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I use to believe Reaganomics/"trickle down" until one day it clicked: The wealthy "job creators" aren't going to create jobs and employ people to produce widget

by jrs235 14y ago

I use to believe Reaganomics/"trickle down" until one day it clicked: The wealthy "job creators" aren't going to create jobs and employ people to produce widgets if there isn't demand for widgets. In order to increase demand for widgets either a) people must have money to spend on widgets or b) the price of widgets must come down. If the price of widgets has to come down, then the ROI on any investment and jobs created to supply widgets goes down and can become unattractive to the rich and cause them to sit on their money. The fact is our economy is DEMAND driven, not supply driven.

pdonis 14y ago
The fact is our economy is DEMAND driven, not supply driven. In the short run, I agree. In the long run, I disagree. As I said in another post upthread, there was no demand for air travel in 1900. The large current demand for air travel only exists because air travel now exists; it was created by the creation of a new source of supply.
- SideburnsOfDoom 14y ago
  What is your position on trickle down economics? Do you think it was a good thing? On theoretical or historical grounds? As far as I can tell, it is a theory that failed in practice. Does this relate to your unsupported ideas on great benefits of innovation. I'm not sure if you are arguing for trickle-down, or just ignoring how it failed.
  - pdonis 14y ago
    Trickle-down economics, as it was used in practice, amounted to the claim that the economy was not demand driven even in the short run. I've agreed that in the short run, the economy is demand driven (because creating new sources of supply takes time--it took half a century for the airplane to go from first invention to commercial use, and about 3/4 of a century to get to widespread commercial use). So I don't think trickle down economics does what it claims to do. If there is some other theory of "trickle-down economics" that talks about long time scales, then I would be more receptive. Take the airplane again as an example: first it was only available to a few inventors; then only to the military and a few inventors and enthusiasts; then it started to be used for things like carrying mail; then for travel by people rich enough to afford it; then it kept expanding and the price kept dropping until now a large fraction of the population can afford an airplane trip. But that's a very different process than the one the "trickle-down" economists were talking about; what trickles down is the actual availability of a new thing, not money.
    - SideburnsOfDoom 14y ago
      I see no reason why inequality would trickle down on any time-scale. IMHO concentration of wealth at the top is not conducive to innovation at all - the wealthy and powerful would largely prefer to lock things down and keep the status quo than encourage disruptive innovations. e.g Gates and guards not highways. Patents and copyright extensions not free exchange of ideas and media. Monopolies not cheap goods. You talk a lot about teh powers of innovation without any reference to any real world data or being specific about how to encourage it, so I feel that I can also present a vague, handwavy counterargument.
      - pdonis 14y ago
        I see no reason why inequality would trickle down on any time-scale. I think you mean equality trickling down? I didn't say it would, if by "equality" you mean equality of wealth in relative terms. But absolute wealth certainly does trickle down, as in my airplane example. An ordinary person today can buy things that the richest person in the world could not buy in 1900. The richest person in the world can also buy them, of course, plus things that an ordinary person cannot buy; but that doesn't change the fact that the ordinary person is a lot wealthier in many ways, in absolute terms, than the richest person in the world was in 1900. IMHO concentration of wealth at the top is not conducive to innovation at all Where did I argue that concentration of wealth drives innovation? All I was saying is that in the long run, thinking of the economy as purely demand-driven doesn't work, because new sources of supply come into existence and create new kinds of demand. I didn't say or assume anything that requires the new sources of supply to come into existence because wealth is concentrated at the top. the wealthy and powerful would largely prefer to lock things down and keep the status quo than encourage disruptive innovations To a large extent I agree with this. Most innovations are not driven by people who are already wealthy; they are driven by people who want to become wealthy. pg has said that he started Viaweb because he wanted to make enough money to not have to worry about money; he certainly was not in that state when he started it. You talk a lot about teh powers of innovation without any reference to any real world data or being specific about how to encourage it I have not talked about innovation being driven by the wealthy; that is something you are reading into what I said, not something that's really there in what I said. And I did give one real world example, the airplane. Do you dispute my general summary of how the airplane evolved, or how it created a new source of supply that didn't exist before, and therefore created new demand that didn't (and couldn't) exist before? As for how to encourage innovation, I don't think anyone knows how to do it in the general case. But in general I think (and you appear to agree) that openness and transparency are better for innovation than secrecy, and that the government should not play favorites. I also think that, even though relative inequality of wealth is an effect of innovation, not a cause of it, we should be careful about how we try to equalize relative inequality of wealth, because, as I noted above, innovators innovate because they want to become wealthy. If you take away the potential reward, you take away the motivation (pg makes this point in several of his essays, I believe). However, one thing we could do to reduce relative inequality of wealth, which would not, I think, hurt innovation, would be to completely overhaul our financial system. The financial system is billed as providing capital for innovation, but only a very small fraction of transactions actually do that. Most transactions are zero-sum trades, and most people who have gotten rich through working the financial system (which means, today, a large fraction of wealthy people) have done it not by creating new wealth, but by transferring existing wealth from other people's pockets into their own, using asymmetric information to induce people to take the wrong end of zero-sum trades. I'm not saying that's easy to fix, but I think if it could be fixed, it would significantly reduce the concentration of wealth without hurting innovation.

by jrs235 14y ago

pdonis 14y ago

The fact is our economy is DEMAND driven, not supply driven. In the short run, I agree. In the long run, I disagree. As I said in another post upthread, there was no demand for air travel in 1900. The large current demand for air travel only exists because air travel now exists; it was created by the creation of a new source of supply.

