities and employees directly benefit from that increased stability and growth opportunity.

Sendy’s reply to Ron’s comment

Ron,

You should look at the quora answer I included. That answer is from small businessman, who receive a windfall due to tax cut, and decide to use it on holiday overseas (not on US soil, that’s money out of your country), and financial investment (which not necessarily translate to actual jobs).

So to say that “tax cut” is good because it will always means higher economic activity from those that now have more money and that higher economic would benefit everyone is wrong.

It doesn’t always means higher economic activity, I receive tax cut, i could just keep it.

And if I spend it, it doesn’t mean I spend it on things that helps the local (US) economy.

As to other comments on how governments are just bad at doing things compared to private sector, geez, you guys should go out more and visit other countries.

The US government is bad, sometimes, because its political appointees and decision makers are always beholden to donors, and that’s your form of corruption.

Jacob Tomseth comment to Sendy’s response

Nobody is hoarding money. Get the idea out of your head that the economy is a fixed pie and every piece I take means there is less for everyone else. The economic pie is constantly expanding due to productivity. Businesses are in reality creating their own pieces of pie, not stealing it from someone else. The only ones that steal any pie is the government since they don’t actually create anything.

Sendy’s Reply to Jacob Tomseth’s comment

Oh I understand that Jacob, I understand that the economy is not a fixed pie.

I am a CEO of a small business that raise its money from investors. So I understand how capitalism work, I know enough to benefit from it.

But I also know enough to see capitalism shortcomings.

I am all for enlarging the economic pie.

You comment seem to equate tax cut with enlarging the economic pie.

But that cuts doesn’t always result in enlarging the economic pie.

“If people have more money, they will spend it, and that’s good for the economy”. That statemen is true, but only when people who has more money, has the need to spend, and will spend.

Is that the case with tax cut? Or any program that gives money to the already so rich that they cannot spend what they receive in ways that leads to in-country economic demand and/or job creation?”

The economy is better off giving $1 billion to 1 million poor people than giving $1 billion to 1 billionaire.

The 1 million poor people will spend it on the goods and services on the local market, and that $1 billion will slowly trickle up to people who owns the small, medium, and large businesses, and enrich everyone in the chain of economic consumption.

The 1 billionaires will use the extra 1 billion to what? Buy 1 million luxury jackets? Buy 10000 luxury cars? What’s the billionaire impact to local economic demand compared to 1 million people who live hand-to-mouth?

My consumer base doesn’t get bigger when the people making millions of dollars a year get more money, my consumer base gets bigger when the people making sometimes hundreds of thousands of dollar a year, mostly tens of thousands dollar a year, sometimes thousands of dollar a year make money.

Most businesses have customers who earns thousands or ten of thousands dollars a year, not millionaires.

And so I love it when people have more money, just like ron said, it’s good when people have more money. But who? The people that have so much that additional money won’t lead to 100% consumption of that money? Or the people that have so few thus they have to spend that money right back into the economy?

So, how do we enlarge the economic pie? By pumping more money to it.

Do all methods of pumping money into the economy always result in enlarging the economic pie? No.

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