Someone Plugged The Drain of Trickle Down Economics

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The main concept behind Trickle Down Economics is that through across the board tax cuts or benefits to businesses (I.e. tax breaks), will indirectly benefit the broad population.  Or in other words, tax cuts and tax breaks for businesses will eventually trickle down to the needy.  This is also analogous to “Priming the Pump”.

Although our economy is gaining ground, only corporations are reaping the benefits, not the general populace.  Republicans tell us that we cannot tax the Job Creators.  Over ten years of evidence dispute their claim that the tax cuts for these so-called “Job Creators” actually create jobs!  Despite contrary evidence, Republicans tell us that businesses will not invest unless their tax cuts are made permanent, not temporary.  Yet we have seen that businesses have been hoarding the cash, they have not invested in our economy, they have not created jobs for the millions of unemployed Americans, yet they move their operations overseas.

Where is the evidence that this supply side economic theory works?

How about trying a “Trickle Up Economic Theory”?  What is that, you may ask?  Please let me explain.  Let’s use the Mortgage Crisis as an example of both theories at work.

Approximately 80% of U.S. mortgages issues to sub-prime borrowers were in the form of adjustable rate mortgages.  The interest rate of these mortgages vary periodically based upon the market’s interest rates.  If interest rates drop, these borrowers benefit from not locking themselves into a higher interest rate.  But when interest rates rise, so do their loans and monthly payments.  When the borrowers can no longer afford the heightened mortgage rates, many are faced with foreclosure.  With enough of under water mortgage holders, who simply can no longer afford their increasing mortgage payments, mortgage lenders foreclose on their loans and surrounding properties lose value.

Trickle Down Economics was implemented to curb this crisis.  The Troubled Asset Relief Program (or otherwise known as TARP) was instituted as a way for the government to purchase these troubled, or toxic, assets from the mortgage lenders, in order to boost the value on the books of our troubled financial industry.  This protected our financial industry from collapsing in debt.  Originally, this amount put aside for this investment was projected to be as much as $300 billion, but the over all cost after over $169 billion was paid back was estimated at costing U.S. taxpayers $25 billion.  Our Financial Industry received the benefits of TARP, but they did not curb foreclosure rates, they did little to modify the troubled mortgages, and instead they hoarded the cash and bought out smaller banks.

Trickle Up Economics proposes taking the same amount of money invested into TARP, but instead of giving it directly to the mortgage lenders, direct these funds to the troubled homeowners.  If indeed these homeowners are burdened with an underwater mortgage, these homeowners would be able to not only modify their mortgages by paying down their loan to a sustainable level, but they would also be able to avoid foreclosure.  Mortgage lenders would have received their money through their borrowers and the homeowners would have been able to protect their assets as well as the mortgage lender’s.  Property values would not have dropped, which affected millions of honest, hard-working Americans.  This does not run against the dogma of personal responsibility, as it would be the troubled homeowner’s responsibility to pay down or off their troubled mortgage.  If these homeowners did not use the funds for this purpose, then allow the banks to foreclose upon them.  The end result would be that not only would the financial institutions receive the “bail out” money, but the homeowner would be in a better position to maintain their home.  Property values would not have dropped as they have, and the middle class’s purchasing power would not have diminished as quickly as it had, hence stimulating our economy.

But we don’t live in a world where the people are valued more than, or even equal to businesses.  Instead, we have a reverse Robin Hood syndrome, taking from the poor to give to the rich.  So such a measure would be wildly unpopular.  It would be deemed “Socialistic” and would have been considered an evil plot to subvert the Free Market.  The philosophy is to protect businesses first and let the businesses take care of the populace.

But this has failed.  Someone plugged the drain of Trickle Down Economics.  Businesses have not invested in creating jobs, expanding their businesses in the U.S., or even increased wages for their workers.  Instead we find that 88% of profits are being held onto by businesses for a rainy day(?).  CEO income has grown vastly over the wages of their workers.  And that has been the effect of Trickle Down Economics.