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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsIn the Real World of Work and Wages, Trickle-Down Theories Don’t Hold Up
In the Real World of Work and Wages, Trickle-Down Theories Dont Hold Up
If economic theory is unkind to trickle-down proponents, the lessons of experience are downright brutal. If lower real wages induce people to work shorter hours, then the opposite should be true when real wages increase. According to trickle-down theory, then, the cumulative effect of the last centurys sharp rise in real wages should have been a significant increase in hours worked. In fact, however, the workweek is much shorter now than in 1900.
Trickle-down theory also predicts shorter workweeks in countries with lower real after-tax pay rates. Yet here, too, the numbers tell a different story. For example, even though chief executives in Japan earn less than one-fifth what their American counterparts do and face substantially higher marginal tax rates, Japanese executives do not log shorter hours.
Trickle-down theory also predicts a positive correlation between inequality and economic growth, the idea being that income disparities strengthen motivation to get ahead. Yet when researchers track the data within individual countries over time, they find a negative correlation. In the decades immediately after World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large in the years since 1973, a period in which inequality has been steadily rising.
The same pattern has been observed in cross-national data. For example, using data from the World Bank and the Organization for Economic Co-operation and Development for a sample of 65 industrial nations, the economists Alberto Alesina and Dani Rodrick found lower growth rates in countries where higher shares of national income went to the top 5 percent and the top 20 percent of earners. In contrast, larger shares for poor and middle-income groups were associated with higher growth rates. Again and again, the observed pattern is the opposite of the one predicted by trickle-down theory.
http://www.nytimes.com/2007/04/12/business/12scene.html?_r=0
If economic theory is unkind to trickle-down proponents, the lessons of experience are downright brutal. If lower real wages induce people to work shorter hours, then the opposite should be true when real wages increase. According to trickle-down theory, then, the cumulative effect of the last centurys sharp rise in real wages should have been a significant increase in hours worked. In fact, however, the workweek is much shorter now than in 1900.
Trickle-down theory also predicts shorter workweeks in countries with lower real after-tax pay rates. Yet here, too, the numbers tell a different story. For example, even though chief executives in Japan earn less than one-fifth what their American counterparts do and face substantially higher marginal tax rates, Japanese executives do not log shorter hours.
Trickle-down theory also predicts a positive correlation between inequality and economic growth, the idea being that income disparities strengthen motivation to get ahead. Yet when researchers track the data within individual countries over time, they find a negative correlation. In the decades immediately after World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large in the years since 1973, a period in which inequality has been steadily rising.
The same pattern has been observed in cross-national data. For example, using data from the World Bank and the Organization for Economic Co-operation and Development for a sample of 65 industrial nations, the economists Alberto Alesina and Dani Rodrick found lower growth rates in countries where higher shares of national income went to the top 5 percent and the top 20 percent of earners. In contrast, larger shares for poor and middle-income groups were associated with higher growth rates. Again and again, the observed pattern is the opposite of the one predicted by trickle-down theory.
http://www.nytimes.com/2007/04/12/business/12scene.html?_r=0
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In the Real World of Work and Wages, Trickle-Down Theories Don’t Hold Up (Original Post)
FreakinDJ
Oct 2013
OP
TreasonousBastard
(43,049 posts)1. You'll notice the date of that article...
It's been known for years that making the wealthy wealthier just means bigger yachts and trust funds with slower overall growth. If it were any other way, we would still be enjoying that fantastic economic growth we had under the feudal and manorial systems.
bemildred
(90,061 posts)2. It was always bullshit and everybody knew it was bullshit.
Last edited Thu Oct 17, 2013, 03:04 PM - Edit history (1)
Bullshit pays extremely well in this nation.
MisterP
(23,730 posts)3. it took David Stockman--what, 6 weeks to blab that its goal was to enrich the rich, and not help
the economy
"Voodoo economics". But they all took the money.
Wounded Bear
(58,737 posts)5. The image I've formed about "trickle down economics".....
is fairly simple. Imagine a time in the middle ages. The local Count/Baron whatever noble is tooling around in his gilded carriage.
He lets a few copper coins fall out of the carriage, and watches through the rear window as the peasants fight over them.