Peter Schiff
Recommend this article

The political left wing has long tried to cast doubt on the fairness, and even the efficacy, of free market capitalism by branding it as a "trickle down" system.  This epithet is meant to show how the middle and lower classes are dependent on scraps of wealth that happen to fall from the buffet table of the rich. This characterization of an unfair and inefficient system has helped them demonize policies that lower taxes (if they also extend to the wealthy) and reduce regulation on business. 

To correct these supposed problems, they have long called for policies to redistribute wealth or for government to inject funds directly into the economy.  Either mechanism puts money into the hands of everyday consumers who they claim to be the true engines of economic growth. They believe that consumer spending lies at the root of the economic pyramid. When people spend, business owners are able to sell more products, hire more workers, and reap more profits. In essence, they believe in a system of "trickle up" economics, whereby prosperity flows upward from government into the lower and middle classes and ultimately to the upper class.

Conversely, they argue, if consumers aren't buying, business sales decline and workers lose jobs. The jobless spend less than the employed, putting even more pressure on businesses. This leads into a vicious cycle of falling sales and increased unemployment. They believe that if a shock is not applied to reverse the cycle it is possible for an economy to regress, in theory, right back to the Stone Age. Using such logic, it is easy to identify the foundation upon which the economy rests: it's the spending, stupid. Some progressives have likened this process to a natural ecosystem wherein government spending is the rain that makes grass grow. The grass attracts zebras and antelopes (consumers), which then offer sustenance to the lions (capitalists).

Recommend this article

Peter Schiff

An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.
TOWNHALL FINANCE DAILY

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!