eli5: Trickle up economy
In: Economics
Trickle up/down economics is really easy to understand if you take a look at how people spend money.
The traditional idea of trickle down economics was that if you gave rich people money they would use it on big investments and projects that would make lots of jobs and spread the money around. Instead what they tend to do is put it in their bank account, because rich people never spend money if they can possibly avoid it. That’s WHY they’re rich. Rich people don’t make businesses to create jobs. They create businesses to make money. If you just give them money, they don’t make more businesses – they just keep the money, or find ways to exploit the system to turn that money into more money while bypassing normal business altogether.
Trickle up economics is the opposite. You take the poorest people in your society, the unemployed, disabled, and poor working class, and you try giving them money instead, through social security or a universal basic income. And what happens is they spend it – because they have no choice. They have unfulfilled needs – food, housing, clothing, education, healthcare, all kinds of things that they need – and the problem isn’t that they’re just not spending money, the problem is that they don’t have the money to spend. So if you give them money they don’t hoard it, they spend it immediately.
This has a double effect. Firstly, it helps them directly, reducing their economic cost. A great example of why is to think of someone who has gotten a moderate wound that needs treatment. If they have no money they’ll just suffer at home, and maybe it gets infected, maybe it gets very bad, maybe they end up in hospital, taking up a bed, using expensive medicine, maybe they lose a limb, maybe they die. Or if they can just have it properly treated early with a simple bandage then none of that happens, and the net cost to the economy is much lower.
By reducing the level of poverty in your country you don’t just remove needless suffering, you also reduce expenses in the long term, you make people more productive and you reduce unrest – those same people might be out there protesting, rioting, even rebelling if things get bad enough. But now they’ve got their basic needs met they’re happy enough and won’t do any of those things, because most people want a full belly and a secure roof and a peaceful life more than anything else.
Secondly, the money they spend doesn’t vaporise, it is given upwards. They spend it at stores, on goods and services provided by people higher in the socioeconomic heirarchy, which means essentially that business owners get more money, they hire more workers, they buy more products, so their suppliers make more money, they hire more people, they expand, and all that extra money eventually comes back around in taxation which then gets sent back down to the poor people at the bottom, like rain watering a tree, and the whole system cycles and self-perpetuates.
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