Of Trickle Down - and Demand Side.

Discussion in 'Economy' started by Uncensored2008, Mar 1, 2012.

  1. Uncensored2008
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    Uncensored2008 Libertarian Radical Supporting Member

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    In several threads around the board, debates rage regarding the superiority of "Trickle Down" or "Demand Side" economics on a macro scale. What becomes rapidly clear is that most people arguing these positions don't know what the terms mean. What is "Trickle Down Economics?" What is "Demand Side Economics."

    Let's start with "Demand Side." The first thing to understand is that it doesn't exist. There is no "demand side" school of thought, there never has been one. Most of those who claim to support "demand side" do so based on complete ignorance. A thought process of "supply side is Reagan, we hate Reagan and want the opposite, which is demand side." They couple this with a fuzzy misunderstanding of the theories of Lord John Maynard Keynes. Keynes was NOT an idiot, Keynes did NOT claim that demand drives markets. Whether one agree or disagrees with Keynes, the foundation of Keynesian theory is sound. Keynes did not promote the idiocy that most of those using his name as justification claim that he did.

    Then there is "Trickle Down." As with demand side, there is no such thing a trickle down. It is a name that demagogues coined to deride the theories of Arthur Laffer. Laffer created a fusion of Austrian and Classical economics coupled with a spin on Keynes where tax cuts, even with rising deficits, were used to stimulate business cycles. The theory being that cuts in corporate taxes would create more jobs and that the benefits would trickle down to all levels of society.

    So most of the "debate" we see is based on myth and ignorance. Should public policy be based on myth and ignorance?

    This thread is created in hopes that debate on the real economic schools of thought, Classical, Austrian, Keynesian and Chicago will be discussed in a more accurate manner. So that those who speak so loudly may glean some semblance of knowledge regarding the subject they pontificate upon.

    Standard Disclaimer: My bias is Rothbard, for those who know who he was.
     
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  2. DSGE
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    DSGE VIP Member

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    What do you mean "there is no demand-side school of thought"?

    Maybe you should clarify what you think is meant by demand-side/Keynesian/trickle down etc.

    To me "demand-side economics" refers to a theory of nominal business cycles. In the modern incarnation, frequently called "New Keynesian economics", an economy hit by nominal shocks - shocks to the money supply or demand for money - can result in changes in real variables (such as output and employment) due to "sticky" wages and prices.

    I'm a Market Monetarist.
     
  3. samjones
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    samjones Member

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    Are you sure that conventional economic theory doesn't include a concept of "Demand Management"?

    Come back and read the rest of this post after you're done Googling.

    The basic concept that only one approach to an economic problem will work and is always appropriate regardless of circumstance is the main problem with the right wing in the US. It does not matter the problem, the only solution that they can think of is to lower taxes on the monied and cutting services to the poor. It's a painfully stereotyped and narrow perspective and it's why the Republican Party is probably more at odds with itself than it is with the Democrats.

    I see no reason to give tax breaks to corporations that will enable them to open more offices in India. I do not see how that helps my country. Extending UI did help my country and so I think it's a good idea.

    If I wanted to hurt my country then I would agree with your point of view. But I do not, so I do not.
     
  4. Uncensored2008
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    Uncensored2008 Libertarian Radical Supporting Member

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    Of course it does, Sam. Demand is a component of any and all economic views. Just as all economic schools have a component of supply, and some seek a managed supply. This is irrelevant to the issue at hand.

    The misuse of the term "demand side" to denote Keynesian economics is common, but ignorant. And yes, I'm taking a pot shot at Krugman.

    Googling what, precisely?

    Well that's nice.

    But the hope here is that we move away from partisan politics and examine what the various schools actually promote, looking at the merits and flaws of them.

    I understand that partisanship is the primary motivator for you.

    Do you agree that within any market there is an unwavering force that reacts to supply and demand, an invisible hand that pushes price based on perceived value? (Starting with the basics.)
     
  5. Uncensored2008
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    Uncensored2008 Libertarian Radical Supporting Member

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    Precisely what I said.

    Just like "trickle down" is it a term of ignorance.

    I would rather you describe what you think the key difference between "demand side" and Keynesian economic is?

    That's a good definition, though still the Keynesian school of thought. It appears to attempt to address shortcomings with traditional Keynesian thought.

    One of the criticism of Rothbard on Keynes was the dedication Keynes has to rigidity of wages. In Keynesian models, wage is strictly rigid and the only means of compensation offered the labor market, ergo if supply falls in a particular labor market, wages must rise. What fails to account is other means of benefits, obviously health, holiday and vacation, but also working conditions and on the job perqs.

