Speaker 1: Welcome to Stuff you Should Know from house Stuff Works
Speaker 1: dot com. Hey, welcome to the podcast. I'm Josh Clark
Speaker 1: and there's Charles W. Chuck Bryant and Jerry and they're
Speaker 1: snickering and tittering, and that makes this stuff you should know. Yeah,
Speaker 1: we've got sidetracked before talking about things that trickle. Names,
Speaker 1: names that trickle. Yes, like the famous race car driver
Speaker 1: Dick Trickle. You say, your road dude, I swear to
Speaker 1: God look him up. I will don't image search and
Speaker 1: just look him up. Okay, guys specify race car. Yeah, okay,
Speaker 1: that's a good idea. Your Google Master with your Google fou. Yes,
Speaker 1: and we the three of us, are apparently all eight
Speaker 1: years old again. Uh, speaking of trickle, Chuck, Hey, happy birthday.
Speaker 1: That would be quiet. Jerry, you have a big mouth.
Speaker 1: You're always talking. Well. I usually remember, but I don't
Speaker 1: didn't today, So happy birthday. Thank you. I appreciate it.
Speaker 1: And this will be out several weeks later. But right,
Speaker 1: I'll get to relive my birthday all over again. Thanks man.
Speaker 1: Have you Chuckers ever seen the movie Ferris Bueler's Day Off? Yeah,
Speaker 1: and then we'd go there at some point in this one. Yeah,
Speaker 1: because of ben Stein. Yeah, okay, good, so you know
Speaker 1: the answer then something the o economics anyone who do economics? Yeah,
Speaker 1: when they're an ECON class. The guy says, Bueller, Bueller,
Speaker 1: that's ben Stein. Remember he had that show when ben
Speaker 1: Stein's money which was really his money? Yeah it was,
Speaker 1: wasn't it? I think so? I think le Yeah, I
Speaker 1: think maybe like they gave it to him if it
Speaker 1: wasn't one or came out of a salary, who knows. Um.
Speaker 1: But before that show came on, he was in Farris
Speaker 1: Bueller's day off as an ECON professor. And I believe
Speaker 1: he does have a degree in economics. He's also just
Speaker 1: a great actor and vizine pitchman. But what are he
Speaker 1: was talking about in there? He was clear? Clear, I
Speaker 1: thank you? Clear? Is awesome. Yeah, that's right. That sounded
Speaker 1: like not ben Stein. That's as steiny as I get. Anyway,
Speaker 1: he was talking about voodoo economics, and voodoo economics was
Speaker 1: another name for trickle down economics a k a. Reaganomics.
Speaker 1: And the person who coined the term voodoo economics do
Speaker 1: you know John Hughes No, Yeah, it was George Bush
Speaker 1: sr h W. Remember that Yeah. He he was running
Speaker 1: in the primaries against Reagan and for the election before
Speaker 1: he came on as his vice president, and he was
Speaker 1: deriving Reagan's economic policies, specifically his belief and trickle down
Speaker 1: economics as voodoo economics because there's some apparently, some sort
Speaker 1: of magic to the whole thing that makes it work
Speaker 1: rather than sound economic principle. Yeah, it occurred to me
Speaker 1: today when I was studying the stuff that John Hughes
Speaker 1: picked this very topic to represent the most boring thing
Speaker 1: you could talk about. I guess so. And uh, it
Speaker 1: took me a few times to to figure it out,
Speaker 1: because you know, I don't My brain doesn't skew towards
Speaker 1: understanding economics. It's it's tough to do. But I finally did,
Speaker 1: and I was like, you know what, it's not the
Speaker 1: most boring thing ever, it's uh, it's pretty interesting. If
Speaker 1: I came around. That means anyone can now it's just
Speaker 1: our um our burden to make it interesting to everybody else, right,
Speaker 1: which we've already failed that spectacularly. That's right. So let's
Speaker 1: talk about this idea first of all, trickle down economics. Um,
Speaker 1: we'll explain the whole thing in detail starting in just
Speaker 1: a moment. But we should probably say that the disclaimer
Speaker 1: if you want to drive a fiscal conservative or a
Speaker 1: conservative economists, or just to conservative in general. Crazy mentioned
Speaker 1: trickle down economics. Like call what they call supply side
Speaker 1: economics trickle down economics. It drives some bonkers. There's like,
Speaker 1: there's no such thing as trickle down economics. It's a
Speaker 1: derisive term. It's um it doesn't capture the spirit or
Speaker 1: the thought behind supply side economics, which is what they've
Speaker 1: come around to call it. But back in the day,
Speaker 1: it was definitely called trickle down economics. And the whole point,
Speaker 1: the reason why it was called trickle down economics, is
Speaker 1: that the idea behind it is if you place wealth
Speaker 1: with the wealthiest people, this idea goes they will take
Speaker 1: that money and invested into the economy, which will get
Speaker 1: things running again, and as a result, that economic engine
Speaker 1: revving up will create more wealth at the top that
Speaker 1: trickles down to the lower working and middle classes. Yeah, like,
Speaker 1: who better to stimulate the economy than the super rich,
Speaker 1: and they will like maybe open a business to put
Speaker 1: people to work, and then those workers will benefit and
Speaker 1: uh directly from that investment that that person made right.
