Trickle-Down Economics Works: Just Ask the Middle Class!

Politicians and economists get many things wrong, but right now, the one thing that really gets up my… let’s keep this clean and just say, nose… is how clueless they are about “trickle-down economics.”

Republicans believe it. (They just don’t realize how long it takes and that it isn’t happening yet from the information revolution.)

Democrats don’t.

Sorry Democrats. You’re wrong.

I showed you last week how income inequality rose to extremes in 1929 and then fell to its lowest point into 1975-1978. And how it has risen to extremes again, which is why it’s such a political hot potato right now.

It’s clear that technological innovations and other economic drivers trickle down to the average Joe. It’s just hard to see because it doesn’t happen quickly. It takes decades!

The top 10% peaked in 1928, taking home a whopping 49.3% of the income! The bottom 90% had to fight over the remaining 50.7%.

But, they began to gain modestly in the early 1930s, while that top 10% saw its share of income fall to 32.5% by 1944 (see why I warn that the economic winter season will hit the rich harder than Homer Simpson?).

Then they enjoyed a sharp rise in income, and the rise of a broad middle class, during World War II.

From there, they lived in a “golden era” into 1978, with income shares largely between 67% and 68%.

This happened thanks to trickle-down economics.

This rise of the middle class came on a long lag from the great innovations of the late 1800s into the Roaring 20s.

Electricity and telephones emerged around 1900, the Model T in 1907, the all-important assembly line in 1914, and the modern corporation and radios in 1921 (notice the seven-year cycles).

The rich were moving to the suburbs into the 1920s. But the middle class finally made that massive shift only after WWII.

This new suburban lifestyle wouldn’t have been possible without electricity, cars, phones and telephones… and then radios and TV to follow. All of those innovations allowed people to enjoy a safer, more spacious and affordable lifestyle and higher wages.

Like I said: clearly trickle-down economics works.

And it stems from innovations and investments in radical new technologies. The emerging middle class themselves had little to do with the dramatic rise in their standard of living (sorry Homer).

 

Instead, they can thank innovators like Henry Ford for that. His first assembly line plant increased the productivity of his workers by 10 times. And he doubled their wages to $5 an hour so they could afford to buy his Model T.

So to clueless economists and politicians, I say: history is all about technology trickling down. Everyday workers don’t change as much as technologies change their work. It’s been that way with the first factories, the cotton gins, the assembly line, and the Internet today.

And this innovation occurs in the economic summer and fall seasons (as I showed you last week).

Then they trickle down in the economic winter and spring seasons.

Innovation favors the entrepreneurial and financial classes – the top 0.1% to the top 10%.

The trickle down favors the middle class and the broader bottom 90%…

Yes, without the risk-taking and innovations of the upper class, there wouldn’t be a middle class (take that Democrats!). But the extremes that always occur at the end of the economic fall bubble boom season are not sustainable and not fair (so take that Republicans!).

It’s the richest people that should be truly scared at this point. They should be doing everything they can to protect their assets and their businesses. They face a hell of an uphill battle to keep their wealth in the years ahead.

Of course, I’ve hardly met a super-rich person who thinks there’s any chance that their New York or London or San Francisco or Vancouver or Sydney condo could lose value (by as much as 50%, if not more).

Even fewer see the 70% to 80% stocks crash coming.

Don’t be one of these guys.

If you have any wealth, move fast to protect it. If you own a business, move fast to prepare it.

Things are about to change fast.