Trickle Down Economics does’nt work says Alan Blinder. Here’s what does.

Top Economist Alan Blinder wrote this article last week supporting letting the Bush tax cuts on the rich expire.

The Basic idea behind it is that an unemployed person or a lower income person will spend any extra money he gets right away (he doesn’t have a choice) and thus stimulate the economy, whereas a rich person will save it and thus not stimulate the economy.

One thing that’s left out in almost all discussions is class. Most of the rich people that received the Bush tax cuts will make most of their money through investments and controlling businesses for a profit, most of the poor make their money on their labor. Any sound businessman knows the way you make a profit is to spend the least amount of money while profiting the most, any of the money you give to businessmen will be used to make them more money. That money won’t trickle down, hiring won’t increase simply because those doing the hiring have more money, hiring will only increase if those doing the hiring must hire more in order to make more profit, which will only happen when demand increases.

In fact even if demand increases and unemployment is high, chances are what will happen first is that workers with jobs will have to work harder before they hire, and because of job insecurity, workers won’t really have choice but to comply. The money will only trickle down when the rich have made as much profit possible before it trickles down, and generally that ceiling is never reached, especially since investing in financial schemes is generally more profitable than investing in productive industries, the derivatives market doesn’t trickle down (if anything it will end up costing the poor more when those markets blow up and the government has to bail them out).

Obviously letting the tax cuts expire is the right thing to do, obviously unemployment benefits must continue. But things need to be done to change the way business is done in the United States, as long as industry is run completely by and for the rich and the business class, unemployment will stay high, wages will stay low, and any economic growth will shoot straight to the top (why wouldn’t it, they control where it goes). One way to change this is Co-Determination (In Germany where the practice started it’s called Mitbestimmungsgesetz), which is a policy of companies being required to include representatives of the workers in the board of directors. With worker participation in companies the interests change, when more demand is needed, chances are the workers will prefer hiring more workers rather than wanting to work more, when company profits go up chances are they won’t want all of those profits going to CEO bonuses, when profits go down chances are layoffs are not the first option.

These sorts of policies, increasing democracy in the economy, lessening the economic power of the business class, that’s what’s going to get the economy out of the dump. We don’t need to just pump more money into the economy, we need to change whose interests the economy serves, and the only way that will happen is changing who controls the economy.