Speaker 1: So this is the whole tree behind it. We should
Speaker 1: also disclaim even further that economics as a field is
Speaker 1: so far from science it's preposterous. Um. Most economic theory
Speaker 1: that you ever will run into from John Maynard Keynes
Speaker 1: or Adam Smith or um Jean Baptiste, Um. These guys
Speaker 1: are talking about pure economies the United States, and I
Speaker 1: don't think there's any economy in the world that is
Speaker 1: a pure economy, free market economy. The United States has
Speaker 1: things like tariffs, and um, we have things like government intervention,
Speaker 1: tax policy, monetary policy. There's intervention in the markets. So
Speaker 1: you can't ever say. We can't say really what causes
Speaker 1: recessions and what brings us out of them, or whether
Speaker 1: trickle down economics is effective or if it's not, or
Speaker 1: if it is effective, is it effective in the long
Speaker 1: run or the short run? And what about the opposite way,
Speaker 1: is that effective in the long run or the short run?
Speaker 1: We don't know. People think they do though. That is
Speaker 1: the thing. That's why like this kind of stuff can
Speaker 1: get people's blood boiling. So like the point of this
Speaker 1: one is to just talk about trickle down economics and
Speaker 1: the theory behind it and why it may or may
Speaker 1: not work, and um, on the caveat that we don't know,
Speaker 1: and neither do economists. Yeah, I think I left this
Speaker 1: at a little frustrated after my research because I thought
Speaker 1: I would come away with an answer. Um. But I mean,
Speaker 1: if you look up Reaganomics, which is another name for
Speaker 1: Reagan's version of the supply side economics, you will find article,
Speaker 1: well more than that, but hundred articles on how what
Speaker 1: a great success it was and then the abject failure
Speaker 1: of reagonomics, and no one is going to agree. I
Speaker 1: looked at some of these theories and said, well, that
Speaker 1: makes sense in an ideal world. Then I look at
Speaker 1: the opposite and think, well that makes sense in an
Speaker 1: ideal world. And I don't I don't know if you,
Speaker 1: like you said, I don't know if you can. I
Speaker 1: don't know if there is an answer. Even though everyone
Speaker 1: thinks that they're right, both people can't be right both sides. No,
Speaker 1: it's true, because these are very opposite in most cases ideas. Yeah,
Speaker 1: but what I did find was a bunch of articles
Speaker 1: after digging further that said the failures and successes of Reaganomics.
Speaker 1: And I think, to me, that's probably a little more
Speaker 1: accurate because it is in a black and white situation. Well,
Speaker 1: the part of the problem is is if you point
Speaker 1: to Reagan's tax policies, right, and and Reagan is tied
Speaker 1: to trickle down economics, and we'll get into the history,
Speaker 1: like we'll clear all this up. But he's not really
Speaker 1: the first one to implement this, but he's he's tied
Speaker 1: to it. But if you look at reaganomics, the problem
Speaker 1: is this, Chuck. If if you say, well, the nineties
Speaker 1: were very prosperous with the dot com boom um and
Speaker 1: the the Nasdaq hit like like a record ten thousand
Speaker 1: points at like in the nineties, all that was from
Speaker 1: Reagan's policies, Well you can't say that that was from
Speaker 1: Reagan's policies. We we don't know. We just simply don't know.
Speaker 1: Was it something short term that the Clinton administration was doing,
Speaker 1: or was it the long term effects of Reagan's text cuts.
Speaker 1: We don't know. Yeah, and we're going to get scores
Speaker 1: of email from people saying what we do know, but
Speaker 1: we don't know, So just send your email. It's fine,
Speaker 1: but you're wrong. Uh, well, I guess we should go
Speaker 1: ahead and say too that just the name trickled down
Speaker 1: was coined by Will Rogers, famous Humorous in the nineteen twenties.
Speaker 1: It is not a nineteen eighties thing. It had been
Speaker 1: around for a while and he said, quote the money
Speaker 1: was all appropriated for the top in hopes that it
Speaker 1: would trickle down to the needy. And that's where started
Speaker 1: to get it a derogatory feel around that name for sure.
Speaker 1: Since the twenties and and over time, um, especially since
Speaker 1: the eighties, the people who champion trickle down economics or
Speaker 1: this this particular version of trickle down tax policy have
Speaker 1: tried to distance themselves from the term trickle down because
Speaker 1: it does seem elitist and it seems like a big
Speaker 1: wealth transfer, which in fact it is. Um. Let's let's
Speaker 1: talk about this. Trickle down policy isn't necessarily um associated
Speaker 1: with Reagan's tax cuts. The whole idea is behind trickle down.
Speaker 1: As I said already, as you take wealth and you
Speaker 1: give it to the wealthiest people, that's that's what's done.
Speaker 1: It's a wealth transfer, and it's usually done at a
Speaker 1: time when you're in an economic slump, so you're hoping
Speaker 1: to revitalize things. Yeah, it's the g we're meant trying
Speaker 1: to smooth out the rough spots in the national economy,
Speaker 1: like a k A. Recessions. Um, so you're transferring wealth.
Speaker 1: You're transferring wealth though on the premise that that money
Speaker 1: is going to be reinvested, reinvigorated, used to reinvigorate the economy. Right,
Speaker 1: So it is a wealth transferred, but with the one
Speaker 1: we're talking about today specifically, Um, we're talking about Reagan's version.
Speaker 1: So it's a wealth transferred through tax cuts. Right. So
Speaker 1: when Reagan came into office, Uh, he took over a
Speaker 1: tax policy where the highest tax rate was like seventy.
Speaker 1: The highest earners were paying seventy on their highest income,
Speaker 1: and he got that down to about fifty. Yeah, which
Speaker 1: is still seems incredibly high today in an age where
Speaker 1: we're paying like thirty the highest earners are. So the
Speaker 1: point is is Reagan did it through tax cuts. But
Speaker 1: the that doesn't mean like trickle down economics don't doesn't
Speaker 1: equal text cuts necessarily, it's it's that's that's one way
Speaker 1: of putting more money into the hands of the wealthiest,
Speaker 1: right Exactly. It's really a question of supply and demand.
Speaker 1: And I guess we can go back through time. A
Speaker 1: little bit to John bptis say who you mentioned, uh,
Speaker 1: nineteenth century French economists, and his his philosophy has been
Speaker 1: misinterpreted a lot as supply creates its own demand. It's
Speaker 1: not exactly right. What he was really saying is products
Speaker 1: are paid for with products, and money just had like
Speaker 1: a temporary function. Um. Yeah, Like if you are somebody
Speaker 1: who produces something, when you produce that something, that item,
Speaker 1: when you go make that shoe and you're gonna sell
Speaker 1: your shoe, which is with the whole reason you made
Speaker 1: the shoe in the first place, and then with that
Speaker 1: money you can go use it to buy other goods
Speaker 1: and services. So the production of that shoe created a
Speaker 1: wage for you, which in turn stimulated consumption demand from
Speaker 1: you for something else. Yeah, product is paid for the product.
Speaker 1: The misinterpretation that supply creates its own demand is it's
Speaker 1: just a bastardized version. And that basically means that there
Speaker 1: would never be a failed product, like you can just
Speaker 1: produce and produce and produce, which isn't sound No, that's insane,
Speaker 1: And I think Say would have said that that is
Speaker 1: not true as well. Well, he did he did um
Speaker 1: during his lifetime even say like, well, no, I mean
Speaker 1: there it's possible that there is such a thing as
Speaker 1: over production. Sure. I mean, like if you think about it,
Speaker 1: like during the uh the housing market crash, Yeah, it's
Speaker 1: starting a few years ago. There was a glut of
Speaker 1: homes on the market. And it's not like the people
Speaker 1: who are building homes just merely went on building homes
Speaker 1: and building homes and building homes. Like once the demand ceased,
Speaker 1: they stopped producing, and we still had a glut on
Speaker 1: the market and the ones who were still just thinking
Speaker 1: money and to build, like build, just stop basically. Yeah,
Speaker 1: And it was because there was an oversupply because demand
Speaker 1: had ceased. So the idea that that if you if
Speaker 1: you produce it, demand will come on a short term
Speaker 1: basis is this kind of a fallacy. Yeah, but in
Speaker 1: the earlier days of this country, a lot of big
Speaker 1: thinkers agreed with him, like Jefferson. Um. But the tide
Speaker 1: turned later on in our country with the introduction of
Speaker 1: Mr Keynes Keensie and economics. Yeah, so we've talked about
Speaker 1: in our audio book. Yeah, we did stuff you should know,
Speaker 1: super Stuff Guide to the Economy, Yeah, which is probably
Speaker 1: super outdated, I wonder, but there are some I think
Speaker 1: there's some evergreen content in there. Yeah. I mean it
Speaker 1: was like an economics one on one course with us. Yeah. Um,
Speaker 1: but so so. The basis of Says law is that
Speaker 1: if you stimulate um production, then you'll get the economy
Speaker 1: going again. And it was implemented for a while like
Speaker 1: some of the some of the early twentieth century presidents
Speaker 1: like Hoover, among others like Harding and Coolidge, well JFK. Later,
Speaker 1: but early on in the twentieth century, Harding and Coolidge
Speaker 1: both implemented, um, this kind of what's called supply side
Speaker 1: policy text policy right where that where if you stimulate
Speaker 1: production through lowering taxes at the top and we'll tell
Speaker 1: you in a second how those two are correlated, Um,
Speaker 1: you can get the economy going. Yet. Well, Hoover also
Speaker 1: followed the same policy, and under Hoover's watch the Great
Speaker 1: Depression happened. Yeah, which would cause any just regular thinking person,
Speaker 1: even if they don't understand economics, to think, hey, we're
Speaker 1: doing it wrong. Right, So Roosevelt came along, That's right.
Speaker 1: Roosevelt held the opposite view, and he was very much
Speaker 1: a Kinesian and he was operating at the same time
Speaker 1: that Keynes was writing and working himself, and John Maynard
Speaker 1: Kane said, no, no, no, you guys have it backwards.
Speaker 1: You don't stimulate the supply, you stimulate the demand. Then
Speaker 1: all of a sudden, if you have a housing glut
Speaker 1: and you suddenly have people who have more money to spend,
Speaker 1: they'll take care of your housing glut and then things
Speaker 1: can get back to normal. We reach equilibrium again. Yeah,
Speaker 1: he was about, uh, short term ideas, short term fixes,
Speaker 1: maybe lower interest rates, maybe taxes, fiscal policy, taxes and spending.
Speaker 1: Basically what you hear a lot about these days. It
Speaker 1: you know, Kenzie and economics kind of lasted a long
Speaker 1: time until probably Kennedy and then Reagan. It's like there's
Speaker 1: only been a handful of US presidents really endorse the
Speaker 1: trickle down theory. Yeah, like wholeheartedly since the twentieth century. Yeah,
Speaker 1: um so yeah, it's the Keynesian policies ruled, and it
Speaker 1: was very much about like cutting taxes for the lower
Speaker 1: and middle and working classes, increase texas for the rich.
Speaker 1: Because if you if you're a government, you still need revenue, right,
Speaker 1: so you can't just cut texas for everybody. If you
Speaker 1: cut Texas for one group, you kind of need to
Speaker 1: increase it for another because you still need your money
Speaker 1: coming in. Of course, you could also take the radical
Speaker 1: step of figuring out how to eliminate waste and blow
Speaker 1: in government. That would help a lot, but we're not
Speaker 1: talking about that in this one. We're talking about trickle
Speaker 1: down economics. So then along comes Kennedy who says, hey,
Speaker 1: or my dad was a pretty rich so I'm kind
Speaker 1: of thinking that this trickle down thing might work. So
Speaker 1: he got into supply side economics. And then when Reagan
Speaker 1: came along, he really championed this whole idea. And it
Speaker 1: was out of a result of some guys in the
Speaker 1: seventies saying, um, there's this whole other thing that we've
Speaker 1: been ignoring, which is this trickle down tax policy that
Speaker 1: we should implement, and they got Reagan into it and
Speaker 1: he implemented it. Yeah, and uh, after this message break
Speaker 1: coming up here in a sec we're going to talk
Speaker 1: a little a bit about if it doesn't sound like
Speaker 1: it makes sense to you, there's a certain curve that
Speaker 1: will explain that might clear it up for you. All Right,
Speaker 1: So we're gonna talk about the Laugher curve. Which was
Speaker 1: also in Ferry Spueller. Oh was it? Yeah, he says,
Speaker 1: Laugher curve. But in high school, I had no idea.
Speaker 1: But I was like, what are those words together? I
Speaker 1: don't understand. Laugher was a person l A f f
Speaker 1: e er and um. The Laugher curve helps explain a
Speaker 1: little bit why trickle down economics could possibly work. Is
Speaker 1: that a good neutral way to say that, I would
Speaker 1: say so. Uh. The idea of the Laugher curve curve
Speaker 1: is that the relationship between taxes and revenues is a
Speaker 1: curve instead of a direct relationship. So at a certain point,
Speaker 1: let's say you own a company making shoes and you
Speaker 1: grows ten million dollars through like the first two financial quarters,
Speaker 1: and your tax that let's say, and you know, if
Speaker 1: you make any more money than you're gonna jump up
Speaker 1: into that text uh tax category. You might slow down production,
Speaker 1: you might halt the production altogether. And so you know what,
Speaker 1: I'm gonna take off the rest of the year, maybe
Speaker 1: even put these people out of work for four to
Speaker 1: six months furlow furlough and because I don't want to
Speaker 1: be text anymore. So if you look at that on
Speaker 1: a graph, it's gonna be if you text people, they're
Speaker 1: not gonna work. If you text people zero percent, you're
Speaker 1: not getting any money. So in the middle of there
Speaker 1: is the curve, right It Basically Laughers curve suggests that
Speaker 1: the correlation between UM tax rates and tax revenue is
Speaker 1: not totally positive. At some point it starts to go
Speaker 1: back down. Yeah, that's called the prohibitive range. At a
Speaker 1: certain point, people don't want to be text in that range. Yeah,
Speaker 1: And it's not even necessarily that they are not working
Speaker 1: any longer because they resent being taxed. What laugh For
Speaker 1: was pointing out is that there is this prohibitive range,
Speaker 1: and within the prohibitive range, UM, you remove the incentive
Speaker 1: to work. Theoretically, where UM and Jay mcgrathrough wrote this,
Speaker 1: Uh gave a pretty good UM example where it's like,
Speaker 1: if you make that money and you are text that's tolerable,
Speaker 1: you're still gonna make You still get to keep fifty
Speaker 1: percent for yourself. But when you're texting that nine percentile, UH,
Speaker 1: you're let's say you were going to make another million dollars,
Speaker 1: you have to give nine thousand of it to the government.
