Trickle Up Economics

We have lived during a period where the dominant world economic philosophy has been the neoliberal free market economic system. For the last 40 years this system has been sold to the public as a system that will ultimately bring wealth to all via the so called, ‘Trickle Down Effect.’ In other words, ultimately all levels of society will benefit by growing the economy. Economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services as well as invest in capital. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees. Typical policy recommendations of supply-side economists are lower marginal tax rates and less regulation.

French economist, Thomas Piketty, has very recently released a groundbreaking and bestselling book entitled, “Capitalism in the 21st Century,” where he offered his perspective on the rise of global wealth disparity. In a direct refutation of the Trickle-down economics Piketty’s invaluable research shows that wealth does not trickle down…it trickles up.

The richest 85 people in the world have as much money as the poorest 3.5 billion – or eric-trickledown1half the world’s entire population – put together. This is the stark headline of a report from Oxfam ahead of the World Economic Forum at Davos. Rather than benefiting all, the result of this economic system is a widening gap between the rich and the poor, with damage and decrease of the middle-class.

If one subscribes to the charitable view that neoliberal philosophy was simply naive or misguided in thinking that “trickle down” would work infinitely, then evidence that it doesn’t, should be cause for concern for our government.

Even if one subscribes to the cynical view that the elite knew what they were doing all along, observing that the “rising tide” is lifting fewer and fewer boats and leaving more and more to rot in the sediment – both at a personal and national level – must make 10383653_688259571209505_395956613709428916_nmost wonder “am I in the right boat and is it big enough?”

It is not so much that the supply-side principle “if you build it, they will come” is no longer true. It is more that we appear to have passed a tipping point, where so much wealth has been concentrated at the top, they no longer need bother to “build” anything. In short, it has become more economically efficient to buy countries’ economic policy than to create value in order to sell it on. If one can control government to favour the richest, while raising barriers for new entrants, thus increasing their share of the pie exponentially, what is the incentive to grow the pie?

This applies to both companies and individuals. Small business gets clobbered by taxes and business rates, while big business turns around and says to the state: “This is how much tax I fancy paying this year, take it or leave it”. The rich no longer create jobs, through a process of consolidation, takeover and merger, they actually destroy them. In a society that is hungry, desperate and devoid of political engagement or unionism, why would anyone offer terms and conditions that give individual workers any standing?

And yet, the realization must dawn soon – one hopes – that this model is unsustainable because its effects are uncontrollable. The more unequal we become as a society, the trickle-down-capitalism-2010-09-9-08-35faster the top’s earnings diverge from the bottom’s. “When so much of the purchasing power, so much of the economic gain, goes to the very top,” Bill Clinton’s former labour secretary Robert Reich explains in the film ‘Inequality for All,’ “there’s simply not enough purchasing power in the rest of the economy.”

Then why are most governments continuing to fiddle with supply-side levers in order to revive the economy, when it is abundantly clear it does not work? The simple answer is in two parts. First part: habit. The second is that maybe the ultimate tragedy of capitalism in our time, is that it has achieved its dominance without regard to a social impact, without being connected to any other measure for human progress bar wealth.

We have come to measure individuals’ success by their wealth, spending power and other trickledownassorted trappings. We do the same with the economic success of governments; measure it by an aggregated data set that fails to take into account wealth distribution, educational achievement, innovation, or even the welfare and health of the population they claim to represent. We must shift this perspective.

Greens Deputy Leader and Employment spokesperson Adam Bandt MP today said that the Fair Work Commission has a chance to act on income inequality. “The IMF, the OECD, the World Economic Forum and Australia’s Treasury have all made clear that tackling growing income inequality should be a high priority for policy makers because it poses a real risk to growth, prosperity and political stability,” said Mr Bandt.

“The Fair Work Commission has the opportunity before it to tackle one of the most worrying risks to our prosperity, that of growing income inequality. By raising the minimum wage, the FWC has a chance to lift more Australians out of poverty, reduce the number of people who are ‘working poor’ and make the country a more egalitarian place.

“Raising the minimum wage is an excellent way of stimulating the economy and most Australians recognize that a more egalitarian country is a good thing.”

Tony Abbott’s Government, however, is clearly ensconced in neoliberal economic philosophy and so has done a lot of scaremongering that the sky will fall in if the minimum wage goes up.

The Reserve Bank of Australia’s most recent board meeting minutes say that future growth after the mining boom is likely to be in the services industry. “Tony Abbott’s failure to pay people in the growing services industry a living wage, while at the same timing cutting penalty rates, risks nipping the prospects of growth in our services industry in the bud,” said Mr. Bandt.

In the US, 600 eminent economists (including a number of Nobel laureates) recently wrote to President Barak Obama urging him to raise the minimum wage. They said that minimum-wage increases help stimulate the economy and have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. In other words, rather than rig the system to favour the rich, we need to grow the middle class.


About Passionist JPIC Australia

I am a priest with the Passionist Congregation and a part of our Australian Province which includes Australia, New Zealand, Papua New Guinea and Vietnam. I have been ordained since December of 1992. I was born in the Philippines, though am from Spanish decent. I came to Australia in 1972 with my family when I was 11 years old, and we settled in Brisbane. That is where I did the rest of my growing up. On completing high school, I went to Queensland University where I studied for 4 years, completing a B.Sc. with a major in Microbiology. The following year I decided to enter into the Passionist Congregation to study for the priesthood. I trained for 9 years, and have been a priest for 25 years. In my time as a priest I have been Director of the Passionist Family Group Movement in Victoria, Tasmania and Queensland; conducted over 400 Parish Missions all around Australia and New Zealand, but particularly in Victoria and Western Australia; worked in adult faith education, Sacramental preparation for children and parents; Hospital chaplaincy; High school chaplaincy, in-services and retreats. In the year 200 I became engaged in developing young adult retreat teams and training them to carry on our high school retreat programs. I am also chair of our Province’s committee for Justice, Peace and the Integrity of Creation (JPIC). I am also a member of ACRATH (Australian Catholic Religious Against Trafficking in Humans).
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