The Trickle Up Effect is defined as the economic theory used to describe the flow of wealth from the poor to the affluent.

A common criticism of republicans and capitalism is that the rich get richer and the poor get poorer. Capitalism by definition alone makes this argument just whining. I will make an argument for Trickle Down Economics by exposing and dismantling the Trickle Up Effect (Obamanomics/Clintonomics/FDR’s “Bad Deal”). Look, I like Robin Hood as much as the next guy. I mean that cute, cunning little fox helped all the forest folk by stealing from the evil Sheriff of Nottingham. It was a great story. Well, life’s not a cartoon. Here’s where the lunacy starts.
The trickle up effect states that benefits to the wealthy will be realized due to an increase in sales relative to the amount of benefits that are given to the poor. OK, you got me; I’m intrigued; do go on. The trickle up effect argues itself as more effective than the trickle down effect because people who have less tend to buy more. In other words, the poor are more inclined than the wealthy to spend their money. Why on earth are they poor then? This being so, proponents of the trickle up effect believe that if the lower and lower-middle classes are given benefits(paid for by increased tax rates on businesses and the “wealthy”), such as tax breaks or subsidies, the increased funds would be spent at a much higher rate than would the upper class, given similar fund increases. Furthermore, the trickle up effect argues, many upper-class individuals do not spend their entire yearly salary to begin with, which is an indication that they will not spend any additional funds. You mean being responsible? Instead, they will save additional funds, thereby withholding those funds from the economy and increasing the gap between the rich and the poor. The word withholding is actually slang for re-investing…I know it’s tricky. The trickle up effect avoids this pitfall by giving more money to those who would be more inclined to spend it. So, stop me if you’ve heard enough.

Maybe not riots and a revolution per se, but I think one strong distinct possibility would be for Obama to, if elected or even before, end like JFK did. He should watch out for convenient and empty book depositories as a matter of course :)

That is, if he doesn't turn out to be as crooked as the rest of them. Then nothing will change.

According to the Government, I'm middle class, actually more mid to upper middle class according to their standards or scale. With the economy right now, it's scary to me. I'm actually struggling, well in a different sense. I can pay my bills and on time, I have the average debt because most of it went into home improvements so it's more of an investment. My debt it going down slowly now but each month I've almost got nothing left. We never eat out anymore (use to be a weekly or twice weekly occurrence), go to the movies probably less than 4 times a year and we schedule all of our errands to get done on the same day to save gas. Now saying all this, yeah, I'm not sleeping on the streets, I have a decent home, decent reliable cars but I have literally zero savings, no retirement cause everything now is getting pumped into keep what I have already, with no extra benefits.

This was not the case 2 or 4 years ago and I was actually making less money then as I am now.

With this in mind, it is true and a fact that when the middle class and poor thrive, this in turn pumps money back into the economy so everyone benefits. The rich and wealthy gain to invest to make more money since they already have everything they need except more vacations and the middle class and poor get to live a little with some entertainment and fun in their lives while not struggling to keep what they already have.

The rich already invest in the "poor". But instead of the rich referring to the poor as 'the poor", they are called "consumers".

but they never did those wonderful things. one fact should destroy any theory. no matter how much you want to belive it. even the old tine consecrative GOP say it did not work. if you get off the tv and read they are all over.

Loans are made to Guatemalan Mayan women, who start or grow their own businesses. More income = more and better food, clothing, shelter, education, etc.

Maybe the people loaning the money don't benefit. I don't think they charge interest. They families benefit. And become consumers of better and better products, thus growing the economy.

The Dow Jones Wilshire 5000 has lost over $7 trillion of value in the last 12 months. If the wealthiest 1% truly own 90% of the securities, they just lost about $6.3 trillion. I don't think that is a good place to look for extra tax revenues until all those losses are written off. Is it true "the rich got richer", or are they farting dust too?

One point - the biggest cause of mortgage defaulting in the states is, correct me if I am wrong, medical bills. Perhaps the whole sorry mess could have been avoided with universal health care? Surely that is the best example of what Scott is talking about. Just sayin'.

I don't rightly know where to begin here with the last three posts. My Grandfather was from a prominent European family full of intelligentsia; doctors, lawyers and the like. But he had the misfortune of being born so that his adulthood merged with the advent of WWII. Subsequently, his family lost their wealth and he, being creatively inclined, was forced to work factory jobs to survive after his POW military status. He was not terribly good with money from what I gather, but he was very intelligent in his own right, and a gifted artist.

My Grandmother was from a small village in Hungary, and she was not terribly wealthy growing up, but she was a very good catch, coming from a good family. Her family had the biggest house in the village. Back then, it was about breeding, and such, not necessarily about the size of one's wallet.

They both came here with nothing and were unable to really get their wind back, but at home before the war, they did fine for themselves because they were the sweethearts of their communities; and they were in their elements.

I see these horrible classist assumptions being made about people; their heredity and it's relationship to their monetary worth, and I can't help wondering what people must be thinking. Personally, I married into an affluent family which was built on blue collar aptitudes. My X's Zaidy won math scholarships and he built a machine shop with some friends from Poland after the war. These people are peasants and most of his offspring are not terribly bright or capable people from what I have seen. Yet they succeed because they have community. They fit into a mold, and are rewarded for it. However, my X, much like my Grandfather, was good looking and not academically inclined, and being more physically attractive than all the other family members, he was pushed out of the grid out of jealousy. None of the others have spectacular grades, but they were never held on a pedestal by the Grandmother of the family, and thus they were never knocked down. They tampered with her will when she was senile, and are splitting his inheritance among themselves while barely including my X, and the entire community is supporting them for what they believe are political reasons. She loved me not because I was beautiful, but because I was an excellent Mother figure. She frequently made an example of me and all the other women in the family detested me for it. Even at her funeral, her own children were shaming her memory, and making her favoritism to be about my looks, when they knew full well she admired my intelligence and my nurturing abilities; but admitting this would force them to re-evaluate their inadequacies, and stupid people are unable to do this. Because none of them were very religious, there was nothing to prevent them from doing as they pleased; no conscience to guide their conduct.

I have aptitudes and insights which have made many, many people millions of dollars, and not one of these people have offered me a share of what never would have been earned had I not offered my opinions, or ideas. Because I am pretty, and not terribly aggressive in business, others feel free to capitalize from my intellect. It's the only way they can deal with their own insecurities, I gather. We all have a need to 'even the score' against people we perceive as having too much on their plates; be it sexual appeal, or talents which are not directly attributable to financial gain, and nonetheless necessary for any profits to occur on any level; raw creativity, good character, etc.

When people are separated from the grid for whatever reason, they become prey for 'the group'. People feed willingly on their efforts to the point of practically murdering them, or driving them into extreme poverty and devastation. Then they point their fingers and cluck their tongues, and lay blame. I've seen this trend time and time again here in North America, where there are so many cultures vying for the big bucks, and no defined boundaries, political or otherwise, to enable the exceptional people to experience any sense of belonging. It's mob rule at it's finest.

Personally, when someone gives me a good idea, it is in my nature to go out of my way to reward, or at least credit them. But nobody I meet is inclined to reciprocate on any level. Instead, they tend to attack a person who inspires any feelings of regret or guilt due to their own guilt. They feel that if they push the recipient of this theft and hatred far enough out, and scapegoat them for all their own errors, they can somehow absolve themselves of guilt. And because this is the trend here in this so-called "melting pot", the 'group' condones it, and assists in this type of group- facilitated character assassination.

Good quality people come in all shapes and sizes, and they are born into all classes. Intelligence is a byproduct of many factors, and it has many useful forms, not all of which are mathematically inclined. If I could afford to pay an lawyer and an accountant, and I was not being openly slandered by two immediate family members who sexually abused me as a young child, and a series of crooked Italian landlords, and criminals I was forced to interact with as a result of my stay in the youth system, which occurred because I was severely bullied throughout my primary school years by people who thought I smelled funny because I did not have cable t.v. at home, I would be able to succeed in this society like anyone else. It has nothing whatsoever to do with my brain power. They all pay lawyers and accountants. Being above average attractive is anything but an asset if you have no family to back you up, as even women I am "friends" with treat me like a total stranger whenever their men are around. I am expendable because I have no family; no infrastructure. Poverty is inevitable to those who do not fit in; regardless of their individual merits, level of education, intelligence, talent, appearance, etc.

I am not saying anybody else is coming from precisely my p.o.v., but I feel my own life is an excellent illustration of just how it is that ignorant people can stand in the way of the brightest and most capable citizens of our nations; people who have the unique perspective to bring much needed innovation and ideology into play. I am not saying I am that amazing or brilliant or pretty. I am saying that my story clearly illustrates how the system is failing bright people. And I am bright, even if there are many days when I feel about two inches tall for being told otherwise by everyone around me in some effort to cut me down to size when am already severely disadvantaged.

