I'm not trying to get into an arguement over whether this works or not, but can someone explain to me a something. When Exxon or Walmart has record profits, the thoery states that everyone will benifit, but why is it that the starting salary for the low rung employees is still minimum (or close) wage?
Trickle-Down Economics
- Thread starter Fievel121
- Start date
I believe the idea is that as those companies profits increase, it is a reflection of the company's growth. This growth provides for new jobs, new stores, etc. There are always going to be minimum wage workers. It is simple supply and demand. There are more uneducated workers than there are jobs for them.
Also when Exxon has a record profit, they also pay a large sum in taxes. These tax dollars trickle down in some form.
Also when Exxon has a record profit, they also pay a large sum in taxes. These tax dollars trickle down in some form.
Fried JJ Pickles
1,000+ Posts
Brisketexan
1,000+ Posts
I've always thought that "Trickle Down" is not an accurately descriptive name for the theory. It is more like "Trickle Out" economics.
The extra money at the top generally does NOT trickle down in a vertical fashion. Folks who get the money tend to keep it -- but they don't just put it in a box in the yard and bury it. Instead, it trickles OUT.
They use the extra money to add a room to their house ($$ trickles out to contractors). They use it to buy a new car ($$ trickles out to auto manufacturers). They use it to go out for a steak ($$ trickles out to restaurants). Etc. Etc.
The shelf-stocker at Wal-mart doesn't see any of that $$ in a vertical sense. But the waiter at Sullivan's sees it in a horizontal sense, and the auto worker does, and the tile guy putting in the new game room does, etc.
And, of course, with the caveat that a bunch of folks in China do, too (e.g., if the Wal-Mart exec buys some new toys for his kids).
Depending on what your goal of an economic policy is, "Trickle Out" economics does work, to some extent. Rather than arguing about whether it works, it seems to me that the discussion should be about HOW it works, and HOW MUCH it works.
The extra money at the top generally does NOT trickle down in a vertical fashion. Folks who get the money tend to keep it -- but they don't just put it in a box in the yard and bury it. Instead, it trickles OUT.
They use the extra money to add a room to their house ($$ trickles out to contractors). They use it to buy a new car ($$ trickles out to auto manufacturers). They use it to go out for a steak ($$ trickles out to restaurants). Etc. Etc.
The shelf-stocker at Wal-mart doesn't see any of that $$ in a vertical sense. But the waiter at Sullivan's sees it in a horizontal sense, and the auto worker does, and the tile guy putting in the new game room does, etc.
And, of course, with the caveat that a bunch of folks in China do, too (e.g., if the Wal-Mart exec buys some new toys for his kids).
Depending on what your goal of an economic policy is, "Trickle Out" economics does work, to some extent. Rather than arguing about whether it works, it seems to me that the discussion should be about HOW it works, and HOW MUCH it works.
TrashMaster G
250+ Posts
And the guy who is working for minimum wage is probably not going to see a pay raise at work because of Exxon's big profits, but as the 'trickle out' effect takes place, other businesses are going to prosper and need to hire folks, perhaps for above minimum wage. Then our working class hero at Exxon has a chance to move to a better paying job elsewhere. Or maybe his boss leaves and he has a chance at a promotion for more pay.
It's all interconnected like a web, not in a linear fashion, and it absolutely works. People more interested in class warfare and demogoguery (sp?) who claim that greed by the rich at the top keep it from happening are just plain full of crap.
It's all interconnected like a web, not in a linear fashion, and it absolutely works. People more interested in class warfare and demogoguery (sp?) who claim that greed by the rich at the top keep it from happening are just plain full of crap.
TMG - Greed by the top actually DOES prohibit the trickle "out" effects talked about above.
Greed would mean making more and KEEPING more. Well, when the uber-rich put money in the bank or in the stock market, that's not getting to the average joe tile worker or waiter. That just contributes to the wealth gap that Fieval just mentioned.
Now, I'm not saying that's always a bad thing. People who make a lot should be able to keep a lot if that's what they choose to do. I'm just saying that if the top are, in fact, super greedy with their money then the trickle "out" effects will simply not materialize.
