I'm confused

[General Dissaray]

With all this "Obama is a Comunist" flying round the "news" these days have me wondering some things. I hear so much about how Obama's tax plan will "bankrupt America" or verious other terrible things. With all this ferver I hear so much about how his plan is bad, that beeing a ground up aproch to economy biulding. I can't seem to get any one to tell me why the top down method is so good, the "trikle down" or Regamomics as it is called. Can some one tell me why it is so much better to give money to the people that have most of it already rather than giving that money to the people that buy things? I don't mean in sweeping generlizations, I can get that from just about any jagoff on the TV box. I want to know spacificaly how rich people make mroe jobs when they have more money when it is more ofthen the poorer people, middle class tipes, that start small businesses that higher most of the work force. How is it better to concontrate wealth and power in the hands of the few? Can any one help me out? Can any one convince me that it is a good idea?

[Delvecchio1975]

Can any one convince me that it is a good idea?

not unless

a. you're already filthy rich
b. you're not thinking

[Ummon]

It's quite simple: concentration of capital is allowable for investment. Many people having little cannot do the same without making recourse to capital (funds, yes, I can feel your joy). Therefore, redistributing wealth is always a bad idea.

Expenditure efficiency is a good idea, cutting expenses and raising the quality of services through modernization is a good idea. Redistribution of wealth is not.

[Bovril]

That theory is all fine, but it doesn't say where the capital should be concentrated. Financial institutions, individuals, governments, cooperatives, corporations?

[Mithie]

It's quite simple: concentration of capital is allowable for investment. Many people having little cannot do the same without making recourse to capital (funds, yes, I can feel your joy). Therefore, redistributing wealth is always a bad idea.

The economy is consumer driven.

[Ummon]

Capitalism bypasses this with right of property: you get the good (financial success) and the bad (speculation).

In socialism on the other hand you get only the bad: progressive stagnation.

If you intend to say that a degree of state control is always necessary, yes, a degree of state control is. But state control is not efficient if it causes additional costs through bureaucracy. In times of crisis, you should spend less more efficiently, not more less efficiently.

The economy is consumer driven.

The great logic: the state taxes rich citizens to give money to poorer citizens so they spend more money which goes to rich citizens.

But in time of recession, this doesn't remedy anything. Besides, to allocate the money, you need bureaucracy, which costs money, and you will also get exploitment (in Italy we have real experts of this) of social security. Which costs more money.

[Bovril]

Capitalism bypasses this with right of property: you get the good (financial success) and the bad (speculation).

In socialism on the other hand you get only the bad: progressive stagnation.

I'm not going to make an arguement for 'socialism' at this point, but I am going to say that this is demonstrably not the case. If you look at the rates of industrialisation in the developing world post WW2, for instance, there is a strong positive corelation between high levels of government control of sectors of the economy, capital flow and so on and increased indutrialisation. Compare India and China, Korea and Thailand, Japan and Indonesia, Cuba and Haiti, etc.

If you intend to say that a degree of state control is always necessary, yes, a degree of state control is. But state control is not efficient if it causes additional costs through bureaucracy. In times of crisis, you should spend less more efficiently, not more less efficiently.

Its very easy to say spend less more efficiently, but doing so is problematic. Besides, since we are discussing meta-level economics, we have to discuss meta-level goals. It should never be the role of the government to increase its own wealth, for example, where as it is the only role of a corporation to increase the wealth of its share holders. So if we want to promote general social good rather than wealth creation, giving assets to the government might well be far more efficient than leaving it to corporations, despite the possibility of higher levels of bueracracy, because social good created by corporations (except in as much as extra-wealth for a few share holders is a social good) is incidental at best. Some corporations are entirely concerned with exploiting net social ills such as tabacco use. A government can and should dedicate all its capital towards creating social good. So if creating social good is your goal, a government has a pretty good chance of being more efficient than the private sector.

[Erik]

But in time of recession, this doesn't remedy anything.

But in a depression (which this crisis is quickly becoming) it is the only solution.

[Mithie]

If you intend to say that a degree of state control is always necessary, yes, a degree of state control is. But state control is not efficient if it causes additional costs through bureaucracy. In times of crisis, you should spend less more efficiently, not more less efficiently.

I'm not saying that at all. I'm saying that the bottoms-up economic policy is a viable alternative to the trick-down policy. Injecting funds to strengthen the consumer base can stimulate the economy just as well as injecting funds to the rich to stimulate the money market.

... And before you accuse me of being a socialist, no, I don't believe in unconditional welfare, nor putting the money directly into the hands of the poor.

I mean using the money to strengthen the American industrial capacity, by providing employment opportunities for the middle-lower class, by regulating all banks equally to encourage vertical economic mobility, and by limiting outsourcing and increasing reliance on domestic labor.

Take the same money the government is currently giving to the rich and

- better the current higher education scholarship programs.

- regulate private health care to make health care more accessible to the lower-middle class.

- increase the social and industrial capacity of suburban towns to raise employment rates.

- restructure the worker's union to decrease corruption and increase worker productivity.

- give economic incentives for using domestic labor instead of outsourcing.

All of these are viable alternatives to the trickle-down policy.

[Ummon]

I was answering bovril.

[Ummon]

India and China are going to pay for this mess much more than we do: it is just that we have a much more lavish life to lose and we are not used to sacrifices. Time is short so I can add only this.

[Bovril]

India and China are going to pay for this mess much more than we do

My point was not that India and China both have large state sectors (which is true) my point was that despite a far worse starting position, China develloped far better than India and this is an example of corelation between higher degrees of state controll in develloping countries and increased rates of industrialisation and wealth production. I would contend that history has shown us that high degrees of state controll and protectionism are, as a rule, the best way for a develloping country to progress. This is contrary to your statement that 'socialism' creates 'progressive stagnation'.
The situation in develloped countries may well be very different. Its certainly more complicated.

[Bovril]

The archetypal depression of the 20th century certainly was dealt with by use of Keynsian policies. Does that mean such policies are the only way out of a depression? I don't know. It certainly seems that to end a depression investment and spending are key, and during a downturn, that's unliely to come in sufficient quantities from the private sector. Unfortunately the US, UK and some others have been running up large debts during the good times, ignoring the responsible policy of spending your way out of a recession then repaying your debts when the economy is doing well.

[Mithie]

India and China are going to pay for this mess much more than we do: it is just that we have a much more lavish life to lose and we are not used to sacrifices. Time is short so I can add only this.

The difference is - at least for China - the government sees those bubbles and understands the inevitability of those bubbles bursting - causing a heavy economic fall. That's why the Chinese government is matching the bubble cent for cent with a hefty reserve fund, constructed from a number of sources including interest, tariffs, profits from Sinopec and Norinco, and of course, the purchase of US debt.

Once the bubble bursts, the Chinese government plans to inject the reserve funding straight into the gaps. Since the Chinese government have a stronger grip on its industry than the US, this injection will be much easier.