Someone yesterday posted about a business owner who grudgingly added workers because demand had outrun his available labor. Typically, this is a "good" problem: especially in light of the weak demand of the last two years. I’m a manager of a small company that employs just over 100 people. With our raw material costs absorbing two-thirds of our selling price, we are always operating on thin margins. Cost avoidance is a brutal necessity, and under-utilized labor is unaffordable waste.
The point was made, however, that this gives the lie to the Trickle Down Economy theory. This is a cogent point that requires a bit more discussion. We will find in this discussion is that there is more to the political alliance between Big Business and the Republicans than the latter simply being the toady of the former. We will also find that tax breaks for the wealthy are anti-stimulative.
Profitable businesses want to remain profitable
There is an inherent adversity to change in the business world. An accepted set of rules, whether by lawful regulation, or an extra-legal understanding, is considered paramount. When our business leaders today whine about "uncertainty", what they are really saying is that they are not prepared for change.
This adversity to change is anti-change, anti-progressive, and more simply put, conservative. While we may disagree on whether the Republican party actually champions true conservatism, they do at least provide lip service to that effect.
The momentum behind the business community is formidable as well. They have had, and continue to have, pre-eminent influence in Washington. First and foremost, they want to protect their profits. And that means opposition to any change at all, for good or ill.
Capital is adverse to labor in periods of low demand
Businesses avoid unnecessary costs. To posit that rich folks will create jobs because they can’t think of anything better to do with the piles of money cluttering their homes is silly. Free capital can only serve two purposes: to create businesses to service unmet demand, or to eliminate labor through efficiency gains and automation. Let’s look at both of these cases.
In the high demand, low service situation, entrepreneurs will begin servicing the demand at the local level and find that their demand exceeds their supply. Capital then becomes available to absorb that demand through growth of the business. After two decades of gorging ourselves with false demand, abetted by cheap money, the demand cycle is currently very low.
Why Trickle Down is a Lie
In the low demand, high service situation, capital is utilized by existing businesses to eliminate waste. This especially includes underutilized labor. In our current economic climate, providing tax breaks to the wealthy and businesses stifles demand, as more people are removed from the workforce.
Tax breaks for the wealthy are anti-stimulative. This has been verified by CBO reporting as well. We all need to understand this to drive the correct narrative.
Diarist’s Postscript:
I know, for a lot of folks here that this isn’t news. I also think that there are plenty who heard the "Trickle Down" theory, but have never had it debunked. Thanks.