Trickle Down Exists, But Not How You Think (And Why That’s A Problem)

There’s been trickle down, just not in the way people tend to think of trickles. The trickle down theory was sold as wealth reaching the lower classes, down from the upper classes, but it has never occurred in the nominal sense – only in the real wealth sense.

423568_357796647597727_344059972304728_1112739_1286501711_nI saw someone on Facebook post an image complaining about the idea that someone on welfare can afford an iPhone even though people off welfare cannot (which is ludicrous and a hasty generalization fallacy; you do not see many people on welfare with such nice amenities). That is the form of trickle down we’ve seen – while people’s incomes in the lower and middle class have stagnated in real wages, the quality of goods has increased. The affordability of cheap, 26″ flat screen LCD televisions, iPhones, Android phones, computers, laptops, video game systems, and whatnot have remained very reasonable despite being very technologically advanced compared to technology thirty, forty years ago.

That’s the invisible trickling down from the investor class to the lower and middle class. So we do have trickling down, but in the form of technological productivity which keeps technologically superior products cheap in nominal terms and incredibly cheap in real terms.

The problem is people misunderstood income and wealth. We are wealthier now despite the fact real income for most people in the US has gone down in the last few decades and nominal income has pretty much stagnated. Incomes haven’t matched or exceeded inflation, hence the lack of real income growth. When people think of trickle down theory, people think that incomes should be growing. Apparently this isn’t the case.

Perhaps people were sold a bill of goods, just like we were during the run up to the second war in Iraq under Bush who misled us to the circumstance and purpose of that war. Whereas Bush’s administration at the time made it seem as if Saddam was involved with Al Qaeda by speaking of both under the same breath, those who spoke of trickle down theory also hinted at income and wealth, tricking the people into thinking that income would rise. Incomes did rise, but not in real terms. Nominal income is great for headline growth numbers but real income matters more for the lower and middle class whose lives, instead of their investment portfolio, are directly affected by it.

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Perhaps the people who pushed trickle down theory didn’t really understand what they were pushing, either. I don’t know what was in their minds; I am not one to trust the secretive upper class who talk to the public as if they’re mindless children who cannot learn and understand (although it often seems like they’re right, but that’s because the lack of information allows for untestable hypotheses to fester and grow among the uneducated). If they did not completely understand supply-side theory’s effects on income, wealth and productivity and didn’t understand or were comfortable enough to elaborate the fact that supply-side economics would pretty much lead to increased wealth at the top and the trickling down of wealth in the form of technological productivity, then they should be more interested in reconsidering their positions on redistributive policy in order to avoid economic stagnation.

Why? Because you can only do so much with your money. Lower and middle class families are being pinched financially due to the natural rise of energy and food prices (food producers have to live with, too; prices go up in order to afford to keep the farm). While they may be able to afford that iPhone, it is in spite of the fact they’re being pinched in the pocketbook. The matter of fact is that being able to afford an iPhone while having a low income isn’t testimony to the unfairness of welfare or anything like that – it is testimony of economic productivity. It took a while for that person on welfare to buy that iPhone; they’re not buying a new one every two weeks. They had to save for it just like the people off welfare would have to save for it.

But if people keep getting pinched, people will have to take longer to save up for that same iPhone. If that trend continues, the economy will stop being a consumerist economy – but it won’t be an economy of savers, either; it will be an economy of economically pinched plebs with a few in the ultra-wealthy class who have decades of being unable to understand why they complain and stop buying their goods in high quantities.

The weak real income growth may very well create a wealth gap as bad if not worse than the one that exits in China. We are already seeing the line between general public opinion and the government’s decisions being severed; nations fail when the people cannot buy into the government. If only the elite, wealthy class own and control government, things will turn for the worst. Trickle all it wants, it won’t be enough.

See also Jamie Kemmerer on trickle down and its problems (also the source of the above graph).

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