WEBVTT - How Trickle-Down Economics Works 0:00:00.440 --> 0:00:03.880 Welcome to Stuff you Should Know from house Stuff Works 0:00:03.920 --> 0:00:12.840 dot com. Hey, welcome to the podcast. I'm Josh Clark 0:00:12.920 --> 0:00:16.040 and there's Charles W. Chuck Bryant and Jerry and they're 0:00:16.120 --> 0:00:20.880 snickering and tittering, and that makes this stuff you should know. Yeah, 0:00:21.239 --> 0:00:25.840 we've got sidetracked before talking about things that trickle. Names, 0:00:26.440 --> 0:00:29.280 names that trickle. Yes, like the famous race car driver 0:00:29.400 --> 0:00:32.680 Dick Trickle. You say, your road dude, I swear to 0:00:32.720 --> 0:00:37.559 God look him up. I will don't image search and 0:00:37.640 --> 0:00:43.560 just look him up. Okay, guys specify race car. Yeah, okay, 0:00:43.600 --> 0:00:47.920 that's a good idea. Your Google Master with your Google fou. Yes, 0:00:48.520 --> 0:00:50.519 and we the three of us, are apparently all eight 0:00:50.640 --> 0:00:55.680 years old again. Uh, speaking of trickle, Chuck, Hey, happy birthday. 0:00:56.080 --> 0:00:58.480 That would be quiet. Jerry, you have a big mouth. 0:00:59.160 --> 0:01:02.360 You're always talking. Well. I usually remember, but I don't 0:01:02.440 --> 0:01:05.759 didn't today, So happy birthday. Thank you. I appreciate it. 0:01:06.160 --> 0:01:08.560 And this will be out several weeks later. But right, 0:01:08.880 --> 0:01:13.360 I'll get to relive my birthday all over again. Thanks man. 0:01:14.040 --> 0:01:19.440 Have you Chuckers ever seen the movie Ferris Bueler's Day Off? Yeah, 0:01:19.600 --> 0:01:22.959 and then we'd go there at some point in this one. Yeah, 0:01:23.600 --> 0:01:26.560 because of ben Stein. Yeah, okay, good, so you know 0:01:26.640 --> 0:01:32.840 the answer then something the o economics anyone who do economics? Yeah, 0:01:33.120 --> 0:01:37.240 when they're an ECON class. The guy says, Bueller, Bueller, 0:01:37.440 --> 0:01:39.600 that's ben Stein. Remember he had that show when ben 0:01:39.640 --> 0:01:43.399 Stein's money which was really his money? Yeah it was, 0:01:43.400 --> 0:01:46.200 wasn't it? I think so? I think le Yeah, I 0:01:46.240 --> 0:01:48.120 think maybe like they gave it to him if it 0:01:48.200 --> 0:01:52.600 wasn't one or came out of a salary, who knows. Um. 0:01:52.680 --> 0:01:55.400 But before that show came on, he was in Farris 0:01:55.440 --> 0:01:57.520 Bueller's day off as an ECON professor. And I believe 0:01:57.560 --> 0:02:01.720 he does have a degree in economics. He's also just 0:02:01.760 --> 0:02:05.000 a great actor and vizine pitchman. But what are he 0:02:05.040 --> 0:02:07.800 was talking about in there? He was clear? Clear, I 0:02:08.400 --> 0:02:12.200 thank you? Clear? Is awesome. Yeah, that's right. That sounded 0:02:12.280 --> 0:02:17.920 like not ben Stein. That's as steiny as I get. Anyway, 0:02:17.960 --> 0:02:22.000 he was talking about voodoo economics, and voodoo economics was 0:02:22.120 --> 0:02:26.639 another name for trickle down economics a k a. Reaganomics. 0:02:26.840 --> 0:02:29.640 And the person who coined the term voodoo economics do 0:02:29.720 --> 0:02:33.600 you know John Hughes No, Yeah, it was George Bush 0:02:33.760 --> 0:02:37.760 sr h W. Remember that Yeah. He he was running 0:02:37.760 --> 0:02:42.440 in the primaries against Reagan and for the election before 0:02:42.480 --> 0:02:45.160 he came on as his vice president, and he was 0:02:45.200 --> 0:02:50.000 deriving Reagan's economic policies, specifically his belief and trickle down 0:02:50.040 --> 0:02:55.919 economics as voodoo economics because there's some apparently, some sort 0:02:55.960 --> 0:02:58.040 of magic to the whole thing that makes it work 0:02:58.200 --> 0:03:02.680 rather than sound economic principle. Yeah, it occurred to me 0:03:02.720 --> 0:03:06.519 today when I was studying the stuff that John Hughes 0:03:06.880 --> 0:03:10.639 picked this very topic to represent the most boring thing 0:03:10.840 --> 0:03:14.760 you could talk about. I guess so. And uh, it 0:03:14.840 --> 0:03:17.480 took me a few times to to figure it out, 0:03:17.480 --> 0:03:20.160 