Speaker 1: Hey, everybody, it's me your old pal Josh, And for
Speaker 1: this week's s Y s K Selects, I've chosen how
Speaker 1: trickle down economics works. It sounds boring, but it will
Speaker 1: actually knock your socks off. It's so interesting. And maybe
Speaker 1: Ronald Reagan will make an appearance. Who knows. You like
Speaker 1: to listen and find out? Enjoy. Welcome to Stuff you
Speaker 1: Should Know from House Stuff Works dot com. Hey, welcome
Speaker 1: to the podcast. I'm Josh Clark, and there's Charles W.
Speaker 1: Chuck Bryant and Jerry and they're snickering and tittering, and
Speaker 1: that makes this stuff you should know. Yeah, we've got
Speaker 1: sidetracked before. We talking about things that trickle. Names, names
Speaker 1: that trickle. Yes, like the famous race car driver Dick Trickle.
Speaker 1: You say, road dude, I swear to God look him up.
Speaker 1: I will don't image search and just look him up. Okay,
Speaker 1: guys specify race car. Yeah, okay, that's a good idea.
Speaker 1: You're a Google master with your Google Foo. Yes, and
Speaker 1: we the three of us, are apparently all eight years
Speaker 1: 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 all 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 Peeler'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 economics. Anyone who do economics? Yeah,
Speaker 1: they're an ECON class. The guy who 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 it was like yeah, I think
Speaker 1: maybe like they gave it to him if it wasn't
Speaker 1: one or came out of a salary, who knows. Um.
Speaker 1: But before that show came on, he was in Farriss
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 he was
Speaker 1: talking about in there, he was clear eyes clear, I
Speaker 1: thank you, clear is awesome. Yeah, that's right, that sounded
Speaker 1: like not ben Stein. Well that was my That's as
Speaker 1: steiny as I get. Anyway, he was talking about voodoo economics,
Speaker 1: and voodoo economics was another name for trickle down economics
Speaker 1: a k a. Reaganomics. And the person who coined the
Speaker 1: term voodoo economics do you know John Hughes, No, Yeah,
Speaker 1: it was George Bush Senior. H W I remember that. Yeah.
Speaker 1: He he was running in the primaries against Reagan and
Speaker 1: for the election before he came on as his vice president,
Speaker 1: and he was deriding Reagan's economic policies, specifically his belief
Speaker 1: and trickle down economics as voodoo economics because there's some apparently,
Speaker 1: some sort of magic to the whole thing that makes
Speaker 1: it work rather than sound economic principle. Yeah, it occurred
Speaker 1: to me today when I was studying the stuff that
Speaker 1: John Hughes picked this very topic to represent the most
Speaker 1: boring thing you could talk about. I guess so. And uh,
Speaker 1: it 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,
Speaker 1: which we've already failed that spectacular. That's right. So let's
Speaker 1: talk about this idea first of all, trickle down economics.
Speaker 1: UM will explain the whole thing in detail starting in
Speaker 1: just a moment, but we should probably say that the
Speaker 1: disclaimer if you want to drive a fiscal conservative or
Speaker 1: a conservative economists, or just a conservative in general crazy
Speaker 1: mentioned trickle down economics, like call what they call supply
Speaker 1: side 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,
Speaker 1: Like 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 uh,
Speaker 1: directly from that investment that that person made. Right, So
Speaker 1: this is the whole tree behind it. We should also
Speaker 1: disclaim even further that economics as a field is so
Speaker 1: far from science it's preposterous. Um. Most economic theory that
Speaker 1: you ever will run into from John Maynard Keynes or
Speaker 1: Adam Smith or um, John Baptiste, Um. These guys are
Speaker 1: talking about pure economies the United States, and I don't
Speaker 1: think there's any economy in the world that is a
Speaker 1: pure economy, free market economy. The United States has things
Speaker 1: like tariffs, and um, we have things like government intervention,
Speaker 1: tax policy, monetary policy. There's intervention in the market. 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. That is the thing. That's why like
Speaker 1: this kind of stuff can get people's blood boiling. So
Speaker 1: like the point of this one is to just talk
Speaker 1: about trickle down economics and the theory behind it and
Speaker 1: why it may or may not work, and um, on
Speaker 1: the caveat that we don't know, and neither do economists. Yeah,
Speaker 1: I think I left this at a little frustrated after
Speaker 1: my research because I thought I would come away with
Speaker 1: an answer. Um. But I mean, if you look up reagonomics,
Speaker 1: which is another name for Reagan's version of the supply
Speaker 1: side economics, you will find article, well more than that,
Speaker 1: but hundred articles on how what a great success it was,
Speaker 1: and then the abject failure of reagonomics, and no one
Speaker 1: is going to agree. I looked at some of these
Speaker 1: theories and said, well, that makes sense in an ideal world.
