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Andres Aullet

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Trickle down vs. trickle up

The more businesses are left alone to do what they do best (sell a product or service), free from regulations, external influences and excessive taxation, the better they will be.

Loans and extra profits can be then used for more business creation and business growth, which in return drive more economic prosperity for investors, and that also "trickles down" to workers (as jobs and better salaries) and consumers (as lower prices) and everybody benefits in the end.

Or so the story goes.

Although the theory says that when investors gets richer, they use this extra wealth to promote more businesses, and in the process creating more jobs and driving prices down through specialization; there are many examples where the extra wealth is either just accumulated, or it is invested in ways that do not create jobs nor drive prices down.


Would things work in reverse?

What if individuals rather than businesses were the recipients of loans (micro), left alone to do what they do best (which i contend is creativity), as free from regulations, external influences and excessive taxation as possible.

They would then require raw materials and more people to put their ideas into action, they would need products and services offered by bigger businesses. In the end, everybody would benefit and the economic prosperity would trickle up

Obviously, this is an idealization.

But, could we benefit from a balance of both approaches?

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    Nov 6 2012: It takes money to make money, and for that reason wealth tends to centralize. Today there is unprecedented centralization of wealth and the so called "trickle down effect" is nowhere to be seen. Middle class incomes have stagnated for the past few decades.

    There are always exceptions, of course, political forces and disruptive technologies can also change demographics of wealth. Usually, though, things don't go as planned and everybody becomes an expert in hindsight.

    I believe the phrase "trickle down effect" is a PR term to justify tax cuts to the wealthy that are a tough sell to many voters.

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