Posts Tagged ‘economy’

Economics: Trickle Up vs. Trick Down and how we need to reverse the policy of the 1980’s

Monday, March 30th, 2009

During his two terms as President of the United States, Ronald Reagan supported an economic policy better know as “tickle down economics.” The premise was that by lowering the tax burden of the wealthy and businesses alike the multiplier effect would take hold.  The multiplier effect is a beautiful aspect when the conditions are correct. We did see sustainable growth in both jobs and discretionary income.

However, another aspect we saw was the changing of the guard in regard to the Wall Street – Business relationship. Trickle down economics was designed to spark investment in businesses. The investments created the cash flow to enable the business to expand product lines into emerging markets and hire more skilled workers.

During the 1990’s we saw the emergence of the Information Technology era. Information Technology created the need to hire skilled labor. The problem with Information Technology is the premise you can reduce labor through computer automation. Quite frankly, the Information Technology industry ended up canabalizing its own jobs. Hence the Information Technology decline in 2000.

Now the United States has been almost entirely transformed into a service based society. So how do you get out of this hole? Simply put you reverse trickle down economics and place the money back into the consumer’s hands. Let the consumer make the decisions about what is needed and spark the growth within the United States once more.

Think about this: If consumer confidence is down and they are not spending money, then what incentives do businesses have to expand product lines and hire more workers?

Mike Kniaziewicz, MIS