Speaker 1: Then I look at the opposite and think, well that
Speaker 1: makes sense in an ideal world. And I don't. I
Speaker 1: don't know if you, like you said, I don't know
Speaker 1: if you can I don't know if there is an answer.
Speaker 1: Even though everyone thinks that they're right, both people can't
Speaker 1: be right both sides. No, it's true because these are
Speaker 1: very opposite in most cases ideas. Yeah, but what I
Speaker 1: did find was a bunch of articles after digging further
Speaker 1: that said the failures and successes of Reaganomics. And I
Speaker 1: think to me that's probably a little more accurate because
Speaker 1: it is in a black and white situation. Well, the
Speaker 1: part of the problem is is if you point to
Speaker 1: Reagan's text policies, right, and and Reagan is tied to
Speaker 1: trickle down economics. We'll get into the history, like we'll
Speaker 1: clear all this up. But he's not really the first
Speaker 1: one to implement this, but he's he's tied to it.
Speaker 1: But if you look at Reaganomics, the problem is this, chuck.
Speaker 1: If if you say, well, the nineties were very prosperous
Speaker 1: with the dot com boom um and the the Nasdaq
Speaker 1: hit like like a record ten thousand points at like
Speaker 1: in the nineties, all that was from Reagan's policies, Well
Speaker 1: you can't say that that was from Reagan's policies. We
Speaker 1: we don't know. We just simply don't know. Was it
Speaker 1: something short term that the Clinton administration was doing, or
Speaker 1: was it the long term effects of Reagan's tax cuts.
Speaker 1: We don't know, and we're going to get scores of
Speaker 1: email from people saying what we do know, but we
Speaker 1: don't know, so just send your email. It's fine, but
Speaker 1: you're wrong. Uh. Well, I guess we should go ahead
Speaker 1: and say too that just The name trickle down was
Speaker 1: coined by Will Rogers famous Humorus 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 it
Speaker 1: started to get. It. U a derogatory feel around that name,
Speaker 1: for sure, since the twenties and and over time, um,
Speaker 1: especially since the eighties, the people who champion trickle down
Speaker 1: economics or this this particular version of trickle down tax
Speaker 1: policy have tried to distance themselves from the term trickle
Speaker 1: down because it does seem elitist and it seems like
Speaker 1: a big wealth transfer, which in fact it is. UM.
Speaker 1: Let's let's talk about this. Trickled own policy isn't necessarily
Speaker 1: um associated with Reagan's tax cuts. The whole idea behind
Speaker 1: trickle down, as I said already, is you take wealth
Speaker 1: and you give it to the wealthiest people. That's that's
Speaker 1: what's done. It's a wealth transfer, and it's usually done
Speaker 1: at a time when you're in an economic slump, so
Speaker 1: you're hoping to revitalize things. Yeah, it's the government 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 transfer, 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, see where the highest tax rate was like
Speaker 1: seventy the highest earners were paying sev on their highest income. Yeah,
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 text cuts. Yeah,
Speaker 1: but the that doesn't mean like trickle down economics don't
Speaker 1: doesn't equal text cuts necessarily, it's down. It's that's that's
Speaker 1: one way of putting more money into the hands of
Speaker 1: the wealthiest, right Exactly. It's really a question of supply
Speaker 1: and demand. And I guess we can go back through
Speaker 1: time a little bit to John Baptis, 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 for 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 is
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 thing is over production. Sure.
