Stuff You Should Know - How Trickle-Down Economics Works

Episode Date: July 22, 2014

The concept of trickle-down economics is tied to Ronald Reagan, but the idea's been around and in use since the 20s. It's simple: Give more money to the wealthy and they can use it to rev up an economy. But is the whole thing just a scam? Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Here's the Skyline Drive on the iHeart Radio app, Apple Podcast, or wherever you get your podcasts. On the podcast, Hey Dude, the 90's called, David Lacher and Christine Taylor, stars of the cult classic show Hey Dude, bring you back to the days of slip dresses and choker necklaces. We're going to use Hey Dude as our jumping off point, but we are going to unpack and dive back into the decade of the 90's. We lived it and now we're calling on all of our friends to come back and relive it.

Listen to Hey Dude, the 90's called on the iHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Welcome to Stuff You Should Know from HowStuffWorks.com. Hey, welcome to the podcast. I'm Josh Clark and there's Charles W. Chuck Bryant and Jerry and they're snickering and tittering and that makes this the stuff you should know. Yeah, we've got sidetracked before talking about things that trickle. Names.

Names that trickle. Yes. Like the famous race car driver, Dick Trickle. Hey, say hello, dude. I swear to God. Huh. Look him up. I will.

Don't image search. Just look him up. Okay. We better just specify race car. Yeah. Okay. That's a good idea. You're a Google master with your Google foo.

Yes. And we, the three of us are apparently all eight years old again. Yep. Speaking of trickle, Chuck. Hey, happy birthday. Oh, be quiet. Jerry, you have a big mouth. You're always talking.

Well, I usually remember, but I didn't today, so happy birthday. Thank you. Yeah. I appreciate it. And this will be out several weeks later. Right. I'll get to relive my birthday all over again. Exactly.

Thanks, man. Have you, Chuckers, ever seen the movie Ferris Bueller's Day Off? Yeah. I knew we'd go there at some point. In this one? Yeah. Because of Ben Stein? Yeah.

Oh, okay. Good. So you know the answer then. Something the OO economics. Right. Anyone? Voodoo economics. Yeah.

When they're in econ class, the guy who says Bueller, Bueller, that's Ben Stein. Remember, he had that show, Win Ben Stein's Money. Which was really his money. Yeah, it was, wasn't it? I think so. I think that was legit. Yeah. I think maybe like they gave it to him if it wasn't one or came out of a salary.

Who knows? Probably. 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 visine pitch man. But what he was talking about in there? No, he was Clear Eyes. Clear Eyes.

Yeah. Thank you. Clear Eyes is awesome. Yeah, that's right. And not Ben Stein. Yeah, well, that was my, it's as stiny as I get. Anyway, he was 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? John Hughes? No. Yeah, it was George Bush Sr. Yeah. HW. I remember that. Yeah, he was running in the primaries against Reagan for 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. 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. I guess so, yeah.

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. It's tough to do so. But I finally did. And I was like, you know what? It's not the most boring thing ever. It's pretty interesting. And if I came around, that means anyone can.

Now it's just our burden to make it interesting to everybody else. That's right. Which we've already failed that spectacularly. That's right. So let's talk about this idea. First of all, trickle down economics will explain the whole thing in detail starting in just a moment. But we should probably say at the disclaimer, if you want to drive a fiscal conservative

or a conservative economist 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 to the 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. But back in the day, it was definitely called trickle down economics. And the whole point, 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 invest it 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. Yeah. Like who better to stimulate the economy than the super rich and they will like maybe open a business to put people to work. And then those workers will benefit and directly from that investment that that person made.

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-Baptiste, 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, a free market economy.

The United States has things like tariffs and we have things like government intervention, tax policy, monetary policy. There's intervention in the market. 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.

People think they do though. That is the thing. That's why this kind of stuff can get people's blood boiling. 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. Yeah. I think I left this a little frustrated after my research because I thought I would come away with an answer, but if you look up Reaganomics, which is another name for Reagan's version

of the supply side economics, you will find 100 articles, well, more than that, but 100 articles on what a great success it was and then the abject failure of Reaganomics and no one is going to agree. I looked at some of these theories and said, well, that makes sense in an ideal world. Then I'll look at the opposite and think, well, that makes sense in an ideal world. I don't know if you, like you said, I don't know if there is an answer even though everyone thinks that they're right. Both people can't be right.

