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?

  • Bill Hedges

    Landreaux, you are a capitalist. Don’t try to deny it. Be honest now.

    You think you can “be all you can be” even though you are not in the army ? You think you can educate yourself, save a little money and make it here in the U.S.A.. Next you will tell me people die to enter our Country to fulfill the American Dream. Or do a lot cross at night for the FREEBEE’S.

    Any if you are among the few that finds their pot of gold you will support 1/2 of the citizenry of the U.S.A.. Tax you for your success. More.

    You are a business minded man. You should be thinking of the common good. Not your greedy self. You have all that money when I have my needs.
    Give me the money so I can run a successful business.

    You are proven. I just want it given. Ignore my lack of proven ability. My wishful desire is enough. You did your homework and I have my bills without cash. Government has college student plans but too much trouble.

    I made good money at work. Bought nice house, big vacations each year, and ate out each meal. You lived a Spartan life. Saved, saved, and saved. All that time getting education.

    Well my friend barry is going to make sure now that you have made it that you help me. I lost my job and home. I must go bankrupt because of all my bills. Zero in bank. Was your greed that caused my mess.

    You owe me. Being liberal is good. Until I break your bank account and have no one to live off of. Look how well things work in Cuba, Mexico, and Russia for their people.

    Seriously, America is great and envy of the world because of capitalism. barry’s actions wishes to take incentive away from those who CAN DO. Result, $3,000,000,000,000 doing nothing. Exactly what the unemployed are doing.

    Maybe just maybe that $ 3 trillion is going to rot on the sidelines until we can take control of Congress. Then change things. When you don’t know or don’t like the cost of doing business in U.S.A. you don’t invest in America. It sits or goes elsewhere.

    Give back incentive. Incentive to invest. Incentive to work instead of not.

    Trickle down to me Scotty.

  • Landreaux

    Bill,
    I hope you did not sprain your tongue keeping it so well ensconced in your cheek for so long!

    Yes, I am a capitalist, seems to me it’s the most successful economic system in history and…………….the most beneficent in the big picture. I am of the firm belief that the odds of my having had the modest success I’ve had anywhere else on earth would be much lower than here, much lower. My mediocre high school education not withstanding.

    And, I can also tell you that my employees have been the highest paid employees in my market, evil capitalist SOB that I am.

  • Bill Hedges

    I did have to take a lot of baking soda for my upset stomach writing as a liberal. I am still feeling the effects. If I made one person snicker…

    They announced a new lithium battery plant in Michigan on CNBC today. As I recall 300 jobs with 3,000 possible. Ex-car employees hired. Isn’t that great ! Obama pays his political debts. All kinds of give aways from Federal and State Government. Cost, $1,000,000 a job.

    I hope you don’t have a lithium battery Plant Landreaux. If you do you will be having unfair competition. Should that be illegal ?.

    Not all announcers on CNBC are liberals. Remember the OUTCRY by one there that I feel started the Tea Party movement ? Another thinking man talked of the overcapacity of lithium battery. Is that a good thing Landreaux ? Just being facetious guy.

    Thank goodness a Democrat was there to point out the job creation and someday electric cars cost would be competitive with gas cars. Government now thinks raise gas car price to accomplish. Don‘t you love liberals. No wonder Walmart carries Chinese products. We are too expensive. Sam Walton is turning over in his grave.

    You said “most successful economic system in history ” but liberals point out GREED. There was a movie that said GREED IS GOOD. Greed is good. Greed is not a four letter word. Too much excess of greed and your business closes. I know you know. Then there was GM. I know GM was not completely closed. Just another bailout waiting to occur again.

    I think lithium batteries may be the cat’s meow (I watch old movies). Saw a electric car run on them that was real fast. Haven’t heard of that becoming common on race tracks. Bet cost is high. Sponsor probably a lithium battery maker.

    I am old but not in nursing home. I’m all for innovation. I just believe in private sector it does not cost a $ mil per job. Then, what do I know.

    I like S.O.B.’s with common sense. We stopped government buying $ 100 hammers. Ah, no we didn’t. Remember the new lithium battery plant !!!

    I am going to start being nice to you. I have a retirement plan but what if it goes bust. I receive a disable social security check. They may cut benefits. I even have a moderate amount of money in bank. I kind of planned for my own retirement. Novel idea right ! But I never planned on obama. I may need a job if November is not Christmas this year. Could you pay me in cash ? Off the books ? I’ll snick out and come back to America…