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New research by IMF concludes "trickle down economics" is wrong: "the benefits do not trickle down" -- "When the top earners in society make more money, it actually slows down economic growth. On the other hand, when poorer people earn more, society as a whole benefits." (imf.org)

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[–]drukath 2ポイント3ポイント  (12子コメント)

The flawed assumption in trickle down economics is that rich people spend their money. As a proportion of the money that you earn, the rich spend a much lower percentage of it.

To pick 2 extreme examples as illustration: * Single working mother, working 30 hours a week part time on minimum wage with welfare top ups. Outgoings are rent, utilities, child care, clothing, and food. Monthly balance is small surplus to save for 1 holiday per year. Annually breaks even. * Billionaire. Spends a fair amount, gives a lot to charity, but every year gets richer and saves the excess money in the bank.

If you gave an extra $1,000 to the single mum it would get spent. The billionaire would not notice it. Our economy is dependent upon the velocity of the movement of money, so any money sat around not being spent is effectively removed from the economy. If it goes from a person that would spend it to a person that would not then this is an effective shrinking of the economy.

But so many economists are obsessed with the macroeconomically false supply and demand models that all they think about is picking one flawed side or the other.

[–]Daniel_SJ 14ポイント15ポイント  (8子コメント)

The assumption is not that the rich spend the money, but that they invest it. In societies with too little investment (and too much consumption) letting capitalists build bigger pools of money should allow for bigger investments - thus "creating jobs" and all that other jabber.

[–]mariox19 [スコア非表示]  (0子コメント)

Thank you. It's sad that I have to scroll more than halfway down the page before seeing a comment like yours in /r/economics. Instead, there are multiple comments about how "obvious" all this is—because "poor people spend their money."

News alert: consumption does not drive an economy; an economy is driven by production, and the wealthy invest far more of their money than they consume. If a country is lowering taxes on the wealthy and the wealthy are not investing their money in the country, the next question is why. Because, I assure you, they're investing it somewhere.

"Trickle down" is a straw man argument. No one with any brains ever argued that allowing the investor class to keep more money is all that it takes.

[–]stolt 2ポイント3ポイント  (0子コメント)

In societies with too little investment (and too much consumption)

macroeconomically speaking, these two are causally linked, actually. if you have less of one, you'll beget less of the other.

[–]bleahdeebleah [スコア非表示]  (2子コメント)

So this brings up something I'm curious about - what happens to money that goes into tax havens, such as the Caymans?

[–]Daniel_SJ [スコア非表示]  (1子コメント)

It's invested or spent according to the wishes of the owner, probably where it has the biggest return. No difference really.

A tax haven only means that through some technicality the money is registered to be owned in a country with low or no taxes. (Often through being owned by a company that has headquarters in that country). It doesn't, per se, affect how that money is invested or spent - although some measures are taken in some cases to limit foreign investments.

(It will, of course, mean that the money is not invested in public works as it's not collected by the government. So money in a tax haven is money that is proportionally more invested and spent on the private sector than normal).

[–]stolt 0ポイント1ポイント  (0子コメント)

The flawed assumption in trickle down economics is that rich people spend their money. As a proportion of the money that you earn, the rich spend a much lower percentage of it.

ah yes.... the difference marginal propensity consume

[–]inhuman4 [スコア非表示]  (0子コメント)

The flawed assumption in trickle down economics is that rich people spend their money.

No the assumption in supply side economics is that rich people will save/invest their money. An economy can have a shortage of both supply and demand. When there is a shortage of money available for investment the cost of borrowing goes up, which is reflected in high interest rates.

Crazy high interest rates like the 20% we saw in the early 80s. When interest rates are that high it is impossible for businesses to borrow money to expand, leading to stagnant growth, inflation, and high unemployment. Putting more money in the hands of people who will save the money, means more money for investments, and will bring down the the interest rates.

The problem with 'trickle down' economic is that it was a political attack against the idea of supply side economics. In the early 80s when it was be proposed was a totally appropriate response to America's economic problems. People on the left are still pissed off about it because it did the job it was supposed to do. And since the 80s the left hasn't given up on attacking it.

So here we are 35 years later with an economic situation nothing like the 80s, and because it is nothing like the 80s it's obvious that there needs to be a different solution, and many people are suggesting different solutions. Yet we still have people railing against 'trickle down' economics from 35 years ago, even though it has no bearing on what is going on today.

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