SideburnsOfDoom 14y ago
What is your position on trickle down economics? Do you think it was a good thing? On theoretical or historical grounds? As far as I can tell, it is a theory that failed in practice. Does this relate to your unsupported ideas on great benefits of innovation. I'm not sure if you are arguing for trickle-down, or just ignoring how it failed.
- pdonis 14y ago
  Trickle-down economics, as it was used in practice, amounted to the claim that the economy was not demand driven even in the short run. I've agreed that in the short run, the economy is demand driven (because creating new sources of supply takes time--it took half a century for the airplane to go from first invention to commercial use, and about 3/4 of a century to get to widespread commercial use). So I don't think trickle down economics does what it claims to do. If there is some other theory of "trickle-down economics" that talks about long time scales, then I would be more receptive. Take the airplane again as an example: first it was only available to a few inventors; then only to the military and a few inventors and enthusiasts; then it started to be used for things like carrying mail; then for travel by people rich enough to afford it; then it kept expanding and the price kept dropping until now a large fraction of the population can afford an airplane trip. But that's a very different process than the one the "trickle-down" economists were talking about; what trickles down is the actual availability of a new thing, not money.
  - SideburnsOfDoom 14y ago
    I see no reason why inequality would trickle down on any time-scale. IMHO concentration of wealth at the top is not conducive to innovation at all - the wealthy and powerful would largely prefer to lock things down and keep the status quo than encourage disruptive innovations. e.g Gates and guards not highways. Patents and copyright extensions not free exchange of ideas and media. Monopolies not cheap goods. You talk a lot about teh powers of innovation without any reference to any real world data or being specific about how to encourage it, so I feel that I can also present a vague, handwavy counterargument.
    - pdonis 14y ago
      I see no reason why inequality would trickle down on any time-scale. I think you mean equality trickling down? I didn't say it would, if by "equality" you mean equality of wealth in relative terms. But absolute wealth certainly does trickle down, as in my airplane example. An ordinary person today can buy things that the richest person in the world could not buy in 1900. The richest person in the world can also buy them, of course, plus things that an ordinary person cannot buy; but that doesn't change the fact that the ordinary person is a lot wealthier in many ways, in absolute terms, than the richest person in the world was in 1900. IMHO concentration of wealth at the top is not conducive to innovation at all Where did I argue that concentration of wealth drives innovation? All I was saying is that in the long run, thinking of the economy as purely demand-driven doesn't work, because new sources of supply come into existence and create new kinds of demand. I didn't say or assume anything that requires the new sources of supply to come into existence because wealth is concentrated at the top. the wealthy and powerful would largely prefer to lock things down and keep the status quo than encourage disruptive innovations To a large extent I agree with this. Most innovations are not driven by people who are already wealthy; they are driven by people who want to become wealthy. pg has said that he started Viaweb because he wanted to make enough money to not have to worry about money; he certainly was not in that state when he started it. You talk a lot about teh powers of innovation without any reference to any real world data or being specific about how to encourage it I have not talked about innovation being driven by the wealthy; that is something you are reading into what I said, not something that's really there in what I said. And I did give one real world example, the airplane. Do you dispute my general summary of how the airplane evolved, or how it created a new source of supply that didn't exist before, and therefore created new demand that didn't (and couldn't) exist before? As for how to encourage innovation, I don't think anyone knows how to do it in the general case. But in general I think (and you appear to agree) that openness and transparency are better for innovation than secrecy, and that the government should not play favorites. I also think that, even though relative inequality of wealth is an effect of innovation, not a cause of it, we should be careful about how we try to equalize relative inequality of wealth, because, as I noted above, innovators innovate because they want to become wealthy. If you take away the potential reward, you take away the motivation (pg makes this point in several of his essays, I believe). However, one thing we could do to reduce relative inequality of wealth, which would not, I think, hurt innovation, would be to completely overhaul our financial system. The financial system is billed as providing capital for innovation, but only a very small fraction of transactions actually do that. Most transactions are zero-sum trades, and most people who have gotten rich through working the financial system (which means, today, a large fraction of wealthy people) have done it not by creating new wealth, but by transferring existing wealth from other people's pockets into their own, using asymmetric information to induce people to take the wrong end of zero-sum trades. I'm not saying that's easy to fix, but I think if it could be fixed, it would significantly reduce the concentration of wealth without hurting innovation.