Bryan W. Alaspa 1Why trickle-down doesn’t work
October 7th 2009 01:06
One of the popular beliefs espoused by the conservative types is the idea of the “trickle down” theory. Recently I was told that I was wrong for believing that it didn’t work. You see, it is my contention is that if you give tax breaks to the rich, all you get is greedier, shadier, and richer rich people and that the gap between the classes just grows. It is my contention that the rich are greedy and if you give them breaks, rather than them doing more for those less fortunate than they, they just behave greedier. I was told that I was wrong, clearly. So, I decided to look up some alternative theories and I found one by Robert Frank who writes for the New York Times. (you can find his article reprinted here: (http://economistsview.typepad.com/economistsview/2007/04/robert_frank_tr.html)
According to Mr. Frank: “Trickle-down theorists are quick to object that higher taxes would cause top earners to work less and take fewer risks, thereby stifling economic growth. ... On close examination, however, this claim is supported neither by economic theory nor by empirical evidence. “
You see, there is this theory in the trickle down theory that only by giving huge tax breaks to the few wealthy people at the top of the chain this somehow creates jobs. Somehow by giving these breaks, the theory goes that you give incentives for people to work harder then they will put in more hours to get to those higher levels and get the tax breaks. Somehow, they argument goes, by doing that you then create jobs once you reach that level. I don’t really understand any of that, really, and find it to be a theory espoused by rich people who are trying to convince everyone else that they should be richer and the rest of us need to work harder so they can stay that way.
Again, Mr. Frank: “Because higher taxes on top earners reduce the reward for effort, it seems reasonable that they would induce people to work less... As every economics textbook makes clear, however, a decline in after-tax wages also exerts a second, opposing effect. By making people feel poorer, it provides them with an incentive to recoup their income loss by working harder than before. Economic theory says nothing about which of these offsetting effects may dominate.”
See, Mr. Frank is saying that if you tax the wealthy, you actually make them feel like they are poorer. Therefore, they actually feel the need to work harder, produce more, and do more in order to achieve the financial goals. Therefore, by putting the bigger burden on the rich, you actually increase their need and desire to work and to work harder.
Mr. Frank again: “Trickle-down theory also predicts a positive correlation between inequality and economic growth, the idea being that income disparities strengthen motivation to get ahead. Yet ... researchers ... find a negative correlation. In the decades immediately after World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large in the years since 1973, a period in which inequality has been steadily rising.”
So, at one time the gap between the poor and the wealthy was not so great. However, years of giving breaks to the rich has widened that gap. In short, nothing has “trickled down” to anyone. Thus, the theory doesn’t work.
Clearly.
According to Mr. Frank: “Trickle-down theorists are quick to object that higher taxes would cause top earners to work less and take fewer risks, thereby stifling economic growth. ... On close examination, however, this claim is supported neither by economic theory nor by empirical evidence. “
You see, there is this theory in the trickle down theory that only by giving huge tax breaks to the few wealthy people at the top of the chain this somehow creates jobs. Somehow by giving these breaks, the theory goes that you give incentives for people to work harder then they will put in more hours to get to those higher levels and get the tax breaks. Somehow, they argument goes, by doing that you then create jobs once you reach that level. I don’t really understand any of that, really, and find it to be a theory espoused by rich people who are trying to convince everyone else that they should be richer and the rest of us need to work harder so they can stay that way.
Again, Mr. Frank: “Because higher taxes on top earners reduce the reward for effort, it seems reasonable that they would induce people to work less... As every economics textbook makes clear, however, a decline in after-tax wages also exerts a second, opposing effect. By making people feel poorer, it provides them with an incentive to recoup their income loss by working harder than before. Economic theory says nothing about which of these offsetting effects may dominate.”
See, Mr. Frank is saying that if you tax the wealthy, you actually make them feel like they are poorer. Therefore, they actually feel the need to work harder, produce more, and do more in order to achieve the financial goals. Therefore, by putting the bigger burden on the rich, you actually increase their need and desire to work and to work harder.
Mr. Frank again: “Trickle-down theory also predicts a positive correlation between inequality and economic growth, the idea being that income disparities strengthen motivation to get ahead. Yet ... researchers ... find a negative correlation. In the decades immediately after World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large in the years since 1973, a period in which inequality has been steadily rising.”
So, at one time the gap between the poor and the wealthy was not so great. However, years of giving breaks to the rich has widened that gap. In short, nothing has “trickled down” to anyone. Thus, the theory doesn’t work.
Clearly.
| 9 |
| Vote |
subscribe to this blog