Both sides. No, it's true because these are very opposite in most cases, ideas. Yeah, but what I did find was a bunch of articles after digging further that said the failures and successes of Reaganomics. I think to me that's probably a little more accurate because it is in a black and white situation. But part of the problem is if you point to Reagan's tax policies, and Reagan is tied to trickle down economics.

Yeah, and we'll get into the history, like we'll clear all this up. But he's not really the first one to implement this, but he's tied to it. But if you look at Reaganomics, the problem is this, Chuck, if you say, well, the 90s were very prosperous. We had the dot-com boom and the NASDAQ hit. Like a record 10,000 points in the 90s. All that was from Reagan's policies. 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. Yeah, and we're going to get scores of email from people saying what we do know, but we don't know. So just send your email, that's fine, but you're wrong.

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, 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 derogatory feel around that name. For sure, since the 20s, and over time, especially since the 80s, the people who championed trickle down economics or 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. Let's talk about this. Trickle down policy isn't necessarily associated with Reagan's tax cuts. The whole idea behind trickle down, as I said already, is you take wealth and you give it to the wealthiest people. That's what's done. It's a wealth transfer, and it's usually done at a time when you're in an economic slump,

so you're hoping to revitalize things. Yeah, it's the government trying to smooth out the rough spots in the national economy. But aka recessions. So you're transferring wealth. You're transferring wealth, though, on the premise that that money is going to be reinvested, reinvigorated. Right. You used to reinvigorate the economy, right?

So it is a wealth transfer, but with the one we're talking about today specifically, we're talking about Reagan's version. So it's a wealth transfer through tax cuts, right? So when Reagan came into office, he took over a tax policy where the highest tax rate was like 70%. The highest earners were paying 70% on their highest income. Yeah, and he got that down to about 50, which is still seems incredibly high today in an age where we're paying like 35% the highest earners are.

So the point is, Reagan did it through tax cuts. But that doesn't mean trickle down economics doesn't equal tax cuts necessarily. It's trickle down. There are different ways. That's one way of putting more money into the hands of the wealthiest people. Right. Exactly. It's really a question of supply and demand, and I guess we can go back through time a

little bit to John Baptiste, who you mentioned, a 19th century French economist. And his philosophy has been misinterpreted a lot as supply creates its own demand. Yeah. 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. Yeah, like if you are somebody who produces something, when you produce that something, that item, when you go make that shoe, and you're going to sell your shoe, which is with

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. Yeah, product is paid for with 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. Well, he did. He did, during his lifetime, even say like, well, no, I mean, it's possible that there is such a thing as overproduction. Sure. I mean, like if you think about it, like during the housing market crash, it's starting a few years ago, there was a glut of homes on the market, and it's not like the people who are

building homes just merely went on building homes, and building homes, and building homes, like once the demand ceased, they stopped producing, and we still had a glut on the market. And the ones who were still just sinking money into built, like building just stopped basically. And it was because there was an oversupply because demand had ceased. So the idea that if you produce it, demand will come on a short-term basis is kind of a fallacy. Yeah. 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. Keens, Keensy in Economics. Yeah. So we've talked about in our audiobook. Yeah, we did. Stuff you should know, Superstuff Guide to the Economy. Yeah, which is probably super outdated. I wonder.

But there are some, I think there's some evergreen content in there. Yeah. So it's like an economics 101 course. Yeah, that's true. With us. Yeah. But so the basis of Say's law is that if you stimulate production, then you'll get the economy going again.

And it was implemented for a while, like some of the early 20th century presidents, like Hoover, among others, like Harding and Coolidge. Yeah. JFK? 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. Say's law. Right.

Where if you stimulate production through lowering taxes at the top, and we'll tell you in a second how those two are correlated, you can get the economy going again. Well, Hoover also followed the same policy, and under Hoover's watch, the Great Depression happened. Yeah, which would cause any just regular thinking person, even if they don't understand economics to think, hey, we're doing it wrong. Right. So Roosevelt came along.

That's right. 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. And 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. 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, Keynesian economics kind of lasted a long time until probably Kennedy and then Reagan. Right. So there's only been a handful of U.S. presidents who really endorse the trickle-down theory, like wholeheartedly.

Since the 20th century, yeah. So yeah, the Keynesian policies ruled, and it was very much about cutting taxes for the lower and middle and working classes, increasing taxes for the rich, because if you're a government, you still need revenue, right? Sure. So you can't just 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.

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 not talking about that in this one. We're talking about trickle-down economics. That's right. So then along comes Kennedy who says, hey, my dad was 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. Yeah, and after this message break coming up here in a sec, we are going to talk a little bit about if it doesn't sound like it makes sense to you, there's a certain curve that will explain that might clear it up for you. I'm Mangesh Atikular, and to be honest, I don't believe in astrology, but from the moment I was born, it's been a part of my life.

In India, it's like smoking. You might not smoke, but you're going to get second-hand astrology. And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention, because maybe there is magic in the stars if you're willing to look for it. So I rounded up some friends, and we dove in, and let me tell you, it got weird fast. Tantric curses, Major League Baseball teams, canceled marriages, K-pop. But just when I thought I had a handle on this sweet and curious show about astrology,

my whole world came crashing down. Situation doesn't look good. There is risk to father. And my whole view on astrology? It changed. Whether you're a skeptic or a believer, I think your ideas are going to change, too. Listen to Skyline Drive and the I Heart Radio app, Apple Podcast, or wherever you get your podcasts.

Attention, Bachelor Nation, he's back. The man who hosted some of America's most dramatic TV moments returns with a brand-new Tell All podcast, the most dramatic podcast ever with Chris Harrison. It's going to be difficult at times. It'll be funny. Push the envelope, but I promise you this, we have a lot to talk about. For two decades, Chris Harrison saw it all, and now he's sharing the things he can't unsee.

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Apple Podcasts, or wherever you get your podcasts. All right, so we're going to talk about the Laffer Curve, which was also in Ferris Bueller. Oh, was it? Yeah, he says Laffer Curve, but in high school, I had no idea. No. I was like, what are those words together? I don't understand. Laffer was a person, L-A-F-F-E-R.

The Laffer Curve helps explain a little bit why trickle down economics could possibly work. Is that a good, neutral way to say that? I would say so. The idea of the Laffer Curve is that the relationship between taxes and revenues is a curve instead of a direct relationship. Yeah. At a certain point, let's say you own a company, you make and choose, and you gross $10 million

through the first two financial quarters, and you're taxed it, let's say, 50%. And if you make any more money, then you're going to jump up into that 90% 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, maybe even put these people out of work for four to six months. 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%, they're not

going to work. If you tax people 0%, you're not getting any money. So in the middle of there is the curve. Right. It basically, Laffer's Curve suggests that the correlation between tax rates and tax revenue is not totally positive. No. At some point, it starts to go back down.

Yeah. That's called the prohibitive range. At a certain point, people don't want to be taxed in that range. Yeah. 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.

Right. And Jay McGrath, who wrote this, gave a pretty good example where it's like, if you make that money and you are taxed 50%, that's tolerable. You're still going to make, you're still going to keep 50% for yourself. But when you're taxed in that 90th percentile, let's say you're going to make another million dollars, you have to give 900,000 of it to the government and you just get to keep 100,000. Well, you might decide to just go and spend the rest of the year at your beach house with 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 100,000 of it. 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. And that's if your income is directly related to your work. Right. You could conceivably, if you owned a factory or something, and you didn't have to really exert any problems, and you could still make payroll and all that stuff, it might be worth

it to just leave it to these other people to make that extra $100,000 for you, rather than go off to the beach house. But if your effort directly is taxed, then yes, it would become a disincentive toward work. Conceivably, we should point out, Chuck, and Jane didn't do a very good job of doing that in this article, Laffer's Curve is a thought experiment. It's not based on data. It's not a hard and fast rule or a law.

It's basically an intuitive idea of tax rates and their effect on tax revenue. Yeah, but if you don't even 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. It's great to get promotions and to get raises, but if you're really climbing the ladder at a certain point, 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. No, but you may say, I don't actually want that promotion because it's going to be more responsibility and really not much more money, so I'm going to hang out right here rather than keep going. Yeah, in my little 20% range or whatever it is. Right. So that's Laffer's Curve.

And it's kind of the basis of trickle down tax policy. It's the idea that, okay, 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 trickle down policy, there's a point then that, like you said, there's a sweet spot as far as tax revenue goes. 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 through out 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 wealthiest people who, under this idea, are more likely to invest it. Back into the economy. Right. And when they do that supposedly, allegedly, the economy booms. Yeah, what you can't account for is just the single person. This is looked at in the broadest terms because somebody could make all their money and just sit on it in the bank, which isn't reinvesting it.