Greed would mean making more and KEEPING more. Well, when the uber-rich put money in the bank or in the stock market, that's not getting to the average joe tile worker or waiter. That just contributes to the wealth gap that Fieval just mentioned.
Now, I'm not saying that's always a bad thing. People who make a lot should be able to keep a lot if that's what they choose to do. I'm just saying that if the top are, in fact, super greedy with their money then the trickle "out" effects will simply not materialize.
Ag with kids
2,500+ Posts
JOSEYWALES66
100+ Posts
Roger
1,000+ Posts
I may be simplifying it too much but I'm not sure I care about the wage gap.
EX: If guy A makes $10 per hour and guy B makes $100 per hour and both get a 5% raise we've just increased their wage gap to $10.50 per hour versus $105 per hour. What should we do about that? if they both work 2000 hours that is $1,000 versus $10,000 over a year.
EX: If guy A makes $10 per hour and guy B makes $100 per hour and both get a 5% raise we've just increased their wage gap to $10.50 per hour versus $105 per hour. What should we do about that? if they both work 2000 hours that is $1,000 versus $10,000 over a year.
Art Vandelay
500+ Posts
afat and brisket provide great explainations.
In addition, the more money changing hands in the economy, the more income (from a fed tax standpoint) is created. Greed may cause the top owners to invest in the market, but that investment will create income. The only way money left in the system does not create income is if its buried or put in a sock and no one does that. So, let people and companies keep more money and more income will be generated, period.
Lower the tax rate so more money stays in the private system, then more income will be generated which in theory replaces tax receipts lost by the tax rate decrease. The bottomline hope is that more people and companies get to keep more of their money while tax receipts remain the same or go higher because of increased income generation.
In addition, the more money changing hands in the economy, the more income (from a fed tax standpoint) is created. Greed may cause the top owners to invest in the market, but that investment will create income. The only way money left in the system does not create income is if its buried or put in a sock and no one does that. So, let people and companies keep more money and more income will be generated, period.
Lower the tax rate so more money stays in the private system, then more income will be generated which in theory replaces tax receipts lost by the tax rate decrease. The bottomline hope is that more people and companies get to keep more of their money while tax receipts remain the same or go higher because of increased income generation.
B
bronco
Guest
If you are studying economics make sure you understand all of the dynamics in a particular system.
Looking at historical economies and noting that wage gaps are bad can be very misleading.
As long as you have a system (as we do in spades in America) that allows for upward and downward mobility within the various earning levels, then the system will continue to work.
It is a hard thing to say, but just how much do people think a guy sweeping floors actually deserves to make? Minimum wage jobs are meant to be had for a minimum amount of time. They are transition jobs and were never ever meant to be sustaining. There are many, many industries in the US they pay very well that have massive shortages of workers. Most require some basic training that the govt will pay for or the employer will pay for. Minimum wage jobs are designed for people to get by on while they are improving their lives.
Truck drivers, welders, nurses etc. all pay very good wages. Are in great demand. And all offer free training. And these jobs are available in virtually every community in the country.
Looking at historical economies and noting that wage gaps are bad can be very misleading.
As long as you have a system (as we do in spades in America) that allows for upward and downward mobility within the various earning levels, then the system will continue to work.
It is a hard thing to say, but just how much do people think a guy sweeping floors actually deserves to make? Minimum wage jobs are meant to be had for a minimum amount of time. They are transition jobs and were never ever meant to be sustaining. There are many, many industries in the US they pay very well that have massive shortages of workers. Most require some basic training that the govt will pay for or the employer will pay for. Minimum wage jobs are designed for people to get by on while they are improving their lives.
Truck drivers, welders, nurses etc. all pay very good wages. Are in great demand. And all offer free training. And these jobs are available in virtually every community in the country.
zzzz
2,500+ Posts
In your example, to maximize their profits, Wal-Mart has to minimize wages.
I think trickle down economics is usually thought of in terms of tax savings for businesses and individuals (not profits).
And I wonder how much its theoretical effects have been reduced given so few things are actually made here now.
I think trickle down economics is usually thought of in terms of tax savings for businesses and individuals (not profits).
And I wonder how much its theoretical effects have been reduced given so few things are actually made here now.
DCLonghorn8
250+ Posts
The economic concept works whether or not the results of the growth finds its way to China or not.
