WEBVTT - SYSK Selects: How Trickle-Down Economics Works 0:00:01.600 --> 0:00:04.840 Hey, everybody, it's me your old pal Josh, And for 0:00:04.920 --> 0:00:07.880 this week's s Y s K Selects, I've chosen how 0:00:07.920 --> 0:00:11.239 trickle down economics works. It sounds boring, but it will 0:00:11.280 --> 0:00:15.440 actually knock your socks off. It's so interesting. And maybe 0:00:15.920 --> 0:00:18.800 Ronald Reagan will make an appearance. Who knows. You like 0:00:18.960 --> 0:00:28.520 to listen and find out? Enjoy. Welcome to Stuff you 0:00:28.520 --> 0:00:37.720 Should Know from House Stuff Works dot com. Hey, welcome 0:00:37.760 --> 0:00:40.479 to the podcast. I'm Josh Clark, and there's Charles W. 0:00:40.600 --> 0:00:44.919 Chuck Bryant and Jerry and they're snickering and tittering, and 0:00:45.000 --> 0:00:48.400 that makes this stuff you should know. Yeah, we've got 0:00:48.400 --> 0:00:53.479 sidetracked before. We talking about things that trickle. Names, names 0:00:53.560 --> 0:00:56.560 that trickle. Yes, like the famous race car driver Dick Trickle. 0:00:57.520 --> 0:01:01.360 You say, road dude, I swear to God look him up. 0:01:01.640 --> 0:01:07.240 I will don't image search and just look him up. Okay, 0:01:07.080 --> 0:01:11.000 guys specify race car. Yeah, okay, that's a good idea. 0:01:11.280 --> 0:01:15.280 You're a Google master with your Google Foo. Yes, and 0:01:15.440 --> 0:01:17.559 we the three of us, are apparently all eight years 0:01:17.560 --> 0:01:22.600 old again. Uh, speaking of trickle, Chuck, Hey, happy birthday. 0:01:22.760 --> 0:01:25.160 That would be quiet. Jerry, you have a big mouth. 0:01:25.840 --> 0:01:29.039 You're always talking. Well, I usually remember, but I don't 0:01:29.120 --> 0:01:32.400 didn't today, So happy birthday. Thank you. I appreciate it. 0:01:32.840 --> 0:01:35.240 And this will be out several weeks later, but all right, 0:01:35.560 --> 0:01:40.040 I'll get to relive my birthday all over again. Thanks man. 0:01:40.720 --> 0:01:46.120 Have you Chuckers ever seen the movie Ferris Peeler's Day Off? Yeah, 0:01:46.240 --> 0:01:49.880 and then we'd go there at some point in this one. Yeah, 0:01:50.280 --> 0:01:53.240 because of ben Stein. Yeah, okay, good, so you know 0:01:53.320 --> 0:01:59.880 the answer then something the economics. Anyone who do economics? Yeah, 0:02:00.120 --> 0:02:03.920 they're an ECON class. The guy who says Bueller Bueller, 0:02:04.120 --> 0:02:06.280 that's ben Stein. Remember he had that show when ben 0:02:06.320 --> 0:02:10.079 Stein's money which was really his money? Yeah it was, 0:02:10.080 --> 0:02:13.119 wasn't it. I think it was like yeah, I think 0:02:13.160 --> 0:02:15.200 maybe like they gave it to him if it wasn't 0:02:15.280 --> 0:02:19.280 one or came out of a salary, who knows. Um. 0:02:19.360 --> 0:02:22.120 But before that show came on, he was in Farriss 0:02:22.120 --> 0:02:24.200 Bueller's Day Off as an ECON professor. And I believe 0:02:24.240 --> 0:02:28.400 he does have a degree in economics. He's also just 0:02:28.440 --> 0:02:31.800 a great actor and vizine pitchman. But what he was 0:02:31.800 --> 0:02:34.480 talking about in there, he was clear eyes clear, I 0:02:35.080 --> 0:02:38.880 thank you, clear is awesome. Yeah, that's right, that sounded 0:02:38.960 --> 0:02:43.200 like not ben Stein. Well that was my That's as 0:02:43.200 --> 0:02:46.560 steiny as I get. Anyway, he was talking about voodoo economics, 0:02:46.840 --> 0:02:51.680 and voodoo economics was another name for trickle down economics 0:02:52.080 --> 0:02:54.840 a k a. Reaganomics. And the person who coined the 0:02:54.919 --> 0:02:58.680 term voodoo economics do you know John Hughes, No, Yeah, 0:02:58.760 --> 0:03:03.440 it was George Bush Senior. H W I remember that. Yeah. 0:03:03.480 --> 0:03:06.560 He he was running in the primaries against Reagan and 0:03:07.040 --> 0:03:10.799 for the election before he came on as his vice president, 0:03:11.280 --> 0:03:15.960 and he was deriding Reagan's economic policies, specifically his belief 0:03:15.960 --> 0:03:22.160 and trickle down economics as voodoo economics because there's