#trickle down

[outspokenblackman]

It for damn sure wasn't avocado toast.

Trickle down economics was the cornerstone of it, but every part favored the wealthy. Look around today and see the results.

[dispatchesfromtheclasswar]

[mostlysignssomeportents]

The housing crisis considered as an income crisis

I'll be in TUCSON, AZ from November 8-10: I'm the GUEST OF HONOR at the TUSCON SCIENCE FICTION CONVENTION.

A paradox: in 1970, everyday Americans found it relatively easy to afford a house, and the average American house cost 5.9x the average American income. In 2024, Americans find it nearly impossible to afford a house, and the average American house costs…5.9x the average American income.

Feels like a puzzler, right? Can it really be true that the average American house is as affordable to the average American earner as it was in 1970? It is true, as you can see from Blair Fix's latest open access research report, "The American Housing Crisis: A Theft, Not a Shortage":

https://economicsfromthetopdown.com/2024/10/23/the-american-housing-crisis-a-theft-not-a-shortage/

Fix also points out that is even more true of rents than it is of house prices. The ratio of rent to average income has actually fallen slightly since 1970. Rents are also, in some mathematical sense, "affordable."

Now, those of you who are well-versed in statistical card-palming will likely have a pretty good idea of the statistical artifact at the root of this paradox: the word "average." If you remember your seventh grade math, you'll recall that "average" has more than one meaning. Sure, there's the most common one: add several values together, then divide the total by the number of values you added. For example, a nonzero number of people have one or zero arms, so the average human has slightly fewer than two arms.

That average is called the "mean." The mean US wage is pretty robust: $73,242/year:

https://fred.stlouisfed.org/series/A792RC0Q052SBEA/1000

But the majority of Americans are not earning anything like $73k/year. Since the Reagan years, the number of Americans living in poverty and extreme poverty has climbed and climbed. And while their declining income sure drags down that average, it's dragged way, way, way up by another group of Americans – the ultra-rich.

You see, as Fix writes, back in the Reagan years, America initiated an experiment in redistribution. Reagan enacted policies that moved most of the nation's wealth from the great majority of working people to a tiny minority of people who ended up owning pretty much everything. Throw their income into the mix, and the average American's income is sufficient to finance the average American home, with plenty to spare.

In other words, this isn't an "average human has fewer than two arms" situation, it's more like a "Spiders Georg" situation. Spiders Georg is a Tumblr meme about a guy who eats 10,000 spiders every day and is thus single-handedly responsible for the (false) statistic that the average human eats two spiders a week:

https://en.wikipedia.org/wiki/Spiders_Georg

The American rich – Reagan's progeny – are the Spiders Georg of house prices. By hoarding the great mass of American national wealth, they create a statistical mirage of affordable housing.

Now, that's interesting, but where Fix goes next with this is even more fascinating. If the average price of housing (relative to average income) has stayed fixed since 1970, then it follows that the price of housing isn't being driven up by a problem with supply. Rather, these numbers suggest that America has enough housing, it's just that (most) Americans don't have enough money.

If that's true – and I have a couple of quibbles, which I'll get to in a sec – then the most common prescription for solving American housing (building more of it) is somewhat beside the point. For Fix, using public funds to subsidize cheaper housing is like using public funds to pay for food stamps for working people whose wages are too low to keep them from starving. Sure, we should do that: no one should be without a home and no one should be hungry. But if working people can't afford shelter and food, then we have a wage problem, not a supply problem.

Fix – as ever – has a well-thought through, painstakingly documented "sources and methods" page to back up his conclusions:

https://economicsfromthetopdown.com/2024/10/23/the-american-housing-crisis-a-theft-not-a-shortage/#sources-and-methods

And while Fix acknowledges that reversing the mass transfer of wealth from working people to their bosses (and their bosses' idle offspring) is a big lift, he rightly wants to keep the question of wages (rather than housing supply) front and center in our debate about why so many of us are finding it hard to keep a a roof over our heads. We need progressive taxation, higher minimum wages, protection from medical and education debt, and hell, why not a job guarantee?

https://pluralistic.net/2020/06/25/canada-reads/#tcherneva

I love Fix's work, and this report is no exception. He does it all in his spare time. Some nice progressive think tank should give him a grant so he can do (a lot) more of it.

That all said, I do have a quibble with his conclusion about the adequacy of the American housing supply. In California, we have a shortage of 3-4 million homes, a number arrived at through the relatively robust method of adding up the number of California families that would like to have their own homes and subtracting the number of homes available near those families:

https://en.wikipedia.org/wiki/California_housing_shortage

How to explain the discrepancy? One possibility is that the price of housing is artificially low, because more than 181,000 people are homeless here. Hundreds of thousands of more people are living in overcrowded housing, with multiple families inhabiting spaces intended for just one (or even a single person). If all of those people were competing for housing, the price might rise even higher.

Think of the people who have given up looking for work – because they're not in the workforce, wages go up. If they were competing in the labor market, wages would fall. Maybe all those people would prefer to have a job, but they're missing from the statistics.

That's one theory. Another is that we're getting tripped up on averages again here. California does have some towns with many vacancies, extra supply that is pushing down prices; it's also got many places with far more people who want to live there than there are homes for. It's possible that there's enough supply on average across the states, but – as we've seen – averages are deceptive.