Speaker 1: You just get to keep a hundred thousand, Well, you
Speaker 1: might decide to just go and spend the rest of
Speaker 1: the year at your beach house with the money that
Speaker 1: you did make, not because you resent being texted, because
Speaker 1: it's just not worth it to to exert that effort
Speaker 1: to make that next million dollars when you just get
Speaker 1: to keep a hundred thousand of it. So at that
Speaker 1: point in that prohibitive range, the text policy is effectively
Speaker 1: keeping people from working, inducing them to not work any longer,
Speaker 1: which is bad for an economy. And that's if you're
Speaker 1: if your work, if your income is directly related to
Speaker 1: your work, right, you could conceivably, if you owned a
Speaker 1: factory or something, and you didn't have to really exert
Speaker 1: any problems and you could still make payroll and all
Speaker 1: that stuff, it might be worth it to just leave
Speaker 1: it to these other people to make that extra hundred
Speaker 1: thousand dollars for you, rather than go off to the beachuse.
Speaker 1: But if you your effort directly um is tax then yes,
Speaker 1: it would become a disincentive towards work. Conceivably. We should
Speaker 1: point out Chuck and Jane didn't do a very good
Speaker 1: job of doing that in this In this article, Laugher's
Speaker 1: curve is a thought experiment. It's not based on data.
Speaker 1: It's not um hard and fast rule or a law.
Speaker 1: It's basically an intuitive idea of tax rates and their
Speaker 1: effect on tax revenue. Yeah, but if you don't even
Speaker 1: have to be a business owner, Let's say you're just
Speaker 1: a regular employee that makes a salary, you have a
Speaker 1: salary sweet spot as well. You know, if it's great
Speaker 1: to get promotions and to get raises, but if you're
Speaker 1: really climbing the ladder at a certain point, you might think, Man,
Speaker 1: I got a big raise, and I'm making barely any
Speaker 1: more money than i made before this big promotion because
Speaker 1: I've been kicked into a higher tax bracket. So that's
Speaker 1: the prohibitive range. And you know can apply to you.
Speaker 1: I mean you can't. You don't stop working. No, But
Speaker 1: you may say, I don't actually want that promotion because
Speaker 1: it's going to be more responsibility and really not much
Speaker 1: more money. So I'm gonna hang out right here rather
Speaker 1: than keep going in my little range or whatever it is.
Speaker 1: So that's Laugher's curve, and that's a it's a kind
Speaker 1: of the basis of trickle down tax policy. It's the
Speaker 1: idea that Okay, there is a point where you can
Speaker 1: tax too much and now you're actually slowing down the economy. So,
Speaker 1: based on Laugher's curve, when you're looking at it through
Speaker 1: um through trickle down policy, there's a point then that's that,
Speaker 1: like you said, there's a sweet spot as far as
Speaker 1: text revenue goes, and it creates this seeming paradox where
Speaker 1: if you cut tax rates at a certain point, you'll
Speaker 1: actually increase tax revenue because people will be incentivized to
Speaker 1: work more throughout the year. And the other basis of
Speaker 1: trickle down theory is that you are going to put
Speaker 1: more money or keep more money with the people at
Speaker 1: the wealthiest people who under this idea are more likely
Speaker 1: to um invest it back into the economy, right, and
Speaker 1: when they do that, supposedly allegedly, the economy booms. Yeah,
Speaker 1: what you can account for is just the single person.
Speaker 1: This is looked at in the broadest terms, because somebody
Speaker 1: could make all their money and just sit on it
Speaker 1: in the bank, which isn't reinvesting it. That is a really, really,
Speaker 1: really big point. You'll remember back at the beginning of
Speaker 1: this recession, the FED was doing everything it could to
Speaker 1: cheapen lending and still has been and uh, it didn't
Speaker 1: do anything. Like you have to take into account things
Speaker 1: like um insecurity, fear, um just being human, yes, being human,
Speaker 1: Like we're not necessarily rationally maximizing actors. Humans are like
Speaker 1: there is such thing as fear and the idea that
Speaker 1: maybe hoarding money is best. So what's possible then if
Speaker 1: you follow this trickle down tax policy, is you're taking
Speaker 1: money from everybody else and giving it to the rich.
Speaker 1: Or if your head just spun because your fiscal conservative,
Speaker 1: what you're doing is allowing the rich to keep more
Speaker 1: of their income, but they're not doing anything with it
Speaker 1: right at least as a short term fixed that's not
Speaker 1: a good idea because you can probably bet that eventually
Speaker 1: the rich are going to take that money and invested
Speaker 1: back in the economy. But it's not. Yes, but when's
Speaker 1: that going to happen? You can't really say. And part
Speaker 1: of the other problem with it is is that you
Speaker 1: are then also basically handing money out at a fire sale.
