# Think Tank > Austrian Economics / Economic Theory >  Trickle down economics

## MrNick

What is the Austrian economic opinion on "Trickle down economics"?

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## hugolp

Is "Trickle down economics" a serious theory? I though it was more of a political slogan.

Hugo

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## Brassmouth

It's a slogan for "supply-side" economics. The supply-siders are gone now. Drop it from your vocabulary.

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## Omphfullas Zamboni

I thought the Friedman/Chicago School was supply-side or "trickle-down"?

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## JordanL

Austrian is the epitomy of supply-side economics... but it's supply-side economics without the government spending.

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## Brassmouth

> Austrian is the epitomy of supply-side economics... but it's supply-side economics without the government spending.


And thus not "supply-side" economics. Don't use it in that context.

After Friedman's death, it looks like all the supply-siders jumped ship over to Keynesianism. Laffer is an example.

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## Conza88

"Trickle Down economics" ... yeah, trickling down so the people can fight for the crumbs the state lets them eat. 

*Milton Friedman Unraveled by Murray N. Rothbard*

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## liberteebell

> Austrian is the epitomy of supply-side economics... but it's supply-side economics without the government spending.


+1


Trickle-down was a Ronald Reagan slogan and the talk radio neo-cons have clung to it for dear life.  It implies that someone at the top allows trickle down to those below.  Class warfare at its finest.

I'm no expert on Austrian theory, but the more I read, the more I view Austrian theory to be circular.  To me, it's the only theory that accounts for human behaviour (rational or irrational) and how the lowest level of the "food chain" affects the highest level, and vice versa, as they react to conditions, given a free market.

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## MrNick

> It's a slogan for "supply-side" economics. The supply-siders are gone now. Drop it from your vocabulary.


I would but in my college classes all we do is discuss politics and economics now. And 90% of everyone is socialist. My "Professor" always attacks "trickle down economics" and calls for more taxes and social programs.

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## Epic

The Supply Side Effect is a very real phenomenom.

Reagan cut taxes, and revenues went up. That is a supply side effect.

Say a country taxes income at 50% and there is 200 million dollars in income so the country collects 100 million dollars one year. 

Then, the tax rate is lowered to 33% and four years are allowed to pass. In that time, business flourished and income grew to 300 million dollars in income so the country still collects 100 million dollars.

Hence, the country is collecting the same amount of money, and the citizens are enjoying a lower tax rate, thanks to supply side effects.

Keep in mind that supply side effects were used to GROW government. The government wanted more money to spend, and they figured they could get more money to spend by lowering the tax rate, which allowed business to grow, but ultimately yielded more tax receipts and higher spending due to supply side effects.

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## Knighted

Usually when I see the term used, it's attacking the theory that tax cuts or anything done to help the rich, both individuals and corporations, will "trickle down" and eventually help the average joe consumer, who can be seen as being at the bottom rung of the ladder.

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## Zippyjuan

Supply side economics only works when there is adaquate demand for more goods.  If you were to increase the supply of cars today does that mean that people will buy those extra cars? It is just another artificial distortion of what a market would produce on its own so any gains or losses would only be temporary until the market readjusts.

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## jclay2

trickle down economics as far as I understand it is helping those who hold a majority of the capital (the rich) and in my mind isn't really an economic theory so to speak but more of a slogan. The "principles" of trickle down economics is really to give those who hold most of the capital an incentive to invest and produce, aka tax cuts. This is the part where all the liberals scream out and cry fowl because they say it is specifically helping the rich first and no one else. Now the thing they don't bother mention is that the top 10% of the country pays a much much higher percentage of their income and assets to the federal government. In other words, many of the rich in our country our taxed progressively (regressive in my mind). So when the rich get tax cuts, they our actually getting something back that was really unfairly taken. People just don't like it, because they are already rich. They fail to see however that more investment and production is infinitely better than just wealth distribution to the poor that won't use it for as productive purposes as the rich. 

Now, with that said they trickle down people really do miss the point a bit because they don't realize how over extended our government is. In reality there should be a 0% income tax rate, 0% corporate tax rate, and government spending that is about 1/5 max  of what it is now. Now that would be more than a "fair" system and would spur on economic growth like you wouldn't believe. Too bad the supply siders never realized that part of the equation.

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## Paulitician

It's basically what the Democrats are doing (with the banks), and what government has done all along.  Welfare for the rich because they're the ones that create wealth, jobs and such (at least that's their rationale, it's not necessarily true...)

Sometimes it's not given to the private sector, but the public sector.  As Roderick Long once put it:

"Vast amounts of tax revenue are transferred to a gigantic, swollen, wealthy, bureaucratic, inefficient, monolithic state in the naive hope that enough of this revenue will trickle down to the poor and needy."

Trickle-down isn't necessarily the same as supply-side economics.  Supply-side and demand-side both require government intervention in order to increase government revenue and help an economy.  Austrian Economics itself is not "supply-side" or "demand-side" since it's a school of economics, not necessarily a policy think-tank.  However, philosophically its analysis is based on Say's Law.  True laissez-faire is not supply-side/demand-side or trickle down.

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## Conza88

> The Supply Side Effect is a very real phenomenom.
> 
> Reagan cut taxes, and revenues went up. That is a supply side effect.
> 
> Say a country taxes income at 50% and there is 200 million dollars in income so the country collects 100 million dollars one year. 
> 
> Then, the tax rate is lowered to 33% and four years are allowed to pass. In that time, business flourished and income grew to 300 million dollars in income so the country still collects 100 million dollars.
> 
> Hence, the country is collecting the same amount of money, and the citizens are enjoying a lower tax rate, thanks to supply side effects.
> ...


Reagan didn't cut taxes. Try again.

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## Sandra

Tax credits were given to the rich in Reagan's day. Remember David Stockman and his eventual disgust with what the President was saying and what he was doing? He just spilled the fact in AM magazine that Reagan didn.t know anything about fiscal policy.  I just remember that he referred to what he said in the interview as "unfortunate metaphors" about the president but refused to make an apology.

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## Zippyjuan

> Reagan didn't cut taxes. Try again.


He did, but then he raised them again. And again. 

The question is what is the reason for giving the tax breaks.  To change who pays a tax?  Or to try to stimulate an economy?  If the goal is the latter, it actually is more stimulative to give a tax break to those with lower incomes since they spend a greater percent of their money buying things.  Give someone who makes $16,000 a year an extra $1,000 and they will go out and spend it- which means more jobs for people who made and sold the goods they bought.  Give an extra $1000 to a millionare and they will probably not buy much more than they would have anyways.   Which helps the economy more?  Supply siders look at increasing investment as a way to increase production but if there is no demand for the higher production then it is pointless. A rational producer only increases his production if he is reasonable sure he can sell the additional output at a profit.   Giving him more money to invest does not necessarily mean he will increase his production at all but give the money to a low income person and you can have much higher degree of confidence in getting your desired resullt- economic stimulus.  George Bush called Supply Side economics "voodoo economics" (George senior- not GW).

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## jclay2

> He did, but then he raised them again. And again. 
> 
> The question is what is the reason for giving the tax breaks.  To change who pays a tax?  Or to try to stimulate an economy?  If the goal is the latter, it actually is more stimulative to give a tax break to those with lower incomes since they spend a greater percent of their money buying things.  Give someone who makes $16,000 a year an extra $1,000 and they will go out and spend it- which means more jobs for people who made and sold the goods they bought.  Give an extra $1000 to a millionare and they will probably not buy much more than they would have anyways.   Which helps the economy more?  Supply siders look at increasing investment as a way to increase production but if there is no demand for the higher production then it is pointless. A rational producer only increases his production if he is reasonable sure he can sell the additional output at a profit.   Giving him more money to invest does not necessarily mean he will increase his production at all but give the money to a low income person and you can have much higher degree of confidence in getting your desired resullt- economic stimulus.  George Bush called Supply Side economics "voodoo economics" (George senior- not GW).


The only problem with your logic is that all the money is held by the rich. Just take a look at the total net worth and incomes of the bottom 50 and 70 percent. It just doesn't even  compare. Also, when a person like warren buffet gets extra money it goes straight into savings and investments and thus helps increase the countries production. And quite frankly rich people are unfairly taxed right now at higher amounts than the poor people anyway, so I don't know why we don't need a tax cut for them.

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## rational thinker

> "Trickle Down economics" ... yeah, trickling down so the people can fight for the crumbs the state lets them eat. 
> 
> *Milton Friedman Unraveled by Murray N. Rothbard*


Thank you so much for that article!!!  I always had my own suspicions on Friedman but had no idea Rothbard opined on this.  I thought they were really good friends.

