Conservatives have been running on the economic theory that if the rich get richer, their extra money trickles-down to everyone else. But according to the exact opposite is true. The economy gets better when the poor get richer.
On Tuesday, Venture capitalist Nick Hanauer told Ezra Klein, on MSNBC’s ‘The Last Word,:
“This idea that if we just keep squeezing workers at the bottom, that somehow we’ll get more prosperous is obviously, categorically untrue. Look, if there was a truth to any of these arguments, given how rich the rich have gotten for instance, given how profitable corporations have gotten in the last 10 years, we would be drowning in jobs and prosperity. It’s the opposite of true. The way you animate prosperity in a capitalistic economy is by raising the bottom and using the surpluses.”
A look at historical economic data shows that Hanauer is right on the money. At times when the income inequality gap shrinks, the country experiences an economic boom.
The concept of tying higher wages for workers to economic growth goes back to early in the last century, when automaker Henry Ford said his employees needed to make enough money to buy the products they made. By doing so, it expands to buying-power of consumers and expands the middle-class.
But what’s been happening in America over the past 30 years or so, is businesses have been blaming wages for reduced profits. In turn, they have cut workers’ pay, which gives them less money to put back into the economy.
Hanauer calls it, “a death spiral of falling demand.”
At some point, there are not enough people left with enough money to buy any of the products their bosses make. When demand stops, the top economic tier also comes tumbling down.
The theory of trickle-down economics is not only unsustainable, it’s a ticket to economic collapse.
For some reason, this rather obvious concept has been lost on American voters who continue to election conservatives who are destined to completely collapse the economy with supply-side theory. By implementing ever-more drastic policies that widen the gap between rich and poor, they erode the buying power of America’s economic engine which at some point, brings it to a complete halt.
If every person in America today could afford to live in a comfortable home, buy a new car every three years, send their kids to college, and retire with enough money to maintain their lifestyle, the US economy would be thriving and the federal deficit would be history.
America is letting vulture capitalism rule government policy, instead of the other way around, and everyone but the super-rich are suffering for it. However, their day will also come if they are allowed to squeeze the buying-power life out of their workers.
The best way to grow the economy and create jobs is to give the poor the opportunity to become the middle-class.
With trickle-up economics, the more money everyone has to spend, the more money everyone makes. The logic is impeccable. But convincing the rich to part with their money for the good of the nation is as foreign in America today as the jobs CEO’s ship overseas in their quest for cheap labor. They are creating their own doomsday and don’t appear to be smart enough to know it.