For a while now, I have heard Republicans refer to “trickle-down” economics or “supply side” economics, and have tried to think of a way to make it all make sense for someone like me.  I have a pretty firm grasp on economic concepts and also some on monetary policy, etc., but I like when things are kept simple and when explanations are ones that anybody can understand.  Too often, people hide behind intricate language to disguise what they truly mean.

Trickle-down, or supply side economics is basically the principle that those at the top have all the power, money, and influence, and, being such thoughtful individuals, will then create jobs and wealth and prosperity will “trickle-down.”  Except that is generally not the case.  Rarely does that theory work because people are predisposed to think about themselves first.  Yes, people, whether they are rich or poor, will give what they can to charity, and will help out where they see a need (for the most part).  When it comes to money, however, people are inherently selfish.  That is not necessarily a bad thing, it is just how things are.

The way my mind operates has led me to liken trickle-down economics to building a house.  And that is where I notice the first built-in problem.  Trickle-down economics will have us belive that you build a house from the top down, starting with the roof.  Now, I am not a building contractor, but I am pretty sure that is not how you build a house.  Just to be sure, I did a quick search, using “how to build a house” as my search terms.  You can read all of the steps here, but I will go ahead and get to the good stuff for you.

The first seven steps focus on finding property, getting a survey, laying out the “footprint,” etc.  All very important steps.  Step eight, however, is where the actual building of the house begins.  And oddly enough, it does not start with the roof.  It starts with a foundation.  As a matter of fact, work on the roof does not appear until steps 15-18.

So, how does building a house transfer to economic policy?  My thinking is that if you want a strong house (strong economy), you need a strong foundation first.  Having a roof with no foundation makes absolutely no sense, and what you will find is that you have nothing supporting your roof.

Now, does constantly pouring money, via tax cuts, to “job creators” make a lot of sense when looked at through the lens of building a house?  I would be apt to say that it does not.  It makes more sense to provide the foundation with more opportunities to help the economy grow as a whole.  Strong foundation, strong structure.  Is such a system immune from economic downturns?  No, it really is not.  But I think history has shown that a trickle-down system is even less immune.



4 Responses to Building

  1. ryan85 says:

    If I’m not mistaken, you have a job working for a bank that is held by Pro Financial Holdings and led by their CEO, Corey Coughlin. They just implemented a new initiative to increase their presence in the area and provide a few more jobs and lend a few more dollars to local individuals, businesses, and non-profits. Isn’t it then true, that your job and their expansion is an example of this “trickle down” concept? The guys on top want to make more money so they expand, and in doing so they provide more money for their new hires, more money for their stock holders, and put more money into the local community which has layers of macro-economic impact. I don’t know a whole lot about the nuances of economics, but I’m confident we’re dealing with a false dichotomy. I doubt it’s either or, but more than likely a combination of ideas centered around the basic principles of controlling spending and eliminating debt.

    Finally, how exactly does a government provide these foundation jobs? Having a job requires having someone to hire you, which means their is a business in there somewhere, doesn’t it? In place of a business I guess the government could hire more people, but isn’t the government business able to hire because they receive tax subsidies in the form of a percentage of your paycheck?

    I’m just saying it’s not so simple and it’s foolish to assume their is a single catch phrase that will cure all ills. Bottom line, we have to spend less than we take in, period. We have to eliminate debt to create a positive cash flow. Then, out of our surplus, we can do cool things for people. Our government isn’t Jesus. He turned five fish into plenty for 5,000 with a miracle. The government does it on credit and that’s not good for anybody.


    • TommyK says:

      I don’t know that I specifically stated that it was the responsibility of the government to create jobs. Are there jobs created by the government? Yes, there are. Do you find any irony, however, when a polictician screams that the government is not in the business of creating jobs? I do, because they hold a government job. I was referring more to the belief that if we give people deemed “job creators” more tax breaks, there is no built-in incentive for them to create a single job with their extra cash.
      In the example you cited, we are creating jobs out of business necessity, not because of some tax break. And let’s not forget that corporations are not people. In our case, when you start to see more foot traffic come in the door, the most effective response to the increased demand on our staffing is to add staff.
      I also never inferred that a “single catch phrase” is a cure-all. I thoughtfully explained, at least in my opinion, what I think about when I hear the term trickle-down economics. I did not invent that term, nor did I coin the term “supply-side economics.” Nor did I compare our government to Jesus anywhere in my example.
      You said that we should “eliminate debt to create a positive cash flow.” Looking at it from a personal perspective, I would have to refer you to another post I recently wrote that stated that we instituted a “tax” on ourselves, thus ensuring we were forced to save at a pre-determined interval, for an amount that we set.
      Contrary to inferences made, I am not espousing that the government come in and “save the day.”
      I guess I could fairly say that the original intent of my post was to raise the idea that maybe it is better to put more cash in the hands of hte foundation of our economy (via tax breaks, etc.) so that we will then have more disposable income to spend at our discretion at the business of our choosing, thus spurring their growth and causing them to hire more workers; while it is not as simple as that, the concept, I think, works in principle.
      Is government spending excessive? It sure is. When you are talking about an entity that pays $3000 for a toilet seat (may not actually represent the cost of a toilet seat to our government), that is a problem. When you are talking about a government that has conducted two unfunded wars over the past decade, that is a problem.
      Again, my original intent was to paint a picture of what I imagine when I hear that we can grow from the top down only. Can growth be spurred by those at the top? Sure. But whether it is a house, a stalk of corn, or a tree, growth happens from the bottom up. There has to be a mix of growth/watering from the top, and growth/expansion from the bottom. Right now, everybody wants to make it one way of the other, my way of the highway. Until we can open our eyes and work with those with an opposing view, we will be stuck chasing our collective tails. Those who do not learn from history are doomed to repeat it.
      I think being in the “government is evil” crowd is just as counterproductive as being in the “government is the best” crowd.
      I think that if you and I were to talk about this honestly in person, and I imagine we will at some point, we would find that we may have areas where we differ, but we will also find that we are more adult in our discussion than any politician because we would at least try to find common ground. And above all else, we would keep things civil. I enjoy hearing from friends who do not share all of my same views, so as long as they are respectful of the fact that we may differ and respect my views; I can safely say that you fall into that category, which is why my response to you has been rather lengthy.

      • ryan85 says:

        I’m not even sure our views are that different. I didn’t say you referenced Jesus, that was my reference. But we’re kinda saying the same thing – it’s too simplistic to insist on a singular approach to solving a complicated problem, and to dismiss another’s input due to the mammal on their button is short-sighted.

        I agree with the idea that tax breaks without strings doesn’t insure the corporations will cycle the money to the people. However, neither is that true of tax breaks to you and I. I could just as easily take the money and stash it.

        Some principles I lean toward: 1) generally speaking the government should refrain from insisting how individuals or corporations use their money. 2) I believe the entire tax system is an irreparable disaster that needs a jubilee. 3) The ends, whatever they might be, don’t justify the means, whatever they may be. 4) Just because we spent money on something yesterday doesn’t mean we should spend money on it today. There may be a few more, but these are a good start to understand my economic views.

        And yes, I bet if the two of us looked at a hypothetical budget in bright red we could work together to figure out how to get it in the black. Although I wouldn’t nominate myself for one as convoluted as our governments; I needs line items I can understand 🙂

      • TommyK says:

        I don’t know if it is short-sighted to discard over 30 years of economic theory that has, for the most part, been unsuccessful. I’m sure there are plenty of Republicans with great economic ideas, just like I am sure there are Democrats with ridiculous economic plans. It’s less about the party than it is about the concept/theory.

        Let’s tackle your economic views list:
        1) agreed. And they should stay out of most things in our lives.
        2) understatement.
        3) not sure what you meant. 🙂
        4) you’re correct.

        The sad truth is that you and I could probably do a better job of solving the economic mess than the people in DC now. But I am in no way going to volunteer us, that’s for sure. The biggest problem that I see is that those that are elected seem to lose all common sense after election day. Instead of using common sense approaches to problems, both sides hide behind tired and broken ideologies. No matter what anybody tells us, compromise is not a bad word.

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