Speaker 1: I mean, like if you think about it, like during
Speaker 1: the uh the housing market crash, Yeah, it's starting a
Speaker 1: few years ago. There was a glut of homes on
Speaker 1: the market. And it's not like the people who are
Speaker 1: building homes just merrily went on building homes and building
Speaker 1: homes and building homes. Like once the demand ceased, they
Speaker 1: stopped producing and we still had a glut on the
Speaker 1: market and the ones who were still just sinking money
Speaker 1: and to build like building just stop basically, and it
Speaker 1: was because there was an oversupply because demand had ceased.
Speaker 1: So the idea that that if you if you produce it,
Speaker 1: demand will come on a short term basis is this
Speaker 1: kind of a fallacy. Yeah, But in the earlier days
Speaker 1: of this country, a lot of big thinkers agreed with
Speaker 1: him like Jefferson. Um. But the tide turned later on
Speaker 1: in our country with the introduction of Mr Keynes KEENSI
Speaker 1: and economics. Yeah, so we talked about in our audio book.
Speaker 1: We did Stuff you should know, super stuff Guide to
Speaker 1: the Economy, which is probably super outdated, I wonder, but
Speaker 1: there are some I think there's some evergreen content in there. Yeah,
Speaker 1: I mean it was like an economics one on one
Speaker 1: course with us UM. But so so, the basis of
Speaker 1: Says law is that if you stimulate UM production, then
Speaker 1: you'll get the economy going again. And it was implemented
Speaker 1: for a while like some of the some of the
Speaker 1: early twentieth century presidents like Hoover, among others like Harding
Speaker 1: and Coolidge J Well JFK. Later, but early on in
Speaker 1: the twentieth century, Harding and Coolidge both implemented UM this
Speaker 1: kind of what's called supply side policy text policy right
Speaker 1: where where if you stimulate production through lowering taxes at
Speaker 1: the top, and we'll tell you in a second how
Speaker 1: those two are correlated, Um, you can at the economy
Speaker 1: going yet Well, Hoover also followed the same policy, and
Speaker 1: under Hoover's watch, the Great depression happen. Yeah, which would
Speaker 1: cause any just regular thinking person, even if they don't
Speaker 1: understand economics, to think, hey, we're doing it wrong. So
Speaker 1: Roosevelt came along, That's right. Roosevelt held the opposite view,
Speaker 1: and he was very much a Kinesian and he was
Speaker 1: operating at the same time that Keynes was writing and
Speaker 1: working himself. And John Maynard Kaine said, no, no, no,
Speaker 1: you guys have it backwards. You don't stimulate the supply,
Speaker 1: you stimulate the demand. Then all of a sudden, if
Speaker 1: you have a housing glut and you suddenly have people
Speaker 1: who have more money to spend, they'll take care of
Speaker 1: your housing glut and then things can get back to normal.
Speaker 1: We reach equilibrium again. Yeah. He was about, uh, short
Speaker 1: term ideas, short term fixes, maybe lower interest rates, maybe taxes,
Speaker 1: fiscal policy, taxes and spending. Basically what you hear a
Speaker 1: lot of obout these days. It. You know, Keynesian economics
Speaker 1: kind of lasted a long time until probably Kennedy and
Speaker 1: then Reagan. It's like there's only been a handful of
Speaker 1: US presidents really endorse the trickle down theory. Yeah, like
Speaker 1: wholeheartedly since the twentieth century. Um, so Yeah, it's the
Speaker 1: Kenzie and policies ruled, and it was very much about
Speaker 1: like cutting taxes for the lower and middle and working classes,
Speaker 1: increasing taxes for the rich because if you if you're
Speaker 1: a government, you still need revenue, right, So you can't
Speaker 1: just cut Texas for everybody. If you cut Texas for
Speaker 1: one group, you kind of need to increase it for
Speaker 1: another because you still need your money coming in. Of course,
Speaker 1: you could also take the radical step of figuring out
Speaker 1: how to eliminate waste and blow in government. That would
Speaker 1: help a lot, but we're not talking about that in
Speaker 1: this one. We're talking about trickle down economics. So then
Speaker 1: along comes Kennedy who says, hey, or my dad was
Speaker 1: pretty rich, so I'm kind of thinking that this trickle
Speaker 1: down thing might work, right, So he got into supply
Speaker 1: side economics. And then when Reagan came along, he really
Speaker 1: championed this whole idea. And it was out of a
Speaker 1: result of some guys in the seventies saying, um, there's
Speaker 1: this whole other thing that we've been ignoring, which is
Speaker 1: this trickle down tax policy that we should implement, and
Speaker 1: they got Reagan into it and he implemented it. Yeah,
Speaker 1: and Uh, after this message break coming up here in
Speaker 1: a sec we're going to talk a little bit about
Speaker 1: If it doesn't sound like it makes sense to you,
Speaker 1: there's a certain curve that will explain that might clear
Speaker 1: it up for you. All right, So we're gonna talk
Speaker 1: about the Laugher curve, which was also in Ferry Spueller.
Speaker 1: Oh was it? Yeah, he says, Laugher curve. But in
Speaker 1: high school had no idea. But no, I was like,
Speaker 1: what are those words together? I don't understand. Laugher was
Speaker 1: a person l A F F e er and Um.
Speaker 1: The Laugher curve helps explain a little bit why trickle
Speaker 1: down economics could possibly work. Is that a good neutral
Speaker 1: way to say that? I always say so. Uh. The
Speaker 1: idea of the Laugher curd curve is that the relationship
Speaker 1: between taxes and revenues is a curve instead of a
Speaker 1: direct relationship. So at a certain point, let's say you
Speaker 1: own a company making choose and you grows ten million
Speaker 1: dollars through like the first two financial quarters, and your
Speaker 1: tax that let's say, and you know, if you make
Speaker 1: any more money, then you're gonna jump up into that
Speaker 1: tax uh, tax category. You might slow down production you
Speaker 1: might halt the production altogether and say, 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, and because I don't want to be
Speaker 1: taxed anymore. So if you look at that on a graph,
Speaker 1: it's gonna be if you text people, they're not gonna work.
Speaker 1: If you text people zero percent, you're not getting any money.
Speaker 1: So in the middle of there is the curve, right it.
Speaker 1: Basically Laugher's curve suggests that the correlation between UM tax
Speaker 1: rates and tax revenue is not totally positive. At some point,
Speaker 1: it starts to go back down. Yeah, that's called the
Speaker 1: prohibitive range. At a certain point, people don't want to
Speaker 1: be text in that range. Yeah, And it's not even
Speaker 1: necessarily that they are not working any longer because they
Speaker 1: resent being taxed. What Laugher was pointing out is that
Speaker 1: there is this prohibitive range, and within the prohibitive range, UM,
Speaker 1: you remove the incentive to work. Theoretically, where UM and
Speaker 1: Jay mcgrathre wrote this, UH gave a pretty good UM
Speaker 1: example where it's like, if you make that money and
Speaker 1: you are text, that's tolerable you're still gonna make. You
Speaker 1: still get to keep fifty percent for yourself. But when
Speaker 1: you're texting that ninety percentile, uh, you're let's say you
Speaker 1: were going to make another million dollars, you to give
Speaker 1: nine thousand of it to the government. You just get
Speaker 1: to keep a hundred thousand. Well, you might decide to
Speaker 1: just go and spend the rest of the year at
Speaker 1: your beach house with the money that you did make,
Speaker 1: not because you resent being texted, because it's just not
Speaker 1: worth it to to exert that effort to make that
Speaker 1: next million dollars when you just get to keep a
Speaker 1: hundred thousand of it. So at that point in that
Speaker 1: prohibitive range, the tax policy is effectively keeping people from working,
Speaker 1: inducing them to not work any longer, which is bad
Speaker 1: for an economy. And that's if you're if your work,
Speaker 1: if your income is directly related to your work, right,
Speaker 1: you could considerably if you owned a factory or something,
Speaker 1: and you didn't have to really exert any problems and
Speaker 1: you could still make payroll and all that stuff, it
Speaker 1: might be worth it to just leave it to these
Speaker 1: other people to make that extra hundred thousand dollars for you,
Speaker 1: rather than go off to the beach house. But if
Speaker 1: you your effort directly um is tax, then yes, it
Speaker 1: would become a distance and toward 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 a 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 it, 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 their promotion because
Speaker 1: it's going to be more responsibility and really out much
Speaker 1: more money. So I'm going to hang out right here
Speaker 1: rather than keep going in my little range or whatever
Speaker 1: it is. So that's Laugher's curve, and that's a it's
Speaker 1: a kind of the basis of trickle down tax policy.
