Trickle Down Economics and Apple Pie

Any readers that know me in person know that I am a fiscal conservative and a general believer in the importance of economic growth. Trickle down economics can be paraphrased as sacrificing income equality in favor of focusing on growth. If allowing the wealthy to have higher incomes increases investment and will drive overall economic growth, the idea goes, the more we all benefit.

When Trickle Down Economics Fails

I just started reading Joseph Stiglitz's new book, The Price of Inequality, and he describes this theory in a wonderful way. He says if income in the economy is viewed as an apple pie, then in a perfectly equal economy, 1% of the people would have 1% of the pie. What trickle down economics suggest is that the 1% should be allowed to get a bigger slice of the pie because the loss taken this year by the 99% will be more than recuperated next year when the size of the pie as a whole increases. When trickle down economics doesn't work is when the size of the pie doesn't increase enough to recuperate the loss of income to the 99%. When this happens, there is still a wealth disparity, but no gain to the 99%.

I think this is a truly useful metaphor, particularly for chatting over dinner or describing the concept to someone wtihout much interest in economics.