The General Economics Thread

Seems like retirement is becoming a money sink for economies. It reminds me of a paper which I unfortunately don't remember that polities with an overly large amount of retirees tend to develop policies which drive out young people and reduce fertility, thus reducing the amount of young people and increasing the over-dominance of old people. Positive feedback effects ensue.

"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." - Richard Feynman

'Tis hard to practice true sissu when it's quite nice at home in most ways. Travel: seek the physically miserable to enable full Finn!

edited 17th Dec '17 6:44:20 AM by Euodiachloris

So, Finland is becoming like Japan except that unlike Japan people feel confident/ are capable enough to leave?

"Going full Finland" must become a thing.

So, I have a question. "Trickle-down economics" is the idea that if big business owners get richer, they'll spread their wealth around to the middle and working class, right? But in a capitalist system, the goal is, above all else, to make a profit, right? So if your goal is to make a profit, why would you let your riches fall to the middle/working class? How to advocates of trickle-down economics reconcile these seeming contradictory ideas?

Like a lot of right wing ideas, it requires ignoring logic, reality, and history. But it ‘’feels’’ right to them, so they do not care. You might as well ask why people still believe in Creationism or anti-vaxxer crap.

Disgusted, but not surprised

Let's break that down a little bit less pithily. Although what was said above is true, there's more to it than just that.

The global plutocratic elite (in all nations) has always held the general belief that it is morally superior to lesser people and deserves an ever-increasing share of the wealth and power. There are a few exceptions, of course, but we've got plenty of evidence of this psychology being in effect. There's documentation of exclusive high society gatherings where the requirement for entry is to ostentatiously shit on poor people.

So, obviously, when things start going against the elite, in the post-Great Depression reforms of the 20th century, they take it as a violation of their natural mandate and start scheming about ways to get their own back. They already own the Republican Party, but the common folk damn near got out the guillotines, and the technocrats — scientifically educated people who are applying practical solutions based on testing and analysis — are creating policy.

How to fix this?

1. Start pushing out massive propaganda to convince the common folk that wealth is a desirable thing and those who have it are morally superior. This is especially targeted at religious folks via affinity fraud. See: the resurgence of Calvinist thought pushed by the new-fangled televangelist mega-churches with suspiciously wealthy backers.
2. Start buying up their own economic think-tanks to push alternative points of view into the media to entrap the more educated and aware. This got a huge boost in the 1970s when the "neoclassical" folks cried vindication after the stagflation era. Over the next 40 years, Keynes and Minsky started getting shoved out of academic classrooms and giggled at in the hallways.
3. Co-opt the racist white bloc during the Civil Rights era by convincing them that the evil left wants to take all their stuff and give it to black people.
4. Build a modern propaganda empire via Rupert Murdoch and his vast array of media properties, designed to entrap viewers in an information bubble.
5. Strategically spend money in key state and local races to get "conservative" legislative and judicial bodies that could in turn enact their boilerplate agendas and gerrymander to secure future elections.

And here we are.

edited 18th Dec '17 4:36:34 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Because it's not a zero-sum game. The idea is that a successful business will hire more employees, those newly hired employees will have more money to spend on things, the companies that they spend their money on will do better, so they'll spend part of that increased revenue on hiring more employees, those new employees will spend their new wages on more stuff, etc etc.

The problem is that successful businesses only invest additional money into wages (either by hiring new employees or paying existing employees more) in specific circumstances. Outside those circumstances, they'll just pocket the money as extra profit (and do things like pay it out as dividends, do stock buybacks to boost their own stock price, etc). The same is true of things like tax cuts for the wealthy — often they'll just sit on it, or put it into safe investments (like bonds) that do little or nothing to boost the economy.

Increasing the amount of money that poorer people have, though (via tax cuts, minimum wage increases, additional social programs, etc), will almost always result in increased spending in the economy, as the middle and especially the working class save relatively little of their income. A "bottom-up" economic policy will almost always result in more money being injected into the economy than "top-down" policy will.

The one exception is a supply crisis. That's when consumers have money to spend, but (for whatever reason), there's not enough stuff for them to spend their money on. This is generally not good, as it can lead to things like rapid inflation (prices rise as a large amount of dollars compete for a small amount of products and services). However, it's also very uncommon, and usually caused by external factors like wars or natural disasters that destroy infrastructure and dramatically reduce the labor pool, making it more difficult to produce anything. Under those conditions, it makes sense to give more money to businesses so they can invest it in workers, equipment, etc.

edited 18th Dec '17 4:39:51 AM by NativeJovian

Really from Jupiter, but not an alien.