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. Yeah. Lending still tried up. Yeah. Like you have to take into account things like insecurity, fear, just being human.

Yes, being human. We're not necessarily rationally maximizing actors, humans are. 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, what you're doing is allowing the rich to keep more of their income, but they're not doing anything with it. Right.

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 not necessarily, but when's that going to happen? You can't really say. And 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 of money, invest it back in the economy. And have we mentioned the bargain basement rates you can get on all of these businesses

over here because the economy's in a recession. Yeah. Like an infomercial. Yeah, very much. You know, 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 in that the people who have the most money, the wealthy, also have the most buying power and they have the best bargains.

Yeah. Thomas Sowell is an economist and he won't call it trickle down economics because he thinks it literally benefits the workers immediately and 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.

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. Like it drives him crazy that people call it that because it has such a negative association and elitist wealthy association. Sure. Yeah. And you know, if you're during election time or 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 and does it work or does it not? And we will do that after this message. I'm Mangesh Atikulur and to be honest, I don't believe in astrology, but from the moment I was born, it's been a part of my life. In India, it's like smoking. You might not smoke, but you're going to get secondhand astrology.

And lately, I've been wondering if the universe has been trying to tell me to stop running and pay attention because maybe there is magic in the stars if you're willing to look for it. So I rounded up some friends and we dove in and let me tell you, it got weird fast. Tantric curses, Major League Baseball teams, canceled marriages, K-pop, but just when I thought I had a handle on this sweet and curious show about astrology, my whole world came crashing down. Situation doesn't look good.

There is risk to father. And my whole view on astrology, it changed. Whether you're a skeptic or a believer, I think your ideas are going to change too. Listen to Skyline Drive and the I Heart Radio app, Apple Podcast, or wherever you get your podcasts. In Bachelor Nation, he's back, the man who hosted some of America's most dramatic TV moments returns with a brand new Tell All podcast. The most dramatic podcast ever with Chris Harrison.

It's going to be difficult at times. It'll be funny. We'll push the envelope. But I promise you this, we have a lot to talk about. For two decades, Chris Harrison saw it all. And now he's sharing the things he can't unsee. I'm looking forward to getting this off my shoulders and repairing this, moving forward and letting everybody hear from me.

What does Chris Harrison have to say now? You're going to want to find out. I have not spoken publicly for two years about this and I have a lot of thoughts. I think about this every day. Truly, every day of my life, I think about this and what I want to say. Listen to the most dramatic podcast ever with Chris Harrison on the I Heart Radio app, Tell All podcasts or wherever you get your podcasts. So Chuck, let's do just that passionless run down of how a trickle down supply side tax

policy works. 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. So we're in a recession 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 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 because the basis of this is that people still work during recessions and since they're working, they have money to buy things. Not everybody's 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.

That was passionless. So how do you do that? Well done. 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 and taking that investment and making more money themselves.

But in the meantime, spreading the wealth around through things like wages and tax revenues. From minimum wages. So that is supply side tax policy and whether it works or not, the jury's still out. I did find something from 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. But they took the top tax rates and its changes from 1954 to 2002 and they took the changes to that top tax rate, the highest tier, which is the one you're supposed to cut under this

type of tax policy. 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 how the average American's wealth grows, I think changes to unemployment and the growth of the hourly wage. And they found that the correlation was basically statistically non-existent. That 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 this 1954 to 2002, lowering the tax rates did nothing for those things. So speaking from that and you can say, well, it doesn't really do anything. Yeah, well, with Reaganomics, I think, well, again, I say most people agree, but no one agrees. It did help inflation if it was because of his policies, but tax revenues didn't see much

change at all under those policies. We're not even getting into the part of Reaganomics where he kind of shut down trade with a lot of countries, keep it in house and the effect that had. And I've gotten varying answers on how long after presidency can you even look back with a good judgment of the policies really take effect 10 years later is when you're going to see. Or no, it's more like 20 years. Or no, you can see it immediately with short-term fixes.

So the whole thing is very frustrating because no one agrees. Everyone thinks they're right. Yeah, that's the frustrating part is everybody thinks they're right. Like Obama's policies are almost virtually the exact opposite of Reagan's. Well, that's funny you say that because that's not necessarily true. In a lot of ways they are. Well, in that he kept the Bush-era tax cuts going, he's actually 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. 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 by far without anything trickling down really to the lower working and middle class Americans. 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 so far through quantitative easing. Either way, there's a vast transfer of wealth going on right now just as there was in the 80s. Yeah, I suggest people read up on their own if they want to jump in this argument. This one also, once you really start looking into it, especially if you go beyond what helps and really step back and look at what's being done and the effects of it, forget. My idea is the best way to cure a recession theoretically.

