Thursday, April 7, 2016

Contra "Trickle Down"

This won't be a long post, as I plan on writing a much more elaborate discussion later, but for now, having been annoyed by some comments on a ludicrous article about the "4th Industrial Revolution"  -- which I shall also criticize in another essay, though a brief rebuttal can be found at "Against the Neo-Luddites and Anti-Automation Rhetoric" -- I am angry enough I have to write a brief rebuttal of the whole "trickle down" idea, especially since so many think rebutting it proves the free market is a flop.

First, let us make it clear, no one supporting the free market invented the concept of "trickle down economics", the term was invented as a means of mocking "Reaganomics" -- itself another term of derision -- so the idea that "wealth trickles down from the rich to the poor" was not a cornerstone of free market thought under Reagan and Thatcher, but rather a mocking, simplistic, and essentially wrong summary created by those without any understanding of, or faith in, the free market.

Having said that, can we now stop trying to prove the free market fails by rebutting the "trickle down" theory? It would be akin to disproving the existence of the Flying Spaghetti Monster and saying you proved the validity of atheism. Rebutting caricatures created by critics does not prove the original theory is wrong, it mere proves that the way critics describe a given theory is often invalid.

Now, having said all that, let me point out why, though it is not "trickle down", the idea that wealth being created at any level of the economy benefits everyone is a valid theory.

Well, first of all, simply because the economy is not a zero-sum game. ("Zero Sum Games", "The Basics", "Competition", "Another Look At Exploitation", "Two Sided Processes and Claims of 'Unfair' Outcomes", "Greed Versus Evil") Anytime there is new wealth created, the whole economy grows. The goods become cheaper, new jobs are created, people at all layers find new opportunities. I grant, at some points, change causes problems for individuals, the auto made life hard for cart makers and hose breeders and farriers, but in the long run, overall, it increases the wealth of all.

Some will ask how, so allow me to offer two demonstrations, one about how "rich man's toys" drive the economy to the benefit of all, and one of how accumulated wealth benefits even those without any significant wealth.

Let us look at the toys of rich men. At one time, automobiles were such a toy. So was most travel, period. I am not talking air travel or cruises, though those too were also one the province of the rich, but even just simple travel was limited to the rich, or at most the upper middle class. Especially in the more remote past when travel took a lot of time, during which you could not earn, and had to pay exorbitant prices for everything along the way, while providing your own transport and protection. Then again, medicine was once a province of the wealthy. And so was the theater. Oh, in the Elizabethan era that one changed, but changed largely due to free enterprise as did all of these things. In fact, maybe the theater offers a good, simple example.

Theater was largely the province of the rich, with plays staged at court, or at special events, sometimes being commissioned by groups of well to do, such as inns of law or various societies. But it was not the province of the middle or lower classes.

However, as theater became more popular, and profitable, more people entered the market. The money gained from the rich made it possible for these men to rent or buy fixed venues, where they could then perform for the masses, trading the wealth of a few expensive performances for the greater wealth to be had by playing for a pittance, but a pittance multiplied by a multitude of viewers. And, in the end, it worked. The owners of the London popular theaters made the bulk of their wealth not from court, but from the masses.

Or, let us move forward and look at automobiles. As I said, once a toy of rich men. The auto was terribly expensive back when only a few were made, mostly by hand. And, at that time, there was no incentive to make them any other way, as even some sort of mass production would still be too costly to sell to the public.

But by selling a very expensive good, a fair amount of money was made, and it was invested in making production cheaper, in coming up with designs that were easier to make and so on. And cars went from toys of the rich to toys of the upper middle class. Granted, they were hardly universal among the middle class, and many had to save up for one, but more were being sold all the time, and at the same time, price was declining. Eventually, declining enough that mass production did make sense, and the car exploded across the landscape as a common possession of most classes of society. All because there was money in making a "rich man's toy".

