News Why did trickle up economics work in Brazil?

[rcgldr]

Saw a rerun of a 60 minutes episode a while back. To summarize one of the segments, about 7 years or so ago, the government of Brazil simply handed out money to the poor, which then spent that money on goods that started a self-sustain and growing economic cycle. Brazil has a fairly progressive tax rate. The are other factors involved as well, but currently Brazil has a significant "middle class", the #3 aircraft manufacturing company, it produces ethanol from sugar cane (which is more efficient than using corn), ...

Why did this work and what other factors were involved?

 

[ThomasT]

Saw a rerun of a 60 minutes episode a while back. To summarize one of the segments, about 7 years or so ago, the government of Brazil simply handed out money to the poor, which then spent that money on goods that started a self-sustain and growing economic cycle. Brazil has a fairly progressive tax rate. The are other factors involved as well, but currently Brazil has a significant "middle class", the #3 aircraft manufacturing company, it produces ethanol from sugar cane (which is more efficient than using corn), ...

Why did this work and what other factors were involved?

It worked because the poor spent the money they were given in the real economy. It would work in the US also. But it's probably not going to happen. The Congress, Administration, Judiciary is bought and paid for by the rich. Arguments that handouts to the wealthy will create jobs are vacuous. The wealthy have plenty of money. If they could increase their wealth by creating jobs, then they'd be doing that. The problem is simple. Prices (due largely to price fixing) have outpaced wages and salaries. There just isn't enough money in the real economy. The obvious solution would be to give money to the people to spend in the real economy while maintaining the same price levels. However, the US government hasn't the power to do this. So, there is no solution. The economic recession will continue. The US government's stimulus plans only benefit a small percentage of the population (mainly the wealthy) and do little to boost the general economy (ie., the spending power of the general population).

 

[WhoWee]

It worked because the poor spent the money they were given in the real economy. It would work in the US also. But it's probably not going to happen. The Congress, Administration, Judiciary is bought and paid for by the rich. Arguments that handouts to the wealthy will create jobs are vacuous. The wealthy have plenty of money. If they could increase their wealth by creating jobs, then they'd be doing that. The problem is simple. Prices (due largely to price fixing) have outpaced wages and salaries. There just isn't enough money in the real economy. The obvious solution would be to give money to the people to spend in the real economy while maintaining the same price levels. However, the US government hasn't the power to do this. So, there is no solution. The economic recession will continue. The US government's stimulus plans only benefit a small percentage of the population (mainly the wealthy) and do little to boost the general economy (ie., the spending power of the general population).

Please support the bolded statements.

Apparently you don't consider food stamps, housing subsidies, Medicaid, education grants, SSDI, EITC, unemployment and utility subsidies to be "enough"? As for the "real economy", grocery stores, apartments, clinics and hospitals, and utility companies all employ people. The SSDI, unemployment and EITC are cash payments - to be spent any way they like - including the underground economy that doesn't pay taxes.

The conditions in Brazil are different than in the US - albeit the US might face the same percentage of GDP to debt spending in the future - if it doesn't CUT spending.
http://www.economist.com/node/3156437

Do you have any figures comparing the average amount of total assistance per person provided to US recipients vs those in Brazil? Also, does Brazil extend ANY benefits to non-citizens?

 

[Ygggdrasil]

There are thoughts that other factors have contributed for Brazil's economic growth. For example, The Economist points to economic policies instituted in the 1990s:

Brazil’s emergence has been steady, not sudden. The first steps were taken in the 1990s when, having exhausted all other options, it settled on a sensible set of economic policies. Inflation was tamed, and spendthrift local and federal governments were required by law to rein in their debts. The Central Bank was granted autonomy, charged with keeping inflation low and ensuring that banks eschew the adventurism that has damaged Britain and America. The economy was thrown open to foreign trade and investment, and many state industries were privatised.

All this helped spawn a troupe of new and ambitious Brazilian multinationals (see our special report). Some are formerly state-owned companies that are flourishing as a result of being allowed to operate at arm’s length from the government. That goes for the national oil company, Petrobras, for Vale, a mining giant, and Embraer, an aircraft-maker. Others are private firms, like Gerdau, a steelmaker, or JBS, soon to be the world’s biggest meat producer. Below them stands a new cohort of nimble entrepreneurs, battle-hardened by that bad old past. Foreign investment is pouring in, attracted by a market boosted by falling poverty and a swelling lower-middle class. The country has established some strong political institutions. A free and vigorous press uncovers corruption—though there is plenty of it, and it mostly goes unpunished.

http://www.economist.com/node/14845197

One might also consider their energy policy. At one point 90% of Brazil's oil came from foreign sources, but now they are nearly energy independent. A large component of this energy independence has come from their support of domestic ethanol production from sugar cane. Not only has this reduced the amount of oil they buy from foreign nations, but it also injects wealth into the poorer rural regions that produce the sugar cane (note: in addition to the more favorable agricultural climate in Brazil, sugar cane is a vastly superior feedstock for ethanol that the crops used for ethanol production in the US. It is unlikely that this sort of success could be replicated in the US from corn ethanol production. Cellulosic ethanol could perhaps fill this role, but fundamental scientific and engineering barriers remain before this technology is market-ready.)

Of course, I would be remiss if I did not mention that another strong driving factor in both Brazil's economic growth and energy independence has been the discoveries and exploitation of substantial offshore oil deposits. This brings up a larger point. Brazil is a large nation with substantial natural resources and human capital. It these factors will be the primary factors driving the economic growth of Brazil. Government policies will play some effect in shaping how these resources are used and developed, but probably aren't the primary reason Brazil is getting richer.

 

[Proton Soup]

i have my doubts that it would work in america. we have a debt hamster wheel economy. if you give money to the "poor", the banks are going to expect them to use it to pay off their visa bill.

but, if people didn't put all their disposable income on plastic, that'd be another 20% or so they'd have to put into the real economy.

 

[CAC1001]

Handing out money to the poor will make them spend money, sure. But it must first be taxed away from the people producing it, who themselves would have spent it if it had not been taxed away. It also makes it where the poor won't work because you are paying them not to.