because you know, I don't My brain doesn't skew towards 0:03:20.280 --> 0:03:24.440 understanding economics. It's it's tough to do. But I finally did, 0:03:24.480 --> 0:03:25.680 and I was like, you know what, it's not the 0:03:25.720 --> 0:03:29.840 most boring thing ever, it's uh, it's pretty interesting. If 0:03:29.880 --> 0:03:32.520 I came around. That means anyone can now it's just 0:03:32.760 --> 0:03:38.680 our um our burden to make it interesting to everybody else, right, 0:03:38.920 --> 0:03:43.960 which we've already failed that spectacularly. That's right. So let's 0:03:43.960 --> 0:03:47.720 talk about this idea first of all, trickle down economics. Um, 0:03:47.800 --> 0:03:51.040 we'll explain the whole thing in detail starting in just 0:03:51.080 --> 0:03:53.480 a moment. But we should probably say that the disclaimer 0:03:53.800 --> 0:03:58.120 if you want to drive a fiscal conservative or a 0:03:58.160 --> 0:04:04.080 conservative economists, or just to conservative in general. Crazy mentioned 0:04:04.120 --> 0:04:07.840 trickle down economics. Like call what they call supply side 0:04:07.880 --> 0:04:11.760 economics trickle down economics. It drives some bonkers. There's like, 0:04:11.800 --> 0:04:13.960 there's no such thing as trickle down economics. It's a 0:04:14.080 --> 0:04:18.880 derisive term. It's um it doesn't capture the spirit or 0:04:18.920 --> 0:04:22.400 the thought behind supply side economics, which is what they've 0:04:22.400 --> 0:04:24.520 come around to call it. But back in the day, 0:04:24.560 --> 0:04:27.279 it was definitely called trickle down economics. And the whole point, 0:04:27.600 --> 0:04:30.120 the reason why it was called trickle down economics, is 0:04:30.160 --> 0:04:35.960 that the idea behind it is if you place wealth 0:04:36.839 --> 0:04:41.880 with the wealthiest people, this idea goes they will take 0:04:41.920 --> 0:04:45.160 that money and invested into the economy, which will get 0:04:45.200 --> 0:04:49.440 things running again, and as a result, that economic engine 0:04:49.440 --> 0:04:52.400 revving up will create more wealth at the top that 0:04:52.520 --> 0:04:57.479 trickles down to the lower working and middle classes. Yeah, like, 0:04:57.520 --> 0:05:00.600 who better to stimulate the economy than the super rich, 0:05:01.360 --> 0:05:05.320 and they will like maybe open a business to put 0:05:05.320 --> 0:05:08.120 people to work, and then those workers will benefit and 0:05:08.400 --> 0:05:12.640 uh directly from that investment that that person made right. 0:05:12.680 --> 0:05:14.839 So this is the whole tree behind it. We should 0:05:14.839 --> 0:05:19.880 also disclaim even further that economics as a field is 0:05:20.080 --> 0:05:27.159 so far from science it's preposterous. Um. Most economic theory 0:05:27.200 --> 0:05:30.239 that you ever will run into from John Maynard Keynes 0:05:30.440 --> 0:05:36.640 or Adam Smith or um Jean Baptiste, Um. These guys 0:05:36.720 --> 0:05:42.320 are talking about pure economies the United States, and I 0:05:42.360 --> 0:05:45.039 don't think there's any economy in the world that is 0:05:45.200 --> 0:05:49.680 a pure economy, free market economy. The United States has 0:05:49.760 --> 0:05:55.880 things like tariffs, and um, we have things like government intervention, 0:05:56.040 --> 0:06:00.800 tax policy, monetary policy. There's intervention in the markets. So 0:06:00.920 --> 0:06:05.120 you can't ever say. We can't say really what causes 0:06:05.160 --> 0:06:07.880 recessions and what brings us out of them, or whether 0:06:08.000 --> 0:06:11.520 trickle down economics is effective or if it's not, or 0:06:11.560 --> 0:06:13.640 if it is effective, is it effective in the long 0:06:13.720 --> 0:06:16.200 run or the short run? And what about the opposite way, 0:06:16.279 --> 0:06:18.360 is that effective in the long run or the short run? 0:06:18.680 --> 0:06:21.560 We don't know. People think they do though. That is 0:06:21.640 --> 0:06:23.960 the thing. That's why like this kind of stuff can 0:06:24.000 --> 0:06:26.520 get people's blood boiling. So like the point of this 0:06:26.560 --> 0:06:28.880 one is