Income redistribution/minimum wage rises won't stimulate the economy

From the San Francisco Fed.

The SF Fed notes the standard calculation:

The figure suggests that households at the lower end of the income distribution spend more than twice what they make. At the upper end, households spend about two-thirds of what they make. Given this large difference in the propensity to consume between low- and high-income households, we consider the economic impact of levying a $1 tax on the rich and transferring it to the poor. This would reduce the high-income household’s spending by about $0.66 and increase the low-income household’s spending by $2, assuming each group spent additional dollars at their average rates. On net, it would create an increase in spending of more than $1.25. Even if the average for households in the bottom decile is overstated and they simply consume all the income they make, Figure 1 suggests every $1 of redistribution from the top earners to the bottom one-third of the income distribution would boost spending by at least $0.33.

They go on to note that the actual effect is lower than the standard calculation:

First, let’s focus on the lower end of the income distribution. Figure 1 suggests that spending of the 10% of households with the lowest levels of income is about twice as much as they make a year. Households in the second and third deciles of the income distribution spend, on average, 40% and 26% more than they make, respectively. In fact, taking these data at face value we would conclude that only households in the top 60% of the income distribution have positive saving rates on average. This would imply that a large segment of the population, approximately 40%, is spending well beyond its means.

The primary reason for this, according to the SF Fed is poor reporting of actual income statistics in the US, as ex post income transfers aren't taken into account. Accordingly, there are disparities between income and consumption statistics.

Another measurement issue that may explain the observed high spending rates of households in the bottom of the income distribution is that they may understate their actual income. This could result from underreporting government transfer payments, as documented in Meyer, Mok, and Sullivan (2009), or other sources of income.

In conclusion:

Surveys show low-income households tend to spend a larger share of their income than high-income households. Because of this, temporarily redistributing income from the rich to the poor could stimulate consumption and, through that, the economy as a whole. However, there is evidence that differences in propensities to consume this additional income across households are smaller than commonly assumed.

I'm posting this to try and elucidate the idea that redistributive policy should be done for the sake of eliminating poverty and providing a stable social safety net. When it comes the countercyclical policy, it should be left primarily to monetary and macroprudential endeavours.

Actually a question i might ask is if the lower incomes spends twice they earn, then how much is attributed to fees and essentials like rent or food and the like.

Could increasing their wealth maybe decrease the amount they spend per wage. So instead of twice their wage they may spend 1.8 times or in generous terms 1.5 times wage?

Actually a question i might ask is if the lower incomes spends twice they earn, then how much is attributed to fees and essentials like rent or food and the like.

Could increasing their wealth maybe decrease the amount they spend per wage. So instead of twice their wage they may spend 1.8 times or in generous terms 1.5 times wage?

usually increasing wages for the lower class leads to a general rise in cost of living across the board, i think

yeah, but it'll help people who are fucking poor not drown in debt and shit, so..there's that.

Actually a question i might ask is if the lower incomes spends twice they earn, then how much is attributed to fees and essentials like rent or food and the like.

Could increasing their wealth maybe decrease the amount they spend per wage. So instead of twice their wage they may spend 1.8 times or in generous terms 1.5 times wage?

usually increasing wages for the lower class leads to a general rise in cost of living across the board, i think

Well the problem is why does the cost go up. I mean technically it depends where you distribute wealth from.

If it is corporate redistributing it through taxes or wage increases then yes cost will go up. Bit if it is personal wealth of the more well off that is going to redistribute it. Then well i feel like it has a very weak connection to costs. Afterall it is the individual facing increase in cost not companies.

yeah, but it'll help people who are fucking poor not drown in debt and shit, so..there's that.

Not if people lose/can't get a job in the future because the price floor placed on their labour is too high.

Minimum wage is actually a pretty terrible anti-poverty strategy; we should be using targeted transfers which give people earning nothing a guaranteed income and top-up the wages of low-paid workers up to a certain benchmark.

yeah, but it'll help people who are fucking poor not drown in debt and shit, so..there's that.

Not if people lose/can't get a job in the future because the price floor placed on their labour is too high.

Minimum wage is actually a pretty terrible anti-poverty strategy; we should be using targeted transfers which give people earning nothing a guaranteed income and top-up the wages of low-paid workers up to a certain benchmark.

but we can't flip america on its head about basic income, so this is the best we're gonna get.

but we can't flip america on its head about basic income

It already has the next best thing: EITC.