Warren Buffet was quoted last week saying that his effective Federal tax rate was 17.4% and he has called on Obama to tax the rich more to help bring the budget deficit down. Few of the very rich agree with Mr. Buffet and good on him for saying it. The very rich have worked hard to reduce their effective tax rates with both Republican and Democrats favouring a policy of Horse and Sparrow Economics. In Australia we have the sacred horses of negative gearing and superannuation which have both disproportionately benefited the wealthy.

On the 20th anniversary of the Berlin wall coming down the BBC world service published a Poll of 29,033 people across 27 countries. In 22 of 27 countries there is majority support for governments to distribute wealth more evenly. The US has been particularly good at distributing even more wealth at the top than perhaps any other country that has a democracy that works for most of its elections.

Under the Reagan years (1981-1989) the term ‘supply side economics’ was used as a marketing euphemism for ‘trickle down economics’ (called Voodoo economics by George Herbert Bush until he became Reagan’s Vice President in 1981, after which, he called it “sound economic policy”). Reagan presided over cutting the marginal tax rates for the highest tax bracket from 70% to 28%¹. The theory being that the money saved by the rich would flow down to the needy: those working 3 jobs, the homeless, single parents, the starving etc.

The “horse and the sparrow” theory is another, older and more literal name for “trickle down economics” and it goes like this: ‘If you feed the horse enough oats there is more chance that some will pass through to the road for the sparrows.” This of course assumes two things: 1) that the sparrow does not get dumped on by the horse whilst attempting to get to the oats as they ‘trickle’ out and 2) that oats picked out of horse shit taste the same as oats naturale, oats that have not been blown out of a horse’s ass.

Whilst Reagan did the heavy lifting of the money from the government wallet the trickle down policy has continued. The effective tax rate on the top 400 earners in the United States fell from 29.2 percent in 1992 to 21.5 percent in 2008, even as their income more than quintupled.2 As George W. Bush (child President) famously said at one of his fund raisers “here are my supporters, the haves and the have mores,” guffaw, guffaw, what a funny clown, if only he had been put into a real circus rather than the lobbyist run one in Washington D.C.

Thank you to Warren Buffet for stating what the majority of people in 22 out of 27 countries confirmed. Of course collecting the money is one thing. Governments spending it wisely is … well another thing altogether.

The article is drawn from the Chapter: The “Free” Market & Horse and Sparrow Economics, ‘Leaving Neverland’ (Why Little Boys Should Not Run Big Corporations) by Daniel Prokop available from www.leavingneverland.net and all good eBook stores.

¹ Source: http://www.truthandpolitics.org/top-rates.php  Note that the US top marginal US tax rate hit 90% in 1944, from 1951 to 1963 it was 87% or 88%

2 http://www.washingtonpost.com/opinions/taxing-the-rich-fairly-can-be-done–and-would-raise-revenue/2011/08/22/gIQAFSTuZJ_story.html

BBC Poll conducted by Globescan and the Program on International Policy Attitudes (PIPA) between the 19/06/2009 and 13/10/2009 http://www.globescan.com/news_archives/bbc2009_berlin_wall/

One Response to “Warren Buffet and Horse and Sparrow Economics”

  1. When investors think of the person and success they would most like to emulate, Warren Buffet’s name is top on the list. He is seen an extremely successful and moral investor that has made his money through dedication and diligence.