to just talk about trickle down economics and 0:06:28.960 --> 0:06:30.920 the theory behind it and why it may or may 0:06:30.960 --> 0:06:35.320 not work, and um, on the caveat that we don't know, 0:06:35.720 --> 0:06:38.800 and neither do economists. Yeah, I think I left this 0:06:38.839 --> 0:06:41.320 at a little frustrated after my research because I thought 0:06:41.320 --> 0:06:45.360 I would come away with an answer. Um. But I mean, 0:06:45.400 --> 0:06:47.760 if you look up Reaganomics, which is another name for 0:06:47.800 --> 0:06:53.960 Reagan's version of the supply side economics, you will find article, 0:06:54.080 --> 0:06:57.200 well more than that, but hundred articles on how what 0:06:57.279 --> 0:06:59.960 a great success it was and then the abject failure 0:07:00.000 --> 0:07:03.480 of reagonomics, and no one is going to agree. I 0:07:03.520 --> 0:07:05.680 looked at some of these theories and said, well, that 0:07:05.760 --> 0:07:07.840 makes sense in an ideal world. Then I look at 0:07:07.839 --> 0:07:09.800 the opposite and think, well that makes sense in an 0:07:09.840 --> 0:07:12.400 ideal world. And I don't I don't know if you, 0:07:12.560 --> 0:07:14.240 like you said, I don't know if you can. I 0:07:14.280 --> 0:07:15.920 don't know if there is an answer. Even though everyone 0:07:16.000 --> 0:07:20.400 thinks that they're right, both people can't be right both sides. No, 0:07:20.560 --> 0:07:24.960 it's true, because these are very opposite in most cases ideas. Yeah, 0:07:24.960 --> 0:07:27.040 but what I did find was a bunch of articles 0:07:27.760 --> 0:07:33.160 after digging further that said the failures and successes of Reaganomics. 0:07:34.000 --> 0:07:35.960 And I think, to me, that's probably a little more 0:07:35.960 --> 0:07:39.160 accurate because it is in a black and white situation. Well, 0:07:39.200 --> 0:07:42.160 the part of the problem is is if you point 0:07:42.240 --> 0:07:47.320 to Reagan's tax policies, right, and and Reagan is tied 0:07:47.360 --> 0:07:50.360 to trickle down economics, and we'll get into the history, 0:07:50.440 --> 0:07:52.680 like we'll clear all this up. But he's not really 0:07:52.760 --> 0:07:55.920 the first one to implement this, but he's he's tied 0:07:55.960 --> 0:07:58.320 to it. But if you look at reaganomics, the problem 0:07:58.360 --> 0:08:02.920 is this, Chuck. If if you say, well, the nineties 0:08:02.960 --> 0:08:06.240 were very prosperous with the dot com boom um and 0:08:06.280 --> 0:08:11.360 the the Nasdaq hit like like a record ten thousand 0:08:11.440 --> 0:08:14.440 points at like in the nineties, all that was from 0:08:14.480 --> 0:08:16.760 Reagan's policies, Well you can't say that that was from 0:08:16.760 --> 0:08:21.000 Reagan's policies. We we don't know. We just simply don't know. 0:08:21.320 --> 0:08:24.520 Was it something short term that the Clinton administration was doing, 0:08:24.800 --> 0:08:28.840 or was it the long term effects of Reagan's text cuts. 0:08:29.520 --> 0:08:32.760 We don't know. Yeah, and we're going to get scores 0:08:32.800 --> 0:08:35.679 of email from people saying what we do know, but 0:08:35.720 --> 0:08:38.840 we don't know, So just send your email. It's fine, 0:08:38.880 --> 0:08:42.800 but you're wrong. Uh, well, I guess we should go 0:08:42.800 --> 0:08:45.520 ahead and say too that just the name trickled down 0:08:45.679 --> 0:08:49.800 was coined by Will Rogers, famous Humorous in the nineteen twenties. 0:08:50.240 --> 0:08:53.160 It is not a nineteen eighties thing. It had been 0:08:53.200 --> 0:08:55.760 around for a while and he said, quote the money 0:08:55.800 --> 0:08:58.040 was all appropriated for the top in hopes that it 0:08:58.080 --> 0:09:01.040 would trickle down to the needy. And that's where started 0:09:01.080 --> 0:09:06.680 to get it a derogatory feel around that name for sure. 0:09:06.760 --> 0:09:10.640 Since the twenties and and over time, um, especially since 0:09:10.679 --> 0:09:16.400 the eighties, the people who champion trickle down economics or 0:09:16.440 --> 0:09:20.280 this this particular version of trickle down tax policy have 0:09:20.559 --> 0:09:24.079 tried