Trickle-up economics

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Trickle-up economics (also known as bubble-up economics) is an economic policy proposition that final demand among a broad population can stimulate national income in an economy. The trickle-up effect states that policies that directly benefit lower income individuals will boost the income of society as a whole, and thus those benefits will "trickle up" throughout the population. [1] It is the opposite of trickle-down economics .

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Relationship to trickle-down economics

Trickle-down economics, as a term, is in much more frequent and broad use than "trickle-up". The term "trickle-down" is used by critics of economic policies to say that those policies favor wealthy individuals or large corporations over the middle and lower classes. In recent history, the term has been used broadly by critics of supply-side economics. [2] Major US examples of what critics have called "trickle-down economics" include the Reagan tax cuts, [3] the Bush tax cuts, [4] and the Tax Cuts and Jobs Act of 2017. [5] Major UK examples include the tax cut policies of Margaret Thatcher, [3] the economic policies of Friedrich Hayek, [6] and Liz Truss's mini-budget tax cuts of 2022. [7]

To juxtapose competing economic and political ideas with so called "trickle down" policies, the terms trickle up and bottom up have been used. For example, the principle behind the Obama administration's actions was referred to as trickle-up economics, [8] but the term bottom-up economics was also used. [9] Biden's American Rescue Plan was also referred to as trickle up. [10] Accompanying labeling differed from most trickle down labels in that both Obama's and Biden's approaches were characterized as spending heavy programs, rather than tax cuts in any particular tax bracket. [11] [12] At the same time, some criticisms of Obama's economic policy were labeled trickle up. [13]

Application in policy

The principle behind Obama administration's actions was referred to as trickle-up economics, [14] but the term bottom-up economics was also used for it. [15] On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA), a $787 billion economic stimulus package aimed at helping the economy recover from the deepening worldwide recession. [16] The act included increased federal spending for health care, infrastructure, education, various tax breaks and incentives, and direct assistance to individuals. [17] Almost all Democrats supported this measure, while only a few Senate Republicans supported the law.

The CBO (Congressional Budget Office) estimated that the ARRA would positively impact the GDP (Gross Domestic Product) and employment, with primary impact between 2009 and 2011. It projected an increase in the GDP of between 1.4 and 3.8% by late 2009, 1.1 and 3.3% by late 2010, and 0.4 and 1.3% by late 2011, as well as a decrease of between zero and 0.2% beyond 2014. [18] The impact to employment would be an increase of 0.8 million to 2.3 million by last-2009, an increase of 1.2 million to 3.6 million by late 2010, an increase of 0.6 million to 1.9 million by late 2011, and declining increases in subsequent years. [18]

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Supply-side economics is a macroeconomic theory postulating that economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase. Supply-side fiscal policies are designed to increase aggregate supply, as opposed to aggregate demand, thereby expanding output and employment while lowering prices. Such policies are of several general varieties:

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  2. Tax reduction, to provide incentives to work, invest and take risks. Lowering income tax rates and eliminating or lowering tariffs are examples of such policies.
  3. Investments in new capital equipment and research and development (R&D), to further improve productivity. Allowing businesses to depreciate capital equipment more rapidly gives them an immediate financial incentive to invest in such equipment.
  4. Reduction in government regulations, to encourage business formation and expansion.
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<span class="mw-page-title-main">Trickle-down economics</span> Economic and political term

Trickle-down economics is a generally critical term for supply-side economics, criticizing such policies as favoring wealthy individuals and large corporations. In the "trickle down" description, wealthy individuals directly benefit from supply-side style tax cuts, leaving only the leftover wealth to "trickle down" to those less fortunate. The term has been used broadly by critics of supply-side economics to refer to taxing and spending policies by governments that, intentionally or not, result in widening income inequality; it has also been used in critical references to neoliberalism. While economists who favor supply-side economics generally avoid the "trickle down" analogy and dispute the focus on tax cuts to the rich, the phrase "trickle down" has also been occasionally used by proponents of such policies.

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References

  1. ↑ Degnbol-Martinussen, John; Engberg-Pedersen, Poul (2003). Aid: Understanding International Development Cooperation. Zed Books. p. 21. ISBN   978-1-84277-039-9 . Retrieved Oct 11, 2008.
  2. ↑ Lockwood, Benjamin; Gomes, Joao; Smetters, Kent; Inman, Robert. "Does Trickle-down Economics Add Up – or Is It a Drop in the Bucket?". Knowledge at Wharton. A business journal from the Wharton School of the University of Pennsylvania. Retrieved 1 February 2023.
  3. 1 2 Redenius, Charles (April 1983). "Thatcherism and Reagonomics: Supply-Side Economic Policy in Great Britain and the United States". Journal of Political Science. 10 (2, Article 4). The Athenaeum Press. ISSN   0098-4612 . Retrieved 9 February 2023.
  4. ↑ "The Bush Tax Cuts Disproportionately Benefitted the Wealthy". Economic Policy Institute . The Bush-era tax cuts were designed to reduce taxes for the wealthy, and the benefits of faster growth were then supposed to trickle down to the middle class.
  5. ↑ "Trickle-down economics gets new life as Republicans push tax-cut plan". USA Today . Behind [Republican tax legislation of 2017] is a theory long popular among conservatives: Slash taxes for corporations and rich people, who will then hire, invest and profit — and cause money to trickle into the pockets of ordinary Americans.
  6. ↑ "Friedrich Hayek and the left: A response to Simon Griffiths". British Politics and Policy at LSE. 2015-03-06. Retrieved 2023-02-02.
  7. ↑ Elliott, Larry (2022-09-20). "Liz Truss favours trickle down economics but results can be trickle up". The Guardian. ISSN   0261-3077 . Retrieved 2023-02-03.
  8. ↑ Krugman, Paul (2016-09-16). "Opinion | Obama's Trickle-Up Economics". The New York Times. ISSN   0362-4331 . Retrieved 2021-09-14.
  9. ↑ Talbott, John R. (2011-01-04). Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics. Seven Stories Press. ISBN   978-1-60980-068-0.
  10. ↑ Baron, Neil (23 April 2021). "Biden's 'trickle-up' economics is just what America needs". The Hill. Retrieved 9 February 2023.
  11. ↑ Krugman, Paul (September 16, 2016). "Obama's Trickle-Up Economics". The New York Times. Retrieved 9 February 2023. Republicans accused Mr. Obama of being a "redistributionist," taking money away from "job creators" to give free stuff to the 47 percent. And they claimed that these socialistic policies were destroying incentives and blocking economic recovery.
  12. ↑ Schrager, Allison. "Biden's trickle-up economics is bound to fail". The Frederick News-Post.
  13. ↑ "Obama's trickle-up economy". New York Daily News. October 5, 2014. Add it up: Obama's economy has handsomely extended the long winning streak of the rich.
  14. ↑ Krugman, Paul (2016-09-16). "Opinion | Obama's Trickle-Up Economics". The New York Times. ISSN   0362-4331 . Retrieved 2021-09-14.
  15. ↑ Talbott, John R. (2011-01-04). Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics. Seven Stories Press. ISBN   978-1-60980-068-0.
  16. ↑ Barrett, Ted (Feb 14, 2009). "Stimulus package en route to Obama's desk". CNN. Archived from the original on March 30, 2009.
  17. ↑ "Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2012 Through December 2012" (PDF). Congressional Budget Office . February 2013. Retrieved Mar 8, 2023.
  18. 1 2 Elmendorf, Douglas W. (Feb 11, 2009). "Estimated Macroeconomic Impacts of H.R. 1 as Passed by the House and by the Senate". Congressional Budget Office . Retrieved Nov 19, 2017.
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