Full Transcript by Sonix: Stuff You Should Know: How Trickle-Down Economics Works

Stuff You Should Know: How Trickle-Down Economics Works

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Josh Clark: Hey everybody it’s me your old pal Josh for this week’s S.Y.S.K. Selects, I’ve chosen how trickle-down economics works. It sounds boring but it will actually knock your socks off. It’s so interesting. And maybe Ronald Reagan will make an appearance. Who knows. You have to listen and find out. Enjoy.

Intro: Welcome to Stuff You Should Know from HowStuffWorks.com.

Josh Clark: Hey welcome to the podcast I’m Josh Clark and Charles Bryant and Jerry. And there’s snickering and tittering. And that makes this thing Stuff You Should Know.

Charles Bryant: Yeah, we’ve got sidetracked before talking about things that trickle.

Josh Clark: Names.

Charles Bryant: Names that trickle.

Josh Clark: Yes.

Charles Bryant: Like the famous racecar driver Dick Trickle.

Josh Clark: Is he a real dude?

Charles Bryant: I swear to god. Look him up.

Josh Clark: I will.

Charles Bryant: Don’t image search. Just look him up.

Josh Clark: I should specify race car.

Charles Bryant: Yeah.

Josh Clark: OK.

Charles Bryant: That’s a good idea. Your Google master With your google fu.

Josh Clark: Yes. And we the three of us are apparently all eight years old again.

Charles Bryant: Yep.

Josh Clark: Speaking of trickle Chuck.

Charles Bryant: Hey happy birthday.

Josh Clark: Oh be quiet. Jerry you have a big mouth. You’re always talking.

Charles Bryant: Well I usually remember but I didn’t today. So happy birthday.

Josh Clark: Thank you. I appreciate it.

Charles Bryant: And this will be out several weeks later.

Josh Clark: I’ll get to relive my birthday all over again.

Charles Bryant: Exactly.

Josh Clark: Thanks man. Have you Chuckers ever seen the movie Ferris Bueller’s Day Off.

Charles Bryant: And we’d go there at some point.

Josh Clark: In this one?

Charles Bryant: Yeah.

Josh Clark: Because Ben Stein?

Charles Bryant: Yeah.

Josh Clark: Oh OK good. So you know the answer.

Charles Bryant: Something the O O right economics anyone?

Josh Clark: Voodoo economics.

Charles Bryant: Yeah.

Josh Clark: When you are in econ class the guy who says Bueller Bueller. That’s Ben Stein remember he had that show when Ben Stein’s Money.

Charles Bryant: Which was really his money.

Josh Clark: Was it?

Charles Bryant: I think so. I think that was legit. Yeah.

Josh Clark: I think maybe like they gave it to him if it wasn’t one or came out of a salary. Who knows.

Charles Bryant: Probably.

Josh Clark: But before that show came on he was in Ferris Bueller’s Day Off as an econ professor and I believe he does have a degree in economics. He’s also just a great actor and rising pitch man. What he was talking about. And there.

Charles Bryant: No he was clear eyes.

Josh Clark: Clear eyes. Thank you.

Charles Bryant: Clear eyes is awesome.

Josh Clark: Yeah that’s right.

Charles Bryant: That sounded like not Ben Stein.

Josh Clark: Well that’s as Steiny as I get.

Charles Bryant: Anyway he’s talking about voodoo economics and voodoo economics was another name for trickle down economics aka Reaganomics and the person who coined the term voodoo economics do you know.

Josh Clark: John Hughes.

Charles Bryant: No.

Josh Clark: Yeah it was George Bush Sr.

Charles Bryant: Yeah.

Josh Clark: H.W.

Charles Bryant: I remember that.

Josh Clark: Yeah he was running in the primaries against Reagan in the 1980 election. Before he came on as his vice president and he was deriding Reagan’s economic policies specifically his belief in trickle down economics as voodoo economics because there’s some apparently some sort of magic to the whole thing that makes it work rather than sound economic principle.

Charles Bryant: Yeah. It occurred to me today when I was studying the stuff that John Hughes picked this very topic to represent the most boring thing you could talk about.

Josh Clark: I guess so yeah.

Charles Bryant: And it took me a few times to figure it out because you know I don’t my brain doesn’t skew toward understanding economics.

Josh Clark: It’s it’s tough to do.