to distance themselves from the term trickle down because 0:09:24.120 --> 0:09:26.280 it does seem elitist and it seems like a big 0:09:26.280 --> 0:09:31.560 wealth transfer, which in fact it is. Um. Let's let's 0:09:31.600 --> 0:09:39.160 talk about this. Trickle down policy isn't necessarily um associated 0:09:39.200 --> 0:09:44.200 with Reagan's tax cuts. The whole idea is behind trickle down. 0:09:44.200 --> 0:09:46.600 As I said already, as you take wealth and you 0:09:46.800 --> 0:09:52.080 give it to the wealthiest people, that's that's what's done. 0:09:52.480 --> 0:09:55.720 It's a wealth transfer, and it's usually done at a 0:09:55.800 --> 0:09:58.200 time when you're in an economic slump, so you're hoping 0:09:58.240 --> 0:10:00.560 to revitalize things. Yeah, it's the g we're meant trying 0:10:00.559 --> 0:10:04.040 to smooth out the rough spots in the national economy, 0:10:04.200 --> 0:10:08.000 like a k A. Recessions. Um, so you're transferring wealth. 0:10:08.240 --> 0:10:11.880 You're transferring wealth though on the premise that that money 0:10:12.240 --> 0:10:18.000 is going to be reinvested, reinvigorated, used to reinvigorate the economy. Right, 0:10:18.120 --> 0:10:20.360 So it is a wealth transferred, but with the one 0:10:20.400 --> 0:10:24.240 we're talking about today specifically, Um, we're talking about Reagan's version. 0:10:24.520 --> 0:10:28.840 So it's a wealth transferred through tax cuts. Right. So 0:10:28.880 --> 0:10:32.560 when Reagan came into office, Uh, he took over a 0:10:32.640 --> 0:10:37.360 tax policy where the highest tax rate was like seventy. 0:10:38.880 --> 0:10:43.280 The highest earners were paying seventy on their highest income, 0:10:43.559 --> 0:10:46.079 and he got that down to about fifty. Yeah, which 0:10:46.120 --> 0:10:49.959 is still seems incredibly high today in an age where 0:10:50.000 --> 0:10:54.240 we're paying like thirty the highest earners are. So the 0:10:54.280 --> 0:10:59.000 point is is Reagan did it through tax cuts. But 0:10:59.200 --> 0:11:02.120 the that doesn't mean like trickle down economics don't doesn't 0:11:02.120 --> 0:11:06.880 equal text cuts necessarily, it's it's that's that's one way 0:11:06.880 --> 0:11:10.320 of putting more money into the hands of the wealthiest, 0:11:10.720 --> 0:11:14.439 right Exactly. It's really a question of supply and demand. 0:11:14.480 --> 0:11:17.000 And I guess we can go back through time. A 0:11:17.000 --> 0:11:20.880 little bit to John bptis say who you mentioned, uh, 0:11:21.040 --> 0:11:26.000 nineteenth century French economists, and his his philosophy has been 0:11:26.040 --> 0:11:29.360 misinterpreted a lot as supply creates its own demand. It's 0:11:29.360 --> 0:11:32.880 not exactly right. What he was really saying is products 0:11:32.880 --> 0:11:36.120 are paid for with products, and money just had like 0:11:36.200 --> 0:11:40.040 a temporary function. Um. Yeah, Like if you are somebody 0:11:40.040 --> 0:11:44.040 who produces something, when you produce that something, that item, 0:11:44.080 --> 0:11:47.240 when you go make that shoe and you're gonna sell 0:11:47.320 --> 0:11:49.600 your shoe, which is with the whole reason you made 0:11:49.640 --> 0:11:52.040 the shoe in the first place, and then with that 0:11:52.120 --> 0:11:55.040 money you can go use it to buy other goods 0:11:55.040 --> 0:11:58.880 and services. So the production of that shoe created a 0:11:58.920 --> 0:12:04.080 wage for you, which in turn stimulated consumption demand from 0:12:04.120 --> 0:12:07.200 you for something else. Yeah, product is paid for the product. 0:12:07.800 --> 0:12:11.440 The misinterpretation that supply creates its own demand is it's 0:12:11.480 --> 0:12:14.920 just a bastardized version. And that basically means that there 0:12:15.200 --> 0:12:17.480 would never be a failed product, like you can just 0:12:17.480 --> 0:12:21.920 produce and produce and produce, which isn't sound No, that's insane, 0:12:22.000 --> 0:12:24.960 And I think Say would have said that that is 0:12:24.960 --> 0:12:28.000 not true as well. Well, he did he did um 0:12:28.280 --> 0:12:30.640 during his lifetime even say like, well, no, I mean 0:12:30.720 --> 0:12:33.680 there it's possible that there is such a thing as 0:12:33.760 --> 0:12:36.240 over production. Sure. I mean, like if you think about it, 0:12:36.280 --> 0:12:39.920 like during the uh the housing market crash, Yeah, it's 0:12:40.000 --> 0:12:42.880 starting a few years ago. There was a glut of 0:12:42.920 --> 0:12:45.760 homes on the market. And it's not like the people 0:12:45.760 --> 0:12:48.920 who are building homes just merely went on building homes 0:12:48.920 --> 0:12:52.440 and building homes and building homes. Like once the demand ceased, 0:12:52.720 --> 0:12:55.680 they stopped producing, and we still had a glut on 0:12:55.760 --> 0:12:58.440 the market and the ones who were still just thinking 0:12:58.440 --> 0:13:01.800 money and to build, like build, just stop basically. Yeah, 0:13:02.080 --> 0:13:04.880 And it was because there was an oversupply because demand 0:13:04.920 --> 0:13:08.040 had ceased. So the idea that that if you if 0:13:08.080 --> 0:13:11.760 you produce it, demand will come on a short term 0:13:11.800 --> 0:13:15.600 basis is this kind of a fallacy. Yeah, but in 0:13:16.080 --> 0:13:19.559 the earlier days of this country, a lot of big 0:13:19.559 --> 0:13:25.120 thinkers agreed with him, like Jefferson. Um. But the tide 0:13:25.160 --> 0:13:28.760 turned later on in our country with the introduction of 0:13:28.880 --> 0:13:31.839 Mr Keynes Keensie and economics. Yeah, so we've talked about 0:13:31.920 --> 0:13:35.080 in our audio book. Yeah, we did stuff you should know, 0:13:35.520 --> 0:13:38.680 super Stuff Guide to the Economy, Yeah, which is probably 0:13:38.720 --> 0:13:42.319 super outdated, I wonder, but there are some I think 0:13:42.320 --> 0:13:44.840 there's some evergreen content in there. Yeah. I mean it 0:13:44.920 --> 0:13:49.880 was like an economics one on one course with us. Yeah. Um, 0:13:49.960 --> 0:13:52.760 but so so. The basis of Says law is that 0:13:53.240 --> 0:13:59.079 if you stimulate um production, then you'll get the economy 0:13:59.080 --> 0:14:02.200 going again. And it was implemented for a while like 0:14:02.280 --> 0:14:05.119 some of the some of the early twentieth century presidents 0:14:05.160 --> 0:14:12.640 like Hoover, among others like Harding and Coolidge, well JFK. Later, 0:14:12.679 --> 0:14:15.400 but early on in the twentieth century, Harding and Coolidge 0:14:15.440 --> 0:14:20.040 both implemented, um, this kind of what's called supply side 0:14:20.640 --> 0:14:24.600 policy text policy right where that where if you stimulate 0:14:24.640 --> 0:14:30.360 production through lowering taxes at the top and we'll tell 0:14:30.400 --> 0:14:32.960 you in a second how those two are correlated, Um, 0:14:33.000 --> 0:14:36.360 you can get the economy going. Yet. Well, Hoover also 0:14:36.600 --> 0:14:40.360 followed the same policy, and under Hoover's watch the Great 0:14:40.360 --> 0:14:44.640 Depression happened. Yeah, which would cause any just regular thinking person, 0:14:44.680 --> 0:14:46.920 even if they don't understand economics, to think, hey, we're 0:14:46.960 --> 0:14:50.960 doing it wrong. Right, So Roosevelt came along, That's right. 0:14:51.160 --> 0:14:53.480 Roosevelt held the opposite view, and he was very much 0:14:53.480 --> 0:14:56.320 a Kinesian and he was operating at the same time 0:14:56.360 --> 0:15:01.560 that Keynes was writing and working himself, and John Maynard 0:15:01.640 --> 0:15:04.479 Kane said, no, no, no, you guys have it backwards. 0:15:05.240 --> 0:15:10.080 You don't stimulate the supply, you stimulate the demand. Then 0:15:10.120 --> 0:15:12.160 all of a sudden, if you have a housing glut 0:15:12.520 --> 0:15:15.640 and you suddenly have people who have more money to spend, 0:15:16.040 --> 0:15:18.080 they'll take care of your housing glut and then things 0:15:18.160 --> 0:15:21.360 can get back to normal. We reach equilibrium again. Yeah, 0:15:21.360 --> 0:15:25.400 he was about, uh, short term ideas, short term fixes, 0:15:25.480 --> 0:15:31.440 maybe lower interest rates, maybe taxes, fiscal policy, taxes and spending. 