some apparently, 0:03:22.200 --> 0:03:24.360 some sort of magic to the whole thing that makes 0:03:24.360 --> 0:03:29.200 it work rather than sound economic principle. Yeah, it occurred 0:03:29.200 --> 0:03:31.120 to me today when I was studying the stuff that 0:03:32.520 --> 0:03:36.720 John Hughes picked this very topic to represent the most 0:03:36.760 --> 0:03:40.720 boring thing you could talk about. I guess so. And uh, 0:03:41.360 --> 0:03:44.160 it took me a few times to to figure it out, 0:03:44.160 --> 0:03:46.840 because you know, I don't My brain doesn't skew towards 0:03:46.960 --> 0:03:51.119 understanding economics. It's it's tough to do. But I finally did, 0:03:51.160 --> 0:03:52.360 and I was like, you know what it's not the 0:03:52.400 --> 0:03:56.520 most boring thing ever, It's uh, it's pretty interesting. If 0:03:56.560 --> 0:03:59.200 I came around. That means anyone can now it's just 0:03:59.440 --> 0:04:05.000 our um our burden to make it interesting to everybody else, 0:04:05.600 --> 0:04:10.640 which we've already failed that spectacular. That's right. So let's 0:04:10.640 --> 0:04:13.720 talk about this idea first of all, trickle down economics. 0:04:14.200 --> 0:04:17.520 UM will explain the whole thing in detail starting in 0:04:17.600 --> 0:04:19.520 just a moment, but we should probably say that the 0:04:19.560 --> 0:04:24.680 disclaimer if you want to drive a fiscal conservative or 0:04:24.720 --> 0:04:29.640 a conservative economists, or just a conservative in general crazy 0:04:30.400 --> 0:04:34.160 mentioned trickle down economics, like call what they call supply 0:04:34.240 --> 0:04:38.440 side economics trickle down economics. It drives some bonkers. There's like, 0:04:38.480 --> 0:04:40.680 there's no such thing as trickle down economics. It's a 0:04:40.760 --> 0:04:45.520 derisive term. It's um it doesn't capture the spirit or 0:04:45.600 --> 0:04:49.080 the thought behind supply side economics, which is what they've 0:04:49.080 --> 0:04:51.200 come around to call it. But back in the day 0:04:51.240 --> 0:04:53.960 it was definitely called trickle down economics. And the whole point, 0:04:54.279 --> 0:04:56.800 the reason why it was called trickle down economics is 0:04:56.839 --> 0:05:02.640 that the idea behind it is if you place wealth 0:05:03.520 --> 0:05:08.560 with the wealthiest people, this idea goes, they will take 0:05:08.600 --> 0:05:11.840 that money and invested into the economy, which will get 0:05:11.880 --> 0:05:16.120 things running again. And as a result, that economic engine 0:05:16.120 --> 0:05:19.080 revving up will create more wealth at the top that 0:05:19.200 --> 0:05:24.040 trickles down to the lower working and middle classes. Yeah, 0:05:24.080 --> 0:05:27.279 Like who better to stimulate the economy than the super rich, 0:05:28.040 --> 0:05:32.000 and they will like maybe open a business to put 0:05:32.000 --> 0:05:35.359 people to work, and then those workers will benefit and uh, 0:05:35.520 --> 0:05:39.480 directly from that investment that that person made. Right, So 0:05:39.560 --> 0:05:41.760 this is the whole tree behind it. We should also 0:05:41.839 --> 0:05:46.920 disclaim even further that economics as a field is so 0:05:47.000 --> 0:05:54.040 far from science it's preposterous. Um. Most economic theory that 0:05:54.120 --> 0:05:57.200 you ever will run into from John Maynard Keynes or 0:05:57.240 --> 0:06:03.560 Adam Smith or um, John Baptiste, Um. These guys are 0:06:03.640 --> 0:06:09.240 talking about pure economies the United States, and I don't 0:06:09.240 --> 0:06:11.960 think there's any economy in the world that is a 0:06:12.080 --> 0:06:16.719 pure economy, free market economy. The United States has things 0:06:16.800 --> 0:06:22.560 like tariffs, and um, we have things like government intervention, 0:06:22.720 --> 0:06:27.520 tax policy, monetary policy. There's intervention in the market. So 0:06:27.600 --> 0:06:31.799 you can't ever say. We can't say, really what causes 0:06:31.839 --> 0:06:34.559 recessions and what brings us out of them, or whether 0:06:34.680 --> 0:06:38.200 trickle down economics is effective or if it's not, or 0:06:38.240 --> 0:06:40.320 if it is effective. Is it effective in the long 0:06:40.400 --> 0:06:42.920 run or the short run? And what about the opposite way, 0:06:42.960 --> 0:06:45.040 is that effective in the long run or the short run? 0:06:45.360 --> 0:06:49.760 We don't know. That is the thing. That's why like 0:06:49.839 --> 0:06:51.919 this kind of stuff can get people's blood boiling. So 0:06:52.360 --> 0:06:54.120 like the point of this one is to just talk 0:06:54.160 --> 0:06:56.640 about trickle down economics and the theory behind it and 0:06:56.680 --> 0:07:00.360 why it may or may not work, and um, on 0:07:00.520 --> 0:07:04.280 the caveat that we don't know, and neither do economists. Yeah, 0:07:04.320 --> 0:07:06.800 I think I left this at a little frustrated after 0:07:06.880 --> 0:07:08.760 my research because I thought I would come away with 0:07:08.800 --> 0:07:13.400 an answer. Um. But I mean, if you look up reagonomics, 0:07:13.400 --> 0:07:16.520 which is another name for Reagan's version of the supply 0:07:16.560 --> 0:07:21.520 side economics, you will find article, well more than that, 0:07:21.600 --> 0:07:25.040 but hundred articles on how what a great success it was, 0:07:25.160 --> 0:07:28.680 and then the abject failure of reagonomics, and no one 0:07:28.800 --> 0:07:31.160 is going to agree. I looked at some of these 0:07:31.360 --> 0:07:33.720 theories and said, well, that makes sense in an ideal world. 0:07:34.000 --> 0:07:35.760 Then I look at the opposite and think, well that 0:07:35.800 --> 0:07:38.480 makes sense in an ideal world. And I don't. I 0:07:38.480 --> 0:07:39.880 don't know if you, like you said, I don't know 0:07:39.920 --> 0:07:41.920 if you can I don't know if there is an answer. 0:07:41.960 --> 0:07:45.800 Even though everyone thinks that they're right, both people can't 0:07:45.840 --> 0:07:48.440 be right both sides. No, it's true because these are 0:07:48.560 --> 0:07:52.080 very opposite in most cases ideas. Yeah, but what I 0:07:52.120 --> 0:07:55.480 did find was a bunch of articles after digging further 0:07:55.600 --> 0:08:01.000 that said the failures and successes of Reaganomics. And I 0:08:01.040 --> 0:08:03.920 think to me that's probably a little more accurate because 0:08:03.960 --> 0:08:05.960 it is in a black and white situation. Well, the 0:08:06.240 --> 0:08:09.000 part of the problem is is if you point to 0:08:09.080 --> 0:08:14.120 Reagan's text policies, right, and and Reagan is tied to 0:08:14.160 --> 0:08:17.840 trickle down economics. We'll get into the history, like we'll 0:08:17.840 --> 0:08:19.760 clear all this up. But he's not really the first 0:08:19.760 --> 0:08:22.880 one to implement this, but he's he's tied to it. 0:08:23.120 --> 0:08:25.679 But if you look at Reaganomics, the problem is this, chuck. 0:08:27.320 --> 0:08:30.400 If if you say, well, the nineties were very prosperous 0:08:30.440 --> 0:08:35.400 with the dot com boom um and the the Nasdaq 0:08:35.520 --> 0:08:39.440 hit like like a record ten thousand points at like 0:08:39.520 --> 0:08:42.240 in the nineties, all that was from Reagan's policies, Well 0:08:42.280 --> 0:08:45.280 you can't say that that was from Reagan's policies. We 0:08:45.280 --> 0:08:48.160 we don't know. We just simply don't know. Was it 0:08:48.280 --> 0:08:51.560 something short term that the Clinton administration was doing, or 0:08:51.720 --> 0:08:55.520 was it the long term effects of Reagan's tax cuts. 0:08:56.200 --> 0:08:59.560 We don't know, and we're going to get scores of 0:08:59.600 --> 0:09:02.520 email from people saying what we do know, but we 0:09:02.559 --> 0:09:05.679 don't know, so just send your email. It's fine, but 0:09:06.360 --> 0:09:09.720 you're wrong. Uh. Well, I guess we should go ahead 0:09:09.760 --> 0:09:12.440 and say too that just The name trickle down was 0:09:12.520 --> 0:09:16.520 coined by Will Rogers famous Humorus in the nineteen twenties. 0:09:16.920 --> 0:09:19.840 It is not a nineteen eighties thing. It had been 0:09:19.880 --> 0:09:22.439 around for a while, and he said, quote, the money 0:09:22.480 --> 0:09:24.719 was all appropriated for the top in hopes that it 0:09:24.760 --> 0:09:26.719 would trickle down to the needy. And that's where it 0:09:27.360 --> 0:09:32.839 started to get. It. U a derogatory feel around that name, 0:09:33.000 --> 0:09:36.440 for sure, since the twenties and and over time, um, 0:09:36.600 --> 0:09:42.200 especially since the eighties, the people who champion trickle down 0:09:42.200 --> 0:09:45.880 economics or this this particular version of trickle down tax 0:09:45.960 --> 0:09:49.760 policy have tried to distance themselves from the term trickle 0:09:49.840 --> 0:09:52.640 down because it does seem elitist and it seems like 0:09:52.640 --> 0:09:57.600 a big wealth transfer, which in fact it is. UM. 0:09:57.760 --> 0:10:03.720 Let's let's talk about this. Trickled own policy isn't necessarily 0:10:04.720 --> 0:10:10.320 um associated with Reagan's tax cuts. The whole idea behind 0:10:10.360 --> 0:10:12.560 trickle down, as I said already, is you take wealth 0:10:12.920 --> 0:10:18.040 and you give it to the wealthiest people. That's that's 0:10:18.120 --> 0:10:22.040 what's done. It's a wealth transfer, and it's usually done 0:10:22.160 --> 0:10:24.480 at a time when you're in an economic slump, so 0:10:24.480 --> 0:10:27.200 you're hoping to revitalize things. Yeah, it's the government trying 0:10:27.240 --> 0:10:30.720 to smooth out the rough spots in the national economy, 0:10:30.880 --> 0:10:34.679 like a k A. Recessions. Um, so you're transferring wealth. 0:10:34.920 --> 0:10:38.560 You're transferring wealth though on the premise that that money 0:10:38.920 --> 0:10:44.720 is going to be reinvested, reinvigorated, used to reinvigorate the economy. Right, 0:10:44.800 --> 0:10:47.040 So it is a wealth transfer, but with the one 0:10:47.080 --> 0:10:50.920 we're talking about today specifically, Um, we're talking about Reagan's version. 0:10:51.200 --> 0:10:55.520 So it's a wealth transferred through tax cuts. Right. So 0:10:55.559 --> 0:10:59.199 when Reagan came into office, Uh, he took over a 0:10:59.320 --> 0:11:03.440 tax policy, see where the highest tax rate was like 0:11:03.559 --> 0:11:10.240 seventy the highest earners were paying sev on their highest income. Yeah, 0:11:10.240 --> 0:11:12.760 and he got that down to about fifty. Yeah, which 0:11:12.800 --> 0:11:16.640 is still seems incredibly high today in an age where 0:11:16.679 --> 0:11:20.920 we're paying like thirty the highest earners are. So the 0:11:20.960 --> 0:11:25.560 point is is Reagan did it through text cuts. Yeah, 0:11:25.600 --> 0:11:28.480 but the that doesn't mean like trickle down economics don't 0:11:28.520 --> 0:11:33.040 doesn't equal text cuts necessarily, it's down. It's that's that's 0:11:33.120 --> 0:11:36.360 one way of putting more money into the hands of 0:11:36.400 --> 0:11:40.560 the wealthiest, right Exactly. It's really a question of supply 0:11:40.600 --> 0:11:43.320 and demand. And I guess we can go back through 0:11:43.360 --> 0:11:47.560 time a little bit to John Baptis, say who you mentioned, uh, 0:11:47.720 --> 0:11:52.679 nineteenth century French economists, and his his philosophy has been 0:11:52.720 --> 0:11:56.040 misinterpreted a lot as supply creates its own demand. It's 0:11:56.040 --> 0:11:59.560 not exactly right. What he was really saying is products 0:11:59.559 --> 0:12:02.800 are paid for with products, and money just had like 0:12:02.880 --> 0:12:06.720 a temporary function. Um. Yeah, Like if you are somebody 0:12:06.720 --> 0:12:10.720 who produces something, when you produce that something, that item, 0:12:10.760 --> 0:12:13.959 when you go make that shoe, and you're gonna sell 0:12:14.000 --> 0:12:16.280 your shoe, which is for the whole reason you made 0:12:16.320 --> 0:12:18.720 the shoe in the first place, and then with that 0:12:18.800 --> 0:12:21.720 money you can go use it to buy other goods 0:12:21.720 --> 0:12:25.560 and services. So the production of that shoe created a 0:12:25.600 --> 0:12:30.719 wage for you, which in turn stimulated consumption demand from 0:12:30.800 --> 0:12:33.880 you for something else. Yeah, product is paid for the product. 0:12:34.480 --> 0:12:38.120 The misinterpretation that supply creates its own demand is is 0:12:38.160 --> 0:12:41.600 just a bastardized version, and that basically means that there 0:12:41.880 --> 0:12:44.160 would never be a failed product, like you can just 0:12:44.160 --> 0:12:48.600 produce and produce and produce, which isn't sound No, that's insane. 0:12:48.679 --> 0:12:51.640 And I think Say would have said that that is 0:12:51.640 --> 0:12:54.640 not true as well. Well he did, he did um 0:12:54.960 --> 0:12:57.319 during his lifetime even say like well, no, I mean 0:12:57.400 --> 0:13:01.480 there it's possible that there is such thing is over production. Sure. 0:13:01.720 --> 0:13:03.439 I mean, like if you think about it, like during 0:13:03.520 --> 0:13:07.160 the uh the housing market crash, Yeah, it's starting a 0:13:07.200 --> 0:13:10.080 few years ago. There was a glut of homes on 0:13:10.120 --> 0:13:12.760 the market. And it's not like the people who are 0:13:12.800 --> 0:13:16.040 building homes just merrily went on building homes and building 0:13:16.040 --> 0:13:19.559 homes and building homes. Like once the demand ceased, they 0:13:19.640 --> 0:13:22.520 stopped producing and we still had a glut on the 0:13:22.559 --> 0:13:25.440 market and the ones who were still just sinking money 0:13:25.440 --> 0:13:29.000 and to build like building just stop basically, and it 0:13:29.080 --> 0:13:32.160 was because there was an oversupply because demand had ceased. 0:13:32.200 --> 0:13:35.640 So the idea that that if you if you produce it, 0:13:36.040 --> 0:13:39.800 demand will come on a short term basis is this 0:13:39.920 --> 0:13:43.640 kind of a fallacy. Yeah, But in the earlier days 0:13:43.640 --> 0:13:47.360 of this country, a lot of big thinkers agreed with 0:13:47.440 --> 0:13:53.000 him like Jefferson. Um. But the tide turned later on 0:13:53.360 --> 0:13:56.480 in our country with the introduction of Mr Keynes KEENSI 0:13:56.520 --> 0:13:59.680 and economics. Yeah, so we talked about in our audio book. 0:14:00.080 --> 0:14:03.440 We did Stuff you should know, super stuff Guide to 0:14:03.600 --> 0:14:07.719 the Economy, which is probably super outdated, I wonder, but 0:14:07.840 --> 0:14:11.160 there are some I think there's some evergreen content in there. Yeah, 0:14:11.200 --> 0:14:12.959 I mean it was like an economics one on one 0:14:13.080 --> 0:14:18.320 course with us UM. But so so, the basis of 0:14:18.360 --> 0:14:24.320 Says law is that if you stimulate UM production, then 0:14:24.600 --> 0:14:28.119 you'll get the economy going again. And it was implemented 0:14:28.160 --> 0:14:30.000 for a while like some of the some of the 0:14:30.040 --> 0:14:35.520 early twentieth century presidents like Hoover, among others like Harding 0:14:35.640 --> 0:14:40.240 and Coolidge J Well JFK. Later, but early on in 0:14:40.280 --> 0:14:44.320 the twentieth century, Harding and Coolidge both implemented UM this 0:14:44.480 --> 0:14:49.680 kind of what's called supply side policy text policy right 0:14:49.680 --> 0:14:55.680 where where if you stimulate production through lowering taxes at 0:14:55.720 --> 0:14:57.680 the top, and we'll tell you in a second how 0:14:57.720 --> 0:15:00.680 those two are correlated, Um, you can at the economy 0:15:00.720 --> 0:15:05.440 going yet Well, Hoover also followed the same policy, and 0:15:05.600 --> 0:15:08.840 under Hoover's watch, the Great depression happen. Yeah, which would 0:15:08.840 --> 0:15:11.960 cause any just regular thinking person, even if they don't 0:15:12.000 --> 0:15:15.680 understand economics, to think, hey, we're doing it wrong. So 0:15:15.920 --> 0:15:19.400 Roosevelt came along, That's right. Roosevelt held the opposite view, 0:15:19.400 --> 0:15:21.600 and he was very much a Kinesian and he was 0:15:21.760 --> 0:15:24.520 operating at the same time that Keynes was writing and 0:15:25.360 --> 0:15:29.880 working himself. And John Maynard Kaine said, no, no, no, 0:15:30.000 --> 0:15:34.120 you guys have it backwards. You don't stimulate the supply, 0:15:34.760 --> 0:15:37.680 you stimulate the demand. Then all of a sudden, if 0:15:37.720 --> 0:15:40.440 you have a housing glut and you suddenly have people 0:15:40.480 --> 0:15:43.480 who have more money to spend, they'll take care of 0:15:43.520 --> 0:15:45.760 your housing glut and then things can get back to normal. 0:15:45.840 --> 0:15:49.840 We reach equilibrium again. Yeah. He was about, uh, short 0:15:49.960 --> 0:15:56.200 term ideas, short term fixes, maybe lower interest rates, maybe taxes, 0:15:56.360 --> 0:15:59.760 fiscal policy, taxes and spending. Basically what you hear a 0:15:59.760 --> 0:16:02.920 lot of obout these days. It. You know, Keynesian economics 0:16:03.000 --> 0:16:05.800 kind of lasted a long time until probably Kennedy and 0:16:05.800 --> 0:16:08.360 then Reagan. It's like there's only been a handful of 0:16:08.400 --> 0:16:12.400 US presidents really endorse the trickle down theory. Yeah, like 0:16:12.440 --> 0:16:17.240 wholeheartedly since the twentieth century. Um, so Yeah, it's the 0:16:17.360 --> 0:16:21.120 Kenzie and policies ruled, and it was very much about 0:16:21.160 --> 0:16:25.520 like cutting taxes for the lower and middle and working classes, 0:16:26.200 --> 0:16:29.440 increasing taxes for the rich because if you if you're 0:16:29.440 --> 0:16:31.880 a government, you still need revenue, right, So you can't 0:16:31.920 --> 0:16:34.000 just cut Texas for everybody. If you cut Texas for 0:16:34.040 --> 0:16:35.960 one group, you kind of need to increase it for 0:16:36.000 --> 0:16:39.280 another because you still need your money coming in. Of course, 0:16:39.280 --> 0:16:42.040 you could also take the radical step of figuring out 0:16:42.200 --> 0:16:45.920 how to eliminate waste and blow in government. That would 0:16:45.920 --> 0:16:47.600 help a lot, but we're not talking about that in 0:16:47.640 --> 0:16:52.240 this one. We're talking about trickle down economics. So then 0:16:52.280 --> 0:16:56.200 along comes Kennedy who says, hey, or my dad was 0:16:56.680 --> 0:16:59.760 pretty rich, so I'm kind of thinking that this trickle 0:16:59.800 --> 0:17:02.680 down thing might work, right, So he got into supply 0:17:02.760 --> 0:17:06.359 side economics. And then when Reagan came along, he really 0:17:06.480 --> 0:17:09.200 championed this whole idea. And it was out of a 0:17:09.280 --> 0:17:13.800 result of some guys in the seventies saying, um, there's 0:17:13.840 --> 0:17:16.919 this whole other thing that we've been ignoring, which is 0:17:16.960 --> 0:17:19.919 this trickle down tax policy that we should implement, and 0:17:19.920 --> 0:17:23.000 they got Reagan into it and he implemented it. Yeah, 0:17:23.119 --> 0:17:25.480 and Uh, after this message break coming up here in 0:17:25.480 --> 0:17:27.160 a sec we're going to talk a little bit about 0:17:27.160 --> 0:17:28.919 If it doesn't sound like it makes sense to you, 0:17:29.440 --> 0:17:32.680 there's a certain curve that will explain that might clear 0:17:32.680 --> 0:17:39.120 it up for you. All right, So we're gonna talk 0:17:39.119 --> 0:17:42.240 about the Laugher curve, which was also in Ferry Spueller. 0:17:43.280 --> 0:17:45.679 Oh was it? Yeah, he says, Laugher curve. But in 0:17:45.760 --> 0:17:47.879 high school had no idea. But no, I was like, 0:17:47.920 --> 0:17:50.840 what are those words together? I don't understand. Laugher was 0:17:50.840 --> 0:17:55.119 a person l A F F e er and Um. 0:17:55.760 --> 0:17:59.520 The Laugher curve helps explain a little bit why trickle 0:17:59.600 --> 0:18:02.639 down economics could possibly work. Is that a good neutral 0:18:02.680 --> 0:18:05.040 way to say that? I always say so. Uh. The 0:18:05.080 --> 0:18:08.240 idea of the Laugher curd curve is that the relationship 0:18:08.440 --> 0:18:11.439 between taxes and revenues is a curve instead of a 0:18:11.480 --> 0:18:15.760 direct relationship. So at a certain point, let's say you 0:18:15.800 --> 0:18:19.560 own a company making choose and you grows ten million 0:18:19.560 --> 0:18:23.200 dollars through like the first two financial quarters, and your 0:18:23.240 --> 0:18:26.439 tax that let's say, and you know, if you make 0:18:26.480 --> 0:18:28.639 any more money, then you're gonna jump up into that 0:18:30.160 --> 0:18:33.919 