Thus you end up with a growing number of people leeching off of the smaller number of people being taxed to support them.

No economic growth is really created because only a small amount of people are actually creating any wealth, it's just what wealth they do create is now divided up amongst society, many of whom aren't producing.

You create economic growth by having everyone work. You can stimulate an economy during a recession by sending checks of additional money to poorer and middle income folk as a gift in the hopes they'll spend it, but you can't do this permanently. The idea is to get them BACK to work by increasing consumer demand to create more jobs, not pay them NOT to work.

You can also create economic growth via taxes if your country is in big need of infrastructure development, so you tax and use the taxes to create roads, bridges, railroads, ports, electricity, water treatment, etc...and thus then areas turn into booming economies.

 

[ThomasT]

@WhoWee. Just disregard any of my rather sweeping opinions that you don't agree with.

Assuming that there is a problem with the economy, then what can be done? It seems that giving money to the rich has been tried. So, I'm just suggesting that we give some money to the poor, like they did in Brazil, and see what happens. In the latter case at least we're helping people who need help, even if it wouldn't, by itself, 'resurrect' the economy. And yes of course this wasn't the only factor that helped Brazils economy. But, is anyone arguing that it didn't help or that it hurt their economy?

The really big problem for the federal and state governments is wrt pensions, medicare, medicaid, social security and that sort of stuff. Isn't it?

Regarding job creation, well, there's only a certain amount of stuff that needs to be done, and there's only a certain amount of people needed to do it. What's going to happen, say, 100 years from now if there are, say, 50 million working-age adults who simply aren't needed in the workforce? Are we seeing the beginning of that sort of trend now?

I agree with you that the government has to curtail its spending habits. So far it hasn't.

The situation seems to be that we're going to have to depend on the government to create programs that will increase employment. And this would seem to entail giving money to the relatively poor, not the relatively rich. As I mentioned, the rich already have enough money to create jobs if they want to. Apparently they don't want to.

i have my doubts that it would work in america. we have a debt hamster wheel economy. if you give money to the "poor", the banks are going to expect them to use it to pay off their visa bill.

They're not going to use it to pay off visa bills if their credit is already compromised -- which it might well be. So, odds are that they'll spend it on goods and services in their local stores. And, best case scenario, some of them will actually use the money to help capitalize small business ventures of their own.

Here's the thing. You give a few thousand dollars to a poor person who has some skills but is having trouble finding steady employment and you've opened a whole new world of possibilities to him/her.

Handing out money to the poor will make them spend money, sure. But it must first be taxed away from the people producing it, who themselves would have spent it if it had not been taxed away.

This is a very good point. However, insofar as it might be argued that the government is spending a good portion of their tax money unnecessarily, then it might be argued that combining a reduction in unnecessary government spending with the sort of 'giveaway' that's being considered might actually benefit everyone.

It also makes it where the poor won't work because you are paying them not to.

I don't think that's the case. I think that most people would much rather make, say, 2000/month working than 500/month not working. The problem is that lots of capable and willing people really can't find jobs. That seems to indicate that there are more willing workers than are needed in the workforce. I can take a tour of South Florida's neighborhoods and find, literally, hundreds if not thousands of people who desparately want a day's work. Let's assume that these are honest people who want nothing more than an honest day's pay for an honest day's work. Well, there just isn't any work for most of them. And compared to lots of areas in the US, South Florida's economy isn't so bad (primarily because of the tourism, and the steady incomes of pensioners and retirees like myself).

Thus you end up with a growing number of people leeching off of the smaller number of people being taxed to support them.

Well, I think that most people would prefer not to be 'leeching'. But, as I mentioned in my reply above to Who Wee, it might be case that the percentage of the US working-age population not needed in the workforce will steadily increase.

You can stimulate an economy during a recession by sending checks of additional money to poorer and middle income folk as a gift in the hopes they'll spend it, but you can't do this permanently.

I agree. It's a temporary aid to the resolution of, hopefully, a temporary problem. The overall solution will involve reducing unnecessary government spending, increasing taxation on certain individuals, corporate entities, and certain goods and services, and government creation of large programs employing millions of people. There really is lots and lots of stuff that needs to be done on a nationwide scale. And the federal government is the only entity large enough to underwrite it.

The idea is to get them BACK to work by increasing consumer demand to create more jobs ...

Right, so you increase consumer spending by creating more jobs or by giving money to the people who will spend the money in the general economy. The portion of our population that is able to create more jobs isn't doing so. So, there are two options (1) give some money to those who don't have it, and/or (2) government creation of jobs.

You can also create economic growth via taxes if your country is in big need of infrastructure development, so you tax and use the taxes to create roads, bridges, railroads, ports, electricity, water treatment, etc...and thus then areas turn into booming economies.

I agree. And I bet that this is eventually going to happen. There's lots of taxes that can be increased besides personal income. But I wouldn't want to see increases in taxes without a concommitant decrease in unnecessary government spending.

 

[CAC1001]

I don't think that's the case. I think that most people would much rather make, say, 2000/month working than 500/month not working. The problem is that lots of capable and willing people really can't find jobs. That seems to indicate that there are more willing workers than are needed in the workforce. I can take a tour of South Florida's neighborhoods and find, literally, hundreds if not thousands of people who desparately want a day's work. Let's assume that these are honest people who want nothing more than an honest day's pay for an honest day's work. Well, there just isn't any work for most of them. And compared to lots of areas in the US, South Florida's economy isn't so bad (primarily because of the tourism, and the steady incomes of pensioners and retirees like myself).

There are lots of people looking for work, yes, but there are plenty of people perfectly content to just receive welfare, food stamps, live in subsidized housing, and so forth. If the welfare payment is high enough, then people will be incentivized not to work.

 

[Phrak]

Saw a rerun of a 60 minutes episode a while back. To summarize one of the segments, about 7 years or so ago, the government of Brazil simply handed out money to the poor, which then spent that money on goods that started a self-sustain and growing economic cycle. Brazil has a fairly progressive tax rate. The are other factors involved as well, but currently Brazil has a significant "middle class", the #3 aircraft manufacturing company, it produces ethanol from sugar cane (which is more efficient than using corn), ...

