My Take on Trickle-Down Economics

[Ivan Seeking]

I was once a fan of trickle-down economics. But no matter how flawed the original concept may or may not have been, which is not the point here, I have to wonder if there is any basis for this theory in an increasingly outsourced economy. When one invests in a business in the US, it likely will go towards companies that oursource their work. For example, if I invest in Boeing, I am ultimately investing in Chinese and other foreign labor. So how does investment favor US workers? Where does the money trickle down?

It seems to me that instead of trickling down, much of the money is really just trickling away.

 

[lisab]

If we had a "closed" economy, then trickle-down could work. But in a global economy, investment dollars don't go to the mom-and-pop establishment across town. The money goes overseas. It should be called trickle-out economics.

 

[WheelsRCool]

We have had millions of jobs created in this nation since outsourcing became popular. The unemployment rate has remained at full employment for the most part, aside from very recently, due to the credit crunch and housing crash.

 

[Ivan Seeking]

If we had a "closed" economy, then trickle-down could work. But in a global economy, investment dollars don't go to the mom-and-pop establishment across town. The money goes overseas. It should be called trickle-out economics.

And if so, then what is the justification for keeping taxes low for the rich?

 

[Ivan Seeking]

We have had millions of jobs created in this nation since outsourcing became popular. The unemployment rate has remained at full employment for the most part, aside from very recently, due to the credit crunch and housing crash.

Yes, there is a positon for a Wal Mart greeter open right now.

We have to consider the types of jobs being created. And the unemployment rate doesn't count people who are no longer eligible because the benefits have been exhausted. I know these people exist because we have been helping to support one of them.

As for the example of Boeing, they are downsizing, not adding jobs. A walk around Boeing these days is like a day at the morgue.

 

[russ_watters]

For example, if I invest in Boeing, I am ultimately investing in Chinese and other foreign labor. So how does investment favor US workers? Where does the money trickle down?

Dunno - how many US workers does Boeing have?
[edit] According to Wik, Boeing employs 160,000 people in the US. Is that a lot to "trickle-down" to?


http://en.wikipedia.org/wiki/Boeing#Employment_Numbers

That does not, of course, include their subcontractors.

I found the wording of your first sentence interesting. You didn't really say you thought it was flawed, but you didn't say "regardless of how valid the original concept may or may not have been..." Dunno - doesn't seem to me like that is a good setup for an objective conversation.

 

[Ivan Seeking]

I found the wording of your first sentence interesting. You didn't really say you thought it was flawed, but you didn't say "regardless of how valid the original concept may or may not have been..." Dunno - doesn't seem to me like that is a good setup for an objective conversation.

I just didn't want to get into the fundamentals beyond the question of outsourcing. That is another debate. But if we assume that it did work, at least in principle, then, given outsourcing...

 

[Ivan Seeking]

Dunno - how many US workers does Boeing have?
[edit] According to Wik, Boeing employs 160,000 people in the US. Is that a lot to "trickle-down" to?


http://en.wikipedia.org/wiki/Boeing#Employment_Numbers

That does not, of course, include their subcontractors.

Speaking as a subcontractor, after ten years of doing engineering and integration work for Boeing as one of my primary customers, I then spent two years writing classes for the Chinese and other foreign workers, and now I get virtually no work. Facilities that were once teaming with workers are nearly silent. And they got rid of most gray-hairs long ago.

 

[russ_watters]

Speaking as a subcontractor, after ten years of doing engineering and integration work for Boeing as one of my primary customers, I then spent two years writing classes for the Chinese and other foreign workers, and now I get virtually no work. Facilities that were once teaming with workers are nearly silent. And they got rid of most gray-hairs long ago.

I'm not sure how gray hair relates to the OP. Could you clarify, please?

Yes, Boeing has outsourced a lot of their work. They also employ 160,000 people. So...is that "trickle-down" or not? Ie:

if I invest in Boeing, I am ultimately investing in Chinese and other foreign labor.

Since that is a qualatative statement, it is trivially true, but what does it actually mean? What fraction of the money you invest in Boeing goes toward foreign labor and what fraction goes toward American labor?

 

[WheelsRCool]

Yes, there is a positon for a Wal Mart greeter open right now.

I meant since the Reagan days, we have seen massive job creation in many technical fields and well-paying jobs. Right now, we are in a recession, or something very close to one. Plus, with high gas prices, and food prices up because of ethanol taking a lot of the corn and the crops damaged because of the flooding, people are really hurting. It's like a triple whammy.

If the economy was struggling, but gas prices and food prices were lower, people wouldn't be hurting as much I'd think.

We have to consider the types of jobs being created. And the unemployment rate doesn't count people who are no longer eligible because the benefits have been exhausted. I know these people exist because we have been helping to support one of them.

As for the example of Boeing, they are downsizing, not adding jobs. A walk around Boeing these days is like a day at the morgue.

