Friday, December 3, 2010

Does a Rising Tide Really Lift All Boats?

If the rich get richer, a theory called "Trickle Down Economics" says that they will invest money in new businesses and create jobs. And even if they don't, sooner or later they will spend their money, which will also create jobs (for example yacht and mansion building jobs, or jobs as chauffeurs and butlers). Either way, we are told, trickle down economics works. It can be summed up by the simple and powerfully persuasive analogy "A rising tide lifts all boats". Or the mysterious "invisible hand of the free market", which is at work to guide us to prosperity and freedom.

Choosing an economic system has effects on our well being. So before we choose one, we should at least try to understand what could go wrong, and not blindly repeat slogans like "a rising tide lifts all boats". It is important to at least consider ways the system could fail. It's not hard to think of three or four hypothetical situations that would break this system.

Ways that Trickle Down Economics would fail? If the rich don't invest their money, but stuff it in mattresses. Or use their money to bribe politicians who then tax the poor, and give breaks to the rich. Another example: the rich use their money to brainwash the poor into surrendering their hard earned savings voluntarily to the rich.

I'm not arguing that any of this is being done, only that if it could be done, it would cancel out the essential idea of Trickle Down Economics.

Here are some other things that the rich could spend their money on that would result in a different kind of tide that lifts the yachts but swamps the canoes.

  • Hiding their money in offshore bank accounts
  • Closing down local factories and sending them overseas
  • hiring illegal migrant workers and paying them pittance
  • busting unions who try to expose illegal sweat shops
  • Spending their money offshore
  • Supporting politicians who favour deregulation
  • Buying up the media so as to broadcast only their point of view
  • Acquiring monopoly status in order to eliminate competition and maximize profits
  • Hiring expensive lawyers to avoid being convicted for crimes they deserve to be punished for.
Are there signs that Trickle Down economics is working today? Well, the middle class are all driving Hummers (and probably multiple cars/trucks), they have the most massive TV's ever imagined, they can eat until they are so fat they actually need a Hummer, their houses are mansions, their kids all go to the finest school system in the world, they have the best health care in the world. They have electronic gadgets that make it possible to surf the Internet for porn while driving, and of course they have that Hummer to keep them safe in case they hit a little Toyota (driven by an illegal migrant), and even if they hit another Hummer they have air bags. All this costs money, so the middle class must be getting richer.

But in spite of all this conspicuous wealth, are there also clues that this rising tide is not lifting all boats? When I walk downtown people keep begging me for spare change, many people are over their heads in debt, or living off unemployment insurance, the country is sinking deeper in debt nationally, many people are out of work, both mom and dad need to work just to get by, and jobs are going offshore.

Does it make sense that the government seems intent on reducing taxes on the rich? Or that bank executives raise their pay into the tens of millions per year, after their banks fail and they get government bailouts? Or that conservative TV and radio stations, newspapers and websites are multiplying, spreading the word that a "rising tide is floating your boat" and telling us that taxes on the rich are like theft? These same conservative outlets tell us that our main worries should be (A) Terrorism (B) Gay Marriage (C) Abortion.

So is Trickle Down economics working, or should we go back to taxing the rich the way we used to in the fifties and sixties? And does a rising tide really lift all boats?



  1. Don't forget that those same media outlets encourage the general masses to borrow more, to spend more, and to be the "CONSUMERS" because it helps the economy and it's patriotic. In another words, they want to channel upward more and more money. For example they encourage people to go Xmas shopping, especially on the so called "black Friday". Black means more profit for the corporate giants, the Wall Street bankers in both long and short term(short term = next year's quaterly profit reports, long term = the accumulate interests that people'll have to continously pay for the next few years). I have not yet seen the clear effect of "trickle down theory", but the "bottom up economy" is evident in plain sign, but majority of people are too stupid to see it.

  2. 'Trickle-down economics' is simply the rhetorical handle for the bogus supply-side theory that, through the reduction of income and gains taxes and significant easing of business regulations, consumers will gain access to a greater supply of goods and services at lower prices.

    Famously known as Voodoo Economics, the theory was used by the Reagan administration to justify their ideological program of tax cuts and deregulation. Any residual credibility this 'theory' may have had was completed debunked by the U.S. Congressional Budget Office's detailed analysis of the Bush administration's 2004 Budget proposals.

    The 'hidden agenda' of trickle-down has always been to transfer as much as possible of the national prosperity to the wealthy. And the strategy has succeeded. In the U.S., wealth and income disparity has grown markedly since the Reagan administration.

    One of the key indicators of overall income disparity is the Gini-coefficient of inequality, which in the U.S. has exploded from the mid-30's in 1980 to an abysmal 45 in 2010. Recent statistics indicate that the top 10% now lay claim to almost 50% of national income in the U.S. (In fact, these disparities may be even greater, because much higher-income does not get reported.)

    In the Sixties, the richest tier paid an average of 51% of their income in taxes. After decades of trickle-down policies, the top tier now surrenders less than 20% in taxes.

    The effect of such income disparity over time confirms the axiom that, 'The rich get richer, and poor get poorer.' Those at the lower end of the spectrum dispose of all their income (and more, on credit) leaving nothing for wealth accumulation, while those at the upper end of the income scale continue to amass wealth.

    The situation in the U.S. is now egregious. The Wall Street Journal reports that, following the crash of 2008, the top 1% of Americans now own 35.6% of national wealth (the bottom 90% left sharing only 25%).

    Of course, with financial wealth goes political power. And, with political power, the ability to further exacerbate the inequality.

    Clearly, a 'rising tide' does not 'lift all boats.'