Speaker 1: You're saying, hey, here's a bunch of money invested back
Speaker 1: in the economy. And have we mentioned the bargain basement
Speaker 1: rates you can get on all of these businesses over
Speaker 1: here because the economy is in a recession. Yeah, very much, so,
Speaker 1: you know. And it's it's like it is literally a
Speaker 1: wealth transfer, and under some circumstances like the recession that
Speaker 1: we're still coming out of now, it is a wealth
Speaker 1: transfer and an asset transfer, and that the people who
Speaker 1: have the most money, the wealthy, also have the most
Speaker 1: buying power and they have the best bargains. Yeah. Thomas
Speaker 1: Sowell is a is an economist, and he um, he
Speaker 1: won't call it trickle down economics because he thinks it
Speaker 1: literally benefits the workers immediately and first because in the
Speaker 1: idealized version, they're gonna reinvest in. The very first thing
Speaker 1: that's gonna happen is they're gonna put people to work
Speaker 1: and people are gonna have jobs. Uh so, yeah, you won't.
Speaker 1: He's not gonna call it trickle down theory because he
Speaker 1: thinks it works literally the opposite way. Now. He I
Speaker 1: read a column in the National Review by him, and
Speaker 1: he's like, you will never find a legitimate economist, um,
Speaker 1: a history of economic theories and policies and analysis. You'll
Speaker 1: never find trickle down economics anywhere. Like it drives him
Speaker 1: crazy that people call it that because it has such
Speaker 1: a um a negative association, an elitist wealthy association. Yeah.
Speaker 1: And you know when you if you're during election time
Speaker 1: or during if you see these big tax cuts for
Speaker 1: the wealthy, if it makes your blood boil because you
Speaker 1: think they are these people are obviously in the hip
Speaker 1: pocket of the politician. That may be true, but you
Speaker 1: can still remove yourself from that and look at the
Speaker 1: theory itself and does it work or does it not?
Speaker 1: And we will do that after this message. So Chuck,
Speaker 1: let's let's do just that, um passionless run down of
Speaker 1: how it trickled down supply side tax policy works. Yeah.
Speaker 1: I mean, it's got to be passionless with me, because
Speaker 1: I have no idea. I like, I can't argue hard
Speaker 1: for any side because I read so many articles disputing
Speaker 1: one another completely that I have no idea. So okay,
Speaker 1: so you're we're in a recession and there's a discussion
Speaker 1: is it supply or demand that you want to stimulate? Well,
Speaker 1: with supply side economics, trickle down is what you call
Speaker 1: it in the vernacular. You want to stimulate the supply
Speaker 1: because under this belief, if you stimulate the supply, them
Speaker 1: the people who are producing stuff will have stuff for
Speaker 1: sale and people will buy it, and more money will
Speaker 1: enter the economy and things will get back to normal,
Speaker 1: because the basis of this is that people still work
Speaker 1: during recessions, and since they're working, they have money to
Speaker 1: buy things. Not everybody's working, But you can handle the
Speaker 1: idea that not everybody's working by getting production going again,
Speaker 1: because that creates jobs and that in turn generates even
Speaker 1: more income. It's passionless. So how do you do that?
Speaker 1: According to trickle down supply side tax policy, you cut
Speaker 1: the tax rates of the wealthiest people. You incentivize them
Speaker 1: to keep working harder and harder because they get to
Speaker 1: keep more and more of it themselves on the hope
Speaker 1: that rather than keeping it themselves hoarding, they will inject
Speaker 1: it into the economy through things like investing, expanding their businesses,
Speaker 1: hiring more people, opening new businesses, and taking that investment
Speaker 1: and making more money themselves. But in the meantime spreading
Speaker 1: the wealth around through things like wages and tax revenues
Speaker 1: through minimum wages. So that is supply side tax policy,
Speaker 1: and why where it works or not, the jury is
Speaker 1: still out. I did find something from um fair Economy
Speaker 1: dot Org, which I have to say, I don't know
Speaker 1: whether they're nonpartisan or liberal. They definitely didn't strike me
Speaker 1: as conservative, but um, so take it however you want.
Speaker 1: But they took the UM tax rates, the top tax
Speaker 1: rate and it's changes from nineteen fifty four to two
Speaker 1: thousand two, and they took the changes to that tops
Speaker 1: tech top tax rate, the highest tier, which is the
Speaker 1: one you're supposed to cut under this this type of
Speaker 1: text policy, and they juxtaposed it against four different economic indicators,
Speaker 1: growth in the gross domestic product, which is kind of
Speaker 1: like the indicator of the overall health of the economy, UH,
Speaker 1: income growth rate, which is, you know, how the average
Speaker 1: Americans wealth grows, UM, I think, changes to employment, and
Speaker 1: the growth of the hourly wage. And they found that
Speaker 1: the correlation was basically statistically non existent. That when you
Speaker 1: lower tax rates or raise tax rates, but specifically in
Speaker 1: this case, when you lower the highest tax rate, it
Speaker 1: does nothing to improve the GDP, to improve hourly wages,
Speaker 1: to improve median wealth, um. Just just statistically speaking, over
Speaker 1: the course of the two lowering the tax rates did
Speaker 1: nothing for those things. So speaking from that, and you
Speaker 1: can say, well, it doesn't really do anything Yeah. Well,
Speaker 1: with with Reaganomics, I think, well again, I say, most
Speaker 1: people agree, but no one agrees. Uh, it did help inflation,
Speaker 1: if he was it was because of his policies, but
Speaker 1: tax revenues didn't seem much change at all under those policies. Uh,
Speaker 1: we're not even into you know, the part of Reaganomics
Speaker 1: where he kind of shut down trade with a lot
Speaker 1: of countries, keep it in house and the effect that had.
