Trickle up, or trickle down?

Which makes more sense to you as a way to stimulate the economy; trickle-down, or trickle-up?

Let’s look at these two ideas in action. Consider a restaurant, or a gas station, or a small law firm, or similar small business. Say the business is going along pretty well, making money, the owner is prospering and can afford an expensive car, a boat, European vacations, college for the kids, and has some investments socked away. Upper middle class, I guess.

More on the flip.
Apply trickle-down tax policy. The owner will have more money, say as much as $10,000 a year. GOPers say the owner will take this money and invest it in the business and create jobs; expand the restaurant, add more pumps to the gas station or perhaps open up another, hire an associate lawyer, or otherwise create more capacity for more customers that will require more jobs. That’s the theory.

The reality is that the owner will probably just buy more investments or nicer consumer goods. This will, somewhere down the road, lead to more jobs, probably. An upsurge in BWM sales will help create jobs, in Germany. Buying more stock in a company will allow it to borrow capital more cheaply, lowering costs, and returning more dividends to the wealthy investors.

The owner probably won’t expand the business with the $10k. $10k isn’t enough by itself for that, even $10k over several years. If the restaurant isn’t always full, the owner won’t make a bigger space so it’s full even less. If the lawyer isn’t turning down clients because of insufficient time to work new cases, an associate isn’t needed.

What will cause the expansion is demand. If the restaurant is full most of the time and customers come in the door, look around and leave because they don’t want to wait, the owner will expand. It’s obviously much less of a risk to create more space if you’re losing customers for lack of it.

Apply trickle-up tax policy and put more money in working people’s pockets. They’ll have money to eat out more, or go for a drive, get a will, whatever. They might save a part of the extra money, but they’ll certainly spend a part of it. Demand drives supply, not the other way around. Adding more hours or more space to the business will require more waiters, convenience store clerks, you get the picture.

Lumber mills in Cascade and Emmett closed and threw folks out of work. What would return jobs to those communities? Tax cuts to the corporations? Tax cuts to Paris Hilton? Those types aren’t going to invest in Emmett and Cascade. However, give more money to the townspeople to spend locally and it will boost the local small businesses.

The next time someone makes the argument that tax cuts for the wealthy will spur the economy, have them apply the logic to the local town. Their logic will fall apart.