The Trickle-Down Fallacy

I was highly bemused yesterday to hear Rudy Giuliani, a recent contender for the Republican presidential nomination, defending exorbitant Wall Street bonuses:

“I don’t know if they’re 19 billion, 20 billion . . . those bonuses, if they’re reversed, is [sic] gonna cause unemployment . . . .”

Let’s examine this statement.

Under the current economic system, bloated Wall Street bonuses coincide with a vibrant economy. But in terms of cause and effect, Giuliani’s got things backwards: healthy economic growth results in spending, tax revenues—and incidentally, bonuses (especially for corporate managers whose enterprises have contributed to the economic growth).

At least, that’s the way it’s supposed to work.

I think most of us assume that bonuses should be rewards for work well done, for economic success and, by extension, for contributions to the general welfare. They should be incentives paid from profits to all whose efforts contributed to the general financial well being. In the world of high finance, however, they’ve too often become entitlements for obscenely rich and privileged executives who may have failed in their efforts or even behaved irresponsibly.

If “bonuses” are handed out regardless of results, where’s the incentive to improve performance? And if such bonuses are derived from tax revenues—your money and mine—why shouldn’t we be outraged?

Giuliani went on to say that when Wall Street workers get bonuses, New York profits because “that money gets spent. That money goes directly into the economy.” Hello! The money gets spent either way.

Here’s an analogy. Let’s say that a homeowner defaults on his or her mortgage or credit card debt but wants to buy a new car. By failing to take care of routine financial responsibilities, this citizen is hurting the economy—the mortgage or credit card companies. But by the same logic that seems to apply to the financial industry, the government should give this poor citizen the money to buy the new car—because buying automobiles stimulates the economy.

And if the government does that, where’s the incentive for the homeowner to pay bills and become fiscally responsible?

What we’re talking about here is a basic difference in philosophy. There are those who feel that money given to (or, ideally, earned by) big companies and corporations automatically stimulates the economy by creating jobs and stimulating financial growth. This requires entrusting a few individuals with the financial well-being of the many—which is how we’ve arrived at the state we’re in today.

Then there are those who believe that by helping individuals and families, we can stimulate the economy from the bottom up. Some money will still go to greedy, irresponsible people, because they are among us. But those individuals won’t have the power to upset the whole system. And for the most part, spending is spending.

We’ve tried “trickle down” in this country for a long time. I think it’s time we tried a little more “trickle up.”

Shrewd Move

Yesterday’s block vote by House Republicans against the economic stimulus package should have come as no surprise, I guess. Because this bill requires a simple majority, they were in a win-win situation. Having gone on record as opposing the whole package, they can’t be blamed for any part of it that doesn’t work. On the other hand, if miracles occur and the economy turns around in short order, they can’t be blamed for blocking progress, either.

Hats off to the Republicans.

As a busy listener tuning in to occasional news reports, I can list a few things the GOP, in general, doesn’t like: funding for arts, education, and public works projects, to name a few. Without getting into questions of why employment of artists and curators, teachers’ aids and city planners don’t seem to be of particular value to Republicans, I’d like to hear more about specific stimulus projects they would like to see.