Breaking Down Trickle Down: Business Plan 101

The thirty year old Conservative plan for the economy is known by many names; Supply Side, Reaganomics, but my favorite name for it is Trickle-Down economics. In case you don’t follow economic theories, Trickle-Down is the practice of giving advantage to the supply side of our economics system, the corporations, wealthy, and small businesses who create jobs, through tax breaks and incentives. The idea is that wealthy people flush with cash save that cash, and those savings are invested, through some means, back into the economy, which then through various ways, trickles down even to the poorest of Americans, either through innovations and efficiencies that make consumer goods less expensive to own, or through job creation due to increased demand.

Historically, this has been accomplished through tax breaks, especially for corporate America. In fact, about the only solution available to Supply-Siders is reducing taxes.

Thankfully, that’s as complicated as Republicans have made it, which makes my job much simpler. The idea of cutting taxes for corporate America and small businesses is that they will then use that money to create jobs in their own businesses. Only we’ve been using Bush’ Trickle-Down tax cuts for nine years, and we’re bleeding jobs. The best that can be said about Bush’ job creation record was that it was a positive record during his two terms. He averaged 49,000 jobs created per month. Economists say we need at least 150,000 to keep up with population growth. So Bush only fell about 101,000 jobs short per month with his Trickle-Down plan.

So much for tax cuts creating jobs.

Now let’s get to the good stuff, and don’t worry, this is easy. Business Plan 101. How to make money running a business.

Business A receives a tax cut and finds itself flush with cash. Wanting to do their part, they immediately hire several staff. However, after a few months, they realize that there is no work for these new staffers to do; even though they were flush with cash before they hired the new staff, in the end, there was no demand for those new hires to fulfill. After a few more months, those hires were laid off, and Business A had less cash than they did before they received the tax cut.

Business B received the same tax cut as Business A. Instead of hiring new staff, though, Business B researched whether there was actually anything for them to do; in other words, they monitored demand, always at the ready to meet it with new employees if it came to that. But in this case, the demand for their product was no different from before they received the tax cut, so they didn’t hire anyone. The tax cut ended up not achieving its goal.

Which business is the smarter business?

Tax cuts mean nothing for job creation without demand. Absolutely nothing, and that it can be described like this, without using any fancy formulas, completely destroys the myth of Trickle-Down economics. The effect that tax cuts for the wealthy, or for Corporate America have on our economy are long delayed, at best, and meaningless at worst.

Business planning 101 dictates that you don’t hire unless there is work for them to do. In other words, if demand is not present, neither should any new hires be. And this is exactly what ails our economy today. No good, smart business should ever hire someone just because they received a tax break, and the investments that the wealthy make and the subsequent trickling effect are too delayed and minimal to do any good.

Capitalism starts from the ground up. No product is sold without a consumer to buy it. This is simple stuff. I explain it to my conservative friends all of the time, and then they go watch Fox News or some moronic Republican Senator who repeats all of the old anecdotal "facts" about Supply-Side, and I have to start all over again.

I can make the greatest gadget ever, but if there is no buyer for this gadget, I’ve just lost money. Capitalism’s history is gorged with start-ups that failed because no one wanted their product or service. President Obama just visited one that teeters on the brink yesterday, ZBB in Menomonee Falls, Wisconsin.

No matter how you roll the economy, it has a starting place, and that starting place is demand, at the bottom. Tax cuts have no significant impact on job creation. ?