No one ever said it's the Domestic-Only Trickle Down Theory, although that's what most folks assume.
All our jobs are a result of economic growth.
I can't think of many that are an exclusive result of government regulation. I can think of plenty that are lost due to government regulation.
No one ever said it's the Domestic-Only Trickle Down Theory, although that's what most folks assume.
All our jobs are a result of economic growth.
I can't think of many that are an exclusive result of government regulation. I can think of plenty that are lost due to government regulation.
Thanks everyone for the education and different points of view. It'll give me a great start on some of the stuff I'm researching.
One more question. In regards to the wage gap. Someone pointed out that a 5% increase in for a person making $10/h and $100/h would increase the gap. That makes perfect sense. However, I was refering to the fact that after adjusting for inflation, the middle class hasn't increased (or at least not by much) compared with the top 1% of income earners.
One more question. In regards to the wage gap. Someone pointed out that a 5% increase in for a person making $10/h and $100/h would increase the gap. That makes perfect sense. However, I was refering to the fact that after adjusting for inflation, the middle class hasn't increased (or at least not by much) compared with the top 1% of income earners.
B
bronco
Guest
B
bronco
Guest
First, there is no question that there are some fabulously wealthy families in America and they aren't likely to go anywhere. But they do not make up the majority of the 1%, probably closer to .0001%.
There was a study released a year or so ago and it was debated on this forum a lot. What the study showed, unequivically, was that there is vast opportunity in the US to improve your financial position. And it can happen fairly quickly.
It is very difficult to go from the very bottom to the very top in a single generation, but it does happen. The more likely ride is a poor mom/dad make a sacrifice. They take a decent job that will not make them rich but will allow them certain freedoms. They should have zero trouble earning a combined income of $75 K.
$75 K won't make them rich, but it will move them up the chain a little. However, thier children can go to college. if they apply themselves they can get an advanced degree engineering, business, law, medicine etc. Then if they continue to work hard can achieve very high salaries. Suddenly you have a family that can go from the very bottom to the top 10% in about 40 years or so. In the big picture, that is really amazing.
Some of those top 10% will become extraordinary and crack the top 1%. It happens every year.
Something like 75% of the Forbes 400 are totally self made. Only in America baby!
There was a study released a year or so ago and it was debated on this forum a lot. What the study showed, unequivically, was that there is vast opportunity in the US to improve your financial position. And it can happen fairly quickly.
It is very difficult to go from the very bottom to the very top in a single generation, but it does happen. The more likely ride is a poor mom/dad make a sacrifice. They take a decent job that will not make them rich but will allow them certain freedoms. They should have zero trouble earning a combined income of $75 K.
$75 K won't make them rich, but it will move them up the chain a little. However, thier children can go to college. if they apply themselves they can get an advanced degree engineering, business, law, medicine etc. Then if they continue to work hard can achieve very high salaries. Suddenly you have a family that can go from the very bottom to the top 10% in about 40 years or so. In the big picture, that is really amazing.
Some of those top 10% will become extraordinary and crack the top 1%. It happens every year.
Something like 75% of the Forbes 400 are totally self made. Only in America baby!
Wealth and Democracy
This book gives a nice history of the Ultra Rich in the US. There are some slanted political views, but it gives great perspective on how money has grown for the ultra rich during our countries life.
This book gives a nice history of the Ultra Rich in the US. There are some slanted political views, but it gives great perspective on how money has grown for the ultra rich during our countries life.
the other thing to remember is that trickle down economics came about during a time when the economy was stagnant and the highest marginal tax rate was 70%. We are no where near that today, obviously.
I think there is a line where the tax rates can only go so low in order to bring in the revenue the federal government reasonably needs. I don't think we are at that low point, but deficits clearly indicate that the economy has not caught up through increased income generation to the effect lower rates have on federal revenue. Conversely, the effect of 70% tax rates is the exact opposite. Why bust your but for 30%??
I think there is a line where the tax rates can only go so low in order to bring in the revenue the federal government reasonably needs. I don't think we are at that low point, but deficits clearly indicate that the economy has not caught up through increased income generation to the effect lower rates have on federal revenue. Conversely, the effect of 70% tax rates is the exact opposite. Why bust your but for 30%??
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