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Trickle-down economics

by Joseph Robertson

Created on: November 17, 2008

We have surpassed the "trickle-down" theory and entered a new era of generative economics. To understand the relevance and virtues of Barack Obama economic vision, we have to look at the long history of struggle between American laissez-faire capitalism and American middle-class capitalism. We are on the verge of what is likely to be a comprehensive philosophical shift in economic policy toward generative investment, which means counting as economic imperatives the resilience and productive expansion of the positive bases of economic growth, i.e. human and environmental health and well-being, resource-density and cyclical models of resource use and reproduction.

We must also eschew, to avoid distraction, "filter terms like "socialism" or "big government, which are for many reasons, useless in the current realities of American economic policy. The government is bigger than it has ever been, and ideologically speaking, the issue is totally incoherent: the most supply-side administration in recent decades has produced the largest expansion of both spending and government power, while the social-services minded administration of the 1990s presided over the largest reductions.

The key is to understand that if the majority of consumers find cash scarce, even those businesses funded by the investor class will also find it scarce, as spending falls away. We have seen concrete proof of this fact in the recent mortgage-related credit crisis. The failure, on a massive scale, of home loans designed to help deliver equity and bargaining power to consumers unable to meet the profit-demands of lending institutions, has drained the middle class broadly of easy credit and disposable income.

Current Trends

Prices have gone up, credit has frozen, banks have closed, and ultimately, the economy sunk into "negative growth", because the 70% of GDP representing consumer spending could not draw from those now depleted capital resources. The current climate provides us with a kind of acid-test of basic economic theories, including the assumption that "pro-business" market policy could not have a constricting effect on capital. We now see that abundance can produce economic pathologies that lead to widespread scarcity, and prolonged contraction.

The "free market" is really a market-wide conceptualization of economics that has tended to be applied always as a policy that permits the most powerful actors in a given market the maximum freedom to operate without responsible oversight or constraint.

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