The end of ‘trickle-down’ economics?

Defenders of market capitalism always point to companies, rather than the government, as the key generators of wealth in society.

And for the most part I agree that business should play this role. But a recent report seems to put a dent in that idea.

The Los Angeles Times reported this week that large companies that have held on to their bottom lines are reluctant to hire, because of jitters about the economy and worries about health care costs. (here’s the link: http://www.latimes.com/business/la-fi-rich-companies24-2010mar24,0,395617.story)

The report’s sources point out that hiring is right around the corner.

Let’s hope so. Because if companies with relatively healthy cash flows don’t hire — even when they have loads of cash — then this idea of the social value of the market will take a serious hit, and “supply-siders” will have lost a golden opportunity to prove they are right.

Instead, if healthy companies don’t ultimately start hiring, that would mean that our economy is truly caught in a vicious cycle: Firms won’t hire because they are worried about a sluggish economy and sluggish demand; people will remain unemployed, which means they won’t have the money to create that demand; and firms will continue to extract more and more productivity from fewer and fewer people.

In the end, companies will get or stay rich, and consumers will stay poor. Reagan’s “supply-side” economics – in which wealth is supposed to flow from top to bottom, will have been nothing but a pipe dream.

What is becoming more apparent every day is that we need a new industry, new kinds of products that create demand…and ultimately jobs. Either that, or we’ll simply have to rein in our appetite for wealth.

Conservatives can point to excessive government intrusion as a monkey on the free market’s back. But that doesn’t seