Tuesday, June 29, 2004

Trickle Up Economics?

I have been doing research about the minimum wage lately, spurred on partially by Kerry's proposal to raise the minimum wage from its current $5.15 to $7.00 by 2007. The right wing has trotted out all the arguments against it - higher unemployment, inflation, etc., even though Bush is not necessarily opposed to the idea.

Coincidentally, one of my friends emailed me today and articulated a thought that has been forming in the back of my mind for the past several weeks. In a nutshell, why is it that the right wing is so quick to embrace trickle down economics, but so closed-minded about the possibility of trickle-up economics?

In a nutshell, your average right-winger accepts as an article of faith that if you give the rich people more money, they will spend it in such a manner that everybody will benefit. On the other hand, if you give a poor person a higher wage, that money disappears into a black hole and does no economic good (kind of like the money the right wing wants to spend on Star Wars defense).

Doesn't it make sense that if the poor community gets a wage hike, they will spend it in their community, on the goods they need or desire most? If the person bagging my groceries gets another few bucks a day, s/he isn't likely to ship off those dollars to Germany for a new Porsche - it'll probably go for more immediate needs, like better housing, clothes or nutrition. Doesn't it make sense that America's poor will do better if more money is spent in the areas where they live?

My friend wants to use this theory as a theme to build a new Democratic vision - and I think he has a point. The right wing's economic theories often center on enhancing the consolidation of capital as a form of economic efficiency. The left wing, however, could seize the issue by using economic theory as a way of solving the problems of the poor and the working poor by decentralization of capital. It's common sense that money siphoned to the wealthy may have some attenuated trickle down benefit, but it's also common sense that money earned by the poor will help the micro-economies of the poor, and will trickle up more quickly to the middle class. At the same time, it could have all kinds of "positive externalities" (see, I really have been reading some economics!), such as enhancing the health and welfare of our poorest citizens, rather than paying for the country-club dues and foreign cars.

The theory has deeper application than minimum wage laws, though. Universal health care could, perhaps, fit within the concept of trickle up economics. By asuring that everyone, employed or not, has access to adequate health care, we could unleash untold entrepreneurial energy currently enslaved by the necessity of maintaining employment for access to employee health care plans. Less traditionally liberal, trickle up economics may encourage the left to take a fresh look at issues such as school vouchers (which I currently oppose, but am willing to rethink).

Money spent on our social safety net is not wasted - in fact, it is invested in the area most in need of investment. Increased teacher salaries not only benefit teachers, they benefit students, and communities. Many of the programs near and dear to the heart of the left could, perhaps, benefit from being recast as wise investments in the economy, and their benefits may be more deeply understood from the perspective of how they trickle up, to build our economy on a stronger base.

15 Comments:

Anonymous Anonymous said...

The arguments I've heard against mimimum wage go like this:
Increasing the lowest level of wages increases prices as a whole. This adds only inflationary pressures and the cost of goods and services go up for the whole economy.

When I point out that mimum wage has lagged inflation since it was introduced, I only get blank stares :-)
-Keith Sader
http://www.saderfamily.org/roller/page/ksader

7/02/2004 7:44 AM  
Blogger likwidshoe said...

In a nutshell, your average right-winger accepts as an article of faith that if you give the rich people more money, they will spend it in such a manner that everybody will benefit.

It's not an "article of faith". It's just the truth.

On the other hand, if you give a poor person a higher wage, that money disappears into a black hole and does no economic good...

Nice straw man. What really happens is that the person will be out of a job because his employer can no longer afford to hire him. If not him, than his co-worker. I also have to question why you would pay someone more than their work is worth.

(kind of like the money the right wing wants to spend on Star Wars defense)

Comments like this can kill your argument and detract from any point you are trying to make.

Doesn't it make sense that if the poor community gets a wage hike, they will spend it in their community, on the goods they need or desire most? If the person bagging my groceries gets another few bucks a day, s/he isn't likely to ship off those dollars to Germany for a new Porsche - it'll probably go for more immediate needs, like better housing, clothes or nutrition.

Good theory that ignores the fact that the goods made by the lower paid workers no go up in price. The union goods go up in price as well because union wages are often tied into a set amount above minimum wage. So now your higher wage is cancelled out by higher prices and job insecurity.

Doesn't it make sense that America's poor will do better if more money is spent in the areas where they live?

Yes it does. But you can't force that through government meddling.

The right wing's economic theories often center on enhancing the consolidation of capital as a form of economic efficiency.

Since when?

The left wing, however, could seize the issue by using economic theory as a way of solving the problems of the poor and the working poor by decentralization of capital.

But it doesn't work out that way. See: any European country and any Democrat controlled big city.

