On the supply side: Political analysts and reporters keep talking about "trickle-up" and "trickle-down" economics.
What do these terms mean? Personally, I'm interested only in "trickle to my pocket.
" But as far as taxes are concerned, I pay what the government says to pay.
They decide how to apply the money.
The current administration largely uses supply-side economics.
In a phrase, money is applied to the top level of the economy, with the hope placed in the fairness of industry controllers that it will trickle down to the worker class.
Supply-side economics as an economic definition is a macroeconomic philosophy that holds that: 1.
Lowering income taxes and capital gains tax rates will encourage the wealthy to invest in stock market companies.
Wealthy would describe people in the higher tax brackets, who would benefit most from these tax breaks by gaining more disposable income.
2.
These investments made by the wealthy (if they make the investments) will encourage businesses to expand and produce an increased supply of goods and services at lower prices.
3.
That expansion in turn, will result in economic growth, increasing employment, disposable income for more workers, and demand for these goods.
Supply-siders feel that in a high tax rate environment, lowering taxes to the right level can raise revenue by causing faster economic growth.
This philosophy is also referred to as "trickle-down economics.
" ·Proponents argue economic growth will flow downward from top to bottom, indirectly benefiting those workers who do not directly benefit from the tax changes.
·Opponents argue that "trickle-down" policies, if they work at all, provide a very slim benefit by the time they reach the worker, due to the benefits taken out at every level.
Advocates of the trickle-down effect believe that a free market, unrestrained by heavy taxation, regulation and other forms of government controls, will cause an increase in wealth for society as a whole, part of which will "trickle down" benefits from the wealthy to the worker class, increasing their standard of living.
Increasing taxes reduces trade between businesses and discourages investment like an international trade barrier or tariff, meant for that purpose.
Nixonomics In 1971, Republican President Richard Nixon ended the the U.
S.
Gold standard, where the value of the U.
S.
dollar was pinned to the fixed value of gold.
Almost immediately,commodity prices such as oil and gold, spiked up.
Actually, the value of commodities remained constant while the dollar was devalued.
As a result, the stock market lost half of its value between the market peak of 1972 and its bottom in 1982, with investors seeking better returns in commodities and real estate.
Decreasing market investment caused companies to cut back, increasing unemployment.
Unions influenced business owners to keep raising prices, fearing more wage hikes, causing inflation.
Nixon refused to cut taxes since he said the incentive to invest in the market was zero.
The result was a stagnant economy with high inflation, better known as stagflation.
Wage and price controls were put into effect, but interest rates were allowed to run free.
The result was rapidly rising interest rates and tight credit.
Inflation caused wage earners to creep into ever higher tax brackets, losing wage increases to taxes.
The number of households able to afford mortgages diminished.
This was an example of supply-side economics gone bad.
High taxes, high inflation and uncontrolled interest rates in a free market economy caused the economy to grind to a halt.
Reaganomics Skip ahead to 1981 when Republican Ronald Reagan became President.
Unemployment was at 7.
5% and inflation was at 13.
5%.
Federal Reserve chairman Paul Volcker squeezed inflation from the economic system, by raising the federal funds rate to 20%, forcing the prime interest rate up to 21.
5%.
This extremely tight monetary policy intentionally plunged the U.
S.
economy into a deep recession and wiped inflationary psychology and expectations out of the system.
Economist Robert Mundell convinced the President to reduce upper bracket and capital gains taxes to increase national output and tax revenue, and that would bring inflation under control.
The ensuing tax cuts, reducing taxes by $749 billion over five years, drew the country out of recession, and the tax receipt level quickly returned, then surpassed previous levels.
This was an example of supply-side and trickle-down economics that worked.
After the economy was intentionally put into a coma, it was restored to health with lower unemployment levels and higher wages, as well as lower prices for consumers.
There are arguments whether the tax cuts actually paid for themselves in the Reagan era.