Charles Bryant: But I finally did and I was like you know what is not the most boring thing ever it’s. It’s pretty interesting. If I came around that means anyone can.

Josh Clark: Now it’s just our our burden to make it interesting to everybody else.

Charles Bryant: That’s right.

Josh Clark: Which we’ve already failed spectacularly.

Charles Bryant: Right.

Josh Clark: So let’s talk about this idea. First of all trickle down economics we’ll explain the whole thing in detail starting in just a moment but we should probably say that the disclaimer if you want to drive a fiscal conservative or conservative economists or just a conservative in general crazy? Mention trickle down economics like call what they call supply side economics trickle down economics. It drives them bonkers. There’s like there’s no such thing as trickle down economics it’s a derisive term. It doesn’t capture the spirit or the thought behind supply side economics which is what they’ve come around to call it. Yeah but back in the day it was definitely called trickle down economics and the whole point.

Josh Clark: The reason why it was called trickle down economics is that the idea behind it is if you place wealth with the wealthiest people. This idea goes. They will take that money and invested into the economy which will get things running again. And as a result that economic engine revving up will create more wealth at the top that trickles down to the lower working and middle classes.

Charles Bryant: Yeah. Like who better to stimulate the economy than the super rich. And they will maybe open a business to put people to work and then those workers will benefit directly from that investment that that person made.

Josh Clark: Right. So this is the whole theory behind it. We should also disclaim even further that economics as a field is so far from science it’s preposterous. Most economic theory that you ever will run into from John Maynard Keynes or Adam Smith or Jean Baptist say These guys are talking about pure economies. The United States and I don’t think there’s any economy in the world that is a pure economy yet free market economy.

Josh Clark: The United States has things like tariffs and we have things like government intervention, tax policy, monetary policy. There’s intervention in the markets so you can’t ever say we can’t say really what causes recessions and what brings us out of them or whether trickle down economics is effective or if it’s not or if it is effective is it effective in the long run or the short run. And what about the opposite way is that effective in the long run or the short run. We don’t know.

Charles Bryant: People think they do though.

Josh Clark: That is the thing that’s why I like this kind of stuff can get people’s blood boiling. Like the point of this one is to just talk about trickle down economics and the theory behind it and why it may or may not work. And on the caveat that we don’t know and neither do economists.

Charles Bryant: Yeah I think we left this in a little frustrated after my research because I thought I would come away with an answer. But I mean if you look up Reaganomics which is another name for Reagan’s version of the supply side economics you will find 100 article more than that but 100 articles on how what a great success it was and then the abject failure of Reaganomics and no one is going to agree.

Charles Bryant: I looked at some of these theories and said well that makes sense in an ideal world. And a look at the opposite and think well that makes sense in an ideal world right. And I don’t I don’t know if you like you said don’t know if you can know if there is an answer even though everyone thinks that they’re right. Both people can’t be right. Both sides.

Josh Clark: No it’s true because these are very opposite, in most cases, ideas.

Charles Bryant: Yeah but what I did find was a bunch of articles after digging further that said the the failures and successes of Reaganomics. And I think to me that’s probably a little more accurate because it isn’t a black and white situation.

Josh Clark: Well the part of the problem is as you point to Reagan’s tax policies right. And Reagan is tied to trickle down economics and.

Charles Bryant: History like right will clear all this up.

But he’s not really the first one to implement this. But he’s he’s tied to it. But if you look at Reaganomics the problem is this Chuck if if you say well the 90s were very prosperous we had the dot com boom. And the surpluses NASDAQ hit like like a record 10000 points in the 90s. All of that was from Reagan’s policies.

Josh Clark: Well you can’t say that that was from Reagan’s policies. We don’t know. We just simply don’t know. Was it something short term that the Clinton administration was doing or was it the long term effects of Reagan’s tax cuts. We don’t know.

Charles Bryant: Yeah and we’re going to get scores of e-mail from people saying what we do know. But we don’t.

Josh Clark: No. So just send your e-mail that’s fine but you’re wrong.

Charles Bryant: Well I guess we should go ahead and say too that just the name trickle down was coined by Will Rogers famous humorist in the 1920s. It is not a 1980s thing. It had been around for a while right. And he said quote the money was all appropriated for the top in hopes that it would trickle down to the needy and that’s where it started to get its a derogatory feel around that name.

