Trickle up -why it is the Holy Grail.

Below I will explain how “Trickle Up” might be 700% more effective than Stupidparty’s “Trickle Down”. Warren Buffets concern, an individual fully conversant with the notions of trickle-down economics, should get us all thinking long and hard about his warning about the Minimum Wage.

If present trends continue, the prospects for the struggling class remain dismal. Whilst improvements in the minimum wage will be beneficial to the struggling class, such an impact will be fleeting to both the beneficiaries and the economy as a whole. This is because of a combination of events that if left unchecked, will create a tsunami of misery, growing disparity and poverty. First, we have the unsustainable income discrepancy trends (see charts below)—these trends are taking place in an environment of growing corporate power–an ability to hire and fire at will.

Major Corporations can set wage levels by being the largest employer, unions have been emasculated, membership down from 20% in 1983 to 11.1% in 2014 and all this under a background of increasing technology where human labor will be competing against the remorseless penetration of machines. An Oxford University study concluded that 47% of U.S. jobs would be at risk within ten years as a result of robotics.

The final nail in the coffin for the American worker is the destruction of the Democratic process, to the point that many are already describing the U.S. as an Oligarchy. Regardless, it is now obvious to everyone capable of critical thinking than US Democracy has been bought and paid for–to the extent that Congressman are solely interested in the needs of their donors, not their constituents.

Therefore America needs to embark on an overhaul of its fiscal policy and abandon various myths. We will start by looking at what must not be done, and to do that we need to take a trip into the heads of the best and brightest Stupidparty economic minds. The last time we had a clear picture of what these minds were thinking was when Romney had his big chance to pitch his economic vision to an American public open to great ideas. This would logically take us back to Romney’s 2012 convention speech–as it related to the economy

In regards to the economy—he had a 5-point (or was it a 7-point) plan that took up a mere 221 vacuous words (out of 4,094) in a remarkably fact-deprived outing. Each one of those plans could have been torn to shreds by a seventh grader from a good school district.

Let us quickly eviscerate every one of those 221 words:

1) By 2020 the USA will be energy independent—well Obama will do that by 2018
2) Job retraining ya da ya—Except his VP and the Stupidparty platform would cut such retraining.
3) Unlike Obama he would implement trade agreements, except this was one of his numerous blatant lies—Obama had negotiated trade agreements.
4) Cut the deficit, but he always refused to explain how—Obama has done it anyhow.
5) Cut taxes for businesses, but he adamantly refused to explain how such cuts would be funded.
6) Respect for women—well maybe the ones from his binders, no sign of such respect from his prior Mormon misogynist activities.
7) Unlike Obama I will not raise taxes on the Middle Class—except this was yet another of his numerous blatant lies, since Obama had done no such thing.

The Romney campaign could only dredge up one report that would support his austerity during deflation theory, a study that has since been discredited. In short, Stupidparty has one plan—trickle down, hand over the reins of power to the Corporations, forget the lessons of the Gilded age, the Great depression, and the 2008 Great recession. Unfettered capitalism is a disaster for virtually everybody.

The solutions are always the same, they remain the same, yet the penny never drops, because the powers that control the halls of Congress see that the solutions are not in their short term interests. But private business is by definition myopic when compared to the Government. That is why the Government should be in charge of healthcare (like virtually all other developed countries), remain in charge of National Security, regulating business and sponsoring investments that need a longer window, have a greater risk than is acceptable to venture capitalists. Education, law and order, social security and research into medicine, space exploration, GPS, voice recognition, clean energy also come to mind.

Trickle Up – how come it is so much more effective?

Trickle up in it’s most magical form can be found in the charity by the same name. The concept is to provide grants (not loans) of about $150-$200 to the poorest of the poor in mainly rural areas. With the grant comes the infrastructure to help the beneficiaries (mainly women) manage their business’s. The success rates are staggering. This type of approach, alongside the idea of investing in the most basic of infrastructure needs such as teaching people how to build toilets, is having a remarkable, but hardly surprising impact. Having a sanitary environment in places like India can reduce diseases by up to 80%, plus provide a skill set that can be beneficial to the community.

Such trickle up efforts are likely to make a huge dent in reducing extreme poverty around the globe. Trickle up not only potentially makes the life of a billion or so people more tolerable, but also creates substantially more consumers for business.

So how can we apply this obvious logic to the US?

Well as it happens the US has a huge unheralded poverty problem. Comparing poverty amongst different nations is quite complex, but however you slice the numbers (the World Bank, the CIA–take your pick), the USA ranking is quite pitiful. Stupidparty flat earth thinking simply stops at the nearest horizon and if you suggest for comparison a better performing country like Norway, then they simply yell “socialist.” What is wrong with poverty anyway– moochers deserve poverty–I guess Children deserve the same level of empathy, the same lack of introspection.

The first column is a combination of various criteria including material, health and safety, and educational well-being. The USA has absurdly high and unnecessary poverty, clearly exacerbated by Stupidparty economic folly:

The Solution is hardly Complex:

70% of the US Economy is driven by consumerism.

A healthy economy depends upon the consumer spending more. Therefore when the economy is facing a recession/deflationary environment–one needs to create conditions that allow the consumer to spend more. A Stupidparty economist would demand tax cuts. They have a point—yet choose to be blind to the bigger point. They do this because they are intellectually and morally corrupted. Bought and paid for.