Take away natural increases due to inflation, increased FICA taxes and corporate taxes, tax revenue in constant dollars decreased by $2.
77 billion in that time period.
And recouping $746 billion is not bad.
But one thing is clear, that Reaganomics dramatically reversed the American economic decline of the 1970s.
Trickle-down supply-side economics is the model cherished by the Republican Party.
Shortcomings The supply-side of the argument has its shortcomings.
The conditions must be correct and the trickle-down stream must be entirely without blockages in order to work: 1.
Taxes must be high enough that economic expansion is currently stifled.
2.
The lowering of taxes must be noticeable enough to the wealthy that they will consider investing the extra money and not save it or spend it only on personal consumption.
3.
The stock market must be attractive enough for the wealthy to consider investment there, as opposed to, for example, foreign investments, commodities (like oil), or real estate.
4.
Stock market companies who receive the investment must, in turn, invest in expansion and increased employment, with the goal of increased production and lowering prices of their products.
5.
The demand for the products must increase as production increases so the company still makes at least the same profit as before the expansion.
The economy must continue to expand, with people buying an increasing number of the lower cost product.
Supply-side economics proposes that production or supply is the key to economic prosperity and that consumption or demand is secondary.
In other words, supply will influence demand.
Bush-onomics Skip ahead again to 2001, with our current President George W.
Bush.
Bush inherited an unsteady economy from Democratic President Bill Clinton.
Over the three quarters prior to March 31, 2001, the economy grew only at a 1.
1% annualized rate.
Much of this was credited to the bursting of the the dot-com bubble.
With threats of impending recession from Federal Reserve Chairman Alan Greenspan, Bush argued with Congress for a $1.
35 trillion tax cut over ten years to stimulate the economy and create jobs.
It was approved.
The early 2000s recession (which was not technically a recession) following the 1990s boom was not as bad as was predicted, but was still characterized by outsourcing followed by large layoffs, and recovery without strong employment growth.
Despite the resultant effects of the 2001 9/11 attacks, President Bush managed to keep the country out of recession.
Large numbers of economists were against the tax cuts, saying they will fail as a stimulus and "will worsen the long-term budget outlook ...
[and] generate further inequalities in after-tax income.
" The President claimed the tax cuts paid for themselves through economic growth, but it took them until FY2006 to surpass the 2000 level and will take until 2011 to recover all the funds advanced.
Economist Arthur Laffer stood alone in stating that the tax cuts were "what was right," because after the 9/11 attacks and threats of recession, the President "needed to stimulate the economy and spend for defense.
" Side note: Even with the tendency of the business cycle to produce periodic recessions, under Bush's administration the length of time between recessions has extended to a record-breaking 17 years of sustained growth, in employment, personal income and Gross Domestic Product (GDP).
In addition, there were decreases in the government deficit for years 2005, 2006, and 2007.
Deficits however, still add to the public debt.
The previous record between recessions was 11 years, 1958 - 1969.
The supply-side economics of the Bush administration shows that he acted prior to a recession taking hold.
1.
Taxes were not stifling to business investors, even though the economy was struggling.
2.
Tax cuts issued up to 2003 resulted in a 20% increase in income of the top 1% income households.
3.
The stock market received a great deal of investment, rising nearly 32% from January 2001 (10,686) to Oct 2007 (14,093).
4.
Production expanded, reducing unemployment from a high of 6.
3% in 2003 to 4.
4% in March 2007, with an average of 5.
2%.
This was an example of supply-side and trickle-down economics that worked for seven years, prior to the 'economic downturn.
' The President executed a pre-emptive strike and kept the nation out of recession for most of his two terms in office.
Recession of 2008 The economic downturn is a harsh reality of economic cycles.
It is now up to our President elect to lead us back to prosperity.
This recession, started by the bursting of the U.
S.
housing bubble, leaves businesses with their expansions hanging like a stone around their necks with no customers and sharply reduced stock value.