Speaker 1: And I I've gotten varying answers on how long after
Speaker 1: presidency can you even look back and with a good
Speaker 1: judgment um of like the policies really take effect ten
Speaker 1: years later when you're gonna see or no, it's more
Speaker 1: like twenty years or no, you can see it immediately
Speaker 1: with short term fixes. So it's the whole thing is
Speaker 1: very frustrating because no one agrees. Everyone thinks they're right. Yeah,
Speaker 1: that's the frustrating part is everybody thinks they're right. Like
Speaker 1: Obama's policies are almost virtually the exact opposite of Reagan's. Well,
Speaker 1: that's funny you say that, because that's not necessarily true.
Speaker 1: He a lot of ways they are. Well, he in
Speaker 1: that he kept the Bush era tax cuts going he's actually, well,
Speaker 1: that's true, kept lower um tax rates than Reagan did.
Speaker 1: And Reagan's always pegged with the trickle down economic theory, right,
Speaker 1: Obama's got this other one going. It's called quantitative easing.
Speaker 1: So with Reagan it was trickled down tax policy. Under
Speaker 1: Obama it's trickled down monetary policy, and by pumping money
Speaker 1: into the markets through the FED, it's actually helping because
Speaker 1: of this income inequality. It's helping the wealthiest Americans by
Speaker 1: far without anything trickling down really to the um lower,
Speaker 1: working in middle class Americans. So trickle down policy doesn't
Speaker 1: necessarily just mean tax policy. You can also mean monetary policy.
Speaker 1: And we've got a very specific trickle down policy being
Speaker 1: carried out under Obama's entire two terms so far through
Speaker 1: quantitative easing. Either way, there's a vast transfer of wealth
Speaker 1: going on right now, just as there was in the eighties. Yeah,
Speaker 1: I suggest people it up on their own if they
Speaker 1: want to jump in this argument. This one kind of
Speaker 1: also once you really start looking into it, especially if
Speaker 1: you go beyond like what helps and really step back
Speaker 1: and look at what's being done and the effects of it.
Speaker 1: Forget you know, well, my idea is the best way
Speaker 1: to to cure recession Theoretically, like if you if you
Speaker 1: just get out of that mindset and you look at
Speaker 1: economic policies and you look at them through the lens
Speaker 1: of income inequality, then suddenly conservative and liberal and Democrat
Speaker 1: and Republican all just kind of fade away, and basically
Speaker 1: everybody has reason to feel like they're being talked out
Speaker 1: of something very valuable. Yeah, I came up with an idea.
Speaker 1: I'm sure I'm not the first person to come up
Speaker 1: with it. Uh, Josh and Amix, I wonder if if
Speaker 1: you did cut down on the tax rates for the
Speaker 1: wealthy to to about where they are now. This this
Speaker 1: is like bargain basement tax rates. Frankly, it used to
Speaker 1: be at in the sixties ninety was the highest. Now
Speaker 1: it's thirty five under Reagan. Much of the world pays
Speaker 1: a lot more taxes than we do. Oh yeah, so
Speaker 1: I think it is fair for everybody. You to say
Speaker 1: the least, if not unfair because it's so low, but
Speaker 1: let's say that it's fair. You keep the tax rates
Speaker 1: low on the wealthiest earners and you let them build
Speaker 1: up as much money as they want in their lifetime,
Speaker 1: but when they die, you tax their estate like there
Speaker 1: is no tomorrow. And I wonder, first of all, you
Speaker 1: increased revenue, but you also prevent dynasties. Uh, you want
Speaker 1: to prevent dynasties. Sure. I read an article about how
Speaker 1: UM the those who inherit wealth tend to invest it less.
Speaker 1: They tend to hoard it more because they didn't have
Speaker 1: any means of accumulating wealth other in a windfall. I
Speaker 1: think if you just look at it statistically speaking, and
Speaker 1: you look at rather than again on an individual basis,
Speaker 1: if you look overall, when wealth is inherited rather than earned,
Speaker 1: the inherited wealth is less often invested in ways like
Speaker 1: um that create new jobs then the wealth that's earned.
Speaker 1: And it's the same thing like if you won the
Speaker 1: lottery or something like that. You should be terrified of
Speaker 1: losing that money because you didn't do anything to earn it.
