Obama Is Relying On Trickle-Down Economics

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I had a thought this morning and wanted to share it with everyone.  My thought:  Obama’s plans to get us out of the recession actually depend on Trickle-down economics (aka Supply-side economics or Reaganomics).  I bet I have your attention now so let me explain.

First let me say that Obama’s plans do not start with Trickle-down economics in mind.  He begins with the Keynesian theory of economics which basically say that the government can spend the country out of recession if they will just spend enough.  I know I have probably over simplified this explanation but a more thorough explanation is beyond the scope of this post.

So how do we get from the Keynesian model to the Trickle-down model.  Here is how.  In order for the government to spend money it has to pick some “entry points” into the economy.  Obama has chosen and shown us 3 so far.  They are 1) infrastructure spending (roads, bridges, other capital expenditures), 2) the financial industry (banks), and 3) the auto industry.  I would assume there are more “entry points” but that have not been revealed yet.  Once the “entry points” have been defined, the government then injects the money into the economy through them in various ways….loans, tax credits, debt forgiveness, and stock purchases just to name a few.  Once the money is in the hands of these “entry points” it is up to them to spend the money.  This is where we switch to the Trickle-down model.

The new money is to be spent in such ways as to increase economic activity (buying, selling, expanding, etc.).  This increased activity by the “entry points” will cause more activity (buying, selling, expanding) for their suppliers. The process continues down to the next level and so on until it has affected every level or our economy. This is basically Trickle-down economics. This increased activity means more jobs and a higher standard of living for our people.  It means less expensive goods and services for consumers.  And it means increased tax revenue to the government.

So, back to my main point.  For Obama’s recovery plan to work, he has to depend on an economic theory that he hates.  That is because this is how economics work.  The supply side is what happens everyday in real life in our country.  I doubt the Obama even realizes this.  I bet there are some of his advisers who do but I am sure they don’t/won’t point this out.  I find this to be very ironic.  Obama is trying to get away from the economics of Reagan and Bush but his own plans depend on the same thing theirs did to be successful.

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10 Responses to “Obama Is Relying On Trickle-Down Economics”

  1. Mr Bold Says:

    No Tom. Trickle Down Economic Theory means giving tax cuts to the rich hoping they will use that money to employ people. Government simply spending the money is Keynesian economics.

    • Tom Shelton Says:

      Mr. Bold,

      The problem is that the government isn’t simply spending the money. They are giving it to others to spend.

  2. Mr Bold Says:

    The problem Mr. Shelton is that government spending is not what Trickle Down Economics means. The government spending money by giving money to others is general how business is done.

    Trickle Down Economics Theory says that tax cuts for the rich trickle down and benefit everyone. Government spending or giving it to others the government chooses is not the same thing.

    You can’t just go redefining words willy-nilly.

    • Tom Shelton Says:

      Mr. Bold,

      You are correct in that the main focus on Trickle-down economics starts with tax rates. I agree with that but the principles are the same. Obama is using trickle down principles to accomplish one of his purposes. I say one because getting the economy back on track is secondary to him. His main purpose is to socialize our country.

      I still maintain that he is relying on trickle down. I think this is because he recognizes, at some level, that trickle down is the only way to get the economy back on track. Sadly, he does not embrace the whole theory. If he did, we might have a fighting chance.

  3. Mr Bold Says:

    Tax cuts for the rich and hoping it will trickle down to the rest of the economy is what Trickle Down Economics is. If the money goes to Washington and they choose where to spend it, that’s not trickle down economics Mr. Shelton. If it was, it would be virtually indistinguishable from Keynesian economics and a meaningless concept.

    • Tom Shelton Says:

      Mr. Bold,

      Trickle down is much more than just giving tax breaks to the rich and hoping it will trickle down to the rest of the economy. Also, I did not say that the government was simply choosing were to spend the money. That is not where they are doing. They are giving it to the entry points I mentioned and telling them how to spend it and hoping that it will trickle down to the rest of the economy. They have started with a Keynesian model and switched to a Trickle-down model mid way. That point is hard to argue.

  4. Mr Bold Says:

    Trickle down theory has two components. One is tax cuts for the rich and the other is deregulation. That’s Reaganomics/Trickle Down Theory.

    http://en.wikipedia.org/wiki/Reaganomics

    The government choosing what sectors to spend money and who to prop up is practically the opposite Mr. Shelton. You even write: “I mentioned and telling them how to spend it..” -that’s not Reaganomics. That would be government interference to a Reaganite.

  5. Mr Bold Says:

    ps-This part: “They have started with a Keynesian model and switched to a Trickle-down model mid way. That point is hard to argue.”

    You cherry picked a point in the process of government expenditure and said it’s synominous with Trickle Down Economics. Personally I don’t see any point in your confusing the issue this way, except to paint Obama as doing something he hates.

  6. Kraken Says:

    Mr. Bold, you are getting hung up on literal definitions. Tom’s point is an abstract point. Tell me, what is the difference in a tax cut for the rich and just giving money to the rich? Anser: Symantics. Obama is not giving money to all the rich, he is picking and choosing (entry points). So you could argue that it is targeted Trickle Down Economics or more accurately, Supply-Side economics. The money is not going directly into the hands of the poor to spend in the economy, it is given to employers and suppliers. I think Tom’s point has merit. Of course, the problem is that the government is trying to steer the economic recover in a specific direction and they have no experience to draw from.

    • Tom Shelton Says:

      Kraken,

      I am glad that you understood my point. When I wrote this post last year we did not have as much information as we now do about what Obama was trying to do. Now we know that his goal is not to get us out of the recession but to “socialize” our country. The point I made was, and is, valid but he has a much bigger agenda than we realized back then.

      Having said that, I still think that any recovery that takes place will have to rely on trickle-down economics. All that is being done via the Keynesian model is destined to fail and the country will pay a massive price in the process.

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