Speaker 1: It's the idea that, Okay, there is a point where
Speaker 1: you can text too much and now you're actually slowing
Speaker 1: down the economy. So based on Laugher's curve, when you're
Speaker 1: looking at it through um through trickle down policy, there's
Speaker 1: a point. Then that's that, like you said, there's a
Speaker 1: sweet spot as far as text revenue goes. And it
Speaker 1: creates this seeming paradox where if you cut tax rates
Speaker 1: at a certain point, you'll actually increase tax revenue because
Speaker 1: people will be incentivized to work more throughout the year.
Speaker 1: And the other basis of trickle down theory is that
Speaker 1: you are going to put more money or keep more
Speaker 1: money with the people at the wealthiest. People who under
Speaker 1: this idea are more likely to um invest it back
Speaker 1: into the economy, right, and when they do that, supposedly
Speaker 1: allegedly the economy booms. Yeah, what you can account for
Speaker 1: is just the single person. This has looked at in
Speaker 1: the broadest terms, because somebody could make all their money
Speaker 1: and just sit on it in the bank, which isn't
Speaker 1: reinvesting it. That is a really, really, really big point.
Speaker 1: You'll remember back at the beginning of this recession, the
Speaker 1: FED was doing everything it could to cheapen lending and
Speaker 1: still has been, and uh, it didn't do anything. Come on, like,
Speaker 1: you have to take into account things like um insecurity, fear,
Speaker 1: um being hum yes, being human, like, we're not necessarily
Speaker 1: rationally maximizing actors. Humans are like, there is such thing
Speaker 1: as fear and the idea that maybe hoarding money is best.
Speaker 1: So what's possible then if you follow this trickle down
Speaker 1: tax policy, is you're taking money from everybody else and
Speaker 1: giving it to the rich. Or if your head to
Speaker 1: spun because you're a fiscal conservative, what you're doing is
Speaker 1: allowing the rich to keep more of their income, but
Speaker 1: they're not doing anything with it right at least as
Speaker 1: a short term fixed that's not a good idea because
Speaker 1: you can probably bet that eventually the rich are going
Speaker 1: to take that money and invest it back in the economy.
Speaker 1: But it's not. Yes, but when's that going to happen?
Speaker 1: You can't really say. And part of the other problem
Speaker 1: with it is is that you are then also basically
Speaker 1: handing money out at a fire sale. You're saying, Hey,
Speaker 1: here's a bunch of money invested back in the economy.
Speaker 1: And have we mentioned the bargain basement rates you can
Speaker 1: get on all of these businesses over here because the
Speaker 1: economy is in a recessional Yeah, very much, so, you know.
Speaker 1: And it's it's like it is literally a wealth transfer,
Speaker 1: and under some circumstances like the recession that we're still
Speaker 1: coming out of now, it is a wealth transfer and
Speaker 1: an asset transfer, and that the people who have the
Speaker 1: most money, the wealthy, also have the most buying power
Speaker 1: and they have the best bargains. Yeah. Thomas Sowell is
Speaker 1: a is an economist and he um he won't call
Speaker 1: it trickle down economics because he thinks it literally benefits
Speaker 1: the workers immediately and first because in the idealized version,
Speaker 1: they're gonna reinvest in. The very first thing that's going
Speaker 1: to happen is they're gonna put people to work and
Speaker 1: people are gonna have obs. 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 here. 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 negative association, an elitist, wealthy association. Yeah. And you know,
Speaker 1: when you if you're during election time or during if
Speaker 1: you see these big tax cuts for the wealthy, if
Speaker 1: it makes your blood boil because you think they're these
Speaker 1: people are obviously in the hip pocket of the politician.
