Are Trickle-Down Economics a Viable Theory in Today's Economy - Research Paper Example

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Are Trickle-Down Economics a Viable Theory in Today’s Economy? by Donna Purcell Economics Instructor University 02 November 2011 Donna Purcell Order# 588988 02 November 2011 Are Trickle-Down Economics a Viable Theory in Today’s Economy? What exactly does the trickle-down theory mean?…
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Are Trickle-Down Economics a Viable Theory in Todays Economy
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Download file to see previous pages The people, in turn, will have more money to spend in the economy.”2 Therefore, are trickle-down economics a viable theory in today’s economy? The average person has no concept of why anyone would give huge tax breaks to the wealthy. This argument has been prevalent since the rich has taken advantage of economic freedoms to increase their profits. It seems only fair to the ordinary taxpayer that they should give back a larger share than those who are not wealthy. This theory is the basis for the progressive income tax within the United States. The government taxes the higher tax brackets when their income increases in excess. The trickle-down theory promotes that tax breaks for the higher income sectors will benefit all. The average income earner cannot begin to fathom the reasoning behind this. Looking at history and the principles of supply and demand, some economists would say that efforts should be made to increase the supply or production of goods and services. Others would argue that a slow demand for goods and services is the problem, and efforts should be made to increase demand. The 19th century French economist Jean-Baptiste Say argued that economic growth will grow naturally if you boost production. This has become known as Say’s Law. ...
Therefore, there has to be a demand that is not being satisfied. What they desire is either too expensive or not being made. Making products that are in great demand will, in turn, drive down the cost and create profits for the producer or seller. This process satisfies the need or demand and turns the wheels of the economy. In the 19th century this theory was a viable way to access the situation. Thomas Jefferson even stood by the theory. When the Great Depression began in the 1930s, some economists’ views began to change. The British economist, John Keynes, argued “that there are such things as overproduction and lack of demand, and the key is to increase demand rather than supply.”4 It was his understanding that consumer demand should be promoted instead of production, and this would create jobs and production through higher consumption. Keynes introduced many theories in order to stabilize the economy on a short-term or immediate basis. He introduced policies to adjust interest rates, which adjusted available money. He also introduced policies that encouraged government spending and taxes, which would boost demand. A major part of these adjustments were to increase taxes on the rich and reduce taxes on the poor. It was his contention that the rich would invest their money producing more products and the lower income people would more than likely spend. Therefore, the oversupply of goods would be taken care of on its own, which was the source of the problem. Keynes’ philosophy of economics continued for at least three decades. By 1970 Say’s Law began to emerge again as a viable theory. Once again, trickle-down ideas were gathering support of some economists. If we think of trickle-down economics as a catalyst to boost production, it uses Say’s ...Download file to see next pagesRead More
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