Why did this work and what other factors were involved?

Let's say for a moment, that this true (nevermind the ethanol), and that this in fact happened in Brazil. This taxation would effectively transport buying power from upper and middle classes to the lower classes, to the immediate (not necessarily long term) expense of the upper and middle classes to the benefit of the lower class.

Simple enough --- give we don't quibble too much over what "a self-sustain and growing economic cycle" means.

You say that Brazil has a progressive tax structure. So does the United States. Progressive in Fact is not the same as progressive in legislative appearance. With enough capital investments, accounts and lawyers, I could live in the United States, in economic luxury, with a poverty level income, were this my goal. I doubt Brazil is any different.What I find unbelievable about a government give-away to the lower classes in Brazil--or any other country, for that matter--would be that the power behind enactment of this give-away came from those in most economic need.

Logically, given the premise is true, I can see only two alternatives. 1) The government is fearful of eminent revolution, or 2) those at the top of the economic ladder have enacted a 'progressive' tax to target an emerging middle class. OR an emergent moneyed upper class, that has not yet established political power, threatens the established moneyed upper class.

We in the US have this battle (the second one) going on currently IMO. The new commerce--the PC and internet--have confused the boundaries, sending lawyers and legislators scrambling to the front lines. As early as 2005 or so the treasury department distributed new currency inventory to the FRCs, held in bond, in anticipation of its need. And they were right about what was to come. These newly printed, mulitibillions of dollars, kept old money afloat.

 

[ThomasT]

There are lots of people looking for work, yes, but there are plenty of people perfectly content to just receive welfare, food stamps, live in subsidized housing, and so forth. If the welfare payment is high enough, then people will be incentivized not to work.

I don't think you understand how difficult it is to live on food stamps and subsidised housing alone. If you were to receive the max of everything that the government offers to poor people you would still be dirt poor. Not able to buy a car or a television or a computer or whatever. Ok, maybe you could save enough in, say, a year to buy a TV. But a car is out of the question.

Bottom line, nobody who's in the least way able and willing to work would choose to live that way. They would rather work and have lots more money.

I'm not talking about giving money to the hard core homeless people, or drug addicts, or mental cases that populate the streets of most cities and already get thousands of dollars a month from SSI or whatever.

 

[ThomasT]

With enough capital investments, accounts and lawyers, I could live in the United States, in economic luxury, with a poverty level income, were this my goal. I doubt Brazil is any different.

Exactly how would you manage living in luxury on a poverty level income?

 

[Al68]

Assuming that there is a problem with the economy, then what can be done? It seems that giving money to the rich has been tried...

Can you provide evidence that anyone has even suggested "giving money to the rich?" Or are you using the word "give" to fraudulently refer to government "not confiscating" as much as you advocate?

 

[WhoWee]

Maybe a better comparison would be between Brazil and China. Both have well developed major cities along with very poor rural areas. Why is China such an ideal place to do business?

 

[dimensional]

Maybe a better comparison would be between Brazil and China. Both have well developed major cities along with very poor rural areas. Why is China such an ideal place to do business?

Might have something to do with their currency value and huge market potential?

 

[WhoWee]

Might have something to do with their currency value and huge market potential?

I'm looking at their ability to secure manufacturing contracts for export to the US and elsewhere. This study might also include India, as they've secured a great many of the US outsourced jobs.

Why are these countries attracting business? Accordingly, how does Brazil attract business? Why would the world want to invest in Brazil - what are the competitive advantages and market conditions?

 

[CAC1001]

I don't think you understand how difficult it is to live on food stamps and subsidised housing alone. If you were to receive the max of everything that the government offers to poor people you would still be dirt poor. Not able to buy a car or a television or a computer or whatever. Ok, maybe you could save enough in, say, a year to buy a TV. But a car is out of the question.

You can get a car. You'd be "dirt poor" by American standards, by global standards, you're still living well. And many people will choose to just live poorly, comfortably, like that, as opposed to work and make more money to live middle-income. That was one of the big problems with welfare. You had entire generatons living on it, their grandparents, their parents, themselves, then their children.

You also will get Medicaid, which is basically, to its recipients, free healthcare that is of pretty good quality.

Bottom line, nobody who's in the least way able and willing to work would choose to live that way. They would rather work and have lots more money.

Yeah, but while most are "able" to, a lot are lacking in the "willing" department. I also remember from years ago when my mom was on welfare, and decided to get off (she ended up on it due to some bad luck in life), when she told others (all welfare recipients), they all responded with (literally!), "What!? Why would you want to get off of welfare, the benefits!"

I'm not talking about giving money to the hard core homeless people, or drug addicts, or mental cases that populate the streets of most cities and already get thousands of dollars a month from SSI or whatever.

If you mean the average working Joe who got hit hard by the recession and is now out of work, but could use some help from the government to survive until the economy turns around, then I agree.

Social safety nets aren't the same as welfare IMO.

 

[rcgldr]

Thus you end up with a growing number of people leeching off of the smaller number of people being taxed to support them.

This balances out the fact that USA economics has resulted in the rich effectively "leeching" off the labor of the people that do the actual work for the companies the rich control, with pay rate ratios between upper level executives versus workers exceeding 100 to 1, something that didn't exist in the pre Reagan era and more progressive tax rates, that made these ratios somewhat pointless (since relatively huge salaries would mostly get taxed away). I'm not sure what other factors led to the huge ratios of salaries between executives and workers.

getting more people working

The amount of pay also matters. If all the newly created jobs are minimum wage jobs, that's not going to help the economy much because those workers will not be spending much money on consumer goods, and the USA is a consumer based economy.

the wealthy creating jobs

The wealthy tend to invest or they buy low volume, high priced items, which doesn't create a lot of jobs. In addition, with global economics, it's often cheaper to create jobs outside the USA where the standard of living is lower, but in the long run, this also lowers the standard of living and the size of the middle class in the USA, and eventually the GDP of the USA. So while wealthy individuals may benefit from this, the overall USA economy suffers.

Even within companies, decisions are often made that benefit individuals, while being determental to the companies those individuals work for, which has created a lot of problems in the USA economy, but that's a subject for another thread.

brazil

Note that giving money to the poor ended up being a short term "seed" money event, that had a self-sustaining effect. It wasn't the wealthy that decided to do this, but the elected president of Brazil that started all this about 7 years ago. Apparently the president of Brazil has (or at least had) a lot of policy making power.

 

[CAC1001]

This balances out the fact that USA economics has resulted in the rich effectively "leeching" off the labor of the people that do the actual work for the companies the rich control, with pay rate ratios between upper level executives versus workers exceeding 100 to 1, something that didn't exist in the pre Reagan era and more progressive tax rates, that made these ratios somewhat pointless (since relatively huge salaries would mostly get taxed away). I'm not sure what other factors led to the huge ratios of salaries between executives and workers.

Pre-Reagan, I'd say it was more the opposite, as the social welfare state was larger and private sector unionization was a lot greater. With the decline in uinonization, workers are paid much more according to what the market determines as opposed to what the union wants.

Pay for high-level executives in very large companies is much greater than said company's average worker, that's because of the people needed to run such a large company.

Ben & Jerry's tried this initially, making a "rule" by which the CEO of their company would not make over a certain amount of money each year (I forget the exact amount). The result was they couldn't find a decent CEO to run the firm, so despite remaining a very Progressive company, they had to violate that rule and seriously up the pay to get a decent CEO.

The amount of pay also matters. If all the newly created jobs are minimum wage jobs, that's not going to help the economy much because those workers will not be spending much money on consumer goods, and the USA is a consumer based economy.

Generally innovation and advancement in an economy increases productivity, and increasing productivity creates new jobs.

The wealthy tend to invest or they buy low volume, high priced items, which doesn't create a lot of jobs.

Investment creates jobs.

In addition, with global economics, it's often cheaper to create jobs outside the USA where the standard of living is lower, but in the long run, this also lowers the standard of living and the size of the middle class in the USA, and eventually the GDP of the USA. So while wealthy individuals may benefit from this, the overall USA economy suffers.

Creating jobs overseas is to create cheaper products and services for Americans to buy, and to grow the company, which also creates jobs. Trying to manufacture everything in America will lead to high-priced goods and services and can actually destroy jobs.

 

[rcgldr]

Generally innovation and advancement in an economy increases productivity, and increasing productivity creates new jobs.

Increasing productivity per worker should tend to reduce the number of jobs, not increase them. Since the USA is a consumer based economy, more consumer goods need to be sold, enough so that the increase in sales offsets the increased in productivity per worker in order to create more jobs. This in turn, means the working class needs more income to buy more consumer goods, but generally workers seldom realize the financial benefits of increased production per worker (such as automation in manufacturing).

Investment creates jobs.

How do derivative and stock trades (long after the IPO) back and forth between the wealthy create any jobs?

Creating jobs overseas is to create cheaper products and services for Americans to buy, and to grow the company, which also creates jobs.

Outsourcing jobs hasn't had that effect so far. If a sufficient number of companies ship jobs overseas, laying off workers here as they create job overseas, then ultimately there's a reduction in jobs here in the USA. This is part of the current economic USA problem, but I'm not sure how big a role it's played.

 

[WhoWee]

How do derivative and stock trades (long after the IPO) back and forth between the wealthy create any jobs?

Where you referring to derivative and stock trades when you posted this?

"The wealthy tend to invest or they buy low volume, high priced items, which doesn't create a lot of jobs. "

I'm asking because CAC1001 responded that "Investment creates jobs." - will you clarify please?

 

[rcgldr]

How do derivative and stock trades (long after the IPO) back and forth between the wealthy create any jobs?

Where you referring to derivative and stock trades when you posted this?

"The wealthy tend to invest or they buy low volume, high priced items, which doesn't create a lot of jobs. "

I'm asking because CAC1001 responded that "Investment creates jobs." - will you clarify please?

Only a small percentage of the wealthy are venture captitalists. Most are simply "investing" in derivatives, stocks, or funds that invest in derivativs, stocks, ...

Pre-Reagan, I'd say it was more the opposite, as the social welfare state was larger and private sector unionization was a lot greater. With the decline in uinonization, workers are paid much more according to what the market determines as opposed to what the union wants. Pay for high-level executives in very large companies is much greater than said company's average worker, that's because of the people needed to run such a large company.

I see unions more as a system of checks and balances. The corporations control the job supply, the unions counter this by controlling the labor supply, but it's only worked in a few industies.

The post Reagan trend has been that the top 5% of USA society has been increasingly getting a larger percentage of the total income for the USA, while the middle class has been exeperiencing a decrease in real income. My opinion is that a progressive tax rate was a compenstating factor for this in the pre Reagan era, but a sudden change to the old tax rates would probably makes things worse in the short term. Smaller changes over time would work better. I don't see why Republicans, who want to reduce the deficit, were so opposed to eliminating the Bus tax cuts for the upper 2%, since this only meant a 4% increase in tax rate on income that exceeded $250,000, a relatively small increase, for those just above the $250,000 bracket, for example a couple making $275,000 after deductions would have only paid $1000 more in taxes, which I doubt would have a significant effect on their lifestyle.

 

[WhoWee]

Only a small percentage of the wealthy are venture captitalists. Most are simply "investing" in derivatives, stocks, funds, ...

Venture capitalists typically rquire a very large and fast ROI - often requires an IPO - funded by investors of every type. I've personally been involved in venture deals that required a (net) 50% compounded rate of return over a 5 year period.

Also, can you support your assertion that "Most are simply "investing" in derivatives,"?

 

[rcgldr]

Also, can you support your assertion that "Most are simply "investing" in derivatives,"?

Not really, I have to go by what I read and see in the news. Who knows what the actual numbers are. How much of the net worth of the wealthy is in the form of stock ownership is only known (or at least reported by trade articles and new shows) for a small percentage of the higher end range of the wealthy.

Do you have any data that correlates what percentage of the wealthy actually make investments such as venture capital, that directly increase the number of jobs?

Getting back to the original question, for some reason, a seed program to give money to the poor in Brazil contributed to creating a self-sustaining effect on improving it's economy. I'm curious as to why it worked there and why it wouldn't work elsewhere, or more genreally while trickle up would't work as well as Reagan's trickle down strategy.

 

[talk2glenn]

Not really, I have to go by what I read and see in the news. Who knows what the actual numbers are. How much of the net worth of the wealthy is in the form of stock ownership is only known (or at least reported by trade articles and new shows) for a small percentage of the higher end range of the wealthy.

You live in a world of faith and conviction. You don't know anything about how things work; what you have a series of opinions informed by activists and divorced from academics.

Do you have any data that correlates what percentage of the wealthy actually make investments such as venture capital, that directly increase the number of jobs?

How does one differentiate between investments which create and do not create jobs? You seem to imagine that only "venture capital" is productive. How do you define venture capital, and what about it is special relative to alternative investments?

Getting back to the original question, for some reason, a seed program to give money to the poor in Brazil contributed to creating a self-sustaining effect on improving it's economy. I'm curious as to why it worked there and why it wouldn't work elsewhere, or more genreally while trickle up would't work as well as Reagan's trickle down strategy.

The idea that the poor in Brazil fueled local economic growth (either as a consequence of its progressive tax system or otherwise) is laughable. Have you ever been to that country? The poorest quintile of the population contributes virtually nothing of value to the broader economy. Many of them live perpetually in the grey market, neither working nor consuming in the reported markets - their net contribution to GDP on either side (consumption or production) is at best zero and probably negative. This is a problem in many developing countries of course, and not just Brazil, but the point remains.

That said, domestic economic growth in Brazil is due mostly to the inflation of the commodities market and (as in China) the opening of the country to foreign direct investment. To the extent that any domestic government programs contributed significantly, it would be the privatization and semi-privatization of state run companies and the deregulation of key markets (manufacturing and finance).

 

[rcgldr]

How does one differentiate between investments which create and do not create jobs? You seem to imagine that only "venture capital" is productive. How do you define venture capital, and what about it is special relative to alternative investments?

Venture capital is just an example. Other than jobs for brokers, how significant is job creation due to buying and selling of derivatives or stock?

 

[Al68]

Venture capital is just an example. Other than jobs for brokers, how significant is job creation due to buying and selling of derivatives or stock?

Obviously significant in a good way for investors buying stock, and a bad way for investors selling stock. Why would you put buying and selling in the same category? Confiscation of private capital by government via taxation decreases stock buying/increases stock selling by investors.

 

[ThomasT]

Can you provide evidence that anyone has even suggested "giving money to the rich?" Or are you using the word "give" to fraudulently refer to government "not confiscating" as much as you advocate?

Yes, I'm somewhat misleadingly referring to the latter. Just as we are, somewhat misleadingly, presented with the notion that corporations and individuals pay a certain percentage of their profits in taxes when in fact they often pay quite a lot less.

 

[Phrak]

Exactly how would you manage living in luxury on a poverty level income?

Incorporate.

 

[ThomasT]

Getting back to the original question, for some reason, a seed program to give money to the poor in Brazil contributed to creating a self-sustaining effect on improving it's economy. I'm curious as to why it worked there and why it wouldn't work elsewhere, or more genreally while trickle up would't work as well as Reagan's trickle down strategy.

There seems to be some disagreement here as to whether that contributed to Brazil's improvement. Assuming that it did, then it should be considered as a necessary component in a US economic recovery. Assuming that it didn't, then, at worst, it's a couple hundred billion dollars spent helping poor people.

So, the only argument against it would seem to involve simply not wanting to help people that need help.

 

[ThomasT]

Incorporate.

We both know it isn't as simple as that.

Anyway, the OP is simply asking whether an influx of capital into the general economy would have a positive effect on the general economy. My guess is that it would, and that along with other measures it would help create a sustainable positive trend.

 

[CAC1001]

Increasing productivity per worker should tend to reduce the number of jobs, not increase them.

Increasing productivity per worker increases the number of jobs, not decrease them. New business creation is an important component of economic growth. But in order for new businesses to be created, they need workers. These workers cannot be freed up to go work for such new businesses unless the economy is able to gain the ability to do more with fewer workers. This then frees up workers for new jobs created by the new businesses.

Since the USA is a consumer based economy, more consumer goods need to be sold, enough so that the increase in sales offsets the increased in productivity per worker in order to create more jobs.

I'm not sure if I'm getting the logic to this. More goods and services do not need to be sold to "off-set" the increase in productivity per worker. Increasing worker productivity does quite a few things:

1) Allows new business creation, and hence new job creation
2) Allows the economy to produce more goods and services for a cheaper cost
3) Increases per capita incomes, so people can thus buy more stuff

The average American doesn't earn about 3X what the average Mexican does because they necessarilly work harder, it's because they are far more productive. In the 1800s, almost every American farmed. Today, less than 1% of America farms, yet even though America alone is about 5% of the global population, the 1% of our own little 5% produces enough food to feed the whole planet.

We use less land today to grow a significantly greater amount of food than what we did in say the 1930s. This is all because of productivity increases.

This in turn, means the working class needs more income to buy more consumer goods, but generally workers seldom realize the financial benefits of increased production per worker (such as automation in manufacturing).

They very much realize it. Perhaps not initially, but the overall economy certainly does. Productivity increases do not lead to wide-scale unemployment, they lead to a rising standard of living for everyone.

Outsourcing jobs hasn't had that effect so far. If a sufficient number of companies ship jobs overseas, laying off workers here as they create job overseas, then ultimately there's a reduction in jobs here in the USA. This is part of the current economic USA problem, but I'm not sure how big a role it's played.

No it isn't. This takes the assumption that there's a fixed supply of jobs in the global economy that countries have to compete over, and that in order for one country to gain jobs, another must lose jobs. But that's not how it works.

Jobs are like wealth. They can be created and destroyed. There is no zero-sum game. Outsourcing of jobs to a foreign country does not mean the USA loses said jobs. Outsourcing jobs does a few things:

1) Leads to cheaper products and services (which can lead to more job creation)

2) Allows the USA to concentrate on producing things it is good at (if we tried to produce everything here, we'd end up with lackluster quality of everything, because what we're good at doing would get hampered by us trying to produce things we're not so good at)

3) Serves as a form of efficiency: a foreign worker who can produce something with the same quality for a lot cheaper is like a machine that replaces workers in America because it can do the same job for equal quality, but cheaper, or even cheaper with better quality. Yet despite machines replacing humans in various jobs for over a century now, we haven't seen the economy permanently lose jobs with no new jobs created.

I see unions more as a system of checks and balances. The corporations control the job supply, the unions counter this by controlling the labor supply, but it's only worked in a few industies.

Corporations don't "control" the job supply, new jobs are created all the time by new businesses.

The post Reagan trend has been that the top 5% of USA society has been increasingly getting a larger percentage of the total income for the USA, while the middle class has been exeperiencing a decrease in real income.

You're making two fallacies here:

1) That American society is divided into fixed classes, i.e. the "poor," the "middle-class," and "the rich." The reality is that the country is divided into income brackets, not classes, which people freely move into and out of all the time. Many of the same people who are classified as "rich" or even "middle-class" now were amongst the "poor" twenty to thirty years ago. Most "rich" people did not start out rich and most "poor" people do not remain poor. Income is not distributed by some collective decision by society, it just means some people make more than others.

2) That there is a fixed amount of wealth and income in society, and that the rich class has been getting more and more of this income for themselves, thus shorting the middle-class and the poor. Again, that's not how it works. The economy creates wealth. The top 5% gaining a larger share of total income for the USA is likely because we have seen so much wealth creation over the past thirty years. There are a lot more wealthy and high-earning people now than before.

Real income per capita has overall been increasing: http://www.bea.gov/briefrm/percapin.htm

Wages can be stalled or declining, but wages are not incomes, they're a part of incomes, and the reason for their likely stalling or declining is because a larger and larger portion of people's income is having to be devoted to healthcare, which has been rising up in cost. We have a system that due to the tax and law makes it where most health insurance is provided through the employer as opposed to individually-purchased health insurance.

My opinion is that a progressive tax rate was a compenstating factor for this in the pre Reagan era,

You're viewing it that the economy is a zero-sum game, with a fixed supply of wealth, and thus "the rich" are hogging more of that wealth for themselves now since Reagan. A progressive tax system (which we actually still have BTW) was a way of taking some of that wealth away from "the rich" and redistributing it "back" to the "poor class" and "middle class" whom it was "taken" from.

But that's not how the system actually works. All Reagan's tax cuts meant is that those who worked hard got to keep more of their money (to a degree, as even though the rates were cut, some big loopholes were closed as well).

but a sudden change to the old tax rates would probably makes things worse in the short term. Smaller changes over time would work better. I don't see why Republicans, who want to reduce the deficit, were so opposed to eliminating the Bus tax cuts for the upper 2%, since this only meant a 4% increase in tax rate on income that exceeded $250,000, a relatively small increase, for those just above the $250,000 bracket, for example a couple making $275,000 after deductions would have only paid $1000 more in taxes, which I doubt would have a significant effect on their lifestyle.

It would have been a 4 percentage point increase, not a 4% increase. The actual increase would have been about 11.6%. One reason the Republicans didn't want to increase it is because historically, increasing taxes, provided revenues increase, only then leads to more spending. It also could hamstring the economy further.

Getting back to the original question, for some reason, a seed program to give money to the poor in Brazil contributed to creating a self-sustaining effect on improving it's economy. I'm curious as to why it worked there and why it wouldn't work elsewhere, or more genreally while trickle up would't work as well as Reagan's trickle down strategy.

I know this particular question was addressed to WhoWee, but just wanted to point out that Reagan never followed any "trickle-down" strategy (i.e., cut taxes for the rich, they'll spend the money, and the benefits will "trickle-down" to the rest of society). A trickle-down effect probably occurs to some degree when the wealthy spend money, but that was not the goal of Reagan's economic policies, and it has never been supported by any serious economist as far as I know (although quite a few politicians have mistakenly used the term).

The goal of supply-side economics is to increase the supply of goods and services in the economy, by encouraging investment. Prior to Reagan's tax cuts, the wealthy had all their wealth tied up in trusts and commodities to avoid taxes. With the cuts, a flood of money went into the stock and bond markets.

 

[WhoWee]

Venture capital is just an example. Other than jobs for brokers, how significant is job creation due to buying and selling of derivatives or stock?

That would be the argument against "cap and trade" credits as well - wouldn't it?

While derivatives are a largely unaddressed problem, they may not be as widely traded as you infer. As for stock, you are correct in that buying and selling doesn't necessarily create jobs. However, by tracking the performance, placing a value on the equity of the company, and making that equity available to investors - companies are able to use their stock as a type of currency. Public companies often use common stock to complete mergers, as a form of compensation, and as collateral for loans. Preferred stock is typically a safer investment, and bonds (until the recent GM situation) the safest. Derivates, by comparison, can be the riskiest.

 

[WhoWee]

This might get us back on topic.

http://pdf.wri.org/hammond_brazil_profile_xls.pdf

 

[Al68]

Yes, I'm somewhat misleadingly referring to the latter. Just as we are, somewhat misleadingly, presented with the notion that corporations and individuals pay a certain percentage of their profits in taxes when in fact they often pay quite a lot less.

Less than what? What's your source for what we are presented with and what is actually paid? Who is being misled? It seems to me that the only people being misled are those being convinced that rich people don't pay as much as others, as a percentage.

The http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml" greatly exceeds what many people on this forum believe, but I don't know if that's what you're referring to.

 

[Ivan Seeking]

Less than what? What's your source for what we are presented with and what is actually paid? Who is being misled? It seems to me that the only people being misled are those being convinced that rich people don't pay as much as others, as a percentage.

The http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml" greatly exceeds what many people on this forum believe, but I don't know if that's what you're referring to.

What your table does not show are the gross income values. If I deduct the payments for my five-million-dollar Lear Jet, that deduction is not seen as income. Poor people don't typically have tax shelters and exotic deductions, so you are comparing apples to oranges. Surely you must know this. Part of the trick to running any business is to maximize personal benefits in such a way that they are deductable. A Lear Jet would be an example of a personal benefit.

