Tuesday, April 19, 2011

Trickle down? Are you kidding me?

I was listening to a story on NPR yesterday about the recovery of the gulf coast after the BP oil spill. It focused on Panama City in Florida, and explored the effects of the spill on local tourism.  Business owners had been expecting a good year.
For Panama City, the spill and the downturn in tourism came just as the community was completing a makeover — with a bevy of new hotels and condos, the Pier Park complex and a brand new $300 million airport.

It was expected to be a banner year. When the spill hit, Thomas says, he was building a new restaurant. He was forced to put it on hold.

"I mean, we had projected some huge increases because of the airport. And I was in the process of doubling my business. That stopped it. That hurt. That impact will be felt for a long time," Thomas says.
Note that the expected boom was due to the new airport. That is, government spending on infrastructure. A new airport will bring in more travelers, which will increase the demand for hotels and restaurants. Thomas responded to the expected increased demand by building to accommodate it.

Here's how Republicans think it works. You take the same guy, Mr. Thomas, and you don't even look at the demand side of the equation. Only the supply side (that's why it's called supply side economics). You give Mr. Thomas a big tax cut, so he's got more money in his pocket. Republicans think that he'll take that extra money and expand his restaurant, just because he has the money to do it. When he expands he'll hire folks to work in it. And then he'll sit back and hope it draws in a bigger crowd.

That's not the way it actually works. A real business person will either expand to meet a current demand that they can't satisfy, or to meet an expected demand. Like the influx of new tourists that will accompany a new airport. If consumers have money to spend on travel and restaurants, they'll create the demand, which will lead to the expansion and jobs. If consumers have no money and don't travel, there will be no demand, and no expansion, and no new jobs.

Putting money in rich people's pockets doesn't lead to jobs. Putting money in the pockets of people who will spend it, like the middle and lower classes, will lead to jobs. Trickle down doesn't work. (See, Bush tax cuts and Great Recession). And even if it did, who wants just a trickle?

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