Some are those are just economic concerns, companies need to deliver profits. Bailouts can hold economic sense depending on what side of the economic debate you're on.
well i cant say im an economist, so i cant say weather the trickle down theory really works or not. i was just thinking examples off the top of my head to answer dudes question.
Fact: trickle down economics does not work. Bailouts were more in regards at first to the fear the banking sector would come to a complete halt like it did during the depression, then with the auto companies the implication of their going under, followed by their parts suppliers would create vast legions of unemployed people in a time where the economy could not handle it. Whether it was the right thing to do or not is up in the air.
42 Oh no, two completely different economic philosophies are behind the two ideas. Trickle down is more closely linked to neo-liberalist ideas while the other is much more neo-Keynesian in character. The thing about ‘bailouts’ was that it often wasn’t buyout, bailout often seems to mean a government just giving a private concern tax payers money to keep it afloat, buyout is when a government buys into a private concern to keep it going, usually called full or partial nationalisation. One is just giving money away, which to me seems silly the other I think is preferable because when the concern recovers (and they usually do) the public part can be sold off to recoup the money spent (hopefully with a profit) or the dividends that would usually go to private shareholders would go directly into the public purse. The problem with US politics is that nationalisation has socialist overtones and is therefore frowned on by many as being un-American. Therefore many politicians would prefer to just give taxpayers money away rather than getting them the best deal by buying up failing concerns, because they fear being labelled socialists. Trickle down is just giving rich people money in the hope they will spend it and so giving poorer people employment, or invest it in concerns that give poorer people employment. The problem is that it is very haphazard many times the money is spent on goods that don’t give that much employment or on goods from foreign countries therefore not helping the employment of the host country that much or in the case of investment being spent on the gamble of short term speculation rather than being loaned to more worthwhile but long term concerns. There is a Keynesianeque method that is similar but is much less haphazard that entails the government investing in projects that directly give people employment during downturns when unemployment becomes high. Again many on the right see that as akin to communism.
so let me see if ive got this....the bailouts are given to large companies that are in danger of failing, which would have negative impacts on the economy, while trickle down is just large amounts of money given to companies that are already well off, in no danger of failing, all in the hope that rich people spending their money will benefit the poor somehow. is this right?
42 Nationalisation Well I don’t like the term bailout, but yes, the government gives tax payers money (and either gets something in return or not) to stop a company from failing. In any economic turndown (especially a banking crisis) otherwise viable companies can get into great problems which are usually only short term. Propping them up saves them from collapsing and possibly having a negative domino effect on the overall economy. What I’d argue is that it would be better for the tax payer if such companies were nationalised than just given money as a bailout. * Trickle Down This isn’t so much about giving money directly to companies (and rich people) it is about taxing such groups less in the hope they can stimulate the overall economy. In the period when the US was the economic power house of the world the 1950-60’s the top rate tax bracket was 91% over the years that has been whittled away it was cut to 70% in the 1960’s and by 2001 it was set at 35%. In the same period the pay of American CEO’s was about 26 times that of their workers in 1960’s but by 200 it has increased to around 300 to 500 times more. To me the problem is that in main most workers pay has basically stagnated in real terms while those of the richer sections of society have grown, resulting in the distance between the rich and others growing. Also it can have the effect of decreasing the revenue base of the government (that may mean that in an economic turndown it needs to borough more) while at the same time it can also greatly increasing the wealth of a few which in a monetary based economies can also increase the power and influence of such groups.
do you think the corporate overlords are purposely trying to divert funds into the private sector and away from government organizations like FDA and EPA just to increase their profits or control over the government? is this why the government is in so much debt, because its revenue base should be growing with the economy but is being choked by tax cuts to the rich? thanks for taking time to explain
Well raising taxes on the rich would cut the deficit, but debt is a two way street, also comes from essentially a credit card mindset on spending sometimes(oh we can pay this off later). Even putting income taxes back to their 90's levels as well as increasing some others would still leave us with a deficit. This recession put a huge dent in the tax base, and it's not just income, local authorities that depend a lot on property tax are stretched to the max from the collapse of the housing bubble.
