Economics
Part of the White House dialog

Clif Carothers ... Ironically, Trickle Down Economics Trickled Down America's Future

Burgess COMMENTARY
The following is a comment I have posted ... one of around 130,000 comments!

Clif Carothers • Your original post in 2011 has my attention in part because there is a lot to learn from history ... and specifically understanding how the economy and the society worked in times past.

Your observations about supply side economics and the role of capitalism are well taken.

I like to go back a little further. Adam Smith is highly regarded by the modern laissez faire capitalists who argue that the market will allocate resources in the most efficient way possible, I would observe, however, that Adam Smith was writing based on his study of the economy (in England) in the late 18th century. Wealth of Nations was published in 1776. The workings of 'the invisible hand' are described in this era ... and the workings of the market do seem to have helped balance supply and demand rather effectively.

But back then technology was rather different from what exists more than 200 years later, and the structure of the economy is very different. The main markets were markets for food items ... markets for capital were emerging but relatively primitive and there was nothing that could be described as an 'industrial sector. In the main, all business was small business. Concentration of economic power is more recent.

And it is concentration of economic power that is one of the great problems of the modern times. With the modern level of concentration of economic power the idea of 'market' is a fiction. The modern market is not efficient for society ... though arguably it is very efficient for those that are in a position to 'game' the market or control what happens in the market.

I emerged from the university about 50 years ago. In the last 50 years technology has become perhaps a million times more powerful than it was back then. For some ... a few ... their wealth has increased by a million times, or is it a billion times. But for most of us, wealth has not accumulated by so much. For many in mature developed countries, the family has a money based net worth lower than it was a generation ago.

I argue that one of the big reasons why the modern economy is in deep trouble for most of us is that the only metrics being used are those that relate to money profit for business activity and investment, stock market and bond prices for investors and GDP growth for economist and policy makers. The key metrics about progress and performance in society are missing. Media organizations like Bloomberg or CNBC talk about money profit, capital markets and GDP growth all the time, but never talk about the progress towards a better quality of life. Nobody does.

There is something to be learned from the professional sports sector. They have one level of data that deals with the teams that win the games and another level of data about the individual players. The data impresses me ... even though I cannot pretend to understand what it all means.

If quality of life is important ... and I think it is ... then there should be data about how quality of life is changing over time, and how the underlying economic activity in the community is contributing to making quality of life better. I call the 'valuadd', something like money profit, but using value metrics rather than money metrics.

What has happened over the past 50 years is that a lot of money wealth has been accumulated by the rich and powerful while there has been huge negative valuadd ... in other words, value destruction ... in the families, communities and society that make up the nation.

I argue that when we start to measure valuadd (and value destruction) and start to hold organizations and decision makers accountable, a lot will change.

If you change the way the game is scored, you change the way the game is played. With no system of measurement then 'anything goes' and there will never be any meaningful accountability.

Peter Burgess @truevaluemetric

Ironically, Trickle Down Economics Trickled Down America's Future

America is a land of irony. We are filled with capitalists whose intent is to accumulate all the wealth the world has to offer, and at the same time, we also have an altruistic nature that tears at our capitalistic infrastructure. We defend our great society and fund outreach to other nations through our tax dollars. We support our dreams of a united earth through a funding of the United Nations and fund our version of world peace through 1,000 military bases dispersed throughout the world. To grow our middle class, for the past thirty years we have supplied enrichment to our upper class to have it trickle down.

Supply side economics is an irony of political invention as well. Its invention of thought intended to provide extra capital to America’s private sector, the sector that creates taxpaying, productive jobs that extends America’s know how, innovation, skills, and gross domestic product. In our world’s current economic system, when a venture is started, some seed capital that has been accumulated by the world’s elite is then combined with borrowed money created from thin air by banks through the venture’s promise to repay. This devised modern structure of government and banking thus provides the investment needed to fund the venture’s infrastructure and start up expenses, including the financial support for job creation.

The wealthier of our country are those that have traditionally been able to accumulate more money than they need to fund their daily expenses, and thus they have provided the seed capital for ventures through their investments. Instead of the entrepreneurs that risk all to build real wealth and create the jobs, Supply Side economics instead provides tax incentives to the wealthy, ironically giving credit to the capital providers for producing America’s jobs. However, capitalism knows no patriotic allegiance. Investment capital will flow to the highest risk adjusted returns regardless of national borders.

After America’s obsessive military buildup made international investments safer, international business became safer investments in the sixties. Opportunities grew wildly after China opened its borders to investment in 1978, creating a gold rush that attracted loose investment capital from the entire world, building tens of thousands of factories that enriched international investors dearly.

So when Reagan Supply Sider legislators passed tax breaks to the “rich”, their trickledown theory wasn’t wrong, it was just decades late in adjusting to the realities of risk adjusted investment opportunity. Ironically, instead of trickle down, America’s tax policy resulted in pouring out, not a trickle but a fire hose gushing toward foreign shores. Trillions of dollars, created by burdening our middle class with excessive debt, left our economy and were converted into factories and other infrastructure such as roadways, bridges, and cargo ships to enhance China's economy and to increase their employment base.

It appeared at least temporarily that America profited from our supply side doctrine. An entire industry was born to find ways to collect the extra capital and distribute it to the East. America surely got interim jobs in the financial sector to support this fire hose of foreign directed money flow. Yet, decreasing taxes for the “rich” created much fewer permanent jobs in America than it could have, passing the greater load of jobs to the East. It provided America interim financial and deal flow processing while accomplishing the opposite effect than was hoped for to America’s real economic future.