Of Trickle Down - and Demand Side.

[rdean]

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.

If there is no such thing as "trickle down", then why do Republicans go to such lengths to promote it?

 

[Uncensored2008]

If there is no such thing as "trickle down", then why do Republicans go to such lengths to promote it?

If not for logical fallacy, you'd have no logic at all....

 

[EdwardBaiamonte]

, Keynes did NOT claim that demand drives markets.

no, but as importantly he said that liberal central government could prime the pump thus creating demand that would stimulate the economy. We know now that pump priming causes artificial bubbles the burst causing recessions.

,
the foundation of Keynesian theory is sound.

but you have not told us what the foundation is nor why you think it is sound. It is not sound, it is idiocy.

,
Then there is "Trickle Down." As with demand side, there is no such thing a trickle down. .

true that is was a pejorative but its easily turned against liberals: do you want trickle up? Do tax cuts for the poor so they'll invent new products and create new jobs make any sense at all?

 

[Uncensored2008]

A search of the forum for "Trickle Down" returns the last use of the term in December 1 of 2011.

"Newt invented "trickle down" and led the fight against Communism ...
Dec 1, 2011 ... I helped Ronald Reagan and Jack Kemp develop supply side economics. I helped lead the effort to defeat communism in the Congress."

No relevance to the topic at hand.

Perhaps, so that others don't mistakenly use it differently then you properly define it, you would be so kind as to add it to the list of definitions.

So far we have

This would help tremendously so that we might compare and contrast "Trickle Down" to "Supply Side" and not confuse the concepts.

"Trickle Down" is a derogatory term the left uses for Laffer's "Supply Side" economics.

Could you reference the threads and posts in which the concepts of "trickle down" have been used without being specifically referred to as "trickle down"? A sample of representative posts should suffice.

Why?

This is important, after all, as the concepts of "trickle down" and "supply side" have been conflagrated in the comments. We will be unable to know which were which.

Yawn...

Do you have anything to add on the subject?

Also, please define what is "not supply side". In examining the definitions that you provided, it appears that "Demand Side" does not exist.

Ice.

Ice is most definitely not supply side.

As there is a terms for "Supply side" there clearly is something that is not "supply side". After all, if there isn't something that is "not supply side" there would be no purpose for having the term "Supply side". Unfortunately, whatever it is remains unidentified.

Perhaps you mean that "Keynesian economics" is what is being referred to by the improperly used term "Demand Side" and that we should just simply remove "Demand Side" as a term and replace it with the correct term "Keynesian economics"?

I am sure, for the purposes of this thread, everyone will have no problem replacing the term "Keynesian economics" when they think "Demand Side".

This is a discussion about economics. If you have any ideas on the major schools of thought, feel free to share them.

 

[samjones]

, Keynes did NOT claim that demand drives markets.

no, but as importantly he said that liberal central government could prime the pump thus creating demand that would stimulate the economy. We know now that pump priming causes artificial bubbles the burst causing recessions.

Who's "we?" You and your Ron Paul Whackjob friends?

If by "pump priming" you mean economic stimulus then it's standard practice globally and "we" down here on planet Earth think it works just fine in most cases.

 

[EdwardBaiamonte]

Keynes did NOT claim that demand drives markets.

no, but as importantly he said that liberal central government could prime the pump thus creating demand that would stimulate the economy. We know now that pump priming causes artificial bubbles the burst causing recessions.

[
Who's "we?" You and your Ron Paul Whackjob friends?

this was also the central conclusion of Milton Friedman. He was an important economist. See why we say liberals are very very slow? What other conclusion is possible?

[
If by "pump priming" you mean economic stimulus then it's standard practice globally and "we" down here on planet Earth think it works just fine in most cases.

if so why did the Depression last for 11 years and why is unemployment still over 8% and why isn't BO able to get more stimulus???

It works fine?? If so you would not be so afraid to present your best examples? What does your fear tell us?? How can it work and not cause a bubble and recession. Is that working to a liberal??

 

[KevinWestern]

I’m going to jump in with a quick example. Suppose we have a business that sells some goods (has $50 in capital), and people in the economy who buy the goods (who own collectively $100 total).

Supply-side suggests that if you give a tax break to the business (now has $75 in capital), this will stimulate the economy because they will have additional money to spend on new resources, assets, ect and will grow and hire and everyone’s happy.

Demand-side suggest that if you give every person some money (so now they’ll own $125 collectively), the consumers will have more disposable income to spend on buying the goods that the company sells, and the company grows and again everyone wins.