To understand the game, we will need to understand one simple economic concept. Marginal Propensity to Consume MPC. I try and avoid jargon, but this is both important and easy to understand.  If you were to be given $100 – how much would you spend?

We already know that as a general rule those on a lower income will have a propensity to spend a greater percentage of any additional income. This is out of necessity. Most already know that one of the most successful stimulus programs is food stamps. But Stupidparty Myths have created a false narrative and as such these Myths need to be debunked:

http://www.cbpp.org/research/the-relationship-between-snap-and-work-among-low-income-households

http://www.motherjones.com/politics/2013/10/food-stamps-statistics-SNAP-economic-benefits

The key point in the above is that each $5 in Food stamps create $9 of economic activity. But according to a new study, even this is likely understating the disproportionately beneficial aspects of trickle up.

As Fortune Magazine refers to: A new working paper looks at how the amount of wealth inequality can affect the marginal propensity to consume and the resulting implications for policy. The authors, economists Christopher Carroll of Johns Hopkins University, Jiri Slacalek of the European Central Bank, Kiichi Tokuoka of the Japanese Ministry of Finance, and Matthew N. White of the University of Delaware, built a model that tries to replicate the dynamics that determine the amount of wealth inequality in an economy. In figuring out the dynamics that lead to the current levels of wealth inequality in the United States, the model also reveals the marginal propensity to consume among households across the wealth spectrum of the nation.

“So what’s the actual real world importance of estimating marginal propensities to consume? Knowing which households are the most likely to spend an extra dollar can help make fiscal policy more effective. According to Carroll and his co-authors, any fiscal stimulus targeted toward individuals in the bottom half of the wealth distribution would be 2 to 3 times more effective than just a blanket stimulus.”

But I argue that even this underestimates the real impact of trickle up. Note how the study focus’s on the bottom half v everyone.  The problem with that analysis is that they are hardly tackling the big Stupidparty elephant in the room. This is not a nation divided by the top 50% v the rest (if only)–this is a nation divided by the top 1% or even the top .01%.

The top 10%

Look at what happens when you are similarly lazy when talking about Income discrepancy trends— this was the chart from Forbes focusing on the top 10%:

The Top 1%

But Forbes is a pretty conservative publication, and I thought that the 10%/90% was likely to gloss over what Romney and his paymasters were really up to. So let’s also look at the graph from The Economist, which focuses on the top 1%.

Top 1% and their Tax Burden. (Wiki)

The Top .01% taking control, hence the term Oligarchy:

In 1978, CEOs took home 26.5 times more than the average worker. They now make roughly 206 times more than workers, EPI found. The pay isn’t always tied to the performance of their businesses—as ThinkProgress has noted, CEOs at companies like Bank of America often pocket huge pay increases, even as the company’s stock price plummets and jobs are cut.

As Warren Buffet stated in the Wall Street Journal: “In 1982, the first year the Forbes 400 was compiled, those listed had a combined net worth of $93 billion. Today, the 400 possess $2.3 trillion, up 2,400% in slightly more than three decades, a period in which the median household income rose only about 180%”.

By comparing the top 1%, the picture becomes a 100% more egregious than by taking the top 10%. If you drill down to just the CEO types–the top .01% then it gets far worse still. So simply comparing the MPC (Marginal Propensity to Consume) of the top 50% v everyone strikes me as missing a vital point.

Do you think that the people who have bought up the Democratic process give a dam about a household of income of say $60,000–putting them in the top 50% of households. Of course not, Stupidparty is only interested in cutting taxes for people earning more than around $400,000—the top 1%.

Now if you compared that sector with households with income of say $30,000–what will happen to the MPC then? I would venture to guess that the MPC for the $30,000 household might get closer to an economic multiplier of 7-10; compared to an economic multiplier of say 1.1 for the top 1% of households. (Refer back to the MPC chart above.) This means that providing stimulation to the poorest is likely 7 times more effective than providing tax cuts for the very wealthy.

In view of the above what should be happening? Surely the wealthy should recognize that the stronger economy that would be created by unleashing the hungry appetites of the struggling class would actually help them more than tax cuts. But again the political dialogue is controlled by the very rich who in many cases find ways to pay zero tax anyway. Mitt Romney clearly had gone numerous years without paying any taxes. Who would know better than fellow Mormon, clued into Mormon dynasty, (i.e. the Huntsman’s) than Harry Reid? Romney, who had known for many years that he would eventually have to release some tax returns–once he did so–he had to artificially inflate his taxes to make it look like he was paying >13%. These guys are gaming the system – a system that they have corrupted.

But the regular wealthy guys, those people capable of thinking beyond the end of their myopic hairy noses, capable of taking an interest in the humanity that exists outside of their tribe–these people should recognize that economic stimulus should be focused on the less well off. They should recognize a social responsibility of providing a living wage, help employees attain skills; lead a productive, healthy lifestyle. This would also mean more resources in public education, public healthcare (it is absurd that employers should be burdened by this responsibility), leaving the company with a stronger healthier workforce, creating more consumers who create more profits for business.

Therefore merely focusing on improvements to the minimum wage is a bit of a red herring. The penny must drop that trickle up simply works far better than trickle down, especially so at the extremes, and all tax policies must be drafted in an environment where not only does one get the best bang for your buck, but also and coincidentally will lead to the reversal of the present unsustainable income discrepancy trends.

Oh. You were looking for the Holy Grail.

Well as it happens–we have had it all the time, hiding in plain sight: