Trickle Down Economics

CoverIt is time for another lesson in basic economics – which, by the way, is the title of Dr. Sowell’s book.  Today we expose the fallacy behind the “trickle down” theory.

This is a powerful metaphor, because we can easily imagine wealth flowing from some source on high, like a mountain spring. The rich have elbowed their way up to the source.  From where we are, we can’t even see it.  We don’t know that they are, in fact, creating the wealth.

Believe it or not, the people who run the factories and sign the paychecks are creating new wealth in the economy.  When Henry Ford made automobiles widely available, he opened up a new capability which translated into real wealth.  The same goes for Howard Hughes, Steve Jobs and, on a smaller scale, Earl down the street at  Earl’s Tool & Die.

Jeremiah is writing for those who were raised to believe that there is a fixed amount of wealth.  This is called zero sum thinking, where one man’s gain is another’s loss.  Consider this – planet Earth now supports billions of people, most of them adequately fed, and many with a standard of living once reserved for royalty.  Louis XIV never had an iPhone.

We take advancing technology for granted, and we don’t see it for what it is – people creating new wealth on the planet.  True, not all wealth is created fresh.  Some is indeed the result of exploitation.  We’ll close this one with a riddle.  What is the biggest entity you can think of that does not create any wealth, but only moves it around, and consumes much in the process?

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