Upward Flowing Economic Prosperity

I have written several articles promoting consumer spending as the key to economic growth and prosperity (see More Consumer Power to Realize Our Dreams and Prosperity is with the Masses).  The Trickle Down Economic theory proposed by the rich has it all backwards.  It theorizes that tax relief of the rich will spur them to move their equity around which will stimulate economic growth.  Perhaps it will stimulate further economic wealth for the wealthy but it will have little effect upon improving the standard of living for the average wage earner.

For the 90% plus people who are not extremely wealthy putting more money in their hands by paying them better and taxing them less will overwhelmingly stimulate economic growth through spending.  There is noting complicated about it.  The greatest factor for economic growth is consumer spending, not individual prosperity or investments.  The more people spend on goods and services the greater demand there is for consumables and products.  More demand means expanding businesses.  Expanding businesses means more demand for jobs.  Greater demand for labor means lower unemployment and higher wages.  Lower unemployment and higher wages means more consumers with even more money to spend.  More income and more spending is good for government because of increased income taxes and sales taxes.  More money in the hands of government means more government spending require the hiring of more people by government.  More people working in government and government contracts means even more jobs.  Improved sales means improved corporate earnings which reflects well with the very wealthy who invest in these businesses.  The more the wealthy make the more they want to reinvest in these growing and profitable companies.  So everyone comes out the winner and the economy continues to grow and prosper.  This is Upward Flow Economics which make far more sense than Trickle Down Economics.

Henry Ford understood this best by dispelling the myth that keeping wages low and making workers work long hours stimulates economic growth.  His genius at looking beyond conventional wisdom to something that really made sense started the consumer revolution which still exist today.  He knew that giving the common worker more money to spend and more time to spend it will stimulate consumer spending which leads to better business for him.  It was wealthy investors who started the Great Depression of 1929 and the small depression of 2008.  So the concentration of wealth is very risky and marginally stimulates economic growth when done correctly but spreading out of wealth among the many has almost no risk and assures economic growth as long as people spend more money than they invest and as long as they don’t overextend themselves.  It is not investments but broad-based consumption that stimulates economic growth and jobs the most.  So placing the bulk of the wealth in the hands of the many has the greatest overall long term benefit for everyone.

Giving consumers more power to spend might even bring jobs in China back to the U.S. since people will have more money to spend on American made goods.  These new employees will become consumers of other products.  Consumers need to make enough money that they have a little extra which they should wisely invest for a rainy day.  But as long as they spend most of their earnings and don’t overextend themselves in credit debt the economy should remain resilient and vibrant.

Lowering taxes for the middle class will have far more economic benefit than lowering taxes for the very rich.  The very rich will invest most of there money regardless of taxes because they will make more money by investing it than keeping it in the bank earning little interest and they have far more money than they can possibly spend.  However lowering taxes for the large middle class will give them even more money to stimulate consumer buying.

Upward Flow Economics works best when the majority of the population feels financially secure enough to spend large amounts of money.  It does not work as well if only a small population feels more financially secure since it is the absolute amount of money actually spent that stimulates economic growth.  The very rich have the least overall effect since they are relatively poor consumers and few in numbers.

Upward Flow Economics would be highly opposed by the very rich because it does not immediately bring them wealth and goes against their self-serving business instincts.  But it does make a great deal of sense.

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