‘Same policies, different managers,’ used to pretty much sum up Oz politics in recent years.
Not any more though. Polarisation is on a roll.
Problem is, in a post Cold War world, terms like Left and Right no longer mean a whole helluva lot.
So, instead of the horizontal Left and Right, we’ve gone vertical, as in’Trickle Down’ and ‘Trickle Up’, which quite nicely sum up each of the approaches to solving the world’s economic malaise.
But what does it mean, to trickle up? Or down? Sound vaguely like some kind of weird foreplay. Or maybe that’s just me.
Basically, Trickle Down economics says that if governments give tax cuts to the rich, they will spend more and thus stimulate the economy which will create more jobs, thus making the poor less poorer.
Trickle Up, on the other hand, says the opposite; if governments give to the less well off – that’s you and me – via tax cuts or some form of subsidy, we’ll spend more and thus stimulate the economy making the rich richer.
But which is a solution and which is a myth?
To find an answer, I asked some Well Off and then some Not So Well Off folk what they would do with a tax cut.
In every case, the Well Off said something like, “Oh, I pretty much spend what I spend, so a little more money coming in wouldn’t change much. I guess it would go towards the mortgage or into my super.’
Perhaps no surprises there, but what about the Less Well Off.
Almost all answered with some version of, “Are you kidding me here? The kids need new school shoes; my wife and I haven’t been to a restaurant in months, and our washing machine is so old it screams to be put out of its misery, when - that is - it’s not walking around the laundry.’
And there’s the point.
Trickle Down, i.e. the comparitively small increases in income provided by tax cuts for the wealthy, doesn’t stimulate the economy because the well off are usually already spending what they want to spend to live how they want to live.
But Trickle Up, i.e. tax cuts for the less well off, will almost always have to be spent on any number of urgent somethings and so will directly and immediately stimulate the economy. Those pesky bills, an occasional night out, etc…
Oh, and by the way, as the money is spent by the less well off, businesses do better. So as the economy improves, the wealthy, (who own the businesses), also become wealthier.
Right there, that’s your trickle up trickling up.
Now everyone’s happy.
One final nail in the Trickle Down theory’s coffin. The concept really picked up steam when it was introduced in the US by GWB – he did do some economic stuff when he wasn’t invading countries – back in the early 2000′s. Since then the US economy has… well, maybe they’re not calling an ambulance, but they sure are jacking up its medication.
So, my question for the Trickle Downers is, when is it going to start working? The US is ten years plus down the track and no sign of it kicking in yet. Of course, that doesn’t stop the Republicans from insisting on doing it harder. Talk about digging yourself out of a hole…
So it turns out there is something that defies gravity and flows upwards – tax cuts for the less well off.
Who knew? Isaac Newton obviously didn’t. Tony Abbott still doesn’t.
But of course, to flow up you have to start at the bottom.
*Disclaimer: I’m not a Harvard trained economist obsessed with complex, unprovable economic theories. Moreover, I do not use mathematical computer models based on thousands of never published or explained assumptions, many of which are deduced from other assumptions.
Therefore, any economic comments I make should be ignored.