Lets try and sum up exactly what is the trickle down theory and why it is so inherently controversial?
Basically trickle down theory is the idea that if you give a tax break (essentially a tax cut) to the top earners within an economy, these top earners then save more of their already high income. because they save more of their income, these people are considered to be increasing savings that they would "sensibly" be investing it back within the economy. Either way, these activities will be inherently productive, reinvigorate economic growth and eventually generate more tax revenue from these earners and the supposed people that they will help. This boost in growth is theorized to ultimately help the lower income bracket and thus the whole economy.
What Do i feel is wrong with the trickle down theory?
One basic assumption that I feel is also very controversial when it comes to basic economic theory as well. The assumption that when people have higher savings, they will invest back into the economy. People do NOT have to reinvest. They do not have to put their money into interest bearing accounts within a bank, if there are tax cuts now people will expect higher taxes in the future and will hence save for the future. There are way too many loopholes to predict regarding peoples behaviors and that makes the whole theory subject to alot of controversy. Trickle down economics, Will the rich always share back?Doesnt seem like that to me.
This is why the proposed national minimum wage laws are so controversial. Classic economists believe that raising the minimum wage will force employers to lay off workers. More modern economists are suggesting that there may be a initial lay off of workers, but that the access money employees make will be reinvested back into the economy because they have a higher propensity to consume than shareholders / employers.. and so because more money is being spent in the economy it will lead to job creation, economic growth, and a higher standard of living.
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