Speaker 1: That may be true, but you can still remove yourself
Speaker 1: from that and look at the theory itself and does
Speaker 1: it work or does it not? And we will do
Speaker 1: that after this message. So check. Let's let's do just that,
Speaker 1: um passionless rundown of how it trickled down supply side
Speaker 1: tax policy works. Yeah, I mean, it's got to be
Speaker 1: passionless with me because I have no idea. I can't
Speaker 1: argue hard for any side because I read so many
Speaker 1: articles disputing one another completely that I have no idea.
Speaker 1: So okay, so you're we're in a recession, and there's
Speaker 1: a discussion is it supply or dem man that you
Speaker 1: want to stimulate. Well, with supply side economics, trickle down
Speaker 1: is what you call it in the vernacular. You want
Speaker 1: to stimulate the supply because under this belief, if you
Speaker 1: stimulate the supply, the um the people who are producing
Speaker 1: stuff will have stuff for sale and people will buy it,
Speaker 1: and more money will enter the economy and things will
Speaker 1: get back to normal because the basis of this is
Speaker 1: that people still work during recessions, and since they're working,
Speaker 1: they have money to buy things. Not everybody's working. But
Speaker 1: you can handle the idea that not everybody's working by
Speaker 1: getting production going again, because that creates jobs and that
Speaker 1: in turn generates even more income passionless. So how do
Speaker 1: you do that, According to trickle down supply side tax policy,
Speaker 1: you cut the tax rates of the wealthiest people. You
Speaker 1: incentivize them to keep working harder and harder because they
Speaker 1: get to keep more and more of it themselves on
Speaker 1: the hope that rather than keeping it themselves hoarding, they
Speaker 1: will inject it into the economy through things like investing,
Speaker 1: expanding their businesses, hiring more people, opening new businesses, and
Speaker 1: taking that investment and making more money themselves, but in
Speaker 1: the meantime spreading the wealth around through things like wages
Speaker 1: and tax revenues through minimum wages. So that is supply
Speaker 1: side tax policy, and whether it works or not, the
Speaker 1: jury is still out. I did find something from um
Speaker 1: fair Economy dot Org, which I have to say, I
Speaker 1: don't know whether they're nonpartisan or liberal. They definitely didn't
Speaker 1: strike me as conservative, but um so take it however
Speaker 1: you want. But they took the UM tax rates, the
Speaker 1: top tax rate and it's changes from nineteen fifty four
Speaker 1: to two thousand two, and they took the changes to
Speaker 1: that tops tech top tex rate, the highest tier, which
Speaker 1: is the one you're supposed to cut under this this
Speaker 1: type of tax policy, and they juxtaposed it against four
Speaker 1: different economic indicators growth in the gross domestic product, which
Speaker 1: is kind of like the indicator of the overall health
Speaker 1: of the economy, UH income growth rate, which is, you know,
Speaker 1: how the average Americans wealth grows, UM, I think, changes
Speaker 1: to unemployment, and the growth of the hourly wage. And
Speaker 1: they found that the correlation was basically statistically non existent.
Speaker 1: That when you lower tax rates or raise tax rates,
Speaker 1: but specifically in this case, when you lower the highest
Speaker 1: tax rate, it does nothing to improve the GDP, to
Speaker 1: improve hourly wages, to improve median wealth. Um. Just just
Speaker 1: statistically speaking, over the course of the two lowering the
Speaker 1: tax rates did nothing for those things. Yeah, So speaking
Speaker 1: from that, and you can say, well, it doesn't really
Speaker 1: do anything. Yeah. Well, with with Reaganomics, I think, well again,
Speaker 1: I say, most people agree, but no one agrees. Uh,
Speaker 1: it did help inflation, if he was it was because
Speaker 1: of his policies, but tax revenues didn't seem much change
Speaker 1: at all under those policies. Uh. We're not even getting into,
Speaker 1: you know, the part of Reaganomics where he kind of
Speaker 1: shut down trade with a lot of countries, keep it
Speaker 1: in house and the effect that had. And I I've
Speaker 1: gotten varying answers on how long after presidency can you
Speaker 1: even look back and with a good judgment um of
Speaker 1: like the policies really take effect ten years later when
Speaker 1: you're gonna see or no, it's more like twenty years
Speaker 1: or no, you can see it immediately with short term fixes.
