I was just reading a book on social problems, and I came across the "trickle-down theory," which sparked memories from college. In a nutshell, this theory states that in order to improve the U.S. economy, the government should give money to big businesses. The money would then go to hiring more employees aned increasing revenue further by doindg more research that would yield more gross income. Consequently, even more money would "trickle down" to the population.
Whether this theory is sound or not is debatable. One POSSIBLE reason for its successful implementation in the U.S. is because the powerful are more influential to the government. [The other possibility is that the government are genuinely convinced for its validity using strict logic.]
One inescapable problem with these grants/tax breaks is that the businesses may use the money to introduce technology that would replace workers. Therefore, I suggest that if the businesses want any money from the government, they should present to government-appointed CPA's how they use their money.
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Some sort of oversight would be a good idea.
During the Reagan years some of us got tired of being "trickled" on.
I was not suggesting that this theory should be actualized. I was simply recommending a modification of existing conditions -- namely, that since this theory was put into practice, we should make sure the money would not be abused.
I've not heard of a single reputable economist support trickle down theory.
The rich (and big business) are good at keeping their money, investing it, and making more money for themselves. The rich tend to purchase high-dollar luxury items, which in turn fuels other rich folk.
Inversely, even small amounts of money diverted to poverty-stricken families (microloans) yields tremendous payoff.
Tax breaks for the rich makes the rich wealthier; tax breaks for the poor, the "working class," and the "middle class" tends to benefit everyone, and ultimately makes the rich wealthier; eliminate tax breaks for everyone, and the rich will find a way to become wealthier.
To some degree, businesses are already required to account for their financial activity. Income of this sort probably would be aggregated with profits and revenue from other areas—in other words, it wouldn't be clear where exactly the money is used, just that it has been received and that corresponding expenditures exist elsewhere.
As for trickle-down, I don't recall the theory ever being applied here. Successfully, at least. It has always been brought up (by conservatives) as a rationale for what usually are wealth-retention schemes. Then again, I'm liberally biased where economics are concerned.
More from Wikipedia. If you support the thinking behind trickle-down economics, you probably refer to it through some other term since "trickle-down" is a pejorative.
One of the most obvious faults with the trickle down concept is that the money gained by feeding finance to large businesses is not contained within the national finance system. Beyond improving technology to eliminate jobs, a very large percentage of profits is used to increase the profitability of a business by seeking and investing in the cheapest labor sources which are most frequently outside of the economy of a country so the benefits go somewhere else. Aside from this disastrous leakage of capital, the skills of the labor force and the production equipment disappear from the country as is evident in what is happening to the USA. The short sighted businesses do not seem to be aware of the obvious serious damage to the buying power of the home market which is why the system goes into a descending spiral that basically destroys itself.
Giving businesses relief from taxes will be the only way to stop off-shoring and outsourcing. Governments in the US have decided that manufacturing is a cash-cow and they take too much money from it.
I know a business owner that tells me to hire a $10/hour skilled employee, he has to pay $2.71/hr in workman's comp insurance, plus 1+/hour in unemployment, plus the portion of Social Security and Medicaid that doesn't show on his employee's paycheck, plus the burden for all the taxes the business pays... The portion of employee 'burden' that he pays to the government alone, before figuring any benefits, almost equals the person's wage. These government costs aren't flexible and they're required. An employee can't say "i'll skip the worksmans comp, please pay me the money instead"
If he outsources to China or hires an illegal, or even hires for cash, he cuts his employment cost in half.
I'm not sure why we charge any taxes to business at all? Don't we want them here? Taxes are for roads, schools, defense. I've never seen a business drive on a road, it's always a 'person' at the wheel. Businesses don't use schools, 'people' do.
I am not sure if that was an accurate description of "trickle down" but I'm reluctant to ask the govt to do additional wealth redistribution. They tend to skim & are more into buying votes than to making the best use of resources.
A concentration of wealth CAN lead to better technologies that have improved our lives to dramatically in the last 100 years, especially when combined with the profit motive that should accompany invention.
The govt is efficient at wealth collection, and if we want to help speed up invention, I'd go with grants awarded by people as far for elections as possible. But, historically, the best treatment is to be sure that inventors have a lot of incentive to do their thing. Market forces are efficient.
i dont think this was explained very well, you could have said the same thing in one sentence.. regardless of that i have a question - if the goal is to put money in the hands of average joe, doesnt it seem illogical that you would have to first take it away from him to then give it back?
where do i begin? this is so ignorant. please open an economics book! sorry, don't mean to be rude, just being truthful
^ignore my mean comment please.
If it were truly the goal of government to protect people there would be a lot more oversight in areas of business in the interest of fairplay. Unfortunately government has become more about politicians keeping people just happy enough to keep voting them in, and to maintain enough power so that companies want to buy them off. It's a delicate tightrope, but some people do it brilliantly.
A great example of trickle down economics by the way is the massive bail-outs... give 800billion in unrestricted funds to big businesses... and eventually (if the banks can figure out where they put the money) the people who were given mortgages bigger than what they can afford will magically be able to benefit from it.
As I recall, Reagan adopted the "trickle down" economics theory back in the early 80s. That's when the economic gap between the upper and middle class started to grow and hasn't stopped yet. Rich people are pretty good at staying and getting richer. The money bottlenecks at the low end of the upper class.
sand, you hit the nail on the head! Corporate America doesn't seem to understand that unless we (the workers/consumer) get paid enough to have disposable income, we won't be able to dispose of it and as such they will be left scratching their azzes trying to figure out how to make money. They need us (the consumer) as much as we need them. It's a symbiotic relationship.