Isn’t that an example of “demand-side” style thinking?

And by the way (to add regarding “supply side” thinking); I think that Laffer made some great contributions. The problem is that many of those on the far right misinterpret his idea to mean that ALL tax hikes – no matter where or when – are going to produce bad results, which is not the case. The Grover Pledge is total insanity, and a bastardization of Laffer’s original ideas.

 

[Uncensored2008]

I suppose, but it assumes that the people in the economy will buy the goods collectively, which is unlikely.

 

[KevinWestern]

I suppose, but it assumes that the people in the economy will buy the goods collectively, which is unlikely.

Sure, but just as supply side theory assumes that the business will actually use the added money they saved from the tax cuts to invest effectively in the business, allowing it to grow (and the economy to grow), instead of (a) saving the extra money and doing nothing with it, or (b) using the money to give bigger bonuses.

 

[EdwardBaiamonte]

Sure, but just as supply side theory assumes that the business will actually use the added money

of course they will use the money since business provides 100% of the growth and jobs!! Did you think the Girl Scouts provided some of our jobs?

 

[KevinWestern]

of course they will use the money since business provides 100% of the growth and jobs!! Did you think the Girl Scouts provided some of our jobs?

The amount of capital and resources a business has doesn't mean much if their are no people who can afford the product or service they sell (or don't want to buy the product they sell). Growth is driven by demand.

 

[Wiseacre]

of course they will use the money since business provides 100% of the growth and jobs!! Did you think the Girl Scouts provided some of our jobs?

The amount of capital and resources a business has doesn't mean much if their are no people who can afford the product or service they sell (or don't want to buy the product they sell). Growth is driven by demand.

Demand doesn't mean much if it costs you a million dollars for a loaf of bread. Supply counts for something too.

 

[EdwardBaiamonte]

Demand-side suggest that if you give every person some money (so now they’ll own $125 collectively),

and when you stop giving the welfare you have a recession or depression

 

[EdwardBaiamonte]

of course they will use the money since business provides 100% of the growth and jobs!! Did you think the Girl Scouts provided some of our jobs?

The amount of capital and resources a business has doesn't mean much if their are no people who can afford the product or service they sell (or don't want to buy the product they sell). Growth is driven by demand.

Demand doesn't mean much if it costs you a million dollars for a loaf of bread. Supply counts for something too.

supply is everything. people are lazy, demand for farm equipment, for example, was 1000's of years old. Nothing happened in all of human history until someone figured out how to supply it. Thats 100% of how we got from the stone age to here

 

[DSGE]

Nobody disagrees that supply is important. Ask any economist, even any Keynesian economist, they'll tell you that long run growth is all supply-side. "Demand-side" refers to a theory of the business cycle, not growth.

 

[KevinWestern]

and when you stop giving the welfare you have a recession or depression

Welfare? How about a simple tax break to the middle class (largest subsection of consumers). That puts more money in their pockets.

Demand doesn't mean much if it costs you a million dollars for a loaf of bread. Supply counts for something too.

Agree. I believe that stimulation on both demand and supply side can do good things. Both factors are important.

 

[Uncensored2008]

Sure, but just as supply side theory assumes that the business will actually use the added money they saved from the tax cuts to invest effectively in the business, allowing it to grow (and the economy to grow), instead of (a) saving the extra money and doing nothing with it, or (b) using the money to give bigger bonuses.

Giving bonuses puts the money in the economy, in a Keynesian sense.

Generally, extra capital means more capital projects are done. Capital projects mean jobs. True, they don't do anything for union pensions.

 

[Wiseacre]

Nobody disagrees that supply is important. Ask any economist, even any Keynesian economist, they'll tell you that long run growth is all supply-side. "Demand-side" refers to a theory of the business cycle, not growth.

There are many on the left who think it's all about demand and nothing but demand.

 

[KevinWestern]

supply is everything. people are lazy, demand for farm equipment, for example, was 1000's of years old. Nothing happened in all of human history until someone figured out how to supply it. Thats 100% of how we got from the stone age to here

Again you can’t recognize the power of supply without recognizing the power of demand. In business, the customer is #1. If they’re not happy then they’re not buying, and you’re going out of business. If a population has more money to spend, the economy will grow. If a population has less money to spend, it will contract.

 

[KevinWestern]

There are many on the left who think it's all about demand and nothing but demand.

True, and that's a poor way of thinking. Only 1/2 the picture.