tax uh, tax category. You might slow down production you 0:18:33.960 --> 0:18:36.359 might halt the production altogether and say, you know what, 0:18:36.400 --> 0:18:39.320 I'm gonna take off the rest of the year, maybe 0:18:39.320 --> 0:18:41.359 even put these people out of work for four to 0:18:41.440 --> 0:18:44.840 six months furlow, and because I don't want to be 0:18:44.920 --> 0:18:48.760 taxed anymore. So if you look at that on a graph, 0:18:49.119 --> 0:18:54.040 it's gonna be if you text people, they're not gonna work. 0:18:54.080 --> 0:18:57.240 If you text people zero percent, you're not getting any money. 0:18:57.280 --> 0:19:01.520 So in the middle of there is the curve, right it. 0:19:01.640 --> 0:19:07.440 Basically Laugher's curve suggests that the correlation between UM tax 0:19:07.600 --> 0:19:12.680 rates and tax revenue is not totally positive. At some point, 0:19:12.680 --> 0:19:14.960 it starts to go back down. Yeah, that's called the 0:19:15.000 --> 0:19:17.879 prohibitive range. At a certain point, people don't want to 0:19:17.920 --> 0:19:19.880 be text in that range. Yeah, And it's not even 0:19:19.960 --> 0:19:23.920 necessarily that they are not working any longer because they 0:19:23.960 --> 0:19:27.920 resent being taxed. What Laugher was pointing out is that 0:19:28.320 --> 0:19:33.160 there is this prohibitive range, and within the prohibitive range, UM, 0:19:33.400 --> 0:19:38.600 you remove the incentive to work. Theoretically, where UM and 0:19:38.760 --> 0:19:42.600 Jay mcgrathre wrote this, UH gave a pretty good UM 0:19:42.800 --> 0:19:45.879 example where it's like, if you make that money and 0:19:46.000 --> 0:19:49.480 you are text, that's tolerable you're still gonna make. You 0:19:49.680 --> 0:19:52.560 still get to keep fifty percent for yourself. But when 0:19:52.560 --> 0:19:57.080 you're texting that ninety percentile, uh, you're let's say you 0:19:57.119 --> 0:20:00.320 were going to make another million dollars, you to give 0:20:00.400 --> 0:20:02.800 nine thousand of it to the government. You just get 0:20:02.800 --> 0:20:05.240 to keep a hundred thousand. Well, you might decide to 0:20:05.280 --> 0:20:07.199 just go and spend the rest of the year at 0:20:07.240 --> 0:20:09.800 your beach house with the money that you did make, 0:20:10.160 --> 0:20:12.560 not because you resent being texted, because it's just not 0:20:12.720 --> 0:20:15.639 worth it to to exert that effort to make that 0:20:15.720 --> 0:20:17.600 next million dollars when you just get to keep a 0:20:17.680 --> 0:20:20.199 hundred thousand of it. So at that point in that 0:20:20.280 --> 0:20:27.040 prohibitive range, the tax policy is effectively keeping people from working, 0:20:27.320 --> 0:20:30.000 inducing them to not work any longer, which is bad 0:20:30.040 --> 0:20:33.000 for an economy. And that's if you're if your work, 0:20:33.040 --> 0:20:37.480 if your income is directly related to your work, right, 0:20:37.680 --> 0:20:40.199 you could considerably if you owned a factory or something, 0:20:40.280 --> 0:20:43.479 and you didn't have to really exert any problems and 0:20:43.520 --> 0:20:45.960 you could still make payroll and all that stuff, it 0:20:46.080 --> 0:20:47.920 might be worth it to just leave it to these 0:20:47.920 --> 0:20:50.639 other people to make that extra hundred thousand dollars for you, 0:20:51.760 --> 0:20:53.440 rather than go off to the beach house. But if 0:20:53.480 --> 0:20:58.080 you your effort directly um is tax, then yes, it 0:20:58.119 --> 0:21:02.439 would become a distance and toward work. Conceivably, we should 0:21:02.440 --> 0:21:05.000 point out Chuck and Jane didn't do a very good 0:21:05.040 --> 0:21:08.400 job of doing that in this In this article, Laugher's 0:21:08.480 --> 0:21:13.040 curve is a thought experiment. It's not based on data. 0:21:13.680 --> 0:21:16.440 It's not um a hard and fast rule or a law. 0:21:16.600 --> 0:21:21.760 It's basically an intuitive idea of tax rates and their 0:21:21.800 --> 0:21:24.920 effect on tax revenue. Yeah, but if you don't even 0:21:24.960 --> 0:21:27.280 have to be a business owner, Let's say you're