I had a professor in college (this is during the Reagan years) who hated the whole trickle-down economic theory and to express his distaste would say that "all trickle down economics is going to get us is a sticky leg."  At the time I had the distinct impression that a lot of the prevailing economic theory involved the rich getting richer and then the rest of us benefiting from the drippings they left in their wake.  Some people said a rising tide raises all boats, but since a lot of us didn’t own boats (those damn things are expensive) I didn’t find that statement particularly encouraging.  It seemed to me that while theoretically trickle down economics should benefit everyone it seemed to benefit the wealthy most. That made my perception of trickle down economics to be a scheme by the rich and powerful to line their pockets with extra dollars while keeping the rest of us happy with extra nickels.

I’ve mentioned before that I’ve been reading about the history of the US tax system, and what I read discouraged me a great deal and reminded me of the feelings I earlier had about trickle down economics.  Despite what you might expect I wasn’t that discouraged by the favorable tax treatment that the super-wealthy get relative to the middle class.  Rather I was discouraged by the argument made by supporters of that treatment, and the fact that many of us actually accept it.  Essentially what the supporters say is that the super-wealthy, while making up some miniscule percentage of the overall population, contribute a larger percentage of overall taxes.  Well pardon me, but that argument’s a load of horseshit.  What matters is the percentage of their wealth that they pay in taxes compared to the percentage of our wealth that the rest of us pay.  By that measure the super-wealthy are essentially paying the same or less in taxes than the Average Joe. (See David Kay Johnston’s book for details).

Some would argue that it doesn’t matter if the super wealthy pay the same effective tax rate as the middle class because in the end they are still contributing significantly more dollars than the middle class.  The problem is that the effective tax rate the super wealthy pay is partly due to fancy tax schemes and shelters concocted by their professional tax advisers and which are not realistically available to the rest of us.  And a lot of those schemes and shelters exist in the tax code thanks to lobbying by the super wealthy and their corporate counterparts.  Even if it’s fair, it looks and feels shady.

I’m bringing all this up because of a letter to the editor I read in the Winston-Salem Journal the other day.  The writer was opining against those folks who think the Bushies have done a bad job (war, Katrina, immigration, job losses) and he uses the following argument to bolster his stance that things are just rosy right now: the stock market is doing great and unemployment is historically low.   To me his argument rings hollow for the same reasons that trickle down economics does; it sounds like something the wealthy/powerful want us to believe to keep us in line while they walk off with the big bucks.  Sure unemployment is low, but how many of those jobs are paying people below the poverty level?  The stock market?  That’s a risky thing to lean on as regards to arguing prosperity, and I’d venture that the writer’s perspective might be a little different right now than it was 48 hours ago (see this story about the tumble of markets worldwide).  Of course the markets could rebound in another 48 hours, but the point is that whether or not the market rises or falls most people in this country don’t perceive that they get a direct benefit from the market’s rise.  Maybe their employers do, and maybe that keeps their jobs around for another paycheck, but their perception is that the market is for the wealthy’s benefit.  That’s their perception so that’s their reality.

And the author of the letter disregards other pieces of the economic puzzle.  Savings rates are at historic lows, debt levels at historic highs and the Average Joe is leveraged to the eyeballs (just like Stanley Johnson).  Whatever gains we might get in our 401K or IRA accounts is effectively offset by our outrageous credit card balances/interest and our lack of rainy-day funds when things go wrong. I’m not saying it’s anyone’s fault but those who have built up their debt, but it helps explain the Average Joe’s perspective.

To put this in a nutshell, even if trickle down economics works and even if the stock market is doing great and unemployment rates are low, I don’t think the Average Joe sees it as directly beneficial to himself.  His perception is that the wealthy are winning the game by riding his back and I have to wonder how long it will be until the Average Joe starts to rebel.  If we don’t want some sort of socialist-democratic system foisted upon us (think France, or God forbid, teachers unions) then we need to clean things up so that the Average Joe doesn’t feel screwed.  I’m not saying that we need to de-wealthy the rich, or that we need to subsidize the middle class, I’m just saying that we need to make sure we’re all playing under the same rules.    If we don’t we’re gonna have a lot of people who think their legs are sticky.

Over at Marginal Revolution there’s an “Open Letter on Immigration” (found via Freakonomics) that I found pretty interesting.  The part that really caught my attention was this:

Immigrants
do not take American jobs. The American economy can create as many jobs
as there are workers willing to work so long as labor markets remain
free, flexible and open to all workers on an equal basis.

Immigration
in recent decades of low-skilled workers may have lowered the wages of
domestic low-skilled workers, but the effect is likely to be small,
with estimates of wage reductions for high-school dropouts ranging from
eight percent to as little as zero percent.

While a small
percentage of native-born Americans may be harmed by immigration,
vastly more Americans benefit from the contributions that immigrants
make to our economy, including lower consumer prices. As with trade in
goods and services, the gains from immigration outweigh the losses. The
effect of all immigration on low-skilled workers is very likely
positive as many immigrants bring skills, capital and entrepreneurship
to the American economy.

Reading this made me feel a little dumb.  I fell for the weak argument that immigrants take Americans’ jobs, and hand-in-glove, the counter argument that they take jobs that no Americans will do.  Well, when you think about it immigrants have to eat, they need shelter and they have to travel to the job.  In other words they are consumers and they definitely do create jobs just by being here.

Now I’m not getting into the politics of illegal immigration here, but I do think find it interesting that it is so easy to accept at face value so many of the arguments on both sides of the debate.  We all know this is a complex issue and it only gets worse if we don’t use our noggins and get all the pertinent information.  Making decisions based on bromides won’t help anyone.