Speaker 1: So it's the whole thing is very frustrating because no
Speaker 1: one agrees. Everyone thinks they're right. Yeah, that's the frustrating
Speaker 1: part is everybody thinks they're right, like Obama's policies are
Speaker 1: almost virtually the exact opposite of Reagan's. Well, that's funny
Speaker 1: you say that, because that's not necessarily true. He well,
Speaker 1: he in that he kept the Bush era tax cuts going.
Speaker 1: He's actually 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 far,
Speaker 1: without anything trickling down really to the um, lower working
Speaker 1: middle class Americans. So trickle down policy doesn't necessarily just
Speaker 1: mean tax policy. You can also mean monetary policy. And
Speaker 1: we've got a very specific trickle down policy being carried
Speaker 1: out under Obama's entire two terms so far through connoitative easing.
Speaker 1: Either way, there's a vast transfer of wealth going on
Speaker 1: right now, just as there was in the eighties. Yeah,
Speaker 1: i'd suggest people read up on their own if they
Speaker 1: uh want to jump in this argument. This one kind
Speaker 1: of also once you really start looking into it, especially
Speaker 1: if you go beyond like what helps and really step
Speaker 1: back and look at what's being done and the effects
Speaker 1: of it forget you know, well, my idea is the
Speaker 1: best way to to cure recession Theoretically, Like if you
Speaker 1: if you just get out of that mindset and you
Speaker 1: look at economic policies and you look at them through
Speaker 1: the lens of income inequality, then suddenly conservative and liberal
Speaker 1: and Democrat and Republican, I'll just kind of fade away,
Speaker 1: and basically everybody has reason to feel like they're being
Speaker 1: talked out of something very valuable. Yeah, I came up
Speaker 1: with the nine D. I'm sure I'm not the first
Speaker 1: person to come up with it, Josh and Amis. I
Speaker 1: wonder if if you did cut down on the tax
Speaker 1: rates for the wealthy to to about where they are now.
Speaker 1: This this is like bargain basement tax rates. Frankly, it
Speaker 1: used to be at n in the sixties ninety was
Speaker 1: the highest. Now it's thirty five ent under Reagan. Much
Speaker 1: of the world pays a lot more taxes than we do.
Speaker 1: Oh yeah, so thirty. I think it is fair for everybody.
Speaker 1: You to say the least if not unfair because it's
Speaker 1: so low, But let's say that it's fair. You keep
Speaker 1: the tax rates low on the wealthiest earners, and you
Speaker 1: let them build up as much money as they want
Speaker 1: in their lifetime. But when they die, you text their
Speaker 1: estate like there is no tomorrow. And I wonder, first
Speaker 1: of all, you increase revenue, but you also prevent dynasties. Uh,
Speaker 1: you want to prevent dynasties. Sure. I read an article
Speaker 1: about how UM the those who inherit wealth tend to
Speaker 1: invest it less, they tend to hoard it more because
Speaker 1: they didn't have any means of accumulating wealth other than
Speaker 1: a windfall. I think if you just look at it
Speaker 1: statistically speaking, and you look at rather than again on
Speaker 1: an individual basis, if you look overall, when wealth is
Speaker 1: inherited rather than earned, the inherited wealth is less often
Speaker 1: invested in ways like um that create new jobs then
Speaker 1: the wealth that's earned. And it's the same thing like
Speaker 1: if you won the lottery or something like that, you
Speaker 1: should be terrified of losing that money because you didn't
Speaker 1: do anything to earn it. So there's no guarantee whatsoever
Speaker 1: that you will ever earn that money or have that
Speaker 1: money again once you spend it. If you amass a
Speaker 1: fortune in industry and lose it, you did it once,
Speaker 1: there's a likelihood that you could go do it again,
Speaker 1: so you're more likely to take more risks with that wealth.