just 0:21:27.359 --> 0:21:29.639 a regular employee that makes a salary, you have a 0:21:29.680 --> 0:21:32.800 salary sweet spot as well. You know, if it's great 0:21:32.800 --> 0:21:35.320 to get promotions and to get raises, but if you're 0:21:35.359 --> 0:21:39.240 really climbing the ladder at a certain point, you might think, man, 0:21:40.119 --> 0:21:43.320 I got a big raise, and I'm making barely any 0:21:43.320 --> 0:21:46.280 more money than I made before this big promotion because 0:21:46.280 --> 0:21:49.320 I've been kicked into a higher tax bracket. So that's 0:21:49.600 --> 0:21:52.159 the prohibitive range, and it, you know, can apply to you. 0:21:52.240 --> 0:21:54.480 I mean you can't. You don't stop working. No, But 0:21:54.560 --> 0:21:57.560 you may say I don't actually want their promotion because 0:21:57.600 --> 0:22:00.440 it's going to be more responsibility and really out much 0:22:00.440 --> 0:22:02.520 more money. So I'm going to hang out right here 0:22:02.600 --> 0:22:06.760 rather than keep going in my little range or whatever 0:22:06.760 --> 0:22:12.120 it is. So that's Laugher's curve, and that's a it's 0:22:12.119 --> 0:22:17.600 a kind of the basis of trickle down tax policy. 0:22:17.640 --> 0:22:22.240 It's the idea that, Okay, there is a point where 0:22:22.320 --> 0:22:26.320 you can text too much and now you're actually slowing 0:22:26.359 --> 0:22:32.680 down the economy. So based on Laugher's curve, when you're 0:22:32.720 --> 0:22:38.280 looking at it through um through trickle down policy, there's 0:22:38.280 --> 0:22:40.280 a point. Then that's that, like you said, there's a 0:22:40.280 --> 0:22:43.400 sweet spot as far as text revenue goes. And it 0:22:43.440 --> 0:22:47.439 creates this seeming paradox where if you cut tax rates 0:22:47.560 --> 0:22:52.960 at a certain point, you'll actually increase tax revenue because 0:22:53.000 --> 0:22:56.040 people will be incentivized to work more throughout the year. 0:22:56.920 --> 0:23:01.080 And the other basis of trickle down theory is that 0:23:01.720 --> 0:23:06.720 you are going to put more money or keep more 0:23:06.760 --> 0:23:11.520 money with the people at the wealthiest. People who under 0:23:11.560 --> 0:23:16.359 this idea are more likely to um invest it back 0:23:16.400 --> 0:23:19.520 into the economy, right, and when they do that, supposedly 0:23:19.680 --> 0:23:24.880 allegedly the economy booms. Yeah, what you can account for 0:23:25.040 --> 0:23:27.879 is just the single person. This has looked at in 0:23:27.920 --> 0:23:31.320 the broadest terms, because somebody could make all their money 0:23:31.320 --> 0:23:33.920 and just sit on it in the bank, which isn't 0:23:33.920 --> 0:23:37.440 reinvesting it. That is a really, really, really big point. 0:23:37.800 --> 0:23:41.080 You'll remember back at the beginning of this recession, the 0:23:41.200 --> 0:23:45.800 FED was doing everything it could to cheapen lending and 0:23:45.880 --> 0:23:52.679 still has been, and uh, it didn't do anything. Come on, like, 0:23:52.800 --> 0:23:58.080 you have to take into account things like um insecurity, fear, 0:23:58.760 --> 0:24:04.120 um being hum yes, being human, like, we're not necessarily 0:24:04.359 --> 0:24:08.080 rationally maximizing actors. Humans are like, there is such thing 0:24:08.119 --> 0:24:12.000 as fear and the idea that maybe hoarding money is best. 0:24:12.080 --> 0:24:15.920 So what's possible then if you follow this trickle down 0:24:15.960 --> 0:24:21.400 tax policy, is you're taking money from everybody else and 0:24:21.880 --> 0:24:24.879 giving it to the rich. Or if your head to 0:24:24.960 --> 0:24:28.119 spun because you're a fiscal conservative, what you're doing is 0:24:28.320 --> 0:24:32.080 allowing the rich to keep more of their income, but 0:24:32.160 --> 0:24:36.360 they're not doing anything with it right at least as 0:24:36.400 --> 0:24:39.520 a short term fixed that's not a good idea because 0:24:39.520 --> 0:24:43.160 you can probably bet that eventually the rich are going 0:24:43.280 --> 0:24:47.360 to take that money and invest it back in the economy. 0:24:47.400 --> 0:24:50.879