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## Epic

> Reagan didn't cut taxes. Try again.


http://en.wikipedia.org/wiki/Economi...ax_Act_of_1981

thanks for playing

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## Brian4Liberty

> Tax credits were given to the rich in Reagan's day. Remember David Stockman and his eventual disgust with what the President was saying and what he was doing? He just spilled the fact in AM magazine that Reagan didn.t know anything about fiscal policy.  I just remember that he referred to what he said in the interview as "unfortunate metaphors" about the president but refused to make an apology.


You got that backwards. Stockman undermined Reagan at every turn. Stockman wanted to raise taxes, and worked with Republican Senators to do that. Reagan should have thrown Stockman out in the first months of his Presidency. It almost happened at one point. Of course Stockman will bad mouth Reagan. He was a traitor to Reagan.

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## Zippyjuan

> The only problem with your logic is that all the money is held by the rich. Just take a look at the total net worth and incomes of the bottom 50 and 70 percent. It just doesn't even  compare. Also, when a person like warren buffet gets extra money it goes straight into savings and investments and thus helps increase the countries production. And quite frankly rich people are unfairly taxed right now at higher amounts than the poor people anyway, so I don't know why we don't need a tax cut for them.


I  am looking at who will spend money- not who has it.  As I said, increasing production only helps if the demand is already there.  Can you sell more cars today if you give GM and Ford enough money to double their current production? IF you gave them enough money to do that today- would they double their production?  No- because then cannot sell all the cars they currently make.  Give that exact same amount of money to consumers and you may be able to sell more cars (and other things).   Which helped the economy more?  Trying to increase the supply or trying to increase the demand?

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## muh_roads

I always thought it was a rude term...

"oooh, can I get a little trickle?"

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## muh_roads

> http://en.wikipedia.org/wiki/Economi...ax_Act_of_1981
> 
> thanks for playing


But he didn't cut spending to go along with the tax cuts...  And he tripled our national debt.

Reagan = horrible man.  Dubya & Reagan combined have been far more detrimental to the health of our system than Clinton ever was.

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## enjerth

> I  am looking at who will spend money- not who has it.  As I said, increasing production only helps if the demand is already there.  Can you sell more cars today if you give GM and Ford enough money to double their current production? IF you gave them enough money to do that today- would they double their production?  No- because then cannot sell all the cars they currently make.  Give that exact same amount of money to consumers and you may be able to sell more cars (and other things).   Which helped the economy more?  Trying to increase the supply or trying to increase the demand?


Increase the supply and you see price deflation. Increase the demand and you see price inflation.

Someone who earns only $16,000 doesn't pay income tax. You want to give them a tax break? No, you want to use the tax system as a welfare system. And yes, if you GIVE them $1,000 they'll probably spend it on consumer goods. But the increase in demand will create price inflation.

Whereas, if you give tax breaks to people who pay taxes instead, who reinvest in business and product development, it will create price deflation.

Which one do we need more of? Consumer buying, sending a significant chunk of that money to Asia, or investing in US production? Price inflation, or price deflation? More tax tyranny, or tax equality?

Supply-side is superior in every respect.

And let's not call it creating jobs, because what we're really talking about isn't creating jobs, because that's not (or should not be) the business of the federal government. What we're talking about is taking less power from the private sector.

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## Conza88

> http://en.wikipedia.org/wiki/Economi...ax_Act_of_1981
> 
> thanks for playing


*Ronald Reagan: An Autopsy by Murray N. Rothbard
Ronald Reagan, Warmonger by Murray N. Rothbard
The Two Faces of Ronald Reagan by Murray N. Rothbard
The Reagan Phenomenon by Murray N. Rothbard
The Real Reaganomics by Murray N. Rothbard
The Myths of Reaganomics by Murray N. Rothbard*

Thanks for failing.

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## Xenophage

"Supply side economics" is a silly term, because all economic growth is generated by productivity.

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## Xenophage

Conza, don't hate on Friedman so much :P  He wasn't all bad.  In fact, he was pretty damn good.

There is a place for both the empiricism of Friedman and the rationalism of Mises in the freedom movement.

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## Conza88

Bump - cus' mate just posted a Bernie Sanders video on trickle down economics and Reagan.. ugh.

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## AZJoe

> What is the Austrian economic opinion on "Trickle down economics"?


"Trickle down economics" is also known as "The Reserve System."

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## juleswin

> Bump - cus' mate just posted a Bernie Sanders video on trickle down economics and Reagan.. ugh.


You should counter them with this video. They would hate you for it

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## ArrestPoliticians

Its the definition of today's Keynesian monetary policy: pump up the stock market and give easy credit to the mega rich to "jump start the economy."

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