0:15:31.840 --> 0:15:34.120 Basically what you hear a lot about these days. It 0:15:34.920 --> 0:15:37.800 you know, Kenzie and economics kind of lasted a long 0:15:37.840 --> 0:15:40.920 time until probably Kennedy and then Reagan. It's like there's 0:15:40.920 --> 0:15:43.840 only been a handful of US presidents really endorse the 0:15:43.880 --> 0:15:47.920 trickle down theory. Yeah, like wholeheartedly since the twentieth century. Yeah, 0:15:48.400 --> 0:15:53.400 um so yeah, it's the Keynesian policies ruled, and it 0:15:53.480 --> 0:15:57.000 was very much about like cutting taxes for the lower 0:15:57.040 --> 0:16:00.960 and middle and working classes, increase texas for the rich. 0:16:01.040 --> 0:16:04.520 Because if you if you're a government, you still need revenue, right, 0:16:04.840 --> 0:16:06.600 so you can't just cut texas for everybody. If you 0:16:06.640 --> 0:16:08.600 cut Texas for one group, you kind of need to 0:16:08.640 --> 0:16:10.880 increase it for another because you still need your money 0:16:10.920 --> 0:16:13.800 coming in. Of course, you could also take the radical 0:16:13.840 --> 0:16:18.040 step of figuring out how to eliminate waste and blow 0:16:18.240 --> 0:16:20.120 in government. That would help a lot, but we're not 0:16:20.160 --> 0:16:23.280 talking about that in this one. We're talking about trickle 0:16:23.320 --> 0:16:28.040 down economics. So then along comes Kennedy who says, hey, 0:16:28.160 --> 0:16:31.800 or my dad was a pretty rich so I'm kind 0:16:31.800 --> 0:16:35.040 of thinking that this trickle down thing might work. So 0:16:35.080 --> 0:16:38.080 he got into supply side economics. And then when Reagan 0:16:38.160 --> 0:16:41.640 came along, he really championed this whole idea. And it 0:16:41.680 --> 0:16:44.000 was out of a result of some guys in the 0:16:44.040 --> 0:16:48.800 seventies saying, um, there's this whole other thing that we've 0:16:48.800 --> 0:16:52.280 been ignoring, which is this trickle down tax policy that 0:16:52.320 --> 0:16:54.840 we should implement, and they got Reagan into it and 0:16:55.000 --> 0:16:58.280 he implemented it. Yeah, and uh, after this message break 0:16:58.280 --> 0:16:59.680 coming up here in a sec we're going to talk 0:16:59.720 --> 0:17:01.400 a little a bit about if it doesn't sound like 0:17:01.440 --> 0:17:04.919 it makes sense to you, there's a certain curve that 0:17:04.960 --> 0:17:11.040 will explain that might clear it up for you. All Right, 0:17:11.200 --> 0:17:13.840 So we're gonna talk about the Laugher curve. Which was 0:17:13.880 --> 0:17:17.920 also in Ferry Spueller. Oh was it? Yeah, he says, 0:17:18.000 --> 0:17:20.200 Laugher curve. But in high school, I had no idea. 0:17:20.359 --> 0:17:22.520 But I was like, what are those words together? I 0:17:22.520 --> 0:17:25.119 don't understand. Laugher was a person l A f f 0:17:25.240 --> 0:17:30.879 e er and um. The Laugher curve helps explain a 0:17:30.880 --> 0:17:35.280 little bit why trickle down economics could possibly work. Is 0:17:35.320 --> 0:17:37.000 that a good neutral way to say that, I would 0:17:37.000 --> 0:17:40.000 say so. Uh. The idea of the Laugher curve curve 0:17:40.160 --> 0:17:43.800 is that the relationship between taxes and revenues is a 0:17:43.840 --> 0:17:47.879 curve instead of a direct relationship. So at a certain point, 0:17:48.640 --> 0:17:51.359 let's say you own a company making shoes and you 0:17:52.000 --> 0:17:55.760 grows ten million dollars through like the first two financial quarters, 0:17:56.240 --> 0:17:59.479 and your tax that let's say, and you know, if 0:17:59.480 --> 0:18:01.679 you make any more money than you're gonna jump up 0:18:01.680 --> 0:18:07.160 into that text uh tax category. You might slow down production, 0:18:07.160 --> 0:18:09.680 you might halt the production altogether. And so you know what, 0:18:09.720 --> 0:18:12.640 I'm gonna take off the rest of the year, maybe 0:18:12.640 --> 0:18:14.679 even put these people out of work for four to 0:18:14.760 --> 0:18:18.040 six months furlow furlough and because I don't want to 0:18:18.080 --> 0:18:20.919 be text anymore. So if you look at that on 0:18:21.080 --> 0:18:26.800 a graph, it's