At the same time, it could have all kinds of "positive externalities" (see, I really have been reading some economics!), such as enhancing the health and welfare of our poorest citizens, rather than paying for the country-club dues and foreign cars.

Who do you think works in country clubs and who makes foreign cars?

Universal health care could, perhaps, fit within the concept of trickle up economics. By asuring that everyone, employed or not, has access to adequate health care, we could unleash untold entrepreneurial energy currently enslaved by the necessity of maintaining employment for access to employee health care plans.

Right. Now you are just enslaved by the high taxes.

Keith Sader said, The arguments I've heard against mimimum wage go like this:
Increasing the lowest level of wages increases prices as a whole. This adds only inflationary pressures and the cost of goods and services go up for the whole economy.

When I point out that mimum wage has lagged inflation since it was introduced, I only get blank stares :-)


Noticeably absent from your pronouncement is any source backing up your claims.

5/25/2005 12:22 PM  
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Anonymous Anonymous said...

I believe it is a fact that even most "right wingers" accept that lower wage earners will spend a higher proportion of any additional income than their wealthier compatriots..

But that is making the fatally flawed assumption that a (higher) or indeed any minimum wage will increase the total take home pay of those earning lower incomes, the human capital market is the same as any other market, if the government were to turn around around and say OK there is a now a minimum price for oranges, yes there might be some benefit to the orange growers, but I would predict that tangerine and other fruit farmers would see a bigger windfall, just as offshore or robotic/automated labour will benefit most from a higher US labour cost.

12/20/2006 1:22 PM  
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Anonymous Anonymous said...

Thank you for the post. I agree with the trickle up theory. Although our government may be run or influenced by large corporations, it is actually the Small Businesses that are the major job providers in most economies. I think any one with a brain will realize that if you provide more money to the 95% of our work force, they will in turn buy products. Most people can't afford to save there money, the need goods and services. It is a no brainer.

10/14/2008 11:19 PM  
Anonymous Anonymous said...

I think anyone with a brain will realize that when you just hand people money without hard work then suddenly people will start realizing that you don't have to work hard because you will get a free handout from the government. Where is the incentive to work hard and better yourself when it can just be handed to you. Sounds like welfare to me

10/26/2008 11:57 AM  
Anonymous Anonymous said...

"I think anyone with a brain will realize that when you just hand people money without hard work then suddenly people will start realizing that you don't have to work hard because you will get a free handout from the government. Where is the incentive to work hard and better yourself when it can just be handed to you. Sounds like welfare to me"

You are assuming a kind of "Robin Hood" approach where money is just given out in what, a check, cash? What exactly was the $1000 stimulus check put forth by Bush? those earning over $150K didn't see a dime - that's right wing socialism disguised as "stimulus." What people are arguing for here is lower taxes for the lower wage earners, a minimum wage indexed to inflation. The incentive to "work hard" will always be there because the rewards far outstrip the costs of running your own business or being your own boss, a professional. Socialism is here for the wealthy (i.e. AIG, Lehman, BoA); all the "little people" want is tax fairness for the hourly wage they put in.

10/26/2008 5:39 PM  
Anonymous Anonymous said...

"all the "little people" want is tax fairness for the hourly wage they put in"

That is the very definition of socialism. "Pay me more without me having to do anything" I'm sorry but don't expect to get a job at a gas station and expect to raise a family. You, have to work hard, better yourself by becoming the gas station manager, then regional manager etc. Thats how it works, it's called capitalism. If you give a poor person $1000, sure they will spend it, but guess what, one month later when that money is gone, they will still be poor, except now they will have a really nice new tv! And where did that money come from that you gave them? It came from me, a hard working person that pays a higher income tax. And you still want more from me, and you think that will make the poor wealthy? Give me a break.

10/29/2008 12:34 PM  
Anonymous Anonymous said...

That's just stupid brainwash crap.The job you described doesn't exist.Most small businesses that employ most of us have the owner and their inept family members as management.So the job you hire on as is most likely where you will end for as long as you work there.There is no up.Anyway i didn't come here for that rant but 1000 bucks isn't exactly entrepreneur money so what then? Where the hell do your high taxes go now?Do you think they'll want more next month?

10/31/2008 12:02 AM  
Anonymous Anonymous said...

It isn't a theory, it's basic economics. Business hire to meet demand. Less demand, less profit, less employees. More demand, more profit, more employees.

The Middle Class is the largest group of consumers in America. Wouldn't it make more sense to put more money in their pockets? They spend the most.

Trickle down just helps Wallstreet. It gives the rich more money to play with. Trickle up helps Mainstreet, and eventually Wallstreet. How? Businesses make more money, quarterly reports look good, and stock prices go up.

It's just that simple.

11/03/2008 10:33 PM  

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