Josh Clark: For sure. Since the 20s and over time especially since the 80s the people who championed trickle down economics are this this particular version of trickle down tax policy have tried to distance themselves from the term trickle down because it does seem elitist and it seems like a big wealth transfer which in fact it is.

Josh Clark: Let’s let’s talk about this trickle down policy isn’t necessarily associated with Reagan’s tax cuts.

Charles Bryant: Right.

Josh Clark: The whole idea behind trickle down as I said already is you take wealth and you give it to the wealthiest people. That’s that’s what’s done. It’s a wealth transfer. It’s usually done at a time when you’re in an economic slump. So you’re hoping to revitalize things.

Charles Bryant: Yeah it’s the government trying to smooth out the rough spots in the national economy.

Josh Clark: But aka recession. So you’re transferring wealth you’re transferring wealth though. On the premise that that money is going to be reinvested reinvigorated.

Charles Bryant: Right.

Josh Clark: Used to reinvigorate the economy. So it is a wealth transfer but the one we’re talking about today specifically we’re talking about Reagan’s version. So it’s a wealth transfer through tax cuts.

Charles Bryant: Yes.

Josh Clark: Right.

Charles Bryant: Yes.

Josh Clark: So when Reagan came into office he took over a tax policy where the highest tax rate was like 70 percent the highest earners were paying 70 percent on their highest income.

Charles Bryant: And he got that down to about 50.

Josh Clark: Yeah which is still seems incredibly high today in an age where we’re paying like 35 percent the highest earners are.

Charles Bryant: Yeah.

Josh Clark: So the point is is Reagan did it through tax cuts but that doesn’t mean like trickle down economics doesn’t equal tax cuts necessarily. It’s always that’s one way of putting more money into the hands of the wealthiest.

Charles Bryant: Right. Right. Exactly. It’s really a question of supply and demand. And I guess we can go back through time a little bit to Jean-Baptiste Say who you mention. A 19th Century French economist and his his philosophy has been misinterpreted a lot as supply creates its own demand. It’s not exactly right. What he was really saying is products are paid for with products and money just had like a temporary function.

Josh Clark: Like if you are somebody who produces something, when you produce something, that item when you go make that shoe. You’re going to sell your shoe. Which is the whole reason you made the shoe in the first place. And then with that money you can go use it to buy other goods and services. So the production of that shoe created a wage for you which in turn stimulated consumption demand from you for something else.

Charles Bryant: Product is paid for the product. The misinterpretation that supply creates its own demand is just a bastardized version and that basically means that there would never be a failed product like you can just produce and produce and produce which isn’t sound. No that’s insane. And I think Say would have said that that is not true as well.

Josh Clark: Well he did. He did it during his lifetime even say like well no I mean it’s possible that there is such a thing as overproduction. I mean like if you think about it like during the housing market crash starting a few years ago sure there was a glut of homes on the market.

Josh Clark: And it’s not like the people who were building homes just merrily went on building homes and building homes and building homes. Once the demand ceased they stopped producing still having a glut on the market. And the ones who were still just sinking money into built like building just stop basically.

Josh Clark: And it was because there was an oversupply because demand had ceased. So the idea that that if you if you produce it demand will come on a short term basis it is kind of a fallacy.

Charles Bryant: Yeah but in the earlier days of this country a lot of big thinkers agreed with him like Jefferson. But the tide turned later on in our country with the introduction of Mr. Keynes, Keynesian economics. Yes so we talked about in our audio book.

Josh Clark: Yeah we did stuff you should know super stuff guide to the economy.

Charles Bryant: Yeah. Which is probably super outdated.

Josh Clark: I wonder.

Charles Bryant: But there are some I think there’s some evergreen content in there.

Josh Clark: Yeah I mean it was like an Economics 101 course with us. So the basis of Say’s law is that if you stimulate production then you will get the economy going again. And it was implemented for a while like some of the some of the early 20th century presidents like Hoover among others like Harding and Coolidge.

Charles Bryant: JFK?

Josh Clark: Well JFK later but early on in the 20th century Harding and Coolidge both implemented this kind of what’s called supply side policy. Tax policy.

Charles Bryant: Say’s law.

Josh Clark: Right. If you stimulate production through lowering taxes at the top and we’ll tell you in a second how those two are correlated. Yeah you can get the economy going again. Well Hoover also followed the same policy and under Hoover’s watch the great depression happened.

