The Trickle-Down Myth and COVID-19
As I wrote about in my first piece, I have an extreme distaste for trickle-down economics. As a student of multiple economists in college, I’ve been able to do my research and reading into the topic and it has become a point of emphasis in my life. I see it everywhere I look, I see the problems it creates/perpetuates, and imagine what life could be like if we got rid of this backward philosophy once and for all. Trickle-down theory introduces market inefficiencies that hinder the ability of a government to provide for the people and lead a productive society.
Trickle-down (sometimes called top-down or supply-side) economics originated in America in the mid-1890s, reached the oval office by the 1950s, and has governed the United States since then, most infamously by Ronald Reagan and Reaganomics. From an American standpoint, trickle-down theory is best described as offering monetary benefits to upper-class citizens and corporations in hopes that they will trickle down to the working class.
On paper, this theory makes sense; a company receives funding or a tax break, and with the money made/saved they can hire more workers, pay higher salaries, or increase cash flow to the working class by a multitude of other means. Logically, this makes sense and achieves the government’s goal of giving money to the working class, but introducing a company or other intermediary as a 3rd party more often than not complicates things. You see, companies (and on a smaller scale, individuals as well) make decisions rationally and economically: this is to say that when one looks to purchase a good or service, they’d rather pay less than more for the same product. Thus a government subsidy/tax break to a company doesn’t change the rationale that the company would rather pay as little as possible for the same labor.
Naturally, policymakers are inclined to decide how money gets allocated or tax breaks are distributed. For example, the CARES Act passed in March 2020, giving Americans their first stimulus checks of the 2020 pandemic included $25 billion for airlines to keep staff on payroll and prevent bankruptcy despite the adverse impacts of the pandemic on air travel. At first glance, funds like these help the American economy, and they undoubtedly helped keep jobs, but they enable reckless business practice by companies during non-crisis times.
Case-in-point, American Airlines spent $12 billion in earnings over the six years before the pandemic on stock buybacks and subsequently needed grants of $5.8 and $5.5(13.3 billion in total) in 2020. Buybacks negated any saving AA had for emergencies and left the company out to dry when push came to shove. And the American taxpayer bailed the company out without a dime of equity to show for it. AA spent $12 billion in earnings over the six years before the pandemic on stock buybacks with zero risk management because they knew the taxpayer would cover their losses and reap none of their profits.
Let me clear up my standing. I acknowledge the importance of the bailouts in the given situation. Jobs otherwise lost were saved for the time being and working-class folks got help making ends meet until funds ran out. I do not endorse the negligence that preceded and necessitated the bailout for the travel industry.
A solution to the same economic contractions converse to trickle-down theory involves trading off corporate bailouts for larger unemployment packages. Such policy increases accountability for corporate malpractice by ensuring employees can’t be held hostage by companies for governmental aid in times of economic contractions.
Principally, trickle-up economics seeks to take care of people by removing the corporate intermediary that a trickle-down economist may deem necessary to disburse benefits to said people. In the AA case, the trickle-down policy allowed a concentration of wealth to AA ownership paid for indirectly years later by the American taxpayer. In the same sense that AA more or less received grants to buy back stock, tax credits and other incentives to corporations seem wholesome in theory but perversely affect the working-class American.
Trickle-up economics reverses the leverage companies use to perpetuate a dependent working-class. Reform would create an independent working-class granted the resources necessary for survival and a dependent corporate class that relies on paying fair and lucrative wages to employees who work to improve their lives rather than their right to life. Reformative, trickle-up policies include expanding welfare, raising the minimum wage, and raising taxes on corporations and the wealthy to fund these programs.
Before you go on your way, I do have to say that solving the curse of trickle-down economics is as simple as implementing theory into legislation, especially in the American political environment of 2021. Countries like Norway, Denmark, and Germany have all implemented trickle-up institutions into their society and provide concrete examples of how such policy is successful both in theory and practice. There is work to be done to reach these ends, and no single policy decision will spell the end for trickle-down economics, but, I believe the future is pushing slowly towards trickle-up policies that benefit the working class and establish social welfare.