Trickling down?



This is Joseph.

There is a idea in economics that giving money to the wealthy will result in faster rates of economic growth than giving money to the poor and middle class. To be fair, it is not completely daft to ask whether there is a specific way that taxes could be adjusted to simultaneously increase revenue and economic growth. While that seems ambitious for even a good policy, it is to be remembered that a bad policy might manage to hurt both revenue and growth at once. 

You can easily see cases where targeting benefits at the wealthy might not work so well. The idle rich are unlikely to be active investors creating new capital. The rich have the options to invest elsewhere and might use their increased revenues to drive economic growth in other places. The recent British tax cuts seem to have created a lack of confidence, for example:

Or:

Massive tax cuts when there is a problem with inflation suggests that there are about to be some exciting moves in interest rates. Which, going back to the first tweet, is a great opportunity to shift into investing overseas where growth will be a lot easier than the place that is trashing its economy.

In general, I have always wondered about the wisdom of investing in the wealthy. It's been a common historical strategy and it seems to weaken states and not strengthen them. In particular, concentrating power in a small group seems to have the (Read more...)