So in essence, the "trickle-down" part rarely, if ever, happens?

edited 18th Dec '17 5:34:23 AM by PhysicalStamina

The analogy I suppose is that of a chalice that overflows with sweet ambrosia. The godlike wealthy plutocrats drink deep from it and the rest of us plebes are supposed to be grateful for their dregs.

The problem is that the wealthy always have more chalices.

Disgusted, but not surprised

I would not be as harsh on your average person buying into Trickle-down economics as and are.

The fact is that the argument that if businesses had more money then they would be better able to reinvest in their business, build more factories/ stores, hire more people, etc. All things that are ‘’obviously’’ good for the economy is going to be very intuitive to a lot of people.

The fact that it is often more profitable (short term) for these companies to cut cost (close factories, layoff workers), or purchase companies and intellectual property in order to secure more monopoly price/ power (this is profitable long term) is not necessarily going to be obvious to people who haven’t studied economics to a fairly significant degree. That aso isn’t helped by the fact that standard Keynesian Economics is pretty counterintuitive to many people’s lived experience.

edited 18th Dec '17 6:58:37 AM by Mio

Basically, yeah. The only time that helping businesses benefits consumers is when businesses are in trouble. Otherwise helping businesses just helps businesses. (The reverse is not true — helping consumers virtually always helps businesses, because consumers spend their money — which translates into increased revenue for businesses.)

That's the argument, yes, but that's not what actually happens. Unless businesses are hurting for some reason, helping them out doesn't cause them to invest in things that benefit the economy — it causes them to invest in things that benefit themselves but has little effect on the economy (CEO bonuses, stock buybacks, mergers and acquisitions, etc).

And right now, businesses are very much not hurting — they're posting record profits (while wages are stagnating). If they wanted to reinvest in their business, they already have all the money they need to do that. They're sitting on piles of money without investing it — adding to the piles won't make them invest it, it will just make the piles bigger.

Of course, as Fighteer pointed out, in reality this isn't a bug, it's a feature. The point of supply side economics isn't to benefit consumers or the economy as a whole — it's to benefit large corporations and rich people. The "trickle down" theory is just a smoke screen to get voters to buy into the idea, even though it's demonstrably wrong.

edited 18th Dec '17 6:37:58 AM by NativeJovian

Really from Jupiter, but not an alien.

That is ultimately what I meant to say.

Sorry if I was a little unclear.

All of the above is accurate. "Trickle down" was never an honest economic theory; it was a smokescreen for greed from the very beginning.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

And yet (big) businesses love to claim that they are hurting terribly whenever you try to regulate or tax something, that you will ruin them and it will be awful and how dare you.

Automotive industries complain that China's agressively pro-electric policies will cause their profits to drop during the transition... from an annual 10% to a mere 8%.

However, given "the lack of many free-market elements in China" (their own words), they can't afford not to get on with the program.

As an electrical automotive engineer, forgive me if I don't exactly cry for their margins.

edited 18th Dec '17 7:12:04 AM by TheHandle

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.

Actually, that (trickle down) is what used to happen (otherwise the economy would have ground to a halt soon after the Industrial Revolution). Not always, and not very smoothly, but it happened. There are more types of jobs now than there used to be because in the past, businesses would take their profit and use it to create new lines of products or services that they could sell to more people. Those new lines required employees with new skills, so the skill base of labor has also increased over the centuries.

All this started to change in the 1970's, more or less when organized pro-business lobbying began to become significantly better funded and organized. The infamous so-called "Powell Memo" is sometimes cited as evidence that this change was a deliberate and calculated strategy pursued by pro-business forces in politics. Supreme Court Justice Lewis Powell wrote the memo in 1972 claiming "...“Business must learn the lesson . . . that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination—without embarrassment and without the reluctance which has been so characteristic of American business.”

As Piketty documented in his book "Capital in the Twenty-First Century" the distribution of wealth and income in the world has begun to shift significantly toward the upper 1% of the socio-economic class. It's all nothing less than a concerted effort to return the world to the conditions before FDR and the New Deal (or even before Teddy R and the Reform Movement).

