Chris, I think you missed my point. I was saying neither traditional “trickle down” economics or government stimulus spending programs like “cash for clunkers” work in a global economy. Specifically, I said…
“But to work for the US economy, we need both approaches to “cycle” the money through the economy multiple times even if the different approaches do so at different speeds. Economists refer to this “cycling” as the “multiplier effect” and it translates into a measurement that indicates the dollar value of all transactions arising from the injection of spending into the economy. But various factors can dramatically impact this multiplier effect and two of those are the rate of return on investments domestically vs abroad and the tendency by US consumers to spend marginal dollars on foreign made products.”
Trump introduced a very different strategy that is working. First, he lowered taxes on business encouraging investment and job creation. That investment has “created” jobs and today unemployment is at 3.6% (the lowest since the 60s). Simply take the wages paid on those new jobs times the number of people and that is the dollar flow out of the economy to working people. And the good news is it is not a “one time” shot.
Second, he has made it hard for companies to hire cheap labor in the US or outsource their production to other countries. This has given “labor” leverage in contract negotiations… this “leverage” has expressed itself in the record number of “strikes” by unions since 2008 and their success as negotiating higher pay rates and benefits. Not to mention a general rise in wage rates for working people even after inflation.
So Trump’s strategy is very much a “bottoms up” strategy and not a trickle down one. His policies have added more workers (that means working people are taking a great share of the economy as a whole). The shortage of workers (1.5 million more job openings then people looking for jobs) has given workers wage negotiation leverage and the speed at which people change jobs for higher wages has increased.
As Jamie Dimon said so eloquently, the initial higher profits caused by lower US tax rates will quickly get absorbed by workers through wage increases and consumers through lower prices. This is already happening as reflected in wage gains and low inflation.
I did think lowering taxes on high income earners was unnecessary (we needed lower taxes on business not high wage earners, they should not be lumped together).
Nothing moves money into the hands of workers better than adding new jobs… each new job is a 100% transfer of money from the economy as a whole into the hands of American workers… this new approach might be an important lesson for politicians… do not mix business and the wealthy… if you feel the wealthy are not paying enough taxes then raise them… but business competes in a global marketplace and the business it attracts to America results in jobs for working people… that is real trickle down economics…