The unemployment is figured taking into account people who may not be receiving unemployment compensation. They do not figure it solely by that figure: http://www.bls.gov/cps/cps_htgm.htm

 

[Ivan Seeking]

I'm not sure how gray hair relates to the OP. Could you clarify, please?

Gray-hairs refers to their knowledge base of experienced engineers.

Yes, Boeing has outsourced a lot of their work. They also employ 160,000 people. So...is that "trickle-down" or not? Ie: Since that is a qualatative statement, it is trivially true, but what does it actually mean? What fraction of the money you invest in Boeing goes toward foreign labor and what fraction goes toward American labor?

And where do you think they are putting any money for growth?

 

[Ivan Seeking]

I meant since the Reagan days, we have seen massive job creation in many technical fields and well-paying jobs. Right now, we are in a recession, or something very close to one.

We are losing jobs to overseas competition because they have cheaper labor, cheaper land, and most important of all, fewer laws protecting workers, the environment, and public safety. This is why I specified that I wasn't challenging trickle-down theory in principle, because like a free market, in principle I think it likely works. Now, even the master-mind of the Reaganomics, David Stockman, feels that in many ways it failed because Reagan strayed from the math, so there is still a question of the effectiveness of this in practice. But that aside, since then, what has changed everything is the move to outsourcing. While Ph.D.'s in physics or engineering are usually lucky to get jobs that pay more than a good auto mechanics job, industry cries about not having qualified people. Many engineers are working as technicians and salesmen, R&D building are now used for storage, and skilled labor is retraining and retraining and retraining, while trying to rebuild a life of work from scratch at 40 or 50, or 60 years of age. Meanwhile, our largest export industry is garbage - sold to China for recycling.

Ironically, the one really bright spot in the ecnonomy is that of green-collar jobs.

 

[turbo]

BushI called Reagan's "trickle-down economics" "voodoo economics" and he was right. He held to Reagan's plan in order to get elected, though he knew that he was screwing the US middle-class. Repeating the "tax-cut" mantra while cutting taxes for the wealthy and shifting tax burdens to the less-well-off, and their children is a favorite tactic of the neo-cons who pretend to be conservatives.

 

[DrClapeyron]

I think Chinaand India are great countries. If the economies of these two countries are treated in the American model, they are the bottom cuts and yes trickle down works because it reaches these two nations. Good thread Ivan.

 

[WheelsRCool]

BushI called Reagan's "trickle-down economics" "voodoo economics" and he was right. He held to Reagan's plan in order to get elected, though he knew that he was screwing the US middle-class. Repeating the "tax-cut" mantra while cutting taxes for the wealthy and shifting tax burdens to the less-well-off, and their children is a favorite tactic of the neo-cons who pretend to be conservatives.

Since Reagan, the majority of the wealth burden has shifted more into the wealthy, not the middle-class. If you want the middle-class to pay a larger share of the tax burden then what they currently pay, and the wealthy a smaller share then what they currently pay, go back to the pre-Reagan taxation policies. With these, the wealthy pull their money out of the stock and bond markets and hide it in trusts and other tax-safe entities, which also helps to kill wealth, and thus job, creation in the economy. Remember, it's investment from the wealthy that provides the capital to create and grow businesses and usually it's the wealthy who create a lot of the businesses as well. That's how they got wealthy in the first place.

 

[Averagesupernova]

Remember, it's investment from the wealthy that provides the capital to create and grow businesses and usually it's the wealthy who create a lot of the businesses as well. That's how they got wealthy in the first place.

I've avoided staying out of political threads lately but I cannot resist this one. So you are saying that the majority of the time it is the wealthy that are responsible for starting businesses and making them successful? And in the next sentence you say that the wealthy GOT wealthy by doing this? So what were they before they got wealthy? Poor? Middle class? So is it or isn't it the wealthy who are responsible for starting businesses? You are talking out of both sides of your mouth.

 

[mheslep]

I've avoided staying out of political threads lately but I cannot resist this one. So you are saying that the majority of the time it is the wealthy that are responsible for starting businesses and making them successful? ...

Post was "provides the capital to create and grow businesses" which is true, at least for higher risk areas like startups using venture capital.

 

[WheelsRCool]

I've avoided staying out of political threads lately but I cannot resist this one. So you are saying that the majority of the time it is the wealthy that are responsible for starting businesses and making them successful? And in the next sentence you say that the wealthy GOT wealthy by doing this? So what were they before they got wealthy? Poor? Middle class? So is it or isn't it the wealthy who are responsible for starting businesses? You are talking out of both sides of your mouth.

What I meant is that most wealthy got wealthy in the first place by starting businesses and/or investing. A good chunk of them, once wealthy, go on and create other businesses as well, and invest.

It's sort of like a cycle; middle-class folk start businesses, which get venture capital funding or angel funding, etc...from already wealthy people, who themselves built up their own fortunes before, and these businesses grow and make these middle-class folk wealthy, who then go and start other businesses and become investors in startups themselves, etc...and the cycle continues, thus we see a huge increase in multimillionaires and billionaires.

I hope to be one of them someday :)