Charles Bryant: Yeah which would cause any just regular thinking person even if they don’t understand economics to think hey we’re doing it wrong.

Josh Clark: Right. So Roosevelt came along.

Charles Bryant: That’s right.

Josh Clark: Roosevelt held the opposite view and he was very much a Keynesian and he was operating at the same time that Keynes was writing and working himself. And John Maynard Keynes said no no no. You guys have it backwards. You don’t stimulate the supply. You stimulate the demand then all of a sudden if you have a housing glut and you suddenly have people who have more money to spend they’ll take care of your housing glut and then things can get back to normal we reach equilibrium again.

Charles Bryant: Yeah he was about short term ideas short term fixes maybe lower interest rates maybe taxes fiscal policy taxes and spending. Basically what you hear a lot about these days. You know Keynesian economics kind of lasted a long time until probably Kennedy and then Reagan. It’s like there’s only been a handful of US presidents really endorse the trickle down theory like wholeheartedly.

Josh Clark: Since the 20th century. Yeah it’s the Keynesian policies ruled. It was very much about like cutting taxes for the lower and middle and working classes increasing taxes for the rich because if you if you’re a government you still need revenue right. So you can’t cut taxes for everybody if you cut taxes for one group. You kind of need to increase it for another because you still need your money coming in.

Josh Clark: Of course you could also take the radical step of figuring out how to eliminate waste and bloat in government that would help a lot. But we’re talking about that in this one.

Josh Clark: We’re talking about trickle down economics.

Charles Bryant: That’s right.

Josh Clark: So then along comes Kennedy who says hey my dad was are pretty rich so I’m kind of thinking that this trickle down thing might work. So he got into supply side economics and then when Reagan came along he really championed this whole idea and it was out of a result of some guys in the 70s saying there’s this whole other thing that we’ve been ignoring which is this trickle down tax policy that we should implement. And they got Reagan into it and he implemented it.

Charles Bryant: Yeah and after this message break coming up here in a sec we’re going to talk a little bit about if it doesn’t sound like it makes sense to you. There is a certain curve that will explain that might clear it up for you.

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Charles Bryant: All right. So we’re going to talk about the Laffer Curve which was also in Ferris Bueller.

Josh Clark: Oh was it?

Charles Bryant: Yeah he says Laffer curve. But in high school I had no idea what I was like What are those words together who I don’t understand. Laffer was a person L A F F E R.

Charles Bryant: The Laffer Curve helps explain a little bit why trickle down economics could possibly work. that a good neutral way to say that?

Josh Clark: I would say so.

Charles Bryant: The idea of the Laffer curve is that the relationship between taxes and revenues is a curve instead of a direct relationship. so at a certain point let’s say you own a company you make and choose and you gross 10 million dollars through like the first two financial quarters. And you’re taxed at let’s say 50 percent. And you know if you make any more money than you’re going to jump up into that 90 percent tax tax category you might slow down production you might halt production altogether and say you know what I’m going to take off the rest of the year right maybe even put these people out of work for four to six months.

Josh Clark: Furlough.

Charles Bryant: Furlough and because I don’t want to be taxed anymore. So if you look at that on a graph it’s going to be if you tax people 100 percent they’re not going to work. If you tax people 0 percent you’re not getting any money. So in the middle of there is the curve.

Josh Clark: Right. It basically Laffer Curve suggests that the correlation between tax rates and tax revenue is not totally positive. At some point it starts to go back down.

Charles Bryant: Yeah that’s called the prohibitive range at a certain point. People don’t want to be taxed in that range.

Josh Clark: And it’s not even necessarily that they are not working any longer because they resent being taxed. What Laffer was pointing out is that there is this prohibitive range and within the prohibitive range you remove the incentive to work theoretically.

Josh Clark: And Jane McGrath who wrote this gave a pretty good example where it’s like if you make that money and you are taxed 50 percent that’s tolerable you’re still going to make sure you still get to keep 50 percent for yourself. But when you tax them that ninetieth percentile you say you were going to make another million dollars. You have to give nine hundred thousand of it to the government and you just get to keep 100000.

Josh Clark: Well you might decide to just go and spend the rest of the year at your beach house. The money that you did make not because you resent being taxed because it’s just not worth it to exert that effort to make that next million dollars when you just get to keep 100000 of it.

