Bubble Up, Not Trickle Down

Some time ago, I suggested that a ten percent raise in Social Security Benefits would spur the US economy faster than another "bailout". Consider this:

Most of the money theory floating around presently makes a big deal about the old-fashioned idea of "trickle down". This means throwing funds at big business to make it so happy that new jobs will budd and burst off like maturing amoebas.

 Ick. Messy. Running a country like Jackson Pollock paints.

Surprise, surprise...it does not seem to be working.

Business moguls and their boards of directors have to answer to stockholders and everyone is on board with the capitalistic notion of making money---not spending it. Bonuses have to be earned and accounted for, dividends are nice, poison pills make sure that noone steps on your parade, and the orgy continues.  So where is the money?

The problem in this present business climate is that big business is hoarding (gasp, choke, urk!) the surplus monies they were supposed to be reinvesting. Reinvesting in capital improvements, plant expansions, research and development, and even jobs is on major hold because the international climate is uncertain. The value of the dollar changes so rapidly that there is a real dread of making a big mistake by making a Big Move.

Whatever, whatever,  is an economist to do?

Senior citizens, living on Social Security, are not worried about the "Big Move". Seniors are more concerned with the nitty-gritty and down to earth problems of food, shelter and medicine. Even a ten percent increase in a thousand dollar check is a big difference in an elderly person's life style.

Consider that funding from Social Security is spent in the middle segment of the economy. If someone needs to eat, that person is not likely to put a down payment on a fur coat or 42 foot yacht. Social Security payments go to a restaurant, a local shop or even a US Savings Bond for a grandchild.  This is a steady segment of the economy that will produce jobs. That Wendy's or MacDonald's restaurant hires local people. Staples, Walmart, Target, Petsmart, Lowes, etc. are not bringing in executives in jets to man cash registers. No, not at all. The jobs that senior-spending support are definitely in the middle or lower middle of the employment range and correspond to that part of our country-wide recession hit the hardest.

Jean Batiste Say was the origin of the popular phrase that "supply creates its own demand." But if you cannot find a market before your goods are discounted, you are out of luck. One example is Kohls discounting 30 percent, handing out 20 percent coupons, and then topping it off with cash coupons for another visit. If you have a bloated inventory, you have to get cash flowing.  John Maynard Keynes (uncle of Quentin Keynes, my African explorer friend, as per previous blog) observed that when people did sell something, it did not guarantee that they would spend the proceeds. In previous recessions, folks have been known to chipmunk and stash money in a mattress. I guess nowadays it would more likely be in the freezer behind the pizza rolls....whatever.

My point is that there is going to be more turnover and less hoarding in the middle of the economy.

And that is my soapbox for the day.

Seniors rock.