"Trickle Down" (AKA "Suppy-Side Economics") doesn't work as a general economic plan. The conservative elite (i.e., the largest donors) know this perfectly well—I am of the opinion that they are very specifically not fooling themselves, nor do they believe their own propaganda. They look back in history, see how the rich ran things back in the Gilded Age, and they want to return to that. Since they know that the majority of voters would never support such a thing, they had to come up with some smoke and mirrors to cover their agenda.

Personally, I think it's coming to an end, one way or another. Modern society is simply too complex, and economic conditions have changed too much, to return to a caste-based arrangement. What they might do, are doing, is fueling a populist uprising that they likely wont be able to control. Whether this populist feeling results in a world more like Trump or more like Bernie Sanders remainst to be seen.

edited 18th Dec '17 8:05:42 PM by DeMarquis

Of course the "used to happen" also came at enormous societal and personal cost, given the job losses engendered by the industrial revolution and the working conditions that came along with it.

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True, I was not recommending that we go back to that, merely pointing out that something fundemental has changed.

Yeah, to return to a trickle-down effect requires also returning to a situation where we're willing and able to render vast swathes of workers unemployed with no prospects, and do nothing about it... thus giving companies a huge desperate workforce to put into some other project that might earn them money.

And in the meantime, give them a nice big captive workforce to regain as many wages from as possible.

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Fun bit of trivia: "Trickle-down" is apparently based on the old "horse-and-sparrow" theory of economics.

“If you feed horses enough oats, it will pass through their digestive systems and their droppings will provide enough leftover oats to feed the sparrows.” – John Kenneth Galbraith

"Trickle-down" is literally shit economics.

Disgusted, but not surprised

The main alternatives are stimulus spending to encourage economic growth, and steeply progressive taxation to ensure that the growth is shared equally.

It's probably not a good sign when a major economic theory brings up imagery of horseshit under one name and piss under another.

Disgusted, but not surprised

A local official once said, if you raise taxes too much, the rich will emigrate!

Is this statement true and what are the economic implications? Considering that a local entrepreneur revealed in his memoir this is the exact reason he relocated....

If you tax rich people, there is an increased risk of some rich people leaving. Which historically has been countered by using the money to make the local community more appealing to live and work in. Good services, a clean environment, and a well-educated workforce are all good for business and the citizens. Which, after all, is the main purpose of taxes.

There are, by the way, any number of very wealthy people who have claimed that they should be taxed more.

Interesting:

Have you ever felt sorry for the IRS? Now might be the time.

After years of upbraiding and even threatening to abolish the Internal Revenue Service, Republicans must now depend on the agency to carry out their signature legislative accomplishment: a comprehensive revision of the tax code.

The task is monumental. While processing tens of millions of tax returns for 2017 under the current rules, the I.R.S. would also have to figure out how to interpret and explain a new system and put it into practice.

“Beware,” said John A. Koskinen, who retired last month as I.R.S. commissioner. “If the budget keeps being cut and the agency keeps being given more things to do, the I.R.S. is simply not going to work.” Either the information technology will fail, forcing the filing and refund systems to collapse, he warned, or enforcement and audits will become so scarce that fewer people will be inclined to pay the taxes they owe.

The House and Senate were expected to vote on the $1.5 trillion tax overhaul as soon as Tuesday. Vice President Mike Pence planned to preside over the vote and, if needed, break a tie and pass the bill.

Even before Congress began revising the tax code, the I.R.S. was struggling to keep up with an expanding workload. Since 2010, its budget has been cut by $900 million — or 17 percent, after adjusting for inflation — and its staff reduced by 21,000, or 23 percent. In the meantime, it has had to process roughly 10 million more individual returns.

The agency has been a favorite target of Republicans, who have complained that it unfairly investigated conservative organizations and reveled in irritating taxpayers. (A recent inspector general report showed that the I.R.S. had scrutinized both liberal and conservative groups.) During the campaign, President Trump accused the agency of unjustly hounding him with audits year after year. Paying as little as possible was “the American way,” he declared.

Although Treasury Secretary Steven Mnuchin has acknowledged the importance of sufficiently funding the nation’s revenue collector, Mr. Trump’s budget proposed deep cuts.

