I was listening to NPR this morning and they mentioned how the Dems parked a Lexus in front of the Capitol yesterday to demonstrate how much money the richest 1% would get from Bush’s tax cut (i.e., enough to buy a new Lexus each year). In response, Bush’s Secretary of the Treasury said that those Democrats clearly don’t understand economics because the idea is that the rich won’t spend it, they’ll invest it, which is why it will help not just them but everybody, including the poor. Trickle down economics rears its ugly head once again!!!
So, I was wondering…Many people seem to hold such reverence for this theory although I get the impression that the evidence for it is pretty non-existent. So, why not the trickle up theory of economics: You give tax breaks to the poor and lower part of the middle class, they’ll go out and spend it, which will in turn put more money in the hands of those who make the goods they buy, who can then go out and invest it (or spend it). And, there you have it…Everybody benefits; Even the rich end up with second-order benefits! Why is this theory not held in as high esteem as trickle down theory?
As further evidence of this, I note that my company has currently pegged our R&D budget to a percentage of gross revenues. This means that if you give a tax cut to people who don’t go out and spend it on our products but “invest” it instead, our own investment in R&D won’t go up a dime (at least from these first-order effects). However, if you give it to people who do go out and spend on our products, our R&D budget and thus some real honest-to-goodness investment will go up!
Anyway, I was just wondering…Can anyone actually justify “trickle down” economics as being any better at raising the general economic level than “trickle up” or is the advantage of trickle down simply that more of the effects go to those with money and power who dominate the political process and our political discourse?