This is a Reagan-era idea that conservatives still cling to, even if they don’t use the term anymore. The idea is that if corporations and the very wealthy have more money, they’ll invest more of it and “create jobs.” It’s flat wrong.
Let’s take as a hypothetical an owner of several multiple McDonald’s restaurants. We’ll call him “Ronald.” Actually, I’ve known some of these folks (by and large a lovely group of people – most of them started on cash registers or the grills) and they’re not outrageously rich, but they make a more relatable example than Howard Hughes. Let’s also hypothesize a very low-income part of town, so poor that these folks can hardly ever spend more than $5 on a meal, and that maybe once a week. If the Mickey-D’s magnate finds himself with an extra million bucks, do you think he’s going to build a shiny new restaurant in the neighborhood where he can’t sell any hamburgers? However, if those poor folks somehow get better incomes, Ronald will borrow the money to build a store to sell hamburgers.
One of the ways those people might get more money is if other working-class people have the money to buy cars or furniture so somebody needs to increase manufacturing capacity and builds a factory in the area.
So. Businesses don’t invest in production because they HAVE money, they invest because they can MAKE money. The rich will sit on their money unless they see a good opportunity to turn a profit. When there’s an economic downturn they’re the first to move their money from struggling businesses to safe investments, like bonds – or foreign investments, if say the Indian or Swedish economy is booming while America slumps.
The people who spend money at McDonalds and Walmart and Target and Ruby Tuesdays and movie theatres and Best Buy aren’t the very rich, they are working people with families.
Henry Ford, for all his faults, understood this. He made the decision to pay his factory hands enough so they could afford to buy a Model T. This not only made him very rich, but it had a wide impact on working class wages and quality of life.
If we’re going to support the real supply side, we need to support the working classes, from factory workers to checkout clerks to salespeople, IT people, skilled tradespeople – really, just about anybody who budgets around a biweekly paycheck instead of checking their investments.
I have a weakness for metaphor that I will try not to over-indulge, but I’m rather proud of my metaphor for this situation: Every farmer knows that if you want fruit, you don’t water and feed the blossoms, you take care of the roots.
(You can water my roots at my CafePress store!)
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