If Not Trickle Down, What?

The debate about the economy is fully engaged, it is THE issue and the spin is getting more complex by the day and more nebulous.  This morning Austin Goolsbee, the new Christina Romer, simply refuses to discuss the latest economic forecasting; “we issue forecasts periodically and we’ll release it when we release it”.  Safe to assume we won’t see any of it until November 3rd.

The President derides “Trickle Down” economics. Maybe he doesn’t like the name, maybe trickle sounds too much like fickle or tickle.  We’ll try and help him with that.  The question persists; what do you replace it with in a capitalist system.  Is it possible to defy the laws of economics and physics alike with “Trickle Up”?   

As I’m typically not of a mind to make two conflicting arguments at the same time you can safely assume I’m not an economist.  I have however, come to understand a few things over the years.  I understand that absent capital, it’s hard to start or grow a business.  I understand that some manner of capital is typically required to start a new venture that requires things like, well, employees.   

I understand that every job I’ve had was provided by either a solvent company, organization or an individual with capital to invest.  Capital trickled down to me; I performed a job and got paid.  I, in turn paid others who in turn hired people to handle the business I and others generated; the money trickled down, or sideways if you will.  When I did my job well, the trickle gained steam, I got more of the trickle.  The trickle increased in proportion to my value and performance.  The trickle went away if I did not perform, as I knew it would.  It made perfect sense, the rules were clear; I knew what I had to do to increase the trickle.  I also knew I was competing for that increase in trickle and the competition created motivation.  I knew that it was, at least in part, up to me how valuable I could be to the organization.  I had some measure of control as to how much of the trickle came my way.

When I started my own business I was fortunate to have a little bit of capital to invest, to risk.  In the absence of that capital there would have been no new small business, no employees and no jobs. The opportunity would have gone begging or fallen to someone else with capital.  My capital eventually trickled down to 20 other people who either had new jobs or were provided with the choice to leave an old job to join a new venture.  Those that left jobs were replaced by others, trickle, trickle, trickle.

So, as a person who is, decidedly, not rich, I’m having trouble understanding why the assault on the “rich” is so fervent and so stubborn.  Why is it so important to reduce the amount of capital they have to invest or to make it difficult to do so?  Logic would indicate that in bad times it’s more effective to motivate people with money invest and spend that money so that the trickle picks up steam!  Three trillion getting off the sidelines might move “trickle down” to “flow down”. 

Eureka, there we have it!  A new name, “flow down”; the President loves to give things new names. (No charge for the advice sir!)

Three trillion on the sidelines is more than three times as much as the American Recovery Act “invested”; six time more than what has actually been spent!  It would seem that the best “next” stimulus plan would be to unleash the money that is already there.  Heck, we wouldn’t even have to print it!  The fact is, there is painful evidence that the government stimulus spending has actually, combined with schizophrenic economic policy; resulted in a wide range of negative impacts.

Who’s spending the money and how is it spent.  Based on recent poll data very few believe Government spending is terribly efficient.  Would three trillion in private spending be three times more impactful than an equal amount of government stimulus spending?  Would privately managed profit orientated resources versus bureaucratic administration create an impact factor six or ten times greater and more effective than government spending? (Rhetorical question)  Would three trillion in private spending be worth nine trillion in government spending? (Although, I do like that million dollar turtle tunnel in Florida.) 

Private spending will not spin “jobs saved”, it’s clear; the job is created or it is not.  By traditional analysis new money coming into a local or regional economy has an economic roll over impact of seven times.  It should be clear to us at this point in time that government spending does not have that manner of impact.  If private spending has nine trillion in impact compared to government spending and the roll over is in place that is the comparative equal of $63 trillion in government spending!  (Hey, Mr. Krugman; cheer up, that should be big enough for you?)

Trickle down and capitalism go together, the logic is inescapable.  People who invest money expect a return on their investment; that’s business, not some manner of dark foreboding evil.  Absent returns on investment, profits and re-investment the trickle dries up!  Simple really!  In the absence of investment and re-investment there is no trickle for anyone.  Investment and re-investment creates opportunity, jobs and more chances to turn the trickle into the flow.  And yet, we appear hell bent on giving the folks with money a spanking; “shame on you for your success!” 

Do the rich folk get greedy from time to time, sure they do, are there abuses, indeed but we face the same manner of abuse in government.  Pick your poison, big government redistribution or greedy rich folks with money to spend and jobs to create? 

The only way to get at the “rich” is to tax it out of them based on populism that has no firm grounding in economics, class warfare.  The “rich” may have to pay three or four percent more in taxes but past history shows that the basis upon which the tax rate applies will diminish.  Capital gains will be differed or “accounted” away.  The money will not move, it will not be invested, it will not create additional profits and the amount of “income” available to higher tax rates will reduce and it will reduce significantly resulting in less government receipts, not more!  That’s the economic history.  Simple choice, would we rather have Bill Gates and Warren Buffett investing money or Tim Geithner printing it? 

The folks with the three trillion are doing a very simple thing.  A financial middle finger to the policies of administration and it’s driving the administration crazy.  David Axelrod, amongst his mantra of “doing everything” says “we have to motivate the private sector to create more jobs.”  But David, can I call you David, the rhetoric and the policy, again, don’t match up.  There is nothing the administration can do about the money on the sidelines, except feed along the edges with tax increases.  The three trillion sees the game for what it is and they are simply not going to play.  The ultimate example of voting with your dollars; we all do it, just not at this level.

Really, be honest, doesn’t a trickle look pretty good just about now?