I am deeply disappointed to see that people in government are ignorant of these facts when they form their policies. And yet, they all have their 'groups' , cultural, economic, whathaveyou, to sustain their place in society. And all of it is c i r c u m s t a n t i a l.

This was essentially my argument against Reaganomics, Trickle-down economics, and Bush's tax cuts for the rich:

If you give a rich person a tax cut, what do they do with the extra cash? They already own or can buy everything they need, so mostly they invest it, often in the stock market. In my opinion, and contrary to what I see as popular belief, this only moves wealth, it doesn't create any wealth, or anything at all, except for the investor. (I know that increasing stock prices make companies more valuable, and thus have better credit for expansions and such, but that is in the very long term, assuming they don't just hand over all the cash as options to their overpaid executives.)

OTOH, if you give a poor or even middle class person a tax cut, what do they do with the money? These people need things, so generally that money goes right back out the door to buy food, or clothes, or maybe a new car or whatever. (Statistics show that Americans don't save money, so they aren't likely to save a little extra money.)Now that money is right back into the economy, where it can bubble up though the system. If they buy a car, then that money helps pay people and buy supplies throughout the economy - from engine suppliers down to the espresso stand next to the car dealership where all the salesmen go to ogle the barista (sorry, I veered off track there). Eventually, those dollars end up in the big companies that the rich person would have invested in, not as increased stock value, but as earned income - real money. .And at every step of the way, the government gets a little bit of it back, as local and state sales taxes, as income taxes, whatever.

I would love to know what an economist thinks of this logic (hint, hint)

To help everyone, you need to encourage those with money to put it where it will create economic expansion, that is, in investments in stocks to give companies capital to expand and develop new products. That's why, when Capital Gains taxes go up, the government revenue goes down, as capital fleas the market. (But they do go up, as "soaking the rich" is good election policy, even though bad economic policy--are you listening, Presumptive President Obama?). Move the CG tax to, say, 10% tomorrow, and there would be a rush to reinvest, and the market would come roaring back. But Congress won't dare, because that would be "rewarding the rich."

To really do something about inequality in America, you've got to do something about single parent families. See the below, from the National Center for Policy Analysis (www.ncpa.org) You can get their excellent "Daily Policy Digest" e-newsletter for free. Lots of short recaps of important stories like this. Be informed!

INEQUALITY IN AMERICA
What is driving income inequality in American? Signs points to the advent of technology, the thrill of the winners-take-most markets, the effect of an educated family structure, the force of immigration, say Arnold Kling, an economist and author, and Nick Schulz, the DeWitt Wallace fellow at the American Enterprise Institute.

Today, there are two income inequality gaps in America: the upper-lower gap -- between those with a college education and those without, and the upper-upper gap -- between those with high incomes and those with extraordinary high incomes, say Kling and Schulz. These gaps reflect changes in the structure of the economy and illustrate how the aforementioned factors have widened the distribution of income:

New technologies have placed a premium on cognitive ability; in today's economy, more value added comes from knowledge work, and relatively less comes from unskilled labor.

More Americans are engaging in a kind of gambling behavior in their choice of occupation, and they are increasingly choosing to play in winners-take-most tournaments that lure people from the security of earning salaries for a quick thrill.

Early family conditions seem to be a major factor in the upper-lower income gap; even though upper-income martial relationships have stabilized, the problem remains for lower-income Americans.

Since 1980, the proportion of lower-income never-married mothers among college graduates has stabilized near 3 percent, while the proportion among high school graduates has risen from 3 percent to 10 percent, and the proportion among high school dropouts has doubled to nearly 15 percent.

There is also another factor at work: marriage is becoming increasingly sorted by class -- children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another.

In order to make a dramatic impact on inequality, government would have to do something about the fundamental causes: technology and marriage patterns. But as much as inequality may be a problem, no real solution is in sight, say Kling and Schulz.

Source: Arnold Kling and Nick Schulz, "Inequality and the Sergey Brin Effect," The American, October 1, 2008.

For text:

http://www.american.com/archive/2008/september-october-magazine/inequality-and-the-sergey-brin-effect

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

The BEST possible place to put money for the economy is in the hands of poor, stupid people. (Roll with me on this, despite the 'stupid' comment)

Smart people save money. They either invest it, or they keep it stashed away for emergencies (depending on if they're rich or poor). Rich PEOPLE (not companies, people) aren't likely to start factories - Even if they research it (ie., smart rich, not dumb rich), even if it is a good investment, there are better, and safer, things to invest in already.