Josh Clark: So at that point in that prohibitive range the tax policy is effectively keeping people from working inducing them to not work any longer which is bad for an economy.

Charles Bryant: And that’s if you’re if your work if your income is directly related to your work right now you could conceivably if you owned a factory or something and you didn’t have to really exert any problem. And you could still make payroll and all that stuff might be worth it to just leave it to these other people to make that extra hundred thousand dollars for you rather than go off to the beach house.

Josh Clark: But if you your effort directly is tax then yes it would become a disincentive toward work. Yes conceivably we should point out Chuck and Jean didn’t do a very good job of doing that. And this in this article. Laffer’s Curve is a thought experiment. It’s not based on data. It’s not hard and fast rule or law. It’s basically an intuitive idea of tax rates and their effect on tax revenue.

Charles Bryant: Yeah but if you don’t you have to be a business owner. Let’s say you’re just a regular employee that makes a salary you have a salary sweet spot as well. You know it’s great to get promotions and get raises but if you’re really climbing the ladder at a certain point.

Charles Bryant: You might think man I got a big raise and I’m making barely any more money than I made before this big promotion because I’ve been kicked into a higher tax bracket. So that’s the prohibitive range and it can apply to you. I mean you can’t you don’t stop working.

Josh Clark: No but you may say I don’t actually want that promotion going to be more responsibility and really not much more money so I’m going to hang out right here rather than keep going.

Charles Bryant: Yeah and my little 20 percent range or whatever it is.

Josh Clark: Right. So let’s Laffer curve.

Charles Bryant: Yes.

Josh Clark: And that’s a it’s a kind of the basis of trickle down tax policy. It’s the idea that OK there is a point where you can tax too much and now you’re actually slowing down the economy. So based on Laffer’s curve when you’re looking at it through through trickle down policy there is a point then that’s like you said there’s a sweet spot as far as tax revenue goes.

Josh Clark: And it creates this seeming paradox where if you cut tax rates at a certain point you’ll actually increase tax revenue because people will be incentivized to work more right throughout the year. And the other basis of trickle down theory is that you are going to put more money or keep more money with the people at the wealthiest people who under this idea are more likely to invest it.

Charles Bryant: Right back into the economy.

Josh Clark: Right. And when they do that supposedly allegedly the economy booms.

Charles Bryant: Yeah what you can’t account for is just the single person this is looked at in the broadest terms because somebody can make all their money and just sit on it in the bank which isn’t reinvesting it.

Josh Clark: That is a really really really big point. You’ll remember back at the beginning of this recession the Fed was doing everything it could to cheapen lending. And still has been. And it didn’t do anything.

Josh Clark: It still dried up. Like you have to take into account things like insecurity fear that just.

Charles Bryant: Being human.

Josh Clark: Yes human like we’re not necessarily rationally maximizing actors humans are like. There is such thing as fear and the idea that maybe hoarding money is best so what’s possible then if you follow this trickle down tax policy is you’re taking money from everybody else and giving it to the rich. Or if your head just spun because you’re a fiscal conservative right. What you’re doing is allowing the rich to keep more of their income but they’re not doing anything with it.

Josh Clark: At least as a short term fix that’s not a good idea because you can probably bet that eventually the rich are going to take that money and invest it back in the economy but it’s too early but when’s that going to happen. You can’t really say.

Josh Clark: Part of the other problem with it is that you are then also basically handing money out at a fire sale. You’re saying hey here’s a bunch money invested back in the economy. And have we mentioned the bargain basement rates you can get around all these businesses over here because the economy’s in a recession..

Charles Bryant: It’s like and Infomercial.

Josh Clark: Yeah very much so yeah. And it’s like it is literally a wealth transfer and under some circumstances like the recession that we’re still coming out of now, it is a wealth transfer and an asset transfer and that the people who have the most money. The wealthy also have the most buying power and they have the best bargains.

Charles Bryant: Yeah. Thomas Sowell is an economist and he he won’t call it trickle down economics because he thinks it literally benefits the workers immediately in first because in the idealized version they’re going to reinvest in the very first thing that’s going to happen is they’re going to put people to work and people are going to have jobs. So yeah he won’t he’s not going to call it trickle down theory because he thinks it works literally the opposite way.

Josh Clark: No I read a column in The National Review by him and he’s like you’ll never find a legitimate economist a history of economic theories and policies and analysis you’ll never find trickle down economics anywhere you like it drives him crazy that people call it that because it has such a negative association and elitist wealthy association.

Charles Bryant: Yeah and you know when you if you’re during election time or during if you see these big tax cuts for the wealthy if it makes your blood boil because you think these people are obviously in the hip pocket of the politician that may be true but you can still remove yourself from that and look at the theory itself. Does it work or does it not.

Josh Clark: And we will do that after this.

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Josh Clark: So Chuck let’s do just that passionless run down of how a trickle down supply side tax policy works.

Charles Bryant: Yeah I mean it’s got to be passionless with me because I have no idea. I can’t argue hard for any side because I read so many articles disputing one another completely that I have no idea.

Josh Clark: So OK so we’re in a recession.

Charles Bryant: Yeah.

Josh Clark: And there’s a discussion is it supply or demand that you want to stimulate. Well with supply side economics trickle down is what you call it in the vernacular. You want to stimulate the supply because under this belief if you stimulate the supply the the people who are producing stuff will have stuff for sale and people will buy it and more money will enter the economy and things will get back to normal.

Charles Bryant: Yes.

Josh Clark: Because the the basis of this is that people still work during recessions and since they are working they have money to buy things. Not everybody is working but you can handle the idea that not everybody’s working by getting production going again because that creates jobs. And that in turn generates even more income gains.

Charles Bryant: That is passionless.

Josh Clark: So how do you do that? According to trickle down supply side tax policy. You cut the tax rates of the wealthiest people. You incentivize them to keep working harder and harder because they get to keep more and more of it themselves. On the hope that rather than keeping it themselves hoarding they will inject it into the economy through things like investing expanding their businesses hiring more people opening new businesses and taking that investment and making more money themselves.

Josh Clark: But in the meantime spreading the wealth around through things like wages and tax revenues.

Charles Bryant: Through minimum wages.

Josh Clark: So that is supply side tax policy and whether it works or not. The jury’s still out. I did find something from the FairEconomy.org which I have to say I don’t know whether they’re nonpartisan or liberal. They definitely didn’t strike me as conservative but so take it however you want.

Josh Clark: But they took the tax rates the top tax rate and its changes from 1954 to 2002. And they took the changes to that top top tax rate the highest here which is the one you’re supposed to cut under this type of tax policy.

Josh Clark: And they juxtaposed it against four different economic indicators. Growth in the gross domestic product which is kind of like the indicator of the overall health of the economy. Income growth rate which is you know how the average American’s wealth grows. I think changes to unemployment and the growth of the hourly wage.

Josh Clark: And they found that the correlation was basically statistically nonexistent. When you lower tax rates or raise tax rates but specifically in this case when you lower the highest tax rate it does nothing to improve the GDP to improve hourly wages to improve median wealth.

Just statistically speaking over the course of 1954 in 2002. Lowering the tax rates did nothing for those things. So speaking from there and you can say well it doesn’t really do anything.

Charles Bryant: Yeah. Well with Reaganomics I think well again I say most people agree but no one agrees. It did help inflation. It was because of his policies but tax revenues didn’t see much change at all under those policies.

Charles Bryant: We’re not getting into you know the part of Reaganomics where he kind of shut down trade with a lot of countries. Keep it in-house. Right. And the effect that had and I’ve gotten varying answers on how long after a presidency can you even look back in with a good judgment.

Charles Bryant: Like the policies really take effect 10 years later is when you’re going to see are nowhere like 20 years or no. You can see it immediately with short term fixes. So it’s the whole thing is very frustrating because no one agrees. Everyone thinks they’re right.

Josh Clark: Yeah that’s the frustrating part is everybody thinks they’re right.

Charles Bryant: Obama’s policies are almost virtually the exact opposite of Reagan.

Josh Clark: Well that’s funny you say that because that’s not necessarily true.

Charles Bryant: In a lot of ways they are.

Josh Clark: Well he in there he kept the Bush era tax cuts going. He’s actually.

Charles Bryant: Well that’s true.

Josh Clark: Kept lower tax rates than Reagan did. And Reagan’s always pegged with the trickle down economic theory right. Obama’s got this other one going. It’s called quantitative easing. So with Reagan it was trickle down tax policy under Obama it’s trickle down monetary policy.

