I don't hear the politicians arguing about multipliers. I hear Republican's arguing that taxes should not go up especially not for the rich and Democrats arguing against spending cuts largely.
They do, sometimes, indirectly. i.e. The Republicans argue that rich people are "job creators" and tax cuts given to them will feed back into the economy (i.e. be multiplied). It's the new generation of "trickle down" economics.
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.
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.
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.
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.
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.
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.
Yes. You know what I mean, nit-picking ill becomes you.
> But absolute wealth certainly does trickle down
Not always true. There are many counterexamples in the last 100 years, outside of the west.
> I have not talked about innovation being driven by the wealthy
No, but you've talked around it a lot and failed to say something definite. You've said that it is as good as money in the rest of the system; it is not. Resources available to those who might become rich is much better – and this includes schools and hospitals for poor children at the expense of tax.
> Do you dispute my general summary of how the airplane evolved
I don't dispute that you cling to the airplane example as though it was a general law.
> pg makes this point
Pg is not always right. The extreme case of "take away the potential reward" entirely is of course not a good thing. However this straw man argument is much abused in the US at present.
> even though relative inequality of wealth is an effect of innovation, not a cause of it
Nope. What if it's got nothing to do with innovation at all? You see innovation everywhere; but the richest people are mostly not innovators at all, you say as much in the next paragraph. Which I agree with.
Agreed. I didn't mean to imply that it was always true. But the fact is that it does happen, therefore it can happen.
There are many counterexamples in the last 100 years, outside of the west.
And what makes those cases different from the cases in which it did happen? That seems to me to be a question worth investigating. One hypothesis: "outside of the west", people who aren't wealthy can't become wealthy by innovating, so they don't bother. In "the west", it's not easy to become wealthy by innovating, but it is at least possible.
you've talked around it a lot and failed to say something definite
I disagree; I've said a number of definite things. I think you are reading some things into my posts that I have not said, and failing to see some things that I have said. I give examples of both below.
You've said that it is as good as money in the rest of the system
Where did I say that? All I said was that innovation creates new sources of supply, which in turn enables new demand to exist that couldn't exist before. How does that equate to innovation being "as good as money"?
Resources available to those who might become rich is much better
Agreed; I haven't said anything that contradicts this.
you cling to the airplane example as though it was a general law.
It's not a general law, because, as I said above, innovation increasing absolute wealth doesn't always happen, and I didn't mean to imply that it did. But the example shows that it can happen. Again, you appear to be reading things into my posts that I didn't actually say.
this straw man argument is much abused in the US at present.
True, but I wasn't making the straw man argument. In fact I explicitly gave a case in which reducing inequality of wealth does not harm innovation: when the inequality in wealth is due to people gaming the system instead of doing productive work.
What if it's got nothing to do with innovation at all?
You agreed that "take away the potential reward entirely" is not a good thing; that means you agree that inequality of wealth has something to do with innovation.
I think it would be safe to say that most people that buy/bought into Reaganomics would say they are Capitalists. Isn't it competition that makes capitalism (and innovation) flourish? So how does reducing competition (via allocating most/more of the resources to those that already have "the most") benefit a capitalist society?
Look what happens when a few large companies control an industry. Look at cable/internet companies. Look at wireless carriers. Look at monitor manufacturers. We see collusion to keep prices higher than they "ought" to be and sluggish innovation and growth. The large entities tend to favor more regulations that increase the barriers of entry to competitors (but vocally saying they dislike regulations... bs.) Comfortable people tend to favor the status quo, dislike shake ups, and don't want to have "work" to maintain their condition.
Isn't it competition that makes capitalism (and innovation) flourish?
I would agree that competition helps innovation to flourish. I'm not so sure about capitalism, because the word "capitalism" can mean different things. Concentrating resources in the hands of a few large corporations can be viewed as "capitalism"; that's how the robber barons in the late 19th century in the US viewed it.
There is also government interference involved (as you imply with your comment about regulations). For example, those same robber barons did not make their money through fair competition; they made it by getting the government to outlaw fair competition, for example by handing out exclusive rights to run railroads through various parts of the country. Similar remarks apply to some of the other examples you give--cable/internet companies, for example, are largely local government-granted monopolies. (Wireless carriers are too, to an extent--for example, Verizon has an exclusive deal to put repeaters in the Washington, DC Metro tunnels, so their phones can get a signal but nobody else's can. Result: lots more commuters have Verizon phones.)