But dumb people buy crap. Local crap, in fact! It's like the rich person's "Buy some local crap" tax Scott mentioned in another blog entry, except it's actually likely to work this way :) Dumb rich people buy Rich Crap, though. Designer !$%*!$% converting the wall of their 3-story house into a plasma screen TV, that sort of thing. That helps businesses that are already rich though, so it's limited in use.

But poor, stupid people buy crap from businesses that need people to buy their crap. Walmart, K-mart, whatever general-purpose Crap Store is in your area. That's what happened with the stimulus package, after all. If you put more money (and jobs, even if they aren't the greatest) into the hands and lives or poorer people, they'll buy more local crap. Those businesses prosper and they might actually hire more people instead of firing the check-out clerks (like has been the current trend around here). Customers are happy because you can actually find someone to answer a question every now and then, business is happy because their stockholders aren't throwing feces at them any more, and poorer people are happier because now they have some more money, and a job, and don't necessarily have to worry about kidnapping people off the streets and harvesting their organs for food.

In a way, giving money to poor people prevents an outbreak of cannibalism the likes of which the world has never seen. How can you tell me this isn't the right way to go?

Rich people who invest will get richer because their companies are doing better, so maybe the strain of the taxes on them will be lessened. It makes sense objectively, but I didn't exactly read up on it (clearly.)

Giving rich people more money won't make them more likely to create new businesses. It might make them invest in older businesses who won't be able to improve because nobody can afford their crap. Those businesses, to make their stock prices go up, will fire employees or move out of country so they can pay 10 cents an hour to their workers.

These thoughts follow the premise that the reason rich people are rich is because they don't waste their money on stupid crap, even if the country NEEDS people spending money on that stupid crap to keep going.

Please help me understand, I am obviously ignorant.

Isn't the greatest example of trickle up economics the Clinton administration. That seems to be the gist what I hear the Obama campaign saying.

During the Clinton years I was too busy (got married, started a career, bought first home, punched out a few kids) to pay attention to politics and there is probably a simple answer to my question, I just don't know what it is.

Here's the question: What did Clinton do to grow the economy?

Please don't be too quick to answer. I'm looking for the specific policies that the Clinton administration enacted and their specific measureable economic responses that were not directly confounded with a market pissing all over itself in an ecstatic frenzy of starting businesses in the attempt to get rich off of computers, the internet, or related technology.

Note that I'm using "confounded" in the statistical sense of two inputs that change at the same time and therefore their impacts on the output measure of concern can not be separated.

My impression (and again, I was up to my elbows in diapers during this time) was that the economic prosperity of the 90's was driven by technological advances and the desire of individuals and companies to exploit those advances. Unless Clinton or Gore invented the computer or the internet (I know Gore took credit for the inventing the internet but I believe that has been proven false) then I fail to see what specific Clinton policies grew the economy so fantastically.

Please enlighten me so that I can buy into this trickle up theory of economics that >50% of the nation seems to be buying into so enthusiastically.

Scott, I would be interested in a demographic breakdown of your blog readers, with an additional breakout of information on your registered users. Perhaps a pop-up survey? I normally ignore any survey foisted upon me via the internet, but would be willing to complete one for you.

I am curious about the diversity of your audience. I see certain trends in the posts and would be interested in the overall background and experience of those participating.

Wouldn't it make more sense for the rich people to invest directly in alternative energy, etc, rather than launder their money through congress?

This parallel stinky monkey brains dilbert universe isnt fun - Wheres the exit to cartoonist dilbert?

I don't know about you, but if I need capital for my business, to build a factory for example, I go to a bank. I don't go camp out on some rich guy's lawn and beg him to build me a factory.

What if the wealthy invested some of their excess money in universal health care? Then there might be room to treat them in the ER when they have their own heart attacks. Hard to measure the ROI, but it seems like a decent payoff for spending money you won't miss, anyway.

And what if clever investments of excess income resulted poverty reduction to the point that the moderately wealthy felt safe leaving their downstairs windows open? Would being able to turn off their A/C for a few hours result in a significant reduction in energy consumption? In pollution? In environmentally-caused disease? Again, a benefit to the wealthy that's hard to measure.

And what if the most enriching things aren't measured in dollars? What if these investments just result in higher quality of life?

When people are prosperous, they have no reason to go out and steal your stuff, stalk your daughters or murder you. Pay us. :)

Which reminds me, how is it that guns are more readily available than the necessities of life? Oh yeah, people suck.

There is only one solution, kill all bankers and neocons. *metaphorically speaking* :) This wouldn't necessarily make the world a better place or safer place, but at least there would be less people telling you how unhappy they are about what other people do.