Ultimately, I think both things can be true: we have a wage problem and we have (many, localized) supply problems. Both of these problems deserve our attention, and neither is acceptable in a civilized society.

Tor Books as just published two new, free LITTLE BROTHER stories: VIGILANT, about creepy surveillance in distance education; and SPILL, about oil pipelines and indigenous landback.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/10/24/i-dream-of-gini/#mean-ole-mr-median

[dreaminginthedeepsouth]

"trickle down" - aka "the rich pissing on the poor"

[porterdavis]

[cosmicwyrmgrave]

Trump State Ripples...

Reagan 'BBB'.

Looted Thru Bills!!

White Trash GOP...

Diversion Don.

Screwed Middle Class!

Serling's What If?

Stupids - Not Leaders...

Forked Tongue.

Rich Are Richer!!

Determined Criminality...

Please, enjoy this afternoon.

Never the End!!

[big-low-t]

[phoenixyfriend]

Ko-Fi prompt from @kayasurin:

Economy topic - Trickle Down Economics, why they work/don't work

HI it's been two months since I got this prompt, so. Sorry about that. been a lot going on in my personal life, so let's hope this makes up for the wait.

(To anyone who was considering doing a ko-fi prompt... I promise to get to them, but I cannot promise a reasonable time frame, sorry.)

So, Trickle-down economics, and if they work.

Short answer: They absolutely don't.

Longer answer that you actually paid for:

Trickle-down is basically a propaganda-driven hustle that rich people run against the working class. It's an economic theory that is known to not function, but since it serves the people up top to keep pushing it, we still have to deal with people pretending it's a real thing.

The basic concept of it is that if the capitalists at the top are allowed to retain more money (less taxes), then that money will naturally find its way lower down the pyramid through natural market forces. If a wealthy individual is allowed to keep an extra 50% of their marginal income, then the bulk of that 50% will go into their businesses, reinvested to generate more wealth by purchasing new equipment, running R&D, and paying more money to more workers. By not paying the taxes, they wealthiest classes can direct their money as they see fit, so really they don't end up with any more money than they would have if they paid their taxes!

As you can guess, this is not what actually happens in almost every possible application of the theory.

First, let's address the concept of marginal tax rates. They get a lot of hate, but I find this infographic explains the reality best:

(source: This post, but originally from Kasia Babis on The Nib/@thenib)

To summarize for those using a screen reader:

Let's say you earn 50k every year, and we're not going to bother with currency, because this is a simplified explanation. In this scenario, there is a national/federal income tax of approximately 20%. With that, you give 10k to the government, and retain 40k for your own purposes.

You have a neighbor who makes 500k every year. In this hypothetical, a marginal tax rate applies to earnings over 100k. The marginal tax rate is 70%. What does that mean for your neighbor?

They pay 20% on the 100k, which is 20k. Then they pay 70% on the remaining 400k, which is 280k. Combining the base tax and marginal, they are taxed 300k. At the end of the day, they are left with 200k. The total tax on their income is 60%. If you're following along, you can tell that regardless of the final percentage, anyone that the marginal tax applies to is always going to get to keep at least 80k, the amount left of the pay that is taxed at the base rate.

The more you earn, the more you are taxed. Again, this is super simplified, but this is the most basic way marginal taxation works. (Tax brackets are related but not entirely the same thing.)

With a marginal tax, exorbitant wealth is curtailed by forcing that wealth back into the system. The understanding is that nobody can actually perform hundreds of times more labor than their lowest-paid worker, and so all that surplus income was in some way not distributed properly. They get to keep enough to live on, quite comfortably, but not all of it.

There may be some companies that are willing to cap their highest wages in relation to their lowest, but those are far and few between. There's a reason the average ratio of CEO to entry level worker in the US is nearly 400:1... up from 1965's 20:1. (source)

Trickle-down theorizes that, if allowed to keep that exorbitant wealth, the Capitalists will distribute that wealth back to their workers or reinvest it into productive enterprise, and do so in response to market forces or out of fear of a return of the marginal tax.

This is not what happens, basically ever. People do not earn that much money if they are already paying a living wage and distributing wealth properly. You cannot get exorbitantly wealthy through anything other than wage theft, system abuse, or capital-based market manipulation (see: hedge funds, housing market).

I suppose you could inherit the money, or win the lottery, but the latter is actually taxed higher than the former, believe it or not. The United States federal government doesn't have an inheritance tax, and most states also don't. There might be various legal fees and such, but not any actual taxes.

Where we end up is that those taxes the rich don't have to pay go instead towards 'passive income' schemes and market manipulation like the housing market.

(That is an entire separate rant, but yeah, most of the housing market at that income bracket is, to some degree, deliberately manipulated by those involved in it. We are all 100% watching for that bubble burst that is inevitably heading our way.)

The wealth does not trickle down to the workers. It is guided by those who have it, and they are significantly more likely to put it in foreign bank accounts, liquid assets, and real estate that they hope will gain value for a capital gain at sale.

Trickle-down economics relies on the goodwill of the wealthy, but almost nobody gets that wealthy by having goodwill to spare.

(Prompt me on ko-fi!)