Why “Trickle Down” Theory Doesn’t Work
By JamesW on Jun 4, 2009 in Blog, Rants & Raves, The Mud Pit
The Republicans love their “trickle down” theory. This theory, for the uninitiated, can be described as “terms of political rhetoric that refer to the policy of providing tax cuts or other benefits to businesses and rich individuals in the belief that this will indirectly benefit the broad population.”
Interesting idea, but why hasn’t it worked? The answer is simple; Greed. The majority of a corporations profits go to the top executives for allocation. That part works fine. But then, IT STAYS THERE! NO WAY DOES IT “TRICKLE DOWN”!
It’s no secret about the enormous salaries, bonus, and benefit packages received by the top guys and gals in major U.S. corporations. Ex-Hewlett-Packard CEO Carly Fiorina comes to mind. She got a severance package worth about $21.4 million, but stood to get another $21 million after she was forced out by the company. Nice pay for messing things up royally (consider the logic of such packages: the board hires a CEO, gives them an incredible golden parachute. If they fail and are thrown out, they get rich. If they succeed, they get rich. What a Motivator!).
I was a first hand witness during that time, working for HP as a consultant, and it was a blood bath. I’ll never forget the pain she caused thousands of employees as she ruthlessly changed HP’s gentle and relatively caring culture to a culture of “the bottom-line”. What did she bring to HP as a result of all that pain (besides a lighter corporate pocketbook as she exited stage left): nothing.
Of course our more current stories come from Wall Street and the banking industry, and of course good ol’ AIG. The Feds pump millions into these companies to cover for basic failure in their management, and, of course, the ravages of Greed.
I also witnessed Greed at work first hand, when working for a small tech firm in Colorado. When I first joined up, the company was small, with only 5 of us working hard to build up the business. The owner at that time, was very humble, and appreciative of our efforts. What profits we did have, he shared generously. However, over the years, he (the CEO/President), changed. As his own personal fortune grew, he grew more and more reluctant to share the wealth with the rest of us (“exit strategy”?, what exit strategy? Stock? No way!). Getting a raise was like pulling teeth, and he became unilateral in his decision making, not wanting to make things messy by input from “the rabble rousers”.
To add insult to injury, he was from India, and got most of the companies work through a federal program that gives minorities a competitive edge during the bidding process for federal contracts. His “payback” to America? Keep the majority of profits for himself and his family, send massive amounts back to family members in India, and what was left, might, if it was a good year, result in a 1 or 2% raise for us working-stiff American citizens. “Much thanks America! Adios!”
Greed is the sand in our industrial wheels. Unfortunately, it is now up to government to come to our rescue and regulate against one of the worst of the “7 deadly sins”, greed, and with these insane bailouts, to regrease the wheels in hopes we can live for another day.
PS for MBA Students: Case Study: “The Carly Strategy”: Come into the organization like a whirlwind. Be authorative. Create massive amounts of smoke, dust-in-the-air, and fire people so that no one (esp. the members of the board) can tell that you have no clue what you are doing. Rape, pillage, and create massive amounts of personal wealth for yourself. Exit. Write a book telling the world how tough it is to be you.
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Erdos2 | Jun 6, 2009 | Reply
The strange thing is that the “answer” to the question has both positive and negative aspects to it and is found at all levels of society. Actually greed is the reason capitalism has worked so well to build America to be the wealthiest nation in the world. But greed can destroy it too. The problem occurs when it becomes a “give me more” instead of “I want to do this to earn more”. “Give me more” won the last election because when the masses cries it they are a powerful voting block. But it won’t cause jobs to stay in the USA, and in the long run we get a “protected” less. There are plenty of examples of this in California political economics where tax paying jobs are leaving the state, and in comparisons of red vs blue state economies in general (look at unemployment averages for example). One can use greed to complian about things or use greed to build a better place for all. This article says a lot about where the author is in this area.
JamesW | Jun 7, 2009 | Reply
I think “greed” kicks in when money, and/or material objects, become the primary goal. I know a number of entrepreneurs and inventors who come up with ideas, and have them actualized. However, the inventor/entrepreneur’s original goal was not to make gobs of money, but to have their ideas actualized. Money was almost a byproduct, a secondary effect. Admittedly, Capitalism might provide a better system for this actualization to occur, rewarding those who innovate with money, but that alone doesn’t mean that capitalism is innately “good”. Nor does the fact that we are a “wealthy” nation. What we as a country and society DO with that wealth is what is important (providing basic health care and decent education for the folks of our country might be a good start. Pretty much every other first-world country does. I think this is all the voters in the last election were asking for, and in my mind, it not a handout, as suggested in a prior comment, but a basic right for any nation even 1/2 as wealthy as ours (a little “payback” please, for all the hardwork – the reason that we are a wealthy nation – and resulting taxes we’ve pumped into the system. The last election was a revolt about HOW our country is spending it’s wealth. Build and use a few less expensive weapons – which subsequently get blown-up in a war nobody wants, a few less nukes, and maybe heal the sick, etc. with the proceeds. Wow, what a concept!). NOT giving phony non-producers like Fiorina huge amounts of money for failing big-time might also be something to look at ). I think that history still needs to judge whether the capitalist system has been, in the long view, a positive force or a negative force. Right now, I think we hang on the precipice of which direction the balance tips.