I’d like to invite you all to participate in a new segment here on the blog. That’s right, it’s…
Correct Austin’s Economic Ignorance!
In this episode, I’ll question laissez-faire and trickle-down economics, and you can tell me what’s wrong with my speculations.
In “trickle-down” economics, what’s good for the rich is good for everyone. If the rich have more money, they’ll invest in the economy, creating jobs, helping the poor, etc.
But it seems like money always flows “uphill”, from the rich to the poor. The rich have more money than they can spend, and the poor have to spend everything that they make. On the lower end of the income spetrum, 
income matches or exceeds expenses all the time. People live paycheck to paycheck, and when they spend money some of it goes to the other workers living paycheck to paycheck, and some of it goes to the owner of the means of production, who adds it to his money bin.
This system is broken.
The money needs to be forced into circulation, which means higher taxes for the rich. But they shouldn’t care, because the money will come back to them. This isn’t socialism, it’s making capitalism work. Discuss.
Austin, what happened to you?
I’ll let Frank take issue.
Yes, I would love to go back to the days of Robin Hood, too. So long as I’m Robin, and Davey is the Sheriff of Nottingham.
(Austin, guess who you are?)
Austin,
I apologize for lack of interaction on a very fair question. The thing is, I think Chris and I are already sympathetic (perhaps for different reasons), Brian has been an economic schizo the past few weeks, and Frank likes to indulge in Middle English fantasies involving men in tights.
But don’t give up. Keep posting questions and maybe we’ll respond.
Um, okay, so Davey is accusing me of being gay (or something worse—where is Gabe when you need him?). Anyway, after being duly chastened, I’m ready to give you a real response.
Honestly, I don’t really think that forcing money into circulation is a feasible solution. For one, you can tax the rich more, but that doesn’t mean that it will help the poor out any more. Politicians and government leaders are generally pretty good at lining their own pockets. (Also, do you think the rich will stand idly by while their money is siphoned away? This is why offshore bank accounts and investments exist.)
I think we all know that the only real solution to this problem is a change of heart. Until people have Love in their lives, there’s absolutely no way they’ll care about paycheck-to-paycheck people.
(And now I know why I was sassy in the first place—this is all WAY too simplistic. Please, let’s not turn this into an argument.)
I didn’t really deserve a response to this one… it wasn’t a substantive enough question. And of course, the government is a huge part of the problem, and people not loving is another huge part of the problem.
But sometimes don’t you ever think something like my post? “Wait a minute, I don’t think anything ever trickles down!”
Gentlemen:
The short answer is that your inclination is correct, Austin: the ratio of the rich man’s wages to the poor man’s does not equal the ratio of their respective consumption rates. In like fashion, the rich man cannot meaningfully invest his leftover income due to market limitations. This makes sense; if you figure a more or less narrow and defined range for possible human consumption, and then remember that the rich man’s wages far exceed this consumption, his supply of money cannot realistically ever find demand. That is unless his excess wages are somehow equal to or exceed the possible rate of innovation, which has proven to not be the case: Rome, we often recall, was not built in a day. So the Rich Man’s money is instead spent on speculation.
This is a pretty sophomoric understanding of the situation, and there are indeed reasonable capitalist arguments against what I said above, but the heliaic tendency of money to float upwards in the economic strata and get lazy is a fairly basic tenet of distributivism. It ultimately hints at a disparity between labor and value, which is no surprise when you look at how much Adam Smith’s “division of labor” and our ever swelling technological hurricane have changed the world.
Be aware that “putting money into the hands of the working man” is a very New-Deal, Keynesian way of looking at things, and clear-headed free market theory assumes that pumping money into a market that has already sought efficiencies (and is thus in balance) only takes money from those who would improve the system, forces them to introduce inefficiencies (to employ unneeded workers), and pass the buck on to those workers, thus causing a net loss of wealth to the system.
Much better to not follow the buck and instead approach the question from the moral angle: which does greater moral good — feeding the poor and causing inefficiencies or feeding the speculative markets and thus inflating equity and commodity bubbles? We can talk about what is better for “the markets” all day — and the most celebrated economic texts do this irrefutably — but we rarely talk about what is better for men in general, and considering books like Ecclesiastes, this is at least a much more difficult (and more important) question to answer.
C.
HT: Guess who? http://distributism.blogspot.com/2008/10/comrade-buchanan.html
I might also mention, because I obviously never shut up, that as we move away from Modernity (man as machine) to something more Post-Modern, we end up with a different business model entirely that views human beings as an asset class that is somewhat more irrational. Let me explain.
The industrial revolution brought us our first set of efficiencies. We saw division of labor and human performance in brute mathematical terms – each coal miner was really just a shoveling machine, capable of moving x amount of coal every hour. In a cartesian universe, nothing could make more sense, and in a society transitioning out of agrarianism, the proof wasn’t hard to find.
But our people broke down, sputtered out, formed unions, and the capitalist swine had to change the game plan. The government got wise and made their own laws, fixing minimum wages and maximum hours. It has taken us a while to reach equilibrium, but I think we’re approaching something close to it now.
And what do we see? Lo, understanding the human condition, and the value of human beings far beyond their physical capacity, we have begun to restructure our businesses. The Workforce world is thick with the buzzphrase “Human Capital.” Microsoft gives free snacks to their employees, because they understand that human beings have replaced the cold steel of the Industrial Revolution, and humans run on more than wages. Fad Management says that running a good company is about finding “the right people,” best practices encourage personal empowerment, creativity, happiness, and time to imagine.
This little narrative just goes to show you that there hasn’t necessarily been a failure of the free markets, not yet at least. Companies are figuring it out, and spending more money on their people. The good companies have always done this, and have always been rewarded. Companies that do not rarely last beyond a generation. And everywhere, companies are going green, giving to charity, investing in education and planting trees.
Capitalism is not wholly consistent with charity, beauty and love, but things sure do look better than when they did when soot shrouded our cities and children worked harder than mules.
Chris, as usual your comments are rad-er than my posts. Thanks for the clarity.