This post is pure provocation, take it as you will.
The left often stresses how wealthy people have superior opportunities in life. They can save more, avoid debt, buy better educations, they have a better chance to start a company, and so on. Furthermore this is seen as unfair. Right?
To put the point in simple quantitative terms, equity yields an average of about seven percent, while holding debt claims yields a bit over one percent. Most poor people don’t hold much equity, or for that matter they tend to take out debt rather than hold it. Smart rich people stock their portfolios with equity quite heavily. So on average rich people get richer. That is even more unfair. Right?
OK, to oversimplifiy the numbers just a bit, rich people earn — at least — six to seven times more on their money than do poor people. Many of the poor earn negative rates of return.
The contemporary left often seeks to remedy this unfairness, but in the meantime it is true true true. Right?
So for each extra dollar we leave with rich people, the economy earns six or seven times more in net terms — at least — than if that dollar had been given to the poor.
"The rich people’s economy" doubles in size about every ten years or so. "The poor people’s economy" doubles in size about every sixty years or so, at best. After sixty years have passed, "the rich people’s economy" has done at least six times better, relative to its original starting point.
Now trickle-down effects from rich people are possibly quite slight. If a rich person creates a dollar’s worth of investment, the consumer surplus and wage-boosting effects from those investments won’t be more than 25 cents on the dollar, right? That means poor people get…
Well, it depends upon your assumptions. But how do you feel about this claim?
"I favor redistribution from the rich to the poor. It will make the poor better off for a few decades, but no more. After that point, the poor are worse off, forever, and by more each year."
The more you emphasize the unfair differences between the capabilities of the rich and the poor, the more easily you fall into this trap. Redistribution is good for the poor only in the short run, and we haven’t even considered the traditional negative incentive effects on the rich.
Supply-side economics doesn’t have to be about assuming unrealistically large elasticities of substitution on the part of the wealthy. The real supply side story is about how different social classes use resources in different ways and to achieve different rates of return.