Saturday, April 26, 2014

Trickle-Up Economics

Government stimulus directed to businesses such as tax credits and access to low-cost loans create increased wealth at the top end of the economy. Some claim this is the best way to improve the economy since incomes and jobs will flow down as the businesses expand and hire new workers.

From an employment and income perspective, the result tends to be an increase in profits for businesses, increased incomes for those in higher paying/higher skilled jobs, and some incremental “hiring off the top” of the best available talent from the ranks of the unemployed. Those at the other end of the spectrum are left hoping that employment becomes scare enough over time that eventually they might get an offer for some “trickle-down” job in the future.

Unfortunately, the bottom of the labor pool never gets fully utilized. Like the mean bullies picking up teams for a game on the playground and deliberately rejecting the least athletic kids from participating, the monetary and fiscal policy wizards stop their policies well before employment levels are considered “full” out of tragic and mistaken belief that full employment causes unwelcome inflation. In other words, we say to the millions who want employment: "The rest of society needs you to stay unemployed and impoverished in order that the cost of bread and milk for the rest of us doesn’t go up too much."

Meanwhile at the top, the increased profits and wealth is often siphoned off into cash and bond hoards, and funneled into exclusive investments before it can circulate in the economy as spending which would have helped create jobs & incomes for others. The wealth stream dries up long before it trickles down. 

We need to reverse the flow! A job guarantee creates a floor of income and ongoing work for those rejected from the private sector, employs from the bottom of the pool rather than the top, and provides essential income to those currently relying on government benefits and welfare.

Businesses invest in capital and new jobs when there is a prospect for increased sales, not because they get tax breaks. It is a forecast of increased demand that drives investment. Those in a job guarantee program would spend most of their income directly into the economy, creating the necessary demand stimulus for business to have an incentive to hire from the pool. It also stimulates the portions of the economy that best benefit society as a whole (food production, household goods, medical care, etc.), rather than the goods & services that only the elite can afford (like yachts, castles & cosmetic surgery).

Trickle-down economics is a farce. 

Trickle-up economics would provide the kind of buffer the economy needs to maintain a base of demand during downturns, while reducing the personal tragedy of structural unemployment and the ruined communities and social burden left in its wake.

At the core of trickle-up economics is the job guarantee. And don't worry, the top 0.1% will still get their fair share…eventually.