The same was true of televisions, radios, computers, VCRs, and so on. And earlier of watches, of books, of multiple sets of clothing or shoes, of houses, and so on, and so on. Things become cheaper over time because the money invested makes it worthwhile to see how to make things more cheaply. As they take less labor and fewer resources, they become more widespread. (This is why I so despise those who panic about automation and think it will impoverish us and make us unemployed, despite the centuries of evidence to the contrary.)

In short, the desires of the rich, and the work of the middle and lower class laborers, managers, foremen, engineers and inventors who provide for those needs, end up, in the long run, bringing those same goods to the masses.

Now, for our second point. Some will argue that the wealthy, by accumulating wealth, make the rest of us poorer. That "trickle down" fails, and that money never goes anywhere. I rebutted this before (see "The Benefits of Inequalities of Wealth", "A Great Quote", "More Thoughts on Wage Disparities", "The Other 99%", "The Oh So Useful Middle Class", "The Problem of Established Perspectives" and "Denying Reality"), but let us go through this again.

First, and most simply, the rich spend money. It is one reason most people want to be rich. Even among the most frugal rich, they still spend more than poor people. And where do they spend this? In shops that, even if they are owned by other rich people, are staffed and managed by middle class and poor people, and selling goods made by the same. So, if the wealth accumulated by the rich allows them another yacht, they do not get it by waving magic money in the air, they buy it from middle class dealers, who buy it from middle class and poor workers who make boats. And more than that, the crew of that new yacht, the boat yard workers who maintain it, the oil workers who provide it with fuel, the wood workers and chemical workers who provide parts and paint for it, all of them are poor or middle class too. Over time, that yacht spreads around quite a bit of wealth.

But there are still some who think the rich don't buy things, but just hoard money. Well, even then they still help. You see, banks lend money, and create jobs. And if they don't use a bank, then they invest it, and that also creates jobs. Now, some will say that only helps the rich, but that is nonsense. How many rich employees are out there? No even if a rich man borrows the money (though why he would need to if he were rich, I do not understand), he still employs middle class and poor people. Thus even money not spent still helps out those with less wealth.

In fact, great fortunes help the poor and middle class even more than the wealthy. As I pointed out above, the rich don't need to borrow, they have money. To start a new business, they can self finance. But the poor and middle class, when they have a new idea, or simply see an opportunity of some sort, they need to borrow. And without the great accumulated fortunes of the rich, that would be much more difficult. It is that great mass of available capital that creates opportunities for the lower classes to join the upper classes, as well as employ more lower and middle class individuals along the way.

All of which does not even consider the people directly employed by the wealthy in whatever venture made them rich initially. But that seems too obvious to need mention.

This is running on longer than I had anticipated, so I think I am going to end it here. As I said, I will do a much more comprehensive examination of this topic later, looking at how wealth actually helps, how it is not a zero sum game, and the harm redistribution does (see "The Irrationality of Government Redistribution", "The Price of Equality", "Spread the Wealth Around", "An Examination of the Economics and Sociology of Government Spending", "The Sado-Masochist Society, or, Would Primitive Communism Work?" and "Government by Emotion"). But for now, I think I said enough to get across my basic point.

ADDENDUM 2016/04/10:  I was reading my description of Elizabethan theater, and I realized someone could raise a few valid objections. For example, there was always some amount of popular theater, such as passion plays and the like. However, for the most part, secular theater was the province of the well to do. In addition, some will point out that the popularization of the theater, in part, arose because of the explosion of educated middle class individuals in the Elizabethan era, which is also true. Thus, it may not make a perfect example of my argument. On the other hand, the middle class gained education largely because of the shifting of wealth to the upper middle class, which allowed for the creation of the popular theater, to the benefit of the lower classes, making this something of an example of how the enriching of one group can benefit the whole of society. In addition, though I did not discuss it, the growth of wealth among the middle class, and especially the upper end of the middle class, actually helped spread education among classes which were not so enriched. For example, the demand for books among the middle class caused books to become much cheaper and more common, making it possible for even the poorest to afford what had once been a luxury of the rich. And there are countless other examples. So, I suppose, though the theater is not a perfect fit, there are enough alternate examples I really need not worry about one somewhat poor example.

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