gonna be if you text people, they're 0:18:26.800 --> 0:18:29.120 not gonna work. If you text people zero percent, you're 0:18:29.119 --> 0:18:32.520 not getting any money. So in the middle of there 0:18:32.760 --> 0:18:37.199 is the curve, right It Basically Laughers curve suggests that 0:18:37.640 --> 0:18:43.159 the correlation between UM tax rates and tax revenue is 0:18:43.200 --> 0:18:46.639 not totally positive. At some point it starts to go 0:18:46.760 --> 0:18:49.439 back down. Yeah, that's called the prohibitive range. At a 0:18:49.440 --> 0:18:52.480 certain point, people don't want to be text in that range. Yeah, 0:18:52.520 --> 0:18:56.120 And it's not even necessarily that they are not working 0:18:56.160 --> 0:18:59.879 any longer because they resent being taxed. What laugh For 0:19:00.160 --> 0:19:03.240 was pointing out is that there is this prohibitive range, 0:19:03.240 --> 0:19:08.880 and within the prohibitive range, UM, you remove the incentive 0:19:08.960 --> 0:19:13.360 to work. Theoretically, where UM and Jay mcgrathrough wrote this, 0:19:13.600 --> 0:19:17.239 Uh gave a pretty good UM example where it's like, 0:19:17.400 --> 0:19:21.879 if you make that money and you are text that's tolerable, 0:19:21.960 --> 0:19:24.000 you're still gonna make You still get to keep fifty 0:19:24.040 --> 0:19:28.960 percent for yourself. But when you're texting that nine percentile, UH, 0:19:29.400 --> 0:19:32.160 you're let's say you were going to make another million dollars, 0:19:33.080 --> 0:19:35.440 you have to give nine thousand of it to the government. 0:19:35.480 --> 0:19:37.760 You just get to keep a hundred thousand, Well, you 0:19:37.840 --> 0:19:40.040 might decide to just go and spend the rest of 0:19:40.040 --> 0:19:42.480 the year at your beach house with the money that 0:19:42.520 --> 0:19:45.359 you did make, not because you resent being texted, because 0:19:45.440 --> 0:19:48.520 it's just not worth it to to exert that effort 0:19:48.520 --> 0:19:50.560 to make that next million dollars when you just get 0:19:50.560 --> 0:19:52.879 to keep a hundred thousand of it. So at that 0:19:52.920 --> 0:19:57.320 point in that prohibitive range, the text policy is effectively 0:19:59.000 --> 0:20:02.480 keeping people from working, inducing them to not work any longer, 0:20:02.680 --> 0:20:05.040 which is bad for an economy. And that's if you're 0:20:05.640 --> 0:20:09.080 if your work, if your income is directly related to 0:20:09.280 --> 0:20:12.480 your work, right, you could conceivably, if you owned a 0:20:12.520 --> 0:20:15.000 factory or something, and you didn't have to really exert 0:20:15.040 --> 0:20:18.280 any problems and you could still make payroll and all 0:20:18.359 --> 0:20:20.800 that stuff, it might be worth it to just leave 0:20:20.840 --> 0:20:22.919 it to these other people to make that extra hundred 0:20:22.920 --> 0:20:26.399 thousand dollars for you, rather than go off to the beachuse. 0:20:26.480 --> 0:20:31.200 But if you your effort directly um is tax then yes, 0:20:31.320 --> 0:20:35.760 it would become a disincentive towards work. Conceivably. We should 0:20:35.760 --> 0:20:38.320 point out Chuck and Jane didn't do a very good 0:20:38.359 --> 0:20:41.680 job of doing that in this In this article, Laugher's 0:20:41.800 --> 0:20:46.359 curve is a thought experiment. It's not based on data. 0:20:46.960 --> 0:20:49.760 It's not um hard and fast rule or a law. 0:20:49.920 --> 0:20:55.080 It's basically an intuitive idea of tax rates and their 0:20:55.119 --> 0:20:58.240 effect on tax revenue. Yeah, but if you don't even 0:20:58.280 --> 0:21:00.639 have to be a business owner, Let's say you're just 0:21:00.680 --> 0:21:02.960 a regular employee that makes a salary, you have a 0:21:03.000 --> 0:21:06.080 salary sweet spot as well. You know, if it's great 0:21:06.119 --> 0:21:08.640 to get promotions and to get raises, but if you're 0:21:08.680 --> 0:21:12.560 really climbing the ladder at a certain point, you might think, Man, 0:21:13.440 --> 0:21:16.640 I got a big raise, and I'm making barely any 0:21:16.640 --> 0:21:19.600 more money than i made before this big promotion