“Trickle Down” vs “Flood up”

(or imbalanced Economy creates imbalanced Government budget)

The disparity between the upper class and the middle class has never been greater.  The Government budget deficit is due to an imbalance in the economy created by trickle down philosophy.

After 30 years of Trickle down, the inevitable has occurred.  Approximately 288,000,000 people, 80% of Americans are out of money.  Approximately 360,000 people, 1% of Americans have millions or billions.  The other 19% percent cannot drive demand sufficiently to support the market.  Business simply ran out of customers to purchase their goods and services.

If trickle down philosophy was true, the 1% would immediately create 23 million jobs and end unemployment in America.  Trickle down philosophy says that the 1% is just not rich enough to do anything.

Businesses can fail due to bad management, producing goods or services no one wants, or producing goods and services that many want but no one can afford.  The 1% will not expand production regardless of available capitol to invest because there are no customers to buy anything new.  No market exists.

Case in point, General Motors did not get into trouble because Americans no longer want new cars.  Americans LOVE to buy new cars.  Nor did GM get into trouble because they were not big enough.  Nor did GM get into trouble due to mismanagement.  Nor did they get into trouble because they could not afford to expand.  They got into trouble because their customers ran out of money. The 1% with the money buys their cars in Italy, or Germany. GM’s customers were to busy trying to avoid mortgage foreclosure. No customers leads to bankruptcy. No amount of Tax Incentives can replace customers.

If all 360 million Americans had discretionary income in their pockets every month, then the 1% would, no doubt, increase production and provide something for Americans to buy thus increasing wealth of the 1%.  There is no opportunity to invest where there is no market, where there are no customers.

Any well run business, large or small, grows, stagnates, or bankrupts according to its customer base.  The level of customer demand for the goods or services produced is the only incentive to expand, contract, remain constant, or fold.

Motivation for expansion is simple.  Good management together with rising customer demand and expanding customer base which increases profits and outpaces the businesses ability to provide goods or services is the only motivation for expansion.  Customers provide not only motivation and opportunity but also the capitol necessary to expand.

Economics and be very complex, however, the basic principal of economics are very simple.  Consider these too scenarios.

scenario 1:

A well managed, efficient, and competitive business finds that although customers still want to make purchases, its customers have run out of money.  The business can no longer sell the goods and services it is producing. There are no longer any profits.  Losses are beginning to accumulate.  The government responds with huge tax breaks for the business.  This business receives on benefit whatsoever. With no profits, there are no taxes to take a break on.  Their employees must be laid off and thus stop paying taxes and begin collecting unemployment, housing, and food subsidies driving up the federal deficit.

scenario 2:

A well managed, efficient, and competitive business finds it cannot keep up with demand for the goods and services it produces.  This business has more customers with more money than the business can satisfy.  This business has high sales at high prices resulting in high profits. The opportunity and capitol to expand has been supplied by customers.  This company invests its profits in expansion creating new jobs thereby reducing unemployment. There new employees are now new customers demanding more expansion.  This is actual prosperity, this business can afford to pay taxes and so can its employees.

Flood up Economics:

Lots of customers with lots of money provides both the capitol and the opportunity for growth.  This is the opposite of Trickle Down philosophy.

Balance the Government budget by balancing the economy.  Raising middle class salaries will not reduce corporate profits.  Reducing the disparity between middle and upper classes will provide more customers with more money and create the capitol and the opportunity for expansion and growth thus stabilizing and increasing business profits.  Taxes paid by workers will increase while unemployment insurance payments, housing and food subsidies are reduced, and thus the federal budget becomes balanced.

Regardless of where the money comes from, everyone with some money is a customer.  Raising the minimum wage puts more money in the pocket of customers.  To cut Social Security benefits is to remove money from customers. To end unemployment payments is to eliminate customers.  The individual who buys food with government subsidies is a customer.  The renter who pays there rent with government subsidies is a customer.  Reduction in government subsidies reduces the number of customers in the market and hurts business.