 

[Al68]

What your table does not show are the gross income values. If I deduct the payments for my five-million-dollar Lear Jet, that deduction is not seen as income.

That is false. Those tables show total gross income before deductions, and effective tax rates.

If you're referring to rich people getting a free ride on a company jet, yeah that may slip though the cracks, but would not be a significant factor as far as those CBO numbers go.

The only thing about those tables that is debatable, IMO, is the methodology of who they attribute taxes to. Those tables assume, for example, that corporate income taxes are paid by the owners of the capital (stockholders), not consumers in the form of higher prices. And that the entire payroll tax is borne by the employee, instead of half-and-half with employer, as is often cited.

But their methodology is fully disclosed, so even that is not an issue, unless part of their data is taken out of context and misrepresented.

 

[mheslep]

From the CBO reference above in definitions:

Measuring Income
This analysis focuses on households’ adjusted pretax comprehensive income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employees’ contributions to 401(k) retirement plans, and the value of income received in-kind from various sources (such as employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps).

 

[mheslep]

Increasing productivity per worker should tend to reduce the number of jobs, not increase them.

Only if the price of effected goods is inelastic, and even then only temporarily as old jobs are replaced with more new ones:

If the demand for a product or service is price inelastic—that is, if a given percentage decrease in price results in a lower percentage increase in the quantity demanded—then rapid productivity improvement can result in workers having to leave the industry. The reason is that industry output, even if it has risen moderately, can now be produced with fewer workers. This eventually became true for grain farming, but not generally for computers, where the demand has been more price elastic. The relative price declines produced such a big increase in quantity demanded that industry employment has actually increased. But even in the case of grain farming, the falling food prices associated with the productivity improvement led automatically to increases in real income elsewhere. These increases eventually resulted in increased demand for other goods and services, leading to expansion of demand, employment, and output outside of agriculture.

http://www.econlib.org/library/Enc/Productivity.html
Examples besides agriculture include the mass production of the automobile replacing the horse and buggy (creating millions of jobs), telecommunications, etc

 

[rcgldr]

Increasing productivity per worker increases the number of jobs, not decrease them.

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

Companies will not hire new workers unless they anticipate a demand for new or more products, mostly consumer products in the case of the USA, and that requires that prices for existing products decline, or that consumer's income increases in order for the consumers to be able to buy the new products (assuming that increasing consumer debt isn't the source of new product demand).

Outsourcing of jobs to a foreign country does not mean the USA loses said jobs.

If it occurs on a large enough scale (all jobs in the extreme), then the long term effect is to raise the standard of living in the foreign country, and decrease the standard of living for those directly affected by the outsourcing of jobs.

Leads to cheaper products and services

Product pricing is mostly a case of supply and demand, not the cost of labor to make the product. In situations where start up cost is prohibitive, competition is limited or non-existant, so there's no price pressure on those products.

Yet despite machines replacing humans in various jobs for over a century now, we haven't seen the economy permanently lose jobs with no new jobs created.

The number of blue collar jobs in the USA has drastically diminshed over time because of automation. Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

The top 5% gaining a larger share of total income for the USA is likely because we have seen so much wealth creation over the past thirty years. There are a lot more wealthy and high-earning people now than before.

It's the top 5%. The increase in number of people in the top 5% would correspond to the increase in total population, not an increase in percentage of high income people (that would be a different statistic). The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

 

[WhoWee]

What your table does not show are the gross income values. If I deduct the payments for my five-million-dollar Lear Jet, that deduction is not seen as income. Poor people don't typically have tax shelters and exotic deductions, so you are comparing apples to oranges. Surely you must know this. Part of the trick to running any business is to maximize personal benefits in such a way that they are deductable. A Lear Jet would be an example of a personal benefit.

Are we overlooking the fact that the cash payments for use of the jet, or the purchase of the jet (lease or bank financing), flow back into the economy?

As for poor people needing tax deductions(?) - aren't poor people on the receiving end of tax money?

 

[mheslep]

https://www.physicsforums.com/showpost.php?p=3064424&postcount=38", it misses the point to say that "If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate" [highlights mine], since the production rate very often does not stay constant following productivity increases. Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially. All of this occurred with nice side benefit that more people were able to acquire widgets (such as computers) due to the increased productivity.

 

[Gokul43201]

Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially.

(emph mine) This is true only for the creation a unit elastic good or service. Generally, it is only luxury items that command a better than unit elasticity, while most basic goods like food, fuel, housing, etc. have typically lower than unity demand.

 

[Proton Soup]

https://www.physicsforums.com/showpost.php?p=3064424&postcount=38", it misses the point to say that "If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate" [highlights mine], since the production rate very often does not stay constant following productivity increases. Given the price elasticity found in, say, expanding markets (such as computers), an increase in productivity is followed by a drop in price, which is followed by an increase in demand, which is followed by an increase supply volume, requiring the same net labor as initially. All of this occurred with nice side benefit that more people were able to acquire widgets (such as computers) due to the increased productivity.

yeah. being more productive means having more wealth. it's really as simple as that.

 

[mheslep]

(emph mine) This is true only for the creation a unit elastic good or service. Generally, it is only luxury items that command a better than unit elasticity, while most basic goods like food, fuel, housing, etc. have typically lower than unity demand.

Yes exactly for basic goods like food, hence the long gone days of a mostly down-on-the-farm society. I disagree though with the 'only luxury' qualifier. A large share of the US economy consists of other than 'basic' goods production, to include computers and telecom (e.g. iPods, iPhones), and services such as entertainment, all of which have demonstrated marked dramatic volume increases due to elastic pricing. But in general any new market far short of saturation will likely see elastic pricing.

edit: scratch all that, as I'm essentially just restating, with less precision, my own reference up thread:

If the demand for a product or service is price inelastic—that is, if a given percentage decrease in price results in a lower percentage increase in the quantity demanded—then rapid productivity improvement can result in workers having to leave the industry. The reason is that industry output, even if it has risen moderately, can now be produced with fewer workers. This eventually became true for grain farming, but not generally for computers, where the demand has been more price elastic. The relative price declines produced such a big increase in quantity demanded that industry employment has actually increased. But even in the case of grain farming, the falling food prices associated with the productivity improvement led automatically to increases in real income elsewhere. These increases eventually resulted in increased demand for other goods and services, leading to expansion of demand, employment, and output outside of agriculture.

 

[CAC1001]

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

If that was the case, then we'd see the unemployment rate spike with the constant innovation the economy experiences, which doesn't happen. You forget that while there is a decrease in the number of jobs needed for producing goods/services in certain industries, new jobs are constantly created to replace the old ones.

Companies will not hire new workers unless they anticipate a demand for new or more products, mostly consumer products in the case of the USA, and that requires that prices for existing products decline, or that consumer's income increases in order for the consumers to be able to buy the new products (assuming that increasing consumer debt isn't the source of new product demand).

If prices for existing products decline, that can be a signal that demand for a product may have decreased, not that demand is up. Or it could be a sign of a productivity increase. Depends on who is responding to who. If a new product comes out and doesn't sell well, and the price is cut in half, that's a sign of a lack of demand.

If it occurs on a large enough scale (all jobs in the extreme), then the long term effect is to raise the standard of living in the foreign country, and decrease the standard of living for those directly affected by the outsourcing of jobs.

Not when those affected by the outsourcing get new jobs to replace the outsourced ones.

Product pricing is mostly a case of supply and demand, not the cost of labor to make the product. In situations where start up cost is prohibitive, competition is limited or non-existant, so there's no price pressure on those products.

Product pricing definitely is influenced by supply/demand, but also by the cost to make the product.

The number of blue collar jobs in the USA has drastically diminshed over time because of automation. Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

If that was the case, then we'd have seen the unemployment rate constantly going up and incomes per capita stalled.

It's the top 5%. The increase in number of people in the top 5% would correspond to the increase in total population, not an increase in percentage of high income people (that would be a different statistic). The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

It's a reflection of all the wealth created over the past few decades, which all of society gains from, via new products/services and job creation.

 

[MorganNick]

Brazil has become an economic powerhouse turning into one of the world’s hottest emerging markets.The world’s eighth biggest economy, Brazil has become the number one exporter of products such as coffee, sugar, poultry, beef, orange juice, ethanol and tobacco.Unscathed by the global financial crisis, Brazil remarkably finds itself on a better economic footing than before the international economic meltdown.Since 2003, almost 30 million Brazilians have joined the middle class with more than 20 million being lifted out of poverty.



http://www.wellgrowchinasourcing.com/"

 

[rcgldr]

If all workers become more productive, then the near term effect is a decrease in the number of jobs needed to produce products at the current rate.

If that was the case, then we'd see the unemployment rate spike with the constant innovation the economy experiences, which doesn't happen.

Not a spike but with an increasingly larger percentage of retired workers, the percentage of workers versus total population in the USA has been declining for decades.

... Not when those affected by the outsourcing get new jobs to replace the outsourced ones.

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs. As I mentioned before, the number of blue collar jobs in the USA has drastically diminshed over time because of automation (and also outsourcing). Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

The relatively large gain by the top 5% is a reflection of USA economic policies, and part of the wealthy class has a lot of influence on economic policies via lobbyists and campaign donations.

It's a reflection of all the wealth created over the past few decades, which all of society gains from, via new products/services and job creation.

Except that a large part of society didn't share in that gain, most of that gain in wealth ended up with the top 5%.

Getting back to the main topic, I'd like to find out more about what happened to help Brazil's enonomy do so well, and what, if anything, learned from that could be applied to other countries.

 

[CAC1001]

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs.

This is usually the case.

As I mentioned before, the number of blue collar jobs in the USA has drastically diminshed over time because of automation (and also outsourcing). Few of these workers were able to learn new skills and transition into new jobs at near equal pay.

Yes they were, or the unemployment rate would have permantely spiked as mass groups of workers became permanetely unemployed.

Except that a large part of society didn't share in that gain, most of that gain in wealth ended up with the top 5%.

...which was from the production of goods and services that the rest of society bought, which is what made those people wealthy in the first place. They also enhanced productivity, which led to new job creation. So yes, all of society got wealthier.

 

[mheslep]

Not a spike but with an increasingly larger percentage of retired workers, the percentage of workers versus total population in the USA has been declining for decades.

Aside from the recent recession, where are you getting that from?
http://www.google.com/publicdata?ds..._rate&tdim=true&dl=en&hl=en&q=us+unemployment

http://www.miseryindex.us/urbymonth.asp

 

[rcgldr]

Aside from the recent recession, where are you getting that from?

Unemployment doesn't include workers that have simply given up on trying to find jobs. My post was about the labor force versus the total population (mostly due to the number of retirees increasing). Try the Bureau of Labor Statistics if you want acccurate data. Labor force as a percentage of population has been decreasing since 2000. A chart from BLS showing the data, you can change the start and end dates:

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS12300000

On a side note, before 1974, only the largest single income of a working couple could be considered for a home loan. This was changed by a law in 1974 to allow both incomes to be considered. Soon after this change, the prices of houses increased well beyond the rate of inflation, the number of working mothers increaed dramatically, as well as the inflation rate. Prior to 1974, a single lower middle class income was sufficient to support a typcial family, own a home, 1 or 2 cars, and a color tv. This is no longer possible in many urban areas in the USA.

That only occurs if there are new jobs to replace the outsourced jobs, and if the affected people can learn the skills required for the new jobs.

This is usually the case.

Using the auto industry as an example, old workers were getting $28 per hour working on assembly lines. Despite increased productivity per worker, new workers earn about $14 per hour, 50% of the older wages. Very few of these people will be able to find $28 / hour jobs.

outsourcing jobs

USA supposedly gained 100,000 total jobs this month, less than the rate of population growth (about 150,000 new jobs per month are required to keep up with population increase in the USA). In the meantime the Chinese factories making iphones and similar products created about 300,000 jobs (this from CNN). So there is job growth, just not in the USA, at least in the case of manufacturing. Most of the job growth in the USA was related to low paying jobs in service and health care. In a consumer based economy, such as the USA, it's difficult to recover from the recession when a large perenctage of consumer goods are being manufactured outside the USA.