Trickle-down theory all washed up now - SMH

Outside Canberra and the political war being waged over the federal budget, the debate is equally polarised.

On one side are most of the nation’s business lobbies. They acknowledge a good deal of the budget’s pain will be borne by those on the lower rungs of the socio-economic ladder. But they argue most of the budget’s spending cuts are justified on the grounds they will result in stronger, more durable economic growth and more sustained opportunity for all. This will address the budget’s long-run impacts on the poor and disadvantaged.

I don’t understand how most of these theories get up in the first place. It’s literally not even worth debating it’s that dumb. Our attitude to economic theories ought to be “modelling or GTFO”.

Trickle-down economic theory is just supply-side economics by another name. The theory goes that by reducing taxation you free up more capital for businesses to invest into the economy and thus stimulate economic activity/

That was the theory at least, in practice it’s never worked like that, in the US the Bush tax cuts have stymied economic growth, the same was and is true for the UK under Margret Thatcher. Wealth accumulation occurs as the economic activity that would’ve otherwise been created from government expenditure doesn’t materialize from the private sector.

To really understand the issue and the arguments for and against it, I suggest reading up on the Laffer curve that postulates the idea that there is an optimal level of taxation to generate the maximum amount of revenue from a population.

There’s a lot more to supply-side economics, but the long and the short of it is that there’s a large body of research that discredits it.

I know I am probably the odd one out in here but I am of the view that the less the government takes, the better it is for the people. I am not for supply-side economics either because it is just an argument that is trying to arrive at how to maximize profits for the state. The state does not create wealth, for what they create they must first take from the creators.

What they can do however, is they can take resources from one area, and put them into another, shifting the profit-incentives around to suit their buddies (who will no doubt make billions), but specifically, the buddies who have them in their own back pockets.

Income inequality is at its Worst, when government takes a large amount of our resources, and delivers it to the rich.

[quote=“Kanasuke, post:4, topic:34”]
the less the government takes, the better it is for the people.[/quote]

It isn’t as simple as this. It misinterprets the role of money and what it is there to achieve. Broadly speaking, the government prints money. I’m not saying this flippantly like some One Nation candidate, I’m saying thinking about money as how an individual thinks about money is fundamentally different to how money works for a government.

Historically, the purpose of taxation has actually been to force circulation. If you don’t get taxed in a currency, you don’t have to trade in that currency, and typically if a currency is untaxed it also goes untraded (note how that’s distinct from Bitcoin which is an asset). In a sense, taxing less is a way of devaluing your currency (again, it’s complicated, but broadly speaking, you need to be able to think of money in those terms as well in order to gain a fuller understanding of it).

The second main problem with this assessment is that of scale:

[quote=“J.B.S. Haldane”]You can drop a mouse down a thousand-yard mine shaft and, on
arriving at the bottom, it gets a slight shock and walks away. A rat is
killed, a man is broken, a horse splashes.[/quote]

Large amounts of money work fundamentally differently to small amounts of money. I’m assuming you’re not a billionaire, and I’m certainly not, so take this with a grain of salt: you can’t treat a billion dollars like you can treat ten thousand dollars. There are certain classes of investment that are simply no longer available to you. You can’t do things like invest in the stock market like a retail investor because of the sheer scale of the cash you’re going to infuse. You have to consider the physics of a horse when you’re used to the physics of a rat.

What I’m saying is that simple things like dealing with garbage, lights, roads, welfare, defense, and all that is more than simple accounting. It requires teams of people working full-time to manage all of this. A large company is the same: look at the number of accountants, business analysts, and financial folks they have to keep things ticking over. It’s deluded to suggest that a state does not create wealth when the earning potential of an individual can vary a hundred fold between countries. If you’ve ever been to a poorer country, take a look around at the facilities that are available to citizens and how long it takes them to do ordinary tasks like shopping, washing clothes, organising meetings, using computers, etc.

So I’m building up to a point, and it’s this: There are no shortcuts. You can’t simply say something like “let’s not trust governments with our money because they’ll just give it to rich people”. It doesn’t make sense because governments print money. You have to do the hard yards: fight corruption, look at budgets, and be an involved and informed citizen. Holding the government to account is the only solution. Taxing less can hurt more than it helps. It’s never going to be easy to understand taxation, and looking for an easy way out is a siren’s call that is best avoided.

Historically, the purpose of taxation has actually been to force circulation. If you don’t get taxed in a currency, you don’t have to trade in that currency, and typically if a currency is untaxed it also goes untraded

Money is a very important commodity because it is the medium of exchange, it should be subject to free market forces to decide which medium it will use. If you ask someone “why don’t you use this currency, except on the condition that someone else is allowed to print any amounts of it they see fit”, the person would say “No”, because their wealth would be devalued. They would choose a currency that doesn’t get devalued, one where they won’t get cheated on.

So obviously I am completely at odds with your view so there’s no way we can come to terms on these issues. Of course, it isn’t important to being pirates.

It’s deluded to suggest that a state does not create wealth when the earning potential of an individual can vary a hundred fold between countries.

Except we know that they didn’t create any wealth at all because the projects that they undertake (giant buildings, giant sewage, giant roads, bridges, etc) would already be happening if it was economically efficient to do by the private sector, or if the state did not have a monopoly on certain services.

The reason there is higher prosperity in some countries over others, would be because some states allow greater economic freedom than others, the more totalitarian the state, the poorer its citizen. At the end of the 19th century, America owned 50% of all the wealth in the world yet they were only 1% of the world’s population. At that time they was hardly much of a government at all (no central banking yet), they had tiny (relative to today) tiny budgets that couldn’t wage war for more than two weeks. Yet the US was the awe of the world, popularly known as Land of the Free, everyone in the world flocked to the US to find opportunities for work. They were the most prosperous because they had the least taxes.
This is a good history lesson on the Gilded Age:

That’s actually a pretty huge claim.
What basic incentive does the private sector have to provide healthcare to those too poor to afford it?
Or to create roads to towns and communities with small populations?
Taxation allows for a more planned and rational use of a nations wealth and investment in larger classes of investment in assets with long term returns on investment. Government has the potential to invest on greater scales such as @thesunnyk alluded to.
For example look at healthcare:
Private Investment in healthcare is concerned with a direct, short to medium term return on that investment.
Government can make an investment in healthcare that runs at a loss in the short, medium and even long term because they are able to obtain their return on investment in greater tax accumulation from the longer healthy working lifespans of its citizens.
Its a class of investment that is simply not available to private enterprise.

It is true that Government often squanders tax dollars (recent F-35 purchases may be a good example) but that is why we have democracy to elect and hold accountable the Government rather than an Autocratic state which has no accountability to its citizens or a Corporation which is only accountable to its shareholders.

Hmm, I see it in a practical sense. I will take the recent cuts to low income earners, pensioners and young people as an example. For the government to cut funding to these people will hurt the economy more than it saves basically.
The reason is that the people being effected are being shut off from the economy. They can no longer contribute due to a whole myriad of factors. If you give $400 a fortnight to a student currently studying in university for example. Where does the money go? It doesn’t just disappear. The money is reinvested into the economy, and is taxed! of course. So the uni student will pay for transport, rent, food and whatever else he needs to sustain himself throughout his study.
This is why it’s imperative we get the tax system right. Business’ especially big large multinational corporations should be taxed more then they are currently.

Anyway, that’s my view and I feel like I’m going a bit off track. I need to get better at sharpening my points so they come across more strongly. Hopefully you’ll get my points.