Trickle Up Trickle Down Economy

Trickle Up Trickle Down Economy

Trickle Up Economy

Trickle up economy concentrates on the ideologies of lowering taxes and compensating people who depend on low incomes on survival. Trickle up economy emphasizes on how to increase the income of the low earners to become middle earning individuals. The compensations are passed to the people through the introduction of tax credits for individuals with small businesses, and also subsidies. Improving the small businesses may lead to the top of the large scale companies influencing the congress since they will not be important anymore. Trickle up economy ensures that money is in full circulation hence leading to the rise in the multiplier effect.

In recent years, income inequality has raised in many different countries, including the United States. In the different economies available worldwide, income inequality has reduced the rate of consumption, forcing up the rate of saving by taking the economy to the people who mostly saved from the people who consume. The shift has brought negative effects to the economy of a country, depending on whether the expensive capital and law savings control it.

Many economies are constrained by the weak demand and not a lack of savings. Many economists do not see how the rise in income inequality can suppress investment leading to a reduction of growth due to reduced consumption. We have two types of investment, which help us to analyze how income inequality can suppress investment. First, we have an investment that is not affected by demand. This type of investment is limited to higher cost of investment, where the cost of capital declines due to additional savings hence leading to businesses increasing their investment. Second is the investment that is sensitive to changes made in demand. In this type of investment, business participates in additional production when the demand for the same product grows.

Most of the investors use the second type of investment, which means, when income inequality is improved, then consumption growth rise, and the business reduces its investment on the products. Due to the slow rise in demand, business investment has also experienced a slow growth rate opposite to the economists’ wish. Fiscal deficits in the United States came in and boosted consumption, which prevented a more weakening of the demand growth.

Savings are always expected to grow much slower than investment whenever the current account deficit experiences an increase. This is determined precisely by how much the outside world is interested in investing their excess savings in your country. Most stable countries and some developing countries are looking for a place to productively invest their savings.

Countries should consider raising income inequality, which will lead to the rise of the savings of the rich, reduction in investment growth, which is caused by the weakening of the consumption growth. Savings are not expected to rise quickly than investment. Increasing income inequality can also suppress savings in the economy. An increase in income inequality can lead to a rise in unemployment and also lead to the contracting of the GDP. In this case, income inequality causes downward pressure on consumption, which can lead to the closing of factories and companies hence causing unemployment. It also leads to government debts, which are required to maintain the growth of the GDP.\

Application of the trickling up economy may work for the developed countries due to the stability of the economy, and well-structured system that will facilitate the growth of the small scale business person to a level almost equal to the rich individuals, without affecting the saving capability of the rich. Implementing trickling up economy in the third world countries may be a challenge due to the mentality most of the people have with poverty. Most of the people do not have a growth mentality and are drunkard, who instead of boosting their businesses may end up spending the opportunities in other ways. The process may require a lot of patience due to inability and selfishness of the leaders, who always want to fill their accounts and do not care about the less fortunate. Leaders from the third world countries believe and have a mentality of suppressing the less fortunate, and nobody is concerned about the growth of the community but only individual growth. This will affect the global business growth because money invested will go into people pockets and will not benefit the economy, result to the growth of the economy, which will also put away the investors.

Many countries, including the United States, would have a contracting economy or could be suffering from unemployment if the number of debts would be reduced. This is why economists fail to realize the connection between unemployment, trade imbalance, income inequality, and debt. Rising income inequality would lead to a country growing with less debt, growth would be experienced, and even benefit the rich.