Speaker 1: So there's no guarantee whatsoever that you will ever earn
Speaker 1: that money or have that money again once you spend it.
Speaker 1: If you amass a fortune in industry and lose it,
Speaker 1: you did it once, there's a likelihood that you could
Speaker 1: go do it again, but you're more likely to take
Speaker 1: more risks with that wealth, but people work to take
Speaker 1: care of their families for generations to come, like that's
Speaker 1: what their goal is, right. So let's say you have
Speaker 1: a hundred million dollars state and you have one kid,
Speaker 1: and your state is taxed at when you die, your
Speaker 1: kids still gets ten million dollars. If your kid inherited
Speaker 1: ten million dollars, you're a wealthy person and your kid
Speaker 1: inherits ten million dollars. I think you can get your
Speaker 1: eternal rest easy knowing that your kid's gonna be okay
Speaker 1: with the ten million bucks for the rest of his
Speaker 1: or her life. I think that's fair. That's enough to
Speaker 1: set them up in business for sure. That's enough of
Speaker 1: a leg up that most people don't have. I uh,
Speaker 1: that's fine. You don't have to agree with me. Yeah,
Speaker 1: I think it's I think it's like when I hear
Speaker 1: about Bill Gates is only gonna leave his kids so
Speaker 1: much money or whoever was it Bill Gates or Warm
Speaker 1: Buffet or someone they both are, they pledged like a
Speaker 1: significant amount of their their estates right to not get leave.
Speaker 1: It just lead that to their children. I think that's
Speaker 1: that's great, But I think that's like it should be
Speaker 1: a person's choice and the government shouldn't make that decision
Speaker 1: for them. Like government making decisions like that just that
Speaker 1: makes my blood boil. But that's tax policy, man, Like
Speaker 1: they can make that decision while you're alive or when
Speaker 1: you die. It's still there your income being taxed. In
Speaker 1: the other way, it's like are they taxing your inheritance
Speaker 1: before your death or well, But it isn't tax policy
Speaker 1: because josh An nomics isn't. No. But the very fact
Speaker 1: that there are taxes and then it's progressive means that
Speaker 1: the wealthiest people pay more. The more you learn, the
Speaker 1: more tax you pay. So why does it matter whether
Speaker 1: it's now or when it's when you die? And I
Speaker 1: that's not an entirely that's kind of a globe interpretation
Speaker 1: because I realize what I'm saying is normal taxes now
Speaker 1: and then a heavy tax when you die to prevent
Speaker 1: dynasties and to increase revenue. I just don't think it
Speaker 1: will disincentivize work because I think while you're alive, you
Speaker 1: still want to make money. People's those the people who
Speaker 1: are dedicated to amassing hundreds of millions or billions of
Speaker 1: dollars that's not going to prevent them from making money
Speaker 1: while they're alive. It's not you don't think they're still
Speaker 1: alive and their kids still get a slice of the pie.
Speaker 1: But what about their kids kids and their kids kids. Well,
Speaker 1: then it's up to their kid to go out and
Speaker 1: through his own effort or her own effort, yeah, amass
Speaker 1: their own fortune just like everybody else's. Everybody gets to
Speaker 1: start at zero, although those rich kids still get that
Speaker 1: leg up of ten percent of the estate. It's it's
Speaker 1: just my idea. I got your Josh and omics, Josh
Speaker 1: ms Man, we're gonna get some letters for that one.
Speaker 1: You got anything else? Uh? And hey, let me say that, like,
Speaker 1: I think people should be able to live much more
Speaker 1: meagerly than they do. I'm not a proponent of people
Speaker 1: leading these lavish, wasteful lifestyles, but I think if you
Speaker 1: know you've made your money in a legitimate way, then
Speaker 1: that's your right to do so. I guess you know, yeah,
Speaker 1: I wouldn't want some government putting their hand in my
Speaker 1: pocket and saying, hey, you worked really hard for all that,
Speaker 1: give me it. Well, I mean, who does Nobody wants that?
Speaker 1: Especially when you when you look at government wastefulness or
Speaker 1: if you don't want a fund war or something like that, like,
Speaker 1: then it makes it even harder to bite. The whole
Speaker 1: thing makes me want to drop out and move to
Speaker 1: an island or someplace in the woods, very quiet, to
Speaker 1: where I don't have to even think about any of
Speaker 1: this stuff. I got my little garden and got my
Speaker 1: chickens and my goats. You need to go make some
Speaker 1: money so you can do that. Yeah, I want just
Speaker 1: a little nine bedroom house on like with the staff. Yeah,
Speaker 1: all right, are we done with this? We're done with
Speaker 1: trickle down economics. If you want to learn more about it,
Speaker 1: you can read this article on how stuff works dot com.
Speaker 1: Just type trickle down economics into the search bar. And
Speaker 1: since I said search bar's time for listener mail, I'm
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Speaker 1: I know all about through your crack podcast. That was
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Speaker 1: You're informative and your humorous podcast makes my day easier,
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Speaker 1: Caleb and Elizabeth from Indo HO. Congratulations and Caleb, I
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