Trickle Down Vs. Bubble Up Economy
BusinessEconomy Bubble Up & Trickle Down, what are they?
Trickle Down Economics is the theory that if you allow more money to flow into the upper income class, people in this class will invest in businesses and spend more money, and the resulting spillover will trickle down to the lower income class, benefiting them as well. . .
Bubble Up Economics is the theory that if you allow more money to flow into the lower income class, people in this class will spend more money which will eventually trickle down to the higher income class, benefiting them as well.
The question that arises here is which Model is better for the Economy as a whole?
But America is a free market capitalist system. It is not like this?
Doesn’t the Market decide who gets what, not the Government?
The United States is far from being a purely capitalist free market society. There are numerous laws and tax codes that favor people differently, generally benefiting the upper or lower income classes more. The market dictates much, but certainly not all, of “who gets what.”
Our tax laws, of course, are the simplest example, with different tax rates applied to different levels of income. But there are many other types of laws that benefit the lower and upper income classes more, and deviate from a purely “free market” or “capitalist” model of a system.
Laws that benefit the low-income class:
Laws against blacklisting.
Protections for Unions.
Child labor laws.
Prohibitions of discrimination based on race, age and gender.
Employee rights laws.
Restrictions on Political Donation (so the rich don’t steal elections).
Minimum wage laws.
Laws that benefit the upper income class:
Land and mineral property rights.
Capital gains benefits.
Corporate loop holes.
Patriot Act restrictions limiting offshore transactions for individuals but not businesses.
Lobbying permits (so the rich can influence new laws).
Do you still think we are a free market capitalist system?
This is what it would look like if we were.
There are many strictly non-free market regulations that benefit one income class more than another. A “truly” free market society would be unrestricted, with companies and individuals able to do whatever they wanted:
1. Commercial Hiring: Companies could hire children, at poverty wages, to work in coal mines because they are smaller and cheaper. This was the case for a long time until laws were enacted restricting the employment of minors, as well as minimum wage laws.
An employee who causes trouble (asks for a raise or complains about unsafe working conditions), could be fired and other companies in the area notified that the individual is a “troublemaker,” effectively ruining the employee’s chances of finding work. Laws against blacklisting grew out of this practice.
2. Mineral resource rights: Someone who finds a rich gold or oil reserve on your land could keep every penny of the wealth on that land. Currently, the resource is treated as a public good and is taxed at a much higher rate.
3. Political donations: An individual or business could give as much money as they wanted to a candidate, essentially ensuring their victory. We currently have many restrictions on how much an individual or business can donate.
Lobbyists could freely give money to politicians to “encourage” legislation that favors the lobbyist. There are restrictions here, but lobbyists certainly wield a lot of influence.
The list is truly endless, and these are just a few obvious examples.
Since we are not really a true Mercado Libre system, how should we decide who gets more? Which economic model is better for the economy?
The question is, if you’re not going to insist that we should live in a purely free market system, how would you weigh taxes and financial benefits to make society stronger and healthier as a whole: towards the low or high income class? ? What happens when we favor one class over the other? Here is a proposal for how each class could spend their extra money.
1. Vacation expenses:
Lower: More likely at a destination closer to home, benefiting the US economy more.
Higher: More likely abroad, benefiting foreign economies more.
2. Invest:
Bottom: USA Products – Bank Savings, Mutual Funds…
Superior: Foreign products, Off-Shore High risk/return companies.
3. Manage a business:
Bottom: Create or expand a small business (certainly within the US).
Superior: Move part or all of your business structure abroad.
4. Automotive:
Bottom: A family vehicle, economy, average performance, made in the USA.
Above: A high-end, gas-guzzling, sexy foreign-made vehicle.
5. Discretionary:
Bottom: More likely to spend on education, career advancement.
Superior: More likely to buy luxury items, boats, jewelry.
6. Education:
Bottom: Adults are more likely to pursue a career. Children better able to pay for college.
Higher: You already understand the benefits of higher education, you can afford it, so you probably wouldn’t spend any extra money here.
7. Home purchase:
Bottom: Definitely a house in the US, maybe his first.
Above: Most likely a second home, possibly a foreign getaway.
8. Stability:
Bottom: Additional financial resources can mean a stay-at-home parent, more time with family, stress relief.
Superior – You can already afford to stay home with parents, spend time with family, relieve stress.
As you can see, when the low-income class spends money, it helps the US economy more.
As this list suggests, putting money into the low-income class makes that money work through the US instead of foreign economies. It favors US products and businesses and provides a healthier and more productive lower class.
Additional Economic Benefits when the Lowest Income Class gets more.
I would argue that when you transfer money to low-income people, it will eventually end up in the hands of the upper class anyway, with these added perks.
1. Benefits every part of the US economy: Money will circulate once through the economy before reaching the upper class. In products and education, every part of the US economy can “touch” this money before it reaches the upper class. This will benefit local businesses, liquidity, incentive for education and career advancement.
2. Incentive to invest in the US: The upper class will have more incentive to invest in businesses and the US economy than abroad, as there is now more money in the US to invest in. acquire. This provides additional stimulus to the US economy rather than some other emerging economy.
3. Adds to the US tax base: Larger corporations often pay much less in taxes than individual or small businesses, through corporate loopholes and moving business overseas. Money in the hands of the lower income class adds directly to products and businesses that increase the US tax base. A higher tax base gives the government more to improve infrastructure (transportation, health, schools) , education and small business grants and loans, and disaster relief.
Conclusion:
Feed the roots and the tree will grow strong. Plant in the desert and the tree will die.
Allowing more money to flow to the lowest income class, through tax breaks and incentives, benefits the US as a whole much more than the flow of money to the highest income class.
Of course, the extra income will eventually end up in the hands of the rich anyway, that’s where it goes. But at least the rich will have to earn it, investing more in the US economy to eventually acquire it. The less wealthy will be able to hold on to it at least for a while and develop a taste for it that could encourage them to acquire even more, spurring labor productivity, small business and education.
The notion here is certainly not that people in the upper income class don’t deserve it. In some cases these people inherited their wealth. But in many, if not most, cases, they got there as a result of extra effort, extra talent, and/or extra luck. Any or all of these are going to be successful and are completely worthy traits.
However, it would be healthier for society as a whole to equalize the distribution between the haves and have-nots, not in Robin Hood fashion, but by leveling the playing field. This can be done with adjusted tax rates, investment in public schools, and cheaper and more available college and business loans.
“Bubble Up” far exceeds Trickle Down” in benefits to the US economy. The US started out as a government “by the people for the people”, maybe it’s time to really believe it.