But that is the subject of another post.
What do these terms mean? Personally, I'm interested only in "trickle to my pocket.
" But as far as taxes are concerned, I pay what the government says to pay.
They decide how to apply the money.
The current administration largely uses supply-side economics.
In a phrase, money is applied to the top level of the economy, with the hope placed in the fairness of industry controllers that it will trickle down to the worker class.
Supply-side economics as an economic definition is a macroeconomic philosophy that holds that: 1.
Lowering income taxes and capital gains tax rates will encourage the wealthy to invest in stock market companies.
Wealthy would describe people in the higher tax brackets, who would benefit most from these tax breaks by gaining more disposable income.
2.
These investments made by the wealthy (if they make the investments) will encourage businesses to expand and produce an increased supply of goods and services at lower prices.
3.
That expansion in turn, will result in economic growth, increasing employment, disposable income for more workers, and demand for these goods.
Supply-siders feel that in a high tax rate environment, lowering taxes to the right level can raise revenue by causing faster economic growth.
This philosophy is also referred to as "trickle-down economics.
" ·Proponents argue economic growth will flow downward from top to bottom, indirectly benefiting those workers who do not directly benefit from the tax changes.
·Opponents argue that "trickle-down" policies, if they work at all, provide a very slim benefit by the time they reach the worker, due to the benefits taken out at every level.
Advocates of the trickle-down effect believe that a free market, unrestrained by heavy taxation, regulation and other forms of government controls, will cause an increase in wealth for society as a whole, part of which will "trickle down" benefits from the wealthy to the worker class, increasing their standard of living.
Increasing taxes reduces trade between businesses and discourages investment like an international trade barrier or tariff, meant for that purpose.
Nixonomics In 1971, Republican President Richard Nixon ended the the U.
S.
Gold standard, where the value of the U.
S.
dollar was pinned to the fixed value of gold.
Almost immediately,commodity prices such as oil and gold, spiked up.
Actually, the value of commodities remained constant while the dollar was devalued.
As a result, the stock market lost half of its value between the market peak of 1972 and its bottom in 1982, with investors seeking better returns in commodities and real estate.
Decreasing market investment caused companies to cut back, increasing unemployment.
Unions influenced business owners to keep raising prices, fearing more wage hikes, causing inflation.
Nixon refused to cut taxes since he said the incentive to invest in the market was zero.
The result was a stagnant economy with high inflation, better known as stagflation.
Wage and price controls were put into effect, but interest rates were allowed to run free.
The result was rapidly rising interest rates and tight credit.
Inflation caused wage earners to creep into ever higher tax brackets, losing wage increases to taxes.
The number of households able to afford mortgages diminished.
This was an example of supply-side economics gone bad.
High taxes, high inflation and uncontrolled interest rates in a free market economy caused the economy to grind to a halt.
Reaganomics Skip ahead to 1981 when Republican Ronald Reagan became President.
Unemployment was at 7.
5% and inflation was at 13.
5%.
Federal Reserve chairman Paul Volcker squeezed inflation from the economic system, by raising the federal funds rate to 20%, forcing the prime interest rate up to 21.
5%.
This extremely tight monetary policy intentionally plunged the U.
S.
economy into a deep recession and wiped inflationary psychology and expectations out of the system.
Economist Robert Mundell convinced the President to reduce upper bracket and capital gains taxes to increase national output and tax revenue, and that would bring inflation under control.
The ensuing tax cuts, reducing taxes by $749 billion over five years, drew the country out of recession, and the tax receipt level quickly returned, then surpassed previous levels.
This was an example of supply-side and trickle-down economics that worked.
After the economy was intentionally put into a coma, it was restored to health with lower unemployment levels and higher wages, as well as lower prices for consumers.
There are arguments whether the tax cuts actually paid for themselves in the Reagan era.
Take away natural increases due to inflation, increased FICA taxes and corporate taxes, tax revenue in constant dollars decreased by $2.