Speaker 1: But people work to take care of their families for
Speaker 1: generations to come, like that's what their goal is, right.
Speaker 1: So let's say you have a hundred million dollars state
Speaker 1: and you have one kid, and your state is tax
Speaker 1: at when you die, your kids still gets ten million dollars.
Speaker 1: If your kid inherited ten million dollars, you're a wealthy
Speaker 1: person and your kid inherits ten million dollars. I think
Speaker 1: you can get your eternal rest easy knowing that your
Speaker 1: kid's gonna be okay with the ten million bucks for
Speaker 1: the rest of his or her life. I think that's fair.
Speaker 1: That's enough to set them up in business for sure.
Speaker 1: That's enough of a leg up that most people don't have.
Speaker 1: I uh, 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 Warren
Speaker 1: Buffet or someone they both are they pledged like a
Speaker 1: significant amount of their their estates right to not to
Speaker 1: get leave it just lead that to their children. I
Speaker 1: think that's that's great, But I think that's like it
Speaker 1: should be a person's choice and the government shouldn't make
Speaker 1: that decision for them. Like government making decisions like that
Speaker 1: just that makes my blood boil. But that's tax policy, man,
Speaker 1: Like they can make that decision while you're alive or
Speaker 1: when you die. It's still there your income being taxed
Speaker 1: in either 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 progressive means that the
Speaker 1: wealthiest people pay more. The more you learn, the more
Speaker 1: tax you pay. So why does it matter whether it's
Speaker 1: now or when it's when you die? And I that's
Speaker 1: not an entirely that's kind of a globe interpretation because
Speaker 1: I realize what I'm saying is normal taxes now and
Speaker 1: then a heavy tax when you die to prevent dynasty's
Speaker 1: and to increase revenue. I just don't think it will
Speaker 1: disincentivize work, because I think while you're alive, you still
Speaker 1: want to make money. People's those the people who are
Speaker 1: dedicated to amassing hundreds of millions or billions of dollars.
Speaker 1: That's not going to prevent them from making money while
Speaker 1: they're alive. It's not you don't think they're still alive
Speaker 1: 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, amass their
Speaker 1: own fortune just like everybody else's. Everybody gets to start
Speaker 1: at zero, although those rich kids still get that leg
Speaker 1: up of ten percent of the estate. That's that's just
Speaker 1: my idea. I got your josh Anamics, Josh ms Man,
Speaker 1: We're and get some letters for that one. You got
Speaker 1: 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 of it. Well, I mean, who does Nobody
Speaker 1: wants that, especially when you when you look at government
Speaker 1: wastefulness or if you don't want a fund war or
Speaker 1: something like that, like then it makes it even harder
Speaker 1: to bite. Yeah, the whole thing makes me want to
Speaker 1: drop out and move to an island or someplace in
Speaker 1: the woods, very quiet, to where I don't have to
Speaker 1: even think about any of this stuff. I got my
Speaker 1: little garden and got my chickens and my goats. You
Speaker 1: need to go make some money so you can do that. Yeah,
Speaker 1: I want just a little nine bed room house on
Speaker 1: like the staff. Yeah, all right, are we done with this?
Speaker 1: We're done with trickle down economics. If you want to
Speaker 1: learn more about it, you can read this article on
Speaker 1: how stuff works dot com. Just type trickle down economics
Speaker 1: into the search bar. And since I said search bar's
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Speaker 1: best thing for me. Through my long days at work
Speaker 1: this summer, listening to you guys really helps me, uh
Speaker 1: not only take my mind off the process, but helps
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Speaker 1: me laugh out loud while people look at me like
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Speaker 1: about through your crack podcast. That was a good one, um.
Speaker 1: So thanks for what you do. You're informative and your
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Speaker 1: waiting game, and teaches me so much about what I
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Speaker 1: big day. And that is from Caleb Davis. Indicator I
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Speaker 1: My friend, Uh follow up with us? Does it? Caleb
Speaker 1: bright us frequently? Is that the Caleb I'm thinking of? No,
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