Bubble Up and Trickle Down Economics: What Are They?
Trickle down economics is the theory that if you allow more money to flow to the upper income class, people of this class will invest in business and spend more money, and the resulting overflow will trickle down to the lower income class, benefiting them as well.
Bubble up economics is the theory that if you allow more money to flow to the lower income class, people of this class will spend more money that will eventually rise up to the Upper income class, benefiting them as well.
The question posed here is which model is better for the economy as a whole? But the U.S. is a capitalist, free market system, isn't It? Doesn't the market decide who gets what, not the government?
The U.S. is far from a purely capitalist, free market society. There are numerous laws and tax codes that favor individuals differently, usually benefiting either the upper or lower income classes more. The market dictates much but certainly not all of "who gets what."
Our tax laws, of course, are the easiest example, with different tax rates applied to different income levels. But there are numerous other types of laws that benefit either the lower or upper income classes more, and stray from a purely free market or capitalist system model.
Laws that benefit the lower income class:
- Anti-blacklisting laws
- Protections for unions
- Child labor laws
- Racial, age, and gender discrimination prohibitions
- Employee rights laws
- Political donation restrictions (so that the wealthy can't steal elections)
- Minimum wage laws
Laws that benefit the Upper income class:
- Land and mineral ownership rights
- Capital gains benefits
- Corporate loopholes
- PATRIOT Act restrictions that limit off-shore dealings for individuals but not for business
- Lobbying permissions (so that the wealthy can influence new laws)
Still think we're a capitalist, free market system? This is how it would look if we were:
There are many strictly non-free market regulations that benefit one income class more than another. A "truly" free market society would have no restrictions, with businesses and individuals being able to do whatever they want:
1. Business hiring. Companies could hire children, at poverty level wages, to work in coal mines because they're smaller in stature and cheap. This was the case for a long time until laws restricting underage employment were made, as well as minimum wage laws.
An employee who causes trouble (asks for a raise or complains about unsafe work conditions) could be fired and other companies in the area notified that the individual is a "troublemaker," effectively ruining that employee's options for ever finding work. Anti-blacklisting laws came out of this practice.
2. Mineral resource rights. Someone finding a rich gold or oil reserve on their land could keep every penny of wealth from that land. Currently the resource is treated as a public asset and taxed at a much higher rate.
3. Political donations. An individual or company could give as much money as they wanted to a candidate, essentially ensuring their victory. We currently have many restrictions on how much an individual or business can donate.
Lobbyists could give money to politicians freely to "encourage" laws that favor the lobbyist are passed. There are restrictions here, but lobbyists certainly yield a lot of sway.
The list is really endless, and these are just some obvious examples.
Since we really aren't a truly free market system, how should we decide who gets more? Which economic model is better for the economy? The question is, if you're not going to insist that we should live in a purely free market system, how would you weight taxes and financial benefits to achieve the strongest and healthiest society as a whole: towards the lower or upper income class. What happens when we favor one class over the other? Here is a proposition of how each class might spend their extra money: