Is There an Alternative to Trickle Down Economics?

There are at least four key components of what I’m calling a “bottom up economy”:   Focusing on the assets and strengths of your community; developing infrastructure to support and build upon these assets; fostering local ownership of businesses and capital; and building entrepreneurial networks that increase the competitiveness and impact of local businesses.    Before we examine how public policy can help communities develop each of these elements of a bottom up economy, it is fair to ask, “Why bother?  What is wrong with traditional, top down economic strategies?”

trickle-down-economics-reagan-210x210Most of our economic policy and practices over the past thirty years have been top down, or “trickle down” in nature, based upon this belief:  If we free up a small group of job creators at the top – wealthy investors and large corporations – they will create wealth which will trickle down to the rest of us.  This has been the driver of our economic, fiscal and labor policy since Ronald Reagan was president.  Trickle down economics did create wealth, but there were two problems with it:  First, much of it has been based upon financial speculation, rather than real wealth.  As stock market “bubbles” and so-called derivatives both demonstrate, Wall Street can create a lot of “wealth” that has little real value or base of productive assets.   We’re talking here about the difference between the house that someone owns – a tangible asset – and the value of the debt on their home, repackaged with the debt and risk of thousands of other aspiring home owners as a tradeable commodity, known as a derivative.  One is real, providing shelter, warmth, pleasure (usually…).  The other exists purely in the mind and can rise or fall in value dramatically, overnight.  And that is exactly what happened to trillions of dollars of Wall Street “wealth” in 2007 and 2008.

The other fundamental problem with trickle down economics is that the promised prosperity never trickled down.  In fact, it has been quite the opposite, as income and wealth have moved up, not down, from working folks and the middle class to the rich.  From the end of World War II until the mid 1970’s, the benefits of economic growth were widely distributed, with Americans in the bottom and middle of the economic spectrum seeing more gains than those at the top.  However from 1980 on, we’ve seen those gains stagnate or decline, as the vast majority of new income and wealth has gone to people at the very top.  Rather than widely shared prosperity, we’ve become the most unequal country of all the advanced nations of the world.  The most unequal.

The problem with this inequality, this concentration of wealth goes beyond the question of fairness or justice.  In fact it is quite costly to our nation, as Joseph Stigletz (The Price of Inequality, WW Norton, 2012) and Richard Wilkinson (The Spirit Level:  Why Greater Equality Makes Societies Stronger, Bloomsbury Press, 2010)point out in separate books.  Stigletz demonstrates that economic inequality leads to lower overall economic output and less productivity, not more.  Wilkinson looks at a host of quality of life indicators, including life expectancy, obesity and health, educational attainment, teen pregnancy, substance abuse, crime rates and others.  He finds that the more unequal the society, the worse they do in nearly every one of these areas.   This mirrors a study, done by Thomas Lyson of Cornell University, of 200 rural counties across the country which found that those with one or two large companies dominating their economy were worse off in terms of health, economic and social indicators than the counties with a broad base of small to mid-sized businesses.

Every one of these problems is costly, both in terms of taxpayer dollars and the well- being of people.  Trickle down economic strategies haven’t solved these problems; they have made them worse.  It is time for fresh thinking about how to create jobs, to broaden the base of wealth, to lift people out of poverty and to increase the resilience of households and communities.  Fresh thinking based on successful, real world examples emerging across this nation.

~Anthony Flaccavento

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