The Trickle-Up Theory

 

by Pa Rock

Consumer

Here is an economic reality:   People on the lower rungs of the economic ladder tend to spend a greater portion of their money than rich people do.  Quite often, in fact, they are required by the circumstances of real life to spend it all.

Here is another economic reality:  The poor pay a larger share of their income into taxes than rich people do.  Sales taxes in particular target the poor because they spend a greater percentage of their money - just for survival needs - than rich people do.  The rich benefit from their peers and supporters in legislatures who write tax laws that help those with money keep "their" money - and they also often know how to hide money and income.

So why is it then that when anyone in government starts making noise about adjusting or fixing income inequality, the first item that conservatives put on the table is tax cuts for corporations and the wealthiest Americans?  They proclaim loudly that if there is economic relief at the top of our economic pyramid, eventually the fresh money that is heaped on the richest among us will "trickle down" to the poorest.   That notion has been bandied about at least since the time of Reagan.  It was faulty (blatantly dishonest) then and it is faulty (blatantly dishonest) now.  

When the rich get a windfall they sit on it, hide it, or find ways to invest it that will make them even more money.  They are seldom (if ever) motivated by a desire to better the lives of the little people who actually produce the goods and services that generate the profits.

Someone posted a "tweet" on Twitter this morning suggesting that "every American should have healthcare, a home, and food on the table," and someone immediately responded (jokingly, I hope) that the tweet was espousing "socialism."  And socialism is the first stone that usually gets thrown whenever there is talk about raising the minimum wage or guaranteeing an income.  

During the pandemic our government issued sporadic stimulus checks to help keep the economy going, and it also supplemented state unemployment systems with extra cash.  Neither of those measures were popular with conservatives who have a strong aversion to any program that actually puts money into the pockets of those in need.  Then, as businesses began reopening, many found that workers were no longer rushing to fill jobs that provided only crap pay and no benefits - and they blamed all of the government programs that had gotten workers used to having enough money to meet their survival needs.

What isn't being said is this:

People spent that extra income, it went right back into the local economies - and business owners and suppliers ultimately benefited from every one of those "socialist" dollars.  None of that money made its way to secret bank accounts in Switzerland or the Cayman Islands, at least not while it was bouncing around the local communities and benefiting individuals and businesses.  Eventually some of it undoubtedly did trickle up to America's billionaire class where it was possibly tucked away for safekeeping and to avoid funding society through the payment of taxes.

Money has trouble trickling down because the wealthy are more apt to hoard and hide it than they are to invest it in ventures that would actually help those with the greatest need.  Money that goes directly to those in need, however, will get spent.  It will go into the economy where it will stimulate businesses, expand production, grow the infrastructure, and ultimately benefit the whole of society.

It's not rocket science.

It's basic economics.