Balance the economy and the Government budget will balance also.

More money in the pocket of customers helps business. Not one WalMart store can open their doors without the labor of the minimum wage employee.  The fix for the economy is to recognize the value of all Americans and pay the workers what they are truly worth.

After Americans are paid what they are truly worth, they need to be able to choose how to spend it.

Cuts in Medicare and Medicaid will force businesses customers to spend their money on health care instead.  That will damage the customer base and hurt business. The lack of accountability of Wall Street leads to erosion of wealth for everyone to the benefit of the thieving billionaires. Government regulators must protect small business by protecting the solvency of the American banking system.

Those who would balance the budget on the backs of the poor fully realize how much money is represented by $1 per hour to every American in poverty and the middle class.  They understand that a small increase per person in the revenue or a small decrease in the spending that 80% of Americans need.  The same small amount per person makes an enormous different to business.

If the budget is balanced on the backs of the 80%, business will lose customers, unemployment will rise, federal revenue will drop as more people lose their jobs, more housing and food subsidies will be required and the federal deficit will rise.

The $1,000,000,000 Bailout (NOT)

(Better: $895 Billion Emergency Economic Recovery Loan Program)

 The term Bailout infers that private business was “given” 1 trillion taxpayer dollars. This is simply not true yet it is believed to be true by many Americans.  First, it is a $115 billion exaggeration.  The correct figure is $895 billion.  Second, nothing was “given” it was loaned. The interest charged is equal to the risk taken, high. It proved to be a good risk, betting on Americans.

Case in point.

GM was desperately searching for a loan to keep them and their suppliers in business during a severe economic downturn.  With the banking system also going under no loan was available from any financial institution.  It was recommended by some to allow them to go through bankruptcy and “shed the excess debt”.  Shedding excess debt would put every business they owed money to into bankruptcy also.  These small suppliers may not be able to survive this process leaving GM unable to build cars even if they could get back to trying.

1,000,000 jobs would be lost. Business would lose 1,000,000 customers.  Government programs such as unemployment insurance, housing and food subsidies, medicate, etc. would be increase while government revenue would lose 1,000,000 taxpayers.

Final result of the Loan to GM was 1 million people kept their jobs, 1 million less jobless claims were filed, 1 million fewer families went on housing and food subsidies, 1 million more people paid income taxes. The loan was repaid resulting in a profit to the American taxpayer.

This was the most publicly debated government loan.  A few of the loans were to businesses that failed and did not repay their loans, such as Salindra Solar Corporation.  Interest paid by those who did repay the loans more than made up the difference.  There never was a “bailout”.  There was an “Emergency Economic Recovery Loan Program”.


3 thoughts on “Economics

  1. Rob

    As Ronald Reagan’s budget director David Stockman has repeatedly said, “supply side” or “trickle down” economics was never an economic theory but a slogan dreamed up to provide political cover because they wanted to cut taxes on the wealthy. Now it’s a religion–accepted on faith in spite of massive evidence that the “theory” is fallacious.

    It can be very difficult to discern the real Republican agenda. The rhetoric is contradictory, inflammatory and requires a high tolerance for cognitive dissonance. But if one considers only what the GOP does and not what it says, the goals become clear and the party has been 100% consistent in its efforts. The obvious agenda is to transform the U.S. into a nation of impoverished, desperate serfs who serve the interests of a Russian-style hereditary oligarchy as long as they are able and then die quickly and quietly–protected by a single party plutocracy dedicated to protecting the oligarchs.

  2. Thank you for your scholarly, researched, and thoughtful input. An examination of the facts does not refute the conclusion beginning with “obvious agenda”. Let’s continue the debate and see if other plausible conclusions can be reached.

  3. Very well said, I have been saying for years that the problem our economy is facing is that it is too top heavy. The wealthy can never drive demand and demand is what drives business and employment.

    You would enjoy this post of mine on the effects of trickle down economics.

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