trickle down: more money to the rich
------------------------------------
The argument for giving more money to the rich than to the poor is
that the rich save more. (That is to say, they save a higher portion of
additional income; in jargon, their marginal propensity to save is higher.)
After buying big boats, big houses, and jet airplanes, there is not so
much left to buy; so the money must be saved.
This has been observed empirically. (I cannot remember the numbers.)
Saved money can be placed into non-productive investments like cash,
or into investments like land, or into investments like factories.
If the latter, factories are built, employing people to building and
being staffed after being built, also employing people. The employed
people receive enough money to buy a portion of what the factory puts
out.
The general presumption is that the latter occurs, and that the
investment takes place at home, not in another country.
The dangers are that the rich follow the other two ways of handling
money:
In the Great Depression, the rich figured that there were no
productive investments, so they did not invest in them. In the
jargon, this is called a `liquidity trap'. Lower interest rates does
not help, since the rich see no reason to borrow money that will not
return a profit. Only spending money on the poor helps. The current
fear of deflation comes from this experience.
Investments in land often mean a transfer of income from one group of
rich to another such group.
The third danger is that factory investment takes place overseas. For
example, right now, major business reports are saying that the US rich
are expanding business capacity more in China than in the US.
Thus, right now, giving more money to the US rich means providing more
money to investment in China. This was the policy of the Clinton
administration (they called it `constructive engagement') but is not
liked by many Americans, who would prefer that they be employed than
that Chinese be employed.
trickle up: more money to the poor
----------------------------------
The argument for giving more money to the poor than the rich is that
the poor spend more. They do not already have two jet airplanes and
a large boat. By spending more, they increase demand for goods.
This leads to factories producing more.
If the factories are in the local country, then more local people are
employed. If the factories are in a foreign country, such as China,
then more Chinese are employed.
Either way, the rich do not face a `liquidity trap' since they see
profitable investments for their money in factories either at home or
abroad.
Also, there is the argument that a person who has little money will
find a hundred dollars more useful than a person who has a lot of
money. That is because the one hundred dollars is a bigger portion of
the poor person's income or wealth than of the rich person's.
Hence, the government gets `more bang for the buck' by giving money to
the poor than the rich.
The counter argument is that a person with only 10000 US dollars will
waste an additional 100 dollars, but a person with a million US
dollars will spend or invest an additional 100 dollars in a manner
that provides more benefit for both the rich and the poor person than
the same money going to the poor person.
--
Robert J. Chassell Rattlesnake Enterprises
http://www.rattlesnake.com GnuPG Key ID: 004B4AC8
http://www.teak.cc [EMAIL PROTECTED]
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