    The New Keynesians also recognize the flaw in Keynes due to sticky wages, but still fail to acknowledge non-wage compensation as a common mitigation of them.

    I base my view primarily on a section of "Man, Economy, and State" Chapter 11—Money and Its Purchasing Power (continued)

    Hmm, neo-Freidman. Interesting.
     
  6. samjones
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    samjones Member

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    The problem is that you refuse to consider the merits of any view other than your own and you aren't really able to support your own views with actual facts ... or at least you don't have any facts that couldn't easily be interpreted multiple ways. I can see why you are naturally inclined to be arrogant and dismissive under these circumstances. When you start with the attitude that you are right and everyone else is stupid you really don't have any choice.
     
  7. Uncensored2008
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    Uncensored2008 Libertarian Radical Supporting Member

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    So..

    You have no thoughts at all on economics and only want to campaign for Obama.

    I understand.


    Here is what I referenced, that you could not grasp;

    {As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.} An Inquiry into the Nature and Causes of the Wealth of Nations - Adam Smith
     
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  8. DSGE
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    DSGE VIP Member

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    It's your thread. You started off by claiming there's some ignorance. Pretty sure the onus is on you define and explain first.

    But I'll explain my view anyway. There is no difference. Keynes, maybe not invented, but formalised demand side economics. When people say "demand-side economics", they refer to business cycles. In aggregate, supply is vertical and normally Say's law applies. That is, aggregate demand doesn't matter. The act of supplying creates its own demand. Prices adjust to make us rich enough to buy the stuff we produce. So in that case any business cycle must occur due to shocks to the supply side; productivity, taxes, regulation, etc. Keynes noticed that Say's law doesn't necessarily apply always in a monetary economy. We can have periods of "insufficient aggregate demand". Demand driven business cycles, hence "demand-side economics".

    That's not true. I mean, it's super obvious, right? We include real non-wage compensation. But while in reality "wage" specifically means the pay packet with money in it, not including benefits, in econ "wage" means all hourly compensation. If you only include money-wages in your analysis, people will yell at you.

    I'll get around to reading it. Maybe today.
     
  9. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    Do you want a theoretical debate or a practical one? Frankly, I don't know if many people want to discuss the theories behind a specific economic model. I'd rather talk about what's practical here and now, what'll work and what won't. To do that, we need to define and describe a little more thoroughly what the different approaches are.

    Demand side economics as I understand it is the approach that puts more money into the hands of the lower and middle class in hopes they will spend it. If they do, then we have increased demand, which means the supply side ramps up production and we get more jobs, and more spending, and an upward spiral results.

    Supply siders believe it's all about reducing the costs of production, so we make more stuff at a lower price. Lower prices mean more demand, which means production is ramped up and we get more jobs, which translates into more spending, and an upward spiral results.

    Except it ain't that simple in either case. There's so many other factors involved in both processes, sustainability for one and foreign competition for another. It's lazy thinking to say that all we need to do is redistribute the wealth or lower taxes. It's a lot more complicated than that.
     
  10. Uncensored2008
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    Uncensored2008 Libertarian Radical Supporting Member

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    I have no objection.

    I simply didn't want to dominate and crush an actual discussion.

    Definitions.

    Supply side: A theory by Arthur Laffer that combines elements of Austrian, Classical and an element of Keynesian thought.

    Demand side: A term used by those who lean toward leftward politics to improperly denote Keynesian economics.

    That's a good definition, though Keynes never used the term "demand side." Keynes focused on the sometimes erratic behavior of aggregate demand in the business cycle, which is influenced on both public and private behavior in the market.

    One of the most adamant Keynesian in my lifetime was Richard Nixon. Keynes coupled the use of stimulus to rigid or anchored elements in an economy. Wages and prices being the most common objects to attempt to affect. Nixon actually placed a wage and price freeze on the nation in an attempt to create rigidity for the stimulus to work. The results were a disaster, of course. And from this, I learned that Keynesian methods don't actually work.

    True, which is one of the areas that Keynesians trip over their underwear on. Friedman particularly pilloried Keynes on this fact, the introduction of capital by necessity increased inflation, devaluing the benefit of the added capital, particularly in regard to wages. Fringe benefits avoid the trappings of inflation. Medical care doesn't decline in value as inflation eats away at currency.

    Rothbard is brilliant.
     

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