Saturday, August 23, 2008
Trickling down- you gettin' kinda thirsty?
Why Trickle-Down Economics Doesn't Work.
I'm no economist, but I've been getting in a lot of conversations lately about the state of the economy and basic economic theories. I am of the opinion that trickle down economics doesn't work. I think it's a construct made up by the rich to help them hold onto their power and influence and I give them credit that they've managed to convince so many people so that it works. If enough Donald Trumps say that the only way to economic growth is relentless (and reckless) tax cutting, then eventually people are going to start to believe it.
The theory (as I understand it) is that if we cut taxes for the richest members of society, then they are going to have more money, and they are going to spend that money and that spending is going to "trickle down" to us as sales, jobs, and giant bonuses. Unfortunately, it doesn't really work like that. Rich people don't get rich by spending money. They get rich by investing it and saving it. Maybe the theory would hold up if rich people were really investing a much greater percentage of their money, but mostly they are just accumulating it and holding on to it.
This is shown by the huge gap that we have right now between the have's and the have-not's. Rich people just keep on getting richer and resting on their laurels of the past few years, while middle class people keep getting poorer as their wages remain the same and food and gas inflation eat into their paychecks.
I have nothing against rich people. I admire them for taking enormous risks and having them pay off. Who knows, I might be an entrepreneur someday. They are the people who really drive progress and economies forward. But the theory I don't subscribe to is the one where people who earn more don't have more of an obligation to pay for services in our government (i.e. taxes). If you earn more than $100,000, you are in a much better position to help pay than someone who makes 20,000 a year. Trust me, you're not really going to miss that $30,000 as much as the low-income earner is going to miss $5,000. One is whether you can take that trip to the Florida this year, the other is whether he can put enough food on his table to feed his three kids.
Another consequence of this relentless tax cutting is how short-sighted it is. We are accumulating trillions of dollars in debt...for what? So we can have cheap plastic toys from China. So we can wage war in a country that doesn't want us there? Where is the long-term investment in the money we are spending right now. I am spending a lot of money right now, but it's with the idea that it will pay off in a couple years with a good job and income. I don't see that strategy being employed by our government or our society in general. People around the world are starting to see this and it has lead to the decline in the dollar. The rest of the world is losing confidence that we are a good long-term investment. We are just spending right now and not investing. This is bad for our long-term prospects and for our children's.
The element that makes a really strong economy is a strong middle class that has a good income and upward mobility. Why do you think China's economy is growing so fast? Their middle class is surging upward as all the factory workers bring home a good income and want to spend it. There are rich people in China and there will be a lot more, but their middle class will be the biggest factor in the coming decade. Meanwhile, our middle class is declining. People are falling into the have or have-not category and that is eventually going to be bad for everyone.
There is one candidate that is talking about helping the middle class and the other is talking about continuing the current economic policies. I think we all know the current policies aren't working very well.
The theory (as I understand it) is that if we cut taxes for the richest members of society, then they are going to have more money, and they are going to spend that money and that spending is going to "trickle down" to us as sales, jobs, and giant bonuses. Unfortunately, it doesn't really work like that. Rich people don't get rich by spending money. They get rich by investing it and saving it. Maybe the theory would hold up if rich people were really investing a much greater percentage of their money, but mostly they are just accumulating it and holding on to it.
This is shown by the huge gap that we have right now between the have's and the have-not's. Rich people just keep on getting richer and resting on their laurels of the past few years, while middle class people keep getting poorer as their wages remain the same and food and gas inflation eat into their paychecks.
I have nothing against rich people. I admire them for taking enormous risks and having them pay off. Who knows, I might be an entrepreneur someday. They are the people who really drive progress and economies forward. But the theory I don't subscribe to is the one where people who earn more don't have more of an obligation to pay for services in our government (i.e. taxes). If you earn more than $100,000, you are in a much better position to help pay than someone who makes 20,000 a year. Trust me, you're not really going to miss that $30,000 as much as the low-income earner is going to miss $5,000. One is whether you can take that trip to the Florida this year, the other is whether he can put enough food on his table to feed his three kids.
Another consequence of this relentless tax cutting is how short-sighted it is. We are accumulating trillions of dollars in debt...for what? So we can have cheap plastic toys from China. So we can wage war in a country that doesn't want us there? Where is the long-term investment in the money we are spending right now. I am spending a lot of money right now, but it's with the idea that it will pay off in a couple years with a good job and income. I don't see that strategy being employed by our government or our society in general. People around the world are starting to see this and it has lead to the decline in the dollar. The rest of the world is losing confidence that we are a good long-term investment. We are just spending right now and not investing. This is bad for our long-term prospects and for our children's.
The element that makes a really strong economy is a strong middle class that has a good income and upward mobility. Why do you think China's economy is growing so fast? Their middle class is surging upward as all the factory workers bring home a good income and want to spend it. There are rich people in China and there will be a lot more, but their middle class will be the biggest factor in the coming decade. Meanwhile, our middle class is declining. People are falling into the have or have-not category and that is eventually going to be bad for everyone.
There is one candidate that is talking about helping the middle class and the other is talking about continuing the current economic policies. I think we all know the current policies aren't working very well.
