Monday, October 20, 2008

Trickle Down Economics

There has been a lot of discussion during this political cycle regarding the negative side of "Trickle Down Economics." This is being called "The George Bush Economy" or "greedy Wall Street."

The people who are against Free Market Capitalism are the ones who strongly deride "Trickle Down Economics" in favor of "A Regulated Free Market" which mandates "fairness." They claim that you must take enough money from the top earners (ie the rich) to give to the poor in the name of "fairness." The ultimate goal being that every person in the country will make the exact same amount of money regardless of education or work ethic (well, except for those in government, of course).

This is not a battle of trickle down economics vs a "fair, well regulated" economy...

This is a battle of which trickle down economic theory you believe in: A privately owned and run free market or a government-run collectivist economy. Both are distinctly trickle down economic philosophies, although, for some reason, people don't seem to understand that socialism is a less efficient trickle down economic theory.

In the privately owned trickle down theory of free market capitalism, decisions are made based on economic need. Prices are based on what consumers are willing to spend on particular products or services. Assets are purchased and owned privately and are valued based on what others are willing to pay for them. A true free market trickle down system allows workers and businesses to continually shift around, which moves valuable capital from less efficient uses to more efficient uses. This helps capital to "trickle down" in the most efficient way and provides ways in which the "lower income" people can move up the socio-economic ladder to purchase income producing assets in the future.

In the government-run trickle down theory, decisions are made in Washington D.C. by 536 people (435 in the House, 100 in the Senate and the President). Because economic decisions are based in a central government, this is correctly called Socialism. Annually, the government "big business" takes at least $3 Trillion out of the privately-owned free market system. 536 people get together and decide how to best "trickle down" the $3 Trillion in the "best way." This is not the worst idea...IN THEORY. If you had 536 experienced and honest economists, they could probably make the system function. But, economists do not make good elected officials...they are boring and do not connect well with the general public.

Therefore, you have 536 people who are grossly unqualified to direct $3 Trillion worth of capital and resources. The government-run trickle down theory creates a vastly inefficient system of "spreading the wealth" around. It cannot create wealth so it starts with smaller resources than it needs then distributes it in ways which are more beneficial to the 536 people in control of the resources rather than distributing the capital in a way most efficiently to all participants in the system.

To fight the war on poverty, our first step is to choose the system that allows for the most capital to reach those who need it most. We believe a privately-run free market system will allow for the "trickle down" of the most capital to those who need it. To truly fight poverty, our goal is not to make everyone have the same amount of wealth, but to find those without much wealth and help them participate effectively in the system to earn wealth.

This is very complex subject matter to get into the details, but the basic discussion point must not be the current debate between capitalism which "allows the rich to get richer and the poor to get poorer" vs socialism which "spreads the wealth around." If we truly desire to see an end of poverty both here and throughout the world, we must create efficient economic systems which have the least waste. This allows more money to be available to everyone, which prevents poverty in the first place.

Please leave comments. This is a very personal issue for me. I cannot stand to see people living on the streets asking for handouts. I know most people feel this way. I am a problem solver who will not leave this issue to the government. I will solve this with millions of my fellow Americans helping out. The government-run economy is grossly inefficient and can never possibly hope to eliminate poverty. We need to change the debate if we care about the poor.