After even more thinking about how to address issues of social in-equality, I updated the original article. So here is the updated version.
Trickle Down Economics isn’t working the way it was intended and never did.
What’s really happening is more like the separation of Oil and Vinegar. The more you let an economy stagnate, the more the wealth floats to the top like Oil and ends up in the hand of the rich with less in the hands of the poor. But having all the oil on top makes terrible salad dressing. Separation continues until someone creatively does something about it.
There are two scenarios that we are seeing playing out (and a third scenario that could make a difference):
1) The poor can shake up the economy or,
2) The rich can shake up the economy or,
3) (The government can shake the economy)
The Solution of the Oppressed
Occupy Wall Street, riots in the Eurozone, and North Africa’s Arab Spring are all examples of how the oppressed tend to shake things up. Since their resources are limited, they use whatever means they have available to them. Rioting and demonstration is one tool. Their other tool, if they are lucky enough to live in a democracy, and wise enough to recognize myths of the economy, is to vote for representatives that actually support their interests. Here is an article that accurately dispels one of those myths and which also supports the Salad Dressing Theory of economics.
A Rich American Destroys The Fiction That Rich People Create The Jobs
(A note to be added. After attending a conference on Social and Economic Development, I am learning about a few other concepts which have been working for impoverished people particularly in the global south where many groups of women have been encouraged to work together to save small amounts of money each week (0.15cents/each) and gradually they learn business skills to be able to take this small amount of collective money and begin their own businesses and their own community lending programs without the benefit of micro-finance organizations. Although such efforts should be unnecessary in the global north, whether such collective efforts might help the poor in our communities to advance and have a greater voice is an interesting question. During their collective community meetings, the women learn not only to address financial needs of the community but also designate a part of their meetings for addressing social needs. In some of these groups, men have been allowed to participate as long as they don’t attempt to subvert the power of the women. )
Solution by the Wealthy
If the wealthy recognize the fundamentals of this principle (i.e. that the wealth always rises through the instrument of profit), they should have no fear in shaking things up.
In order for the economy to be revitalized by the rich, it has to be shaken to mix the wealth into the poverty just as oil into vinegar in salad dressing. Since, wealth naturally floats back to the top, there has to be a way of continuously pumping the wealth to the bottom members of society. Only then will they have enough money to spend to keep the economy moving. The article above rightly points out that Henry Ford realized this principle and ensured that he always paid his workers enough to become his customers.
Another way, however, is through investments in the poorest sectors of society that benefit the poor in tangible ways. The following article is another example of that kind of mixing. Adidas is planning to sell a kind of Reebok running shoes in India for $1.00 using local labor and materials. At first, they may loose money but it will come back to them in the form of social capital and eventually profitable business.
What, Why: How can Rebook sell trainers for $1
(Note: One of my classmates rightly pointed out an interesting environmental issue with this, namely that if the trainers are built too cheaply or with non-recyclable materials, billions of used trainers will clutter-up land fills. Good point Greg, lets hope that Adidas contemplates plans for recycling, provided incentives for returning them, and thus reduces their material costs.)
Similar to the Ford example, the Tata Nano, a $2000 car, built for the masses in India, helps get families off dangerous motorcycles and into cars and is another great example of making products that the masses can afford.
(Note: The concept of having individual transportation driven by gas is ultimately not sustainable, so while I cite this as an example of creative economic stimulation that helps the masses, I actually hope that India and all other counties for that matter very quickly recognize the need for better designed communities that limit transportation requirements, improve public sector transportation systems, engage renewable power and utilize electric vs. gas vehicles. Are there any creative electric bus builder out there that wants to step up to the challenge with a solar powered transportation solution?)
If we want to look at solutions to many of the economic problems, the wealthier countries, companies and individuals need to create vital and thriving partnerships with the poorer nations and people to provide opportunties, goods and services which genuinely benefit the poor. As the poor benefit from wealth, the rich will also benefit.
The Government Solution
Government can play a role by building sustainable infrastructures, developing renewable energy powered transportation systems, investing in education and research and through taxation of wealth, wherever it is hiding, to redistribute some of it to the majority of the people in the world who are becoming poorer. Higher taxation is necessary especially if the wealthy are unwilling or lack the creativity to shake things up.
Sharing Ideas
If you agree with the Salad Dressing theory of Economics, please feel free to Share this article in whatever way you would like. Post the link, share through facebook, linked in, or Twitter or add to your bookmarking site.
Wishing you all good health and happiness,
Garth
