Tuesday, January 29, 2013

Why supply side economics AKA trickle down never worked

Rightardia has mentioned without a strong middle class, demand is diminished. This is why,

Let's say a millionaire makes a million dollar in income. She or he might at best spend 10 per cent of his earnings on essentials like food, shelter, health care and transportation.

Suppose we take the same $ one million and give 20 people $50,000 each. Almost every one of these 20 will have to spend all that money to pay their bills for food , shelter health care, and transportation.

In the case of the millionaire, he might churn at best $100,000 back into the economy while the middle class Americana will have to put almost all of their income back in.

To add injury to insult, the millionaires also got a huge ta cut under GW Bush's supply side economics. In fact, the one per centers got a $64,000 tax cut under Dubya.

These cynical economics and GOP policies also cause a Great Recession.   In October, 2008, unemployment rose to 11.8%, its highest level in over 14 years. Long term unemployment was closer to 20 per cent.

So take out four of the 20 middle class earners who are now on unemployment during the Great Recession, and we only have 16 people who are now churning their $50K incomes back into the economy. The four on unemployment are are making less than  $15K per year while receiving unemployment compensation.

This affects businesses who then saw their customer bases cut back cut back by 20 per cent or more of people on unemployment. The great recession also unnerved the employed who became more cautious with their money, too.

What many business people learned during the Great Recession was that tax cuts are great, but they are far less desirable than a shrinking customer base that can force a company out of business. 

This is why supply side economic is a flawed economic theory. Polices that strengthen the middle class have a multiplier effect that is better for the economy than polices that concentrate wealth at the top in fewer hands.

This is why supply side economics never worked.

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