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, and basically everybody has reason to feel like they're being talked out of something very valuable. I came up with an idea, I'm sure I'm not the first person to come up with it. Josh Enomics? 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%, it used to be at 90% in the 60s, 90 was

the highest. Now it's 35. Well, in much of the world. It was 50% under Reagan. Yeah, much of the world pays a lot more taxes than we do. Oh, yeah. Yeah. And I think it's 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, but you also prevent dynasties. You want to prevent dynasties? Sure. I read an article about how 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 that create new jobs than the wealth that's earned. 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. Yeah. So you're more likely to take more risks with that wealth. But people work to take care of their families for generations to come. That's what their goal is.

Right. So let's say you have $100 million estate, okay? And you have one kid and your estate is taxed at 90% when you die. Your kid still gets $10 million. If your kid inherited $10 million, you're a wealthy person and your kid inherits $10 million, I think you can get your eternal rest easy knowing that your kid's going to be okay with the $10 million for the rest of his or her life. I think that's fair.

Yeah. That's enough to set him up in business for sure. That's enough of a leg up that most people don't have. That's fine. You don't have to agree with me. Yeah. I think it's like when I hear about Bill Gates is only going to leave his kid so much money or whoever, was it Bill Gates or Warren Buffett or someone?

They pledged like a significant amount of their estates. Right. To not just leave that to their children. I think 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 just makes my blood boil. But that's tax policy, man. Like they can make that decision while you're alive or when you die, it's still your income

being taxed. Yeah. In either way, it's like, are they taxing your inheritance before your death? Well, but it isn't tax policy because Josh Enomics has it. No, but the very fact that there are taxes and that it's progressive means that the wealthiest people pay more. The more you earn, the more tax you pay. Yeah.

And it doesn't matter whether it's now or when you die. And that's not an entirely, that'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 to prevent dynasties and to increase revenue. I just don't think it'll disincentivize work because I think while you're alive, you still want to make money. The people who are dedicated to amassing hundreds of millions or billions of dollars, that's not going to prevent them from making money while they're alive.

It's not. You don't think? They're still alive and their kids still get a slice of the pie. Right. But what about their kids' kids and their kids' kids? 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's. Everybody gets to start at zero, although those rich kids still get that leg up of 10%

of the estate. That's just my idea. I got you. Josh Enomics. Josh Enomics. Man, we're going to get some letters for that one. You got anything else? 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've made your money in a legitimate way, then that's your right to do so, I guess. 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% of it. Well, I mean, who does? Nobody wants that, especially when you look at government wastefulness or if you don't

want to fund war or something like that, then it makes it even harder to bite. Yeah. The whole thing makes me want to drop out and move to an island or someplace in the woods very quiet to where I don't have to even think about any of this stuff. I've got my little garden, I've got my chickens and my goats. You need to go make some money so you can do that. Yeah. I want just a little nine bedroom house on like 120 acres with the staff.

Yeah. All right. Are we done with this? 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 into the search bar and since I said search bar, it's time for listener mail. I'm going to call this one, the waiting is the hardest part.

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 dental school and now I'm playing the waiting game. 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. Through 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 through your crack podcast. That was a good one. So thanks for what you do. You're informative and your humorous podcast makes my day easier and helps me through the waiting game and teaches me so much about what I do not know. By the way, I know it's a long shot, 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 a big day.

And that is from Caleb Davis, Indicator IN. Is that Indiana? Yes. So Caleb, I was just making sure there wasn't some new state I didn't know about. Indiho. Yes. So Caleb and Elizabeth from Indiho, congratulations. And Caleb, I hope you get into your dental school, my friend.

Follow up with us. Does Caleb write us frequently? Is that the Caleb I'm thinking of? No, that is not. Oh, okay. You're thinking of the Caleb that won our contest and had lunch with us. Is that the same Caleb that writes us sometimes? Follow us on Twitter?

Yeah, I think so. Oh, hey. What's his, well, we won't say his last name. I don't remember. Well, at any rate, thanks to all the Caleb's out there who listen. We appreciate you all. All right. So with your name, Caleb, or even if you're not, and you want to get in touch with us,

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