Josh Clark: And by pumping money into the markets through the Fed. It’s actually helping because of this income inequality. It’s helping the wealthiest Americans right by far without anything trickling down really to the lower working and middle class Americans.

Josh Clark: So trickle down policy doesn’t necessarily just mean tax policy. It can also mean monetary policy. And we’ve got a very specific trickle down policy being carried out under Obama’s entire two terms far through quantitative easing.

Josh Clark: Either way there’s a vast transfer of wealth going on right now just as there was in the 80s.

Charles Bryant: Yeah I’d suggest people read up on their own if they want to jump in this argument.

Josh Clark: This one kind of also once you really start looking into it especially if you go beyond like what helps. Yeah and really step back and look at what’s being done and the effects of it. Forget you know my ideas the best way to cure a recession theoretically.

Josh Clark: Like if you if you just get out of that mindset and you look at economic policies and you look at them through the lens of income inequality then suddenly conservative and liberal and democrat and republican all just kind of fade away.

Josh Clark: And basically everybody has reason to feel like they’re being talked out of something very valuable. I came up with the idea. I’m sure I’m not the first person to come up with it.

Charles Bryant: Joshenomics?

Josh Clark: I wonder if you did cut down on the tax rates for the wealthy to about where they are now. This is like bargain basement tax rates frankly 35 percent. It used to be at 90 percent in the 60s 90 was the highest. Now it’s 35 as much as 50 percent under Reagan.

Charles Bryant: Yeah much of the world pays a lot more taxes than we do.

Josh Clark: Oh yeah. So 35 percent I think is fair for everybody to say the least if not unfair because it’s so low. But let’s say that it’s fair you keep the tax rates low on the wealthiest earners and you let them build up as much money as they want in their lifetime. But when they die you tax their estate like there is no tomorrow. And I wonder first of all you increase revenue. Sure but you also prevent dynasties.

Charles Bryant: You want to prevent dynasties.

Josh Clark: Sure. I read an article about how the those who inherit wealth tend to invest it less. They tend to hoard it more because they didn’t have any means of accumulating wealth other than a windfall. I think if you just look at it statistically speaking and you look at rather than again on an individual basis if you look overall when wealth is inherited rather than earned the inherited wealth is less often invested in ways like that create new jobs than the wealth that’s earned.

Josh Clark: And it’s the same thing like if you won the lottery or something like that you should be terrified of losing that money because you didn’t do anything to earn it. So there’s no guarantee whatsoever that you will ever earn that money or have that money again once you spend it if you amass a fortune in industry and lose it you did it once there’s a likelihood that you could go do it again. So you’re more likely to take more risks with that wealth.

Charles Bryant: But people work to take care of their families for generations to come. Like that’s what their goal is.

Josh Clark: Right. So let’s say you have 100 million dollar estate. And you have one kid and your estate is taxed at 90 percent when you die. Your kid still gets 10 million dollars if your kid inherited 10 million dollars. Yeah you’re a wealthy person and your kid inherits 10 million dollars.

Josh Clark: I think you can get your eternal rest easy knowing that your kids are going to be OK with ten million bucks for the rest of his or her life. I think that’s fair. It’s enough to set him up in business for sure that’s enough of a leg up that most people don’t have.

Josh Clark: That’s fine you have to agree with me.

Charles Bryant: I think it’s I think it’s like when I hear about Bill Gates is only gonna leave his kids so much money or whoever Bill Gates or Warren Buffett or someone.

Josh Clark: They both are. They’ve pledged like a significant amount of their estates.

Charles Bryant: Right to not to get leave it just leave that to their children. I think that’s that’s great. But I think that’s like it should be a person’s choice and the government shouldn’t make that decision for them. Like government making decisions like that does that makes my blood boil.

Josh Clark: But that’s tax policy man. Like they can make that decision while you’re alive or you die. It’s still your income being taxed. Either way it’s like are they taxing your inheritance before your death or.

Charles Bryant: Well but it isn’t tax policy because Joshenomics isn’t.

Josh Clark: No but the very fact that there are taxes and progressive means that the wealthiest people pay more. The more you earn the more tax you pay. So why does it matter whether it’s now or when it’s when you die. And I does not entirely. It’s kind of a glib interpretation because I realize what I’m saying is normal taxes now and then a heavy tax when you die.

Charles Bryant: Right.

Josh Clark: To prevent dynasties and to increase revenue. I just don’t think it’ll disincentivize work because while you’re alive you still want to make money. People those people who are dedicated to amassing hundreds of millions or billions of dollars.

Josh Clark: That’s not going to prevent them from making money while they’re alive. It’s not you know they’re still alive and their kids still get a slice of the pie right.

Charles Bryant: But what about their kids kids and their kids kids.

Josh Clark: Well then it’s up to their kid to go out and through his own effort or her own effort amass their own fortune just like everybody else is. Everybody gets to start at zero. All those rich kids still get that leg up of 10 percent of the estate. It’s just my idea.

Charles Bryant: I got you Joshenomics.

Josh Clark: Joshenomics. Man we’re going to get some letters for that one. Ah you get anything else?

Charles Bryant: And hey let me say that I think people should be able to live much more meagerly than they do. I’m not a proponent of people leading these lavish wasteful lifestyles. But I think if you know you’ve made your money in a legitimate way then that’s your right to do so I guess you know I wouldn’t want some government putting their hand in my pocket and saying hey you worked really hard for all that. Give me 90 percent of it.

Josh Clark: Well I mean who does. Nobody wants that. Yeah especially when you when you look at government wastefulness or if you don’t want to fund war or something like that like then it makes it even harder to bite.

Charles Bryant: Yet the whole thing makes me want to drop out and move to an island or some place in the woods very quiet to where I don’t have to even think about any of this stuff. I got my little garden got my chickens and my goats.

Josh Clark: You need to go make some money so you can do that.

Charles Bryant: Yeah. What I want just a little nine bedroom house on like 120 acres.

Josh Clark: With the staff. Yeah.

Charles Bryant: All right. Are we done with this.

Josh Clark: We’re done with trickle down economics. If you want to learn more about it you can read this article on HowStuffWorks.com. Just type. Trickle down economics in to the search bar and it says that search bar time for listener mail.

Charles Bryant: I’m going to call this one the waiting is the hardest part.

Charles Bryant: Hey guys just found your podcast a few months ago and I love it. The reason I’m thanking you. Is because I have a bit of a worrying problem. I just sent out my application to a dental school and now I’m playing the waiting game.

Charles Bryant: Through my waiting I always find myself worrying and wondering what could happen. Even though I know it’s not the best thing for me in my long days at work this summer listening to you guys really helps me not only take my mind off the process but helps take the bite off my worrying mind and even makes me laugh out loud while people look at me like I’m on crack. Which by the way I know all about your crackpot guest.

Josh Clark: That was a good one.

Charles Bryant: So thanks for what you do. You’re informative and your humorous podcast. Makes my day easier. Helps me through the waiting game teaches me so much about what I do not know. By the way I know it’s a longshot but if by any chance you read this on listener mail. Please give a shout out to my fiance Elizabeth. We have less than a year before our big day and that is from Caleb Davis in Decator, I N Is that Indiana.

Josh Clark: Yes.

Josh Clark: Just making sure there wasn’t some state I didn’t know about. Yes Caleb and Elizabeth from Indiho. Congratulations and Caleb I hope you get into dental school my friend. Follow up with us.

Josh Clark: Doesn’t Caleb write us frequently said the Caleb I’m thinking of.

Charles Bryant: No that is not.

Josh Clark: Okay.

You think indicated that when our contest and had lunch with us. Is that the same Caleb writing sometimes follow us on Twitter. Yeah I think so. Oh hey. What is it. Well I say as I say I don’t remember.

Well at any rate thanks to all the Calebs out there to listen we appreciate you. If your name Caleb or even if you’re not and you want to get in touch with us you can tweet to S.Y.S.K podcast you can join us on our Facebook page it’s Facebook.com/StuffYouShouldKnow you can send us an e-mail. Thestuffpodcast@HowStuffWorks.com. And join us at our home on the web. The beautiful StuffYouShouldKnow.com.

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David Collins: Hello. My name is David Collins and I have a new podcast on the HowStuffWorks network called the soundtrack show. As someone who’s worked in entertainment in sound music and voice over for almost 20 years I’m thrilled to bring my knowledge to your favorite movies TV shows video games and live theater. Please join me on the soundtrack show that soundtrackpodcasts.com. And follow us on Twitter @soundtrackHSW or Facebook and Instagram at soundtrackshowHSW. Thank You.

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