I’ve never been able to wrap my brain around the theory of Trickle Down economics. Ok, that’s not entirely true. I get the THEORY part. I can see why someone thought it would work ON PAPER. But given that it rose to prominence as I was in high school and that I am 47 years old and in that entirety of my adult existence I have YET to see solid evidence IN MY LIFE of it actually working, I gotta declare it Just a Fantasy.
I mean – these are just my own opinions as formed by the acts of LIFE going on around me.
With the current global economic crisis you hear all of these calls for austerity in government spending, and deep concern that we not tax and regulate the Job Creators who are apparently the only people who have the power to create jobs and who are apparently so sensitive to things that may or may not happen that they will just sit in a corner and hold their breaths until they get their way. You know – because they have all this * uncertainty* so they aren’t going to invest their money into their business & expand or hire more people until everything is *perfect*.
Really? So…a small business person – say, like people I know who own a frozen yogurt shop or the personal trainer or even the guy who runs a janitorial service – you are saying that even IF they all have an increase in customers to the point where servicing them on their own would mean a 24/7 commitment – that THOSE Job Creators still will refuse to hire additional help because of taxes or regulations? Really? They would turn down the chance for more income/customers? I dunno – none of those people who I know personally are thinking like that.
You know what stops them from hiring?
A LACK of customers. A LACK of that little thing called DEMAND for their products/services. Because consumers (like me) have had to enact *austerity* measures in order to keep feeding our families. Luxuries had to go, we are shopping around much more critically for the lowest possible prices and traveling out of our area less to shop thanks to gas prices and taking less vacations and certainly not making ANY larger purchases if we can avoid them. That causes the mom and pop businesses to close down and that trickles UP to the janitorial guy who has less offices and shops to clean. Which means they are ordering less supplies and so on and so on UP the economic ladder.
So now there is a vicious cycle going on. And jobs start to bleed out more and more because no one is stepping in to stop it. Companies large & small are moved by one thing only – the bottom line – and they are not selling enough, they cut back. There is only one entity that can attempt to stimulate the economy from the bottom – and that’s the government.
Does it mean going in to debt for a longer term than we would like? Yes, it does, but the government is the only thing big enough to take on that risk.
Roads can always be built. Buildings always need retrofitting. Infrastructure is ALWAYS there to be improved and expanded. As long as the population grows we need more of it. More police/firefighters/teachers/ etc. And as the government hires people, they have more money to spend. They buy more frozen yogurt. They re-join their fitness center to work that yogurt off. Those business now expand to meet this increased demand and the janitorial company gets new service calls and regular clients. Now they need more supplies and more janitors and so on and so on and so on UP the economic chain.
Now with those business and people working more again, more taxes are paid by both the businesses and the individuals. Less people need unemployment benefits and food stamps. Which helps to pay down the debt the government had to incur in order to stimulate the economy.
Is my theory and life experience too simplified? Yep – but so is trickle down. And in 27 years of adulthood I have not once seen trickle down work. OK – wait – not true – there was that one time when a friend of mine inherited money from a dead relative which changed their lives for the better and therefore their children’s lives as well. But – I wouldn’t call that a particularly sound economic theory to follow.
I mean – we can’t all be Mitt Romney – even though he seems to think we all *should* be :)