Trickle up economics

Posted by: Barthélemy Barbancourt

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Thomas Sowell clarifies the confusion of Trickle down economics and why, even though misnamed, the policy creates jobs.

The very idea that profits "trickle down" to workers depicts the economic sequence of events in the opposite order from that in the real world. Workers must first be hired and paid before there is any output produced to sell for a profit, and independently of whether that output subsequently sells for a profit or at a loss.

With investments, whether they lead to a profit or a loss can often be determined only years later, and workers have to be paid in the meantime, rather than waiting for profits to "trickle down" to them.

The real effect of tax-rate reductions is to make the future prospects of profit look more favorable, leading to more current investments that generate more current economic activity and more jobs.

In short, if you give an entrepreneur more money, they will invest it today and create jobs today with the hopes of a return on that investment at a later date. This is why over-taxing the rich is so harmful to jobs. This is also a strong argument against capital gains taxes.

One way Obama could spur job growth would be to drop the capital gains tax to 0% for 3 years ot 10% permanently.

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TomC
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written by TomC , July 21, 2011

In a free market, the old adage "When the rich get richer, the poor get poorer" is absolutely not true. In free markets the poor get proportionally richer than the rich.

It is the political system, with the help of the media, that will bring the "American experiment" to an end as the bottom quintiles realize they can vote the property of the rich away. This administration, the Democrats in general, with media support, continually play the wealth envy tune.




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