Referring to enforcement, taxpayer services and cybersecurity, Mr. Koskinen said, “We don’t have enough people to do all the work that needs to be done as a general matter,” let alone grapple with an overhaul of the tax code.

Getting out new withholding tables, so that payroll managers know how much to deduct from paychecks and can update their systems, would be a priority on the agency’s expanded to-do list.

The American Payroll Association, with 21,000 members, sounded an alarm in a letter to Congress: “Our members are already starting to panic, on behalf of themselves and millions of employees, about the effect on 2018 withholdings of a tax bill that will be effective a week after its enactment.”

The I.R.S. said in a statement on Thursday that taxpayers should not expect to see any changes as a result of the legislation to be reflected in their paychecks until February, and that the agency would work closely with payroll and tax professionals.

That delay puts the onus on workers to make adjustments later in the year if too much or too little money is being withheld because their January paychecks reflect the outdated 2017 law.

Pete Isberg, vice president for government relations for ADP, one of the largest payroll providers, said taking account of the changes would be easier for the larger automated companies, but acknowledged that the short lead time between the law’s anticipated passage and the effective date would be a problem for some.

The prospective elimination of personal exemptions adds another twist. That may invalidate all the automatic withholding forms, or W-4s, that employees signed, Mr. Isberg said, “and put employers in the position of getting a new W-4 from every U.S. worker.”

The burden of carrying out a new code also falls heavily on the I.R.S. legal staff, who — along with their counterparts at the Treasury Department — are responsible for explaining to tax preparers, businesses and individuals what the statute means. They will detail, for example, under what circumstances the alternative minimum tax should be used, or whether a given expense qualifies for a particular exemption.

If the plan is passed, I.R.S. staff members will have to write countless guidelines and regulations to define and explain critical terms and concepts, as well as correct technical flaws that can arise in the best of circumstances, let alone in a bill done at breakneck speed.

Mr. Trump’s directive to federal agencies to eliminate two regulations for every one that is added could present an unexpected speed bump. Most of the regulations that the I.R.S. issues with Treasury are meant to interpret rather than set policy.

“The I.R.S. needs to be exempt from those regulations, or they just won’t be able to implement the law,” said Fred T. Goldberg Jr., I.R.S. commissioner under President George H.W. Bush.

Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, told reporters on Capitol Hill on Monday that lawmakers wanted to sit down with the I.R.S.’s acting commissioner, David J. Kautter, to determine the agency’s needs. Mr. Brady added that consumer service should be more of a focus: “My sense is that there could be broad bipartisan support for restructuring the I.R.S.”

The agency can expect it would be deluged with questions from taxpayers and practitioners about the changes. Responding would require retraining employees and making new hires to handle the expected onslaught of requests.

“The I.R.S. is one of the few agencies that touches just about every household,” said Mark J. Mazur, director of the nonpartisan Tax Policy Center in Washington. “If you go to an I.R.S. walk-in site, you have some expectation of getting the right answer.”

Updating the agency’s vast computer system is also a gargantuan undertaking. The I.R.S. (along with much of the federal government and major financial institutions) uses a computer programming language called Cobol, developed almost 60 years ago. Almost every coding change will, in effect, have to be entered by hand.

Congress significantly increased the agency’s funding after the 1986 tax overhaul passed. As a result, the I.R.S. hired an additional 2,100 employees to help carry out the new law.

This time, Congress has not made any specific appropriation requests. During hearings last week before a House oversight committee, witnesses testified about how difficult it would be for the I.R.S. to handle the largest overhaul of the tax code in more than 30 years. Little consideration has “been given to ensuring I.R.S. has the resources necessary to carry out this monumental task,” Tony Reardon, president of the National Treasury Employees Union, testified.

Given how much the bill is expected to cost, even under the Republicans’ optimistic projections, meeting its budget targets will depend on collecting the taxes owed under the new system.

Challenging the I.R.S. at every turn, however, will be a growing phalanx of highly paid tax lawyers and accountants intent on finding ways to outmaneuver the I.R.S. and avoid taxes. Every 1 percent drop in compliance costs the government $33 billion a year. Yet enforcement and auditing capabilities have perhaps suffered the most as the agency’s budget has shrunk.

“It won’t surprise me if the combination of the filing season and implementation of the legislation create significant problems,” said Marcus S. Owens, a Washington lawyer and former director of the I.R.S. division for tax-exempt organizations.