Ever since Reaganomics, we’ve heard how Trickle Down Economics is the most powerful way to stimulate the economy. Actually, we heard about it earlier than that, but Reagan made it really popular, and it has since become the Republican Battle Cry. Don’t get me wrong, the Democrats are guilty of using this tactic, too. But in general, it’s more associated with Republicans than Democrats,
Anyway. In theory, it sounds like a darn good idea. Give a big business $1M and they’ll spend it on their company’s infrastructure and growth, meaning they’ll need to hire more people, providing new jobs or paying existing workers better.
If only that were true. Sadly, there are three glaring issues with this theory.
First and foremost, there are almost never any strings attached, such as “you must use 100% of this money to grow the domestic portion of your company,” meaning they could spend most (or all) of the corporate welfare outside of the US, meaning the money has left our economy, not stimulated it. They could also decide to hold onto the money in a Swiss bank account, not spending it all, collecting the interest all for themselves.
Second, the company has no incentive to spend these funds on infrastructure and employees because they don’t have enough customers to support this added overhead.
Finally, the power of a dollar isn’t in how it’s spent, but rather in how many times it’s spent. A dollar spent once is $1. A dollar spent five times is $5 to our economy.
This means that giving $1000 to 1000 families living paycheck to paycheck, called Bubble Up Economics, usually puts more into the economy. Why? Because the $1000 will be spent almost immediately. Sure, some of it might be spent in the big companies, so poof it goes away again, but some of it will be spent or donated locally, too.
The big corporation might spend it buying equipment or goods from non-domestic sources, or setting up an off-shore manufacturing facility. Or they might even spend it on pieces of paper called stocks, which create very little real value, which is why the crash hurts so bad. Suddenly the value goes from what you thought it was to what it really is, which isn’t much.
The local family, on the other hand, might spend it at the local farmers’ market, a flea market, garage sale, and so on. Ok, so yeah, they might spend it on cheap goods at Walmart made in China. Or even on those high-end Ivanka retail items, also made in China.
In any case, the paycheck to paycheck people will spend most if not all of the money which will eventually bubble up to the billionaires who will then spend it on their companies because they have enough business to support building the infrastructure and hiring more people. But before then, each dollar will likely be used several times, each time adding another dollar to the economy.
All of this in turn means that trickle down economics fails because it’s giving money to the rich who are likely to hold onto it or spend it outside the US rather than to the normal families who’ll spend it almost immediately, possibly locally.
If you add up all the years this has been happening, it’s easy to see how this might lead to the rich getting richer and the poor getting poorer. Which is exactly where we are.
Back when the Occupy movement started, it was the 2% vs the 98%. Then it became the 1% vs the 99%. Now we have the .3% vs the 99.7%. And it’s only getting worse.
If you know anything about history, a country is ripe for a takeover when the disparity between the Elite and Commonfolk grows. And our Elite is getting both pretty tiny terribly powerful. Think Marie Antoinette and her head.
Scared, yet? Because I sure am.
So next time someone says trickle down economics is the way to stimulate the economy, try to figure out how much of that money will come back to us commoners, and how many times each dollar will actually be used in our own economy before deciding which direction you want our government to take — bubble up or trickle down — and lobby or vote accordingly.