Monday, July 21, 2014

Trickle-down economics

Trickle-down economics
This theory has been disproved many times in our history, yet the dingbats are still in love with it.  It has never worked, but they still keep preaching this as the ultimate solution to all our economic problems.

Here is a hypothetical example:  You own a small factory manufacturing gizmos.  Currently your capacity is 1,000 gizmos each year.  Each gizmo retails for $1,000, and you realize 30% net profit.  So far you have been able to sell your entire production each year, but the past few years have been tight.  The number of middle class workers who can buy gizmos is shrinking.

You currently employ 20 workers. At times you have considered expanding your production which would enable you to hire a few more, but the market just is not there.  This would require some investment on your part, and entail a risk that you might not be able to sell more gizmos.

The government is constantly talking about how we need to create more jobs, but you just can't see any economic advantage associated with the risk of expansion. But then the government says that in order to encourage job creation, we're going to give you a big tax break.

So you and your accountant look at the numbers. Yes, you could invest in expansion, take the risk, hire a few more workers, and maybe, perhaps show an increase in revenue.  OR, you can do nothing, enjoy the increase in net revenue resulting from the tax break, make up excuses why you can't create more jobs, and investigate moving your entire operation to China.

So, more money to the top does not necessarily mean any will trickle down to the workers.  What it usually means is that the rich get richer.

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