- Why Trickle-Down Economics Works in Theory But Not in Fact
- Demand-Side Economics Defined
To spur the economy in tough times like these, which would you prefer, the government directly giving you extra spending or them giving tax cuts to corporations?
What is Trickle-Down Economy?
- Trickle-Down is also known as Supply-Side Economics
- Popularised in the 80s during the Reagan era
- Government gives tax cuts to wealthy elite / corporations / big businesses
- Hoping that the upper class would spend the excess wealth, expand their businesses, create more jobs and increase supply of goods & services
- Then, wealth ‘trickles down’ to the workers where they will spend their wages to drive economic growth
- Cutting taxes for the wealthy doesn’t translate to increased employment and consumer spending in the long-term
- The wealthy can just sit on the extra wealth or invest it elsewhere, breaking the trickle-down chain
- Creates wider income inequality gap
What is Trickle-Up Economy?
- Trickle-Up is also known as Demand-Side Economics
- Government gives wealth / lower interest rates to the lower classes and SMEs
- Hoping that they will spend money to fulfil their needs, creating immediate demand for goods & services
- Hence, wealth stimulates the corporations to meet the demand, ‘trickling up’
- The people might also save up instead of spend
While there isn’t a right answer for this debate and I’m not an expert, I do think that creating a stronger middle-class with higher spending power is better than hoping that the corporations will trickle-down their wealth. What do you think?