Trickle-down proponents assume that giving tax breaks and other economic benefits to the wealthy will benefit the poor by improving the economy as a whole. As the cups of the wealthy fill to the brim, splashes of prosperity will fall onto the middle class and the poor.
Here’s the problem: When the cups of the rich start to overflow, the rich simply buy larger cups.
Fortunately, there is an alternative to the failed trickle-down theory. Trickle-up economics is an idea that actually stands to help the whole country: rich, poor and in between.
Wealthy people can afford to save money. After paying their bills, the rich can afford to invest. This invested money often becomes more money. But, contrary to the trickle-down theory, this money does not eventually reach the poor. Instead, it becomes another vacation to Aruba or one more zero at the end of a bank statement.
So, when politicians create tax breaks which allow the rich to keep even more of their money, do you think the wealth really trickles down? Or, do the wealthy simply add more dollars to their hedge funds?
Let’s look at the poor. Most poor people cannot afford to invest; when the poor get money, they often have no choice but to spend it. Basic survival expenses like rent, food and gasoline eat up the majority of many poor people’s paychecks.
When you give more money to the poor, they can’t squirrel it away in a bank account. They must spend it.
The poor spend a significantly higher proportion of their income on consumption, largely because they have no choice. This spending goes into the hands of businesses. Businesses then make larger profits. Larger profits allow businesses to hire more employees. Increased hiring decreases unemployment. Decreased unemployment results in (you guessed it!) increased spending.
In other words, pro-poor policies, like raising the minimum wage, would actually benefit the entire country. The profits generated by the increased spending power of the poor would help not only the poor, but also those who own businesses. This is because increased spending means increased profits, meaning even the wealthy would see the economic benefits of a higher minimum wage.
Today, trickle-down economics has fallen into disrepute. It now hides under the names “supply-side economics,” “Reaganomics” and “laissez-faire.”
Trickle-down belongs in the closet of failed ideas, along with geocentrism, Atlantis and alchemy.
Instead of trickle-down, let’s give trickle-up a try.