77 billion in that time period.
And recouping $746 billion is not bad.
But one thing is clear, that Reaganomics dramatically reversed the American economic decline of the 1970s.
Trickle-down supply-side economics is the model cherished by the Republican Party.
Shortcomings The supply-side of the argument has its shortcomings.
The conditions must be correct and the trickle-down stream must be entirely without blockages in order to work: 1.
Taxes must be high enough that economic expansion is currently stifled.
2.
The lowering of taxes must be noticeable enough to the wealthy that they will consider investing the extra money and not save it or spend it only on personal consumption.
3.
The stock market must be attractive enough for the wealthy to consider investment there, as opposed to, for example, foreign investments, commodities (like oil), or real estate.
4.
Stock market companies who receive the investment must, in turn, invest in expansion and increased employment, with the goal of increased production and lowering prices of their products.
5.
The demand for the products must increase as production increases so the company still makes at least the same profit as before the expansion.
The economy must continue to expand, with people buying an increasing number of the lower cost product.
Supply-side economics proposes that production or supply is the key to economic prosperity and that consumption or demand is secondary.
In other words, supply will influence demand.
Bush-onomics Skip ahead again to 2001, with our current President George W.
Bush.
Bush inherited an unsteady economy from Democratic President Bill Clinton.
Over the three quarters prior to March 31, 2001, the economy grew only at a 1.
1% annualized rate.
Much of this was credited to the bursting of the the dot-com bubble.
With threats of impending recession from Federal Reserve Chairman Alan Greenspan, Bush argued with Congress for a $1.
35 trillion tax cut over ten years to stimulate the economy and create jobs.
It was approved.
The early 2000s recession (which was not technically a recession) following the 1990s boom was not as bad as was predicted, but was still characterized by outsourcing followed by large layoffs, and recovery without strong employment growth.
Despite the resultant effects of the 2001 9/11 attacks, President Bush managed to keep the country out of recession.
Large numbers of economists were against the tax cuts, saying they will fail as a stimulus and "will worsen the long-term budget outlook ...
[and] generate further inequalities in after-tax income.
" The President claimed the tax cuts paid for themselves through economic growth, but it took them until FY2006 to surpass the 2000 level and will take until 2011 to recover all the funds advanced.
Economist Arthur Laffer stood alone in stating that the tax cuts were "what was right," because after the 9/11 attacks and threats of recession, the President "needed to stimulate the economy and spend for defense.
" Side note: Even with the tendency of the business cycle to produce periodic recessions, under Bush's administration the length of time between recessions has extended to a record-breaking 17 years of sustained growth, in employment, personal income and Gross Domestic Product (GDP).
In addition, there were decreases in the government deficit for years 2005, 2006, and 2007.
Deficits however, still add to the public debt.
The previous record between recessions was 11 years, 1958 - 1969.
The supply-side economics of the Bush administration shows that he acted prior to a recession taking hold.
1.
Taxes were not stifling to business investors, even though the economy was struggling.
2.
Tax cuts issued up to 2003 resulted in a 20% increase in income of the top 1% income households.
3.
The stock market received a great deal of investment, rising nearly 32% from January 2001 (10,686) to Oct 2007 (14,093).
4.
Production expanded, reducing unemployment from a high of 6.
3% in 2003 to 4.
4% in March 2007, with an average of 5.
2%.
This was an example of supply-side and trickle-down economics that worked for seven years, prior to the 'economic downturn.
' The President executed a pre-emptive strike and kept the nation out of recession for most of his two terms in office.
Recession of 2008 The economic downturn is a harsh reality of economic cycles.
It is now up to our President elect to lead us back to prosperity.
This recession, started by the bursting of the U.
S.
housing bubble, leaves businesses with their expansions hanging like a stone around their necks with no customers and sharply reduced stock value.
But that is the subject of another post.
Source...