42 I wrote some time ago in a thread called ‘Conspiracy or lobbying’ about the problem of trying to distinguish between a conscious effort to achieve something and something that comes about out of blind self-interest, the outcomes might be the same but the methods are different. My view was that their was a conspiracy of the like minded, not a conspiracy in the sense of secret meetings and all that illuminati bullshit but of people with similar ideas pushing similar agendas independent of each other because they were of like minds. I asked - But to me the trouble comes at a ‘tipping point’ when wealth gains so much power and influence that it finds itself in the driving seat. The rise of neo-liberal economic ideas since the 1970’s has helped gain wealth a lot of power and influence, as to if it has given them enough to tip the point I think only history will tell. *
The Keynesian mentality and approach vs that of the neo-liberals There is something called the business cycle which is the ups and downs that happen in the market place many times these are not great but on occasion that can be serious (boom and bust). The Keynesian approach. This is about ‘taming’ the business cycle, planning for the dips and working to lessen them. In an up period the government pays off its debts incurred in the low period and possibly its stakes in some industries and business it nationalised or bought in the low period. This means that in a low period the government is then in a position to put money into the system and nationalise or buy up viable businesses that have got into trouble. In low periods the interest rate would be set low to simulate growth and in the up periods set higher to curtail the possibility of a runaway market. Same with taxes in low periods it would be set low for most people and businesses to stimulate growth and in up periods set higher to pay off state debt and help to get such things as businesses to pay for those infrastructural requirements they might need to conduct their business (e.g. roads, public transport, education etc). In low periods infrastructural needs might be paid for directly and fully by government to increase employment (keeping wages in the system) and to have such structures in place for recovery. Also taxes in the up period on wealth can be used to curtail excessive risk, if people at the top are so well cushioned against any fall they are likely to take risk because they know that if things go wrong they will not really suffer but if they go right they get even greater wealth. It is also a means of distributing the gains of an up period more equitably. At the same time regulation is used to try and keep any crisis contained, such as putting up firewalls between various parts of the financial sector, so that a failure in one can bring down another (look at the Glass-Steagall Act in the US) ** The neo-liberal ideas. This approach seems to have become in practice more about surfing the up and hoping the wave never reached the shore. So those that advocate neoliberalist economics don’t like Keynesianism. They’re against government involvement in the invisible hand of the markets. They believe regulation holds back new and innovative financial methods. And many argue that taxes should be low at all times both personal and business. That huge payouts to those at the top were only what was due and not that the gains of the up were mainly going to a few. These ideas also led to the belief that huge annual bonuses didn’t led to people taking risks especial among people that could survive and live in luxury even if the risk blow up or sank, no to them it was meritocracy in action. And there was even the idea that there was little to worry about because the ‘new’ economic model they were pushing was able to take on any ‘shock’ and survive. This led to the idea among some (and encouraged by others) that having a huge national, institutional or personal debt during an up period was ok because there wouldn’t be a ‘down’. And some encouraged the idea that if things went wrong the market would sort it out, companies or banks would just go to the wall and the taxpayers wouldn’t need to bail them out. But as many people pointed out (and were ridiculed or dismissed at the time) if a crisis did happen at some point a government might have to step in or watch the whole financial system go down the tubes. Of course the logical conclusion of neoliberal ideas would seem to say let it go, although it’s a bit hard to pick up the pieces again if their theories turn out to be wrong and people are fighting to death over a tin of beans in a burnt out Wal-Mart. ** Basically what we are getting with the bail outs in the US and Europe is Keynesian solutions (because neo-liberalism has no mechanism for dealing with a crash) but taking place within a virtually totally neoliberal financial system. So what many governments have discovered that because of the neo-liberal thinking and economics they have followed in the past few years they are in the worst of all possible situations. Because they know now that the situation required Keynesianesque economic stimulation - for money to be pumped into the system, for government spending to go up and for taxes to go down, but because the Keynesian system and mentality wasn’t there in the up period governments have found they already have such debts that just to stay afloat they might be forced to do the worst thing for their economies and cut government spending and raise taxes because imposing fiscal restraint too early could stop any recovery and bring about a deeper and longer recession or even a depression. And what is driving this? The same financial system that is still dominated by the same short-termist neo-liberal mentality that caused the problem in the first place. ** What is emerging is the worse of all possible systems, Keynesianism in down turns and neo-liberalism in the up turns. Basically this means that in the upturns most of the benefits go to a few and in a downturn most of the misfortune is suffered by the many. It is an untenable system which would suck the life-force out of the system; the few who’d leached that system would still be in a position to move on, leaving the majority to deal with the corpse.
Mad On deficits to me the roots of the problem go back to the failure of the Bretton Wood agreement first that it didn’t adopt the system proposed by Keynes and second that when the system put in place by the US was abandoned because it inevitably failed. Here is some background – http://en.wikipedia.org/wiki/Bretton_Woods_system#U.S._balance_of_payments_crisis http://www.monbiot.com/archives/2008/11/18/clearing-up-this-mess/ *
Mad As I imply above to me the ‘credit card mindset’ was based on a wider mentality, on a vision or version of neo-liberal economic thinking. It conned many - institutions, governments, banks, homeowners and consumer. In the UK we were told by the Chancellor Brown that ‘boom and bust’ was at an end and in the US chairman Greenspan argued that technology and financial innervations could sustain the economy indefinitely. In the US the Bush admin cut taxes while not cutting spending in fact it began doing one of the most expensive things governments can do it started having wars, and Blair’s New Labour government joined in. The deregulated banks borrowed the money of their depositors (and others) and went on a gambling spree. And nobody told them that holding 5 times, 10 times, 15 times more assets than they could actually pay for wasn’t a good idea if the up turned into a down. Homeowners thought -because many were told so - that house prices would never fall, and many brought into the dream. And there were many out there that were willing to sell mortgages to people they knew could afford it in the long run but hey neo-liberalism isn’t about long runs it is about a profit today. And people could max out their credit card and that same credit card company would give them more credit. And hey after the 9/11 market fall the President of the United States was telling people to go out and spend. This all at a time when many peoples real income had stagnated or actually fallen so how did many people keep up their standard of living?