because 0:21:19.600 --> 0:21:22.639 I've been kicked into a higher tax bracket. So that's 0:21:22.920 --> 0:21:25.479 the prohibitive range. And you know can apply to you. 0:21:25.560 --> 0:21:27.800 I mean you can't. You don't stop working. No, But 0:21:27.880 --> 0:21:30.880 you may say, I don't actually want that promotion because 0:21:30.920 --> 0:21:33.680 it's going to be more responsibility and really not much 0:21:33.720 --> 0:21:36.120 more money. So I'm gonna hang out right here rather 0:21:36.200 --> 0:21:40.399 than keep going in my little range or whatever it is. 0:21:42.320 --> 0:21:46.800 So that's Laugher's curve, and that's a it's a kind 0:21:46.800 --> 0:21:51.320 of the basis of trickle down tax policy. It's the 0:21:51.400 --> 0:21:56.160 idea that Okay, there is a point where you can 0:21:56.359 --> 0:22:01.760 tax too much and now you're actually slowing down the economy. So, 0:22:03.680 --> 0:22:07.000 based on Laugher's curve, when you're looking at it through 0:22:07.280 --> 0:22:12.679 um through trickle down policy, there's a point then that's that, 0:22:12.840 --> 0:22:14.840 like you said, there's a sweet spot as far as 0:22:14.920 --> 0:22:18.760 text revenue goes, and it creates this seeming paradox where 0:22:18.760 --> 0:22:22.520 if you cut tax rates at a certain point, you'll 0:22:22.520 --> 0:22:27.679 actually increase tax revenue because people will be incentivized to 0:22:27.720 --> 0:22:32.040 work more throughout the year. And the other basis of 0:22:32.119 --> 0:22:38.080 trickle down theory is that you are going to put 0:22:38.119 --> 0:22:41.640 more money or keep more money with the people at 0:22:41.680 --> 0:22:46.600 the wealthiest people who under this idea are more likely 0:22:46.680 --> 0:22:51.000 to um invest it back into the economy, right, and 0:22:51.040 --> 0:22:57.160 when they do that, supposedly allegedly, the economy booms. Yeah, 0:22:57.200 --> 0:22:59.639 what you can account for is just the single person. 0:22:59.720 --> 0:23:03.800 This is looked at in the broadest terms, because somebody 0:23:03.800 --> 0:23:05.400 could make all their money and just sit on it 0:23:05.680 --> 0:23:09.639 in the bank, which isn't reinvesting it. That is a really, really, 0:23:09.760 --> 0:23:13.080 really big point. You'll remember back at the beginning of 0:23:13.080 --> 0:23:16.480 this recession, the FED was doing everything it could to 0:23:16.960 --> 0:23:23.000 cheapen lending and still has been and uh, it didn't 0:23:23.040 --> 0:23:28.359 do anything. Like you have to take into account things 0:23:28.480 --> 0:23:35.680 like um insecurity, fear, um just being human, yes, being human, 0:23:35.760 --> 0:23:40.600 Like we're not necessarily rationally maximizing actors. Humans are like 0:23:40.640 --> 0:23:43.760 there is such thing as fear and the idea that 0:23:43.840 --> 0:23:47.960 maybe hoarding money is best. So what's possible then if 0:23:48.000 --> 0:23:51.120 you follow this trickle down tax policy, is you're taking 0:23:51.200 --> 0:23:56.240 money from everybody else and giving it to the rich. 0:23:57.040 --> 0:24:00.000 Or if your head just spun because your fiscal conservative, 0:24:00.560 --> 0:24:03.440 what you're doing is allowing the rich to keep more 0:24:03.520 --> 0:24:07.120 of their income, but they're not doing anything with it 0:24:08.160 --> 0:24:11.399 right at least as a short term fixed that's not 0:24:11.520 --> 0:24:14.879 a good idea because you can probably bet that eventually 0:24:14.920 --> 0:24:19.280 the rich are going to take that money and invested 0:24:19.320 --> 0:24:23.480 back in the economy. But it's not. Yes, but when's 0:24:23.520 --> 0:24:26.359 that going to happen? You can't really say. And part 0:24:26.359 --> 0:24:29.320 of the other problem with it is is that you 0:24:29.400 --> 0:24:33.360 are then also basically handing money out at a fire sale. 0:24:34.200 --> 0:24:36.560 You're saying, hey, here's a bunch of money invested back 0:24:36.600 --> 0:24:40.480 in the economy. And have we mentioned the bargain basement 0:24:40.600 --> 0:24:43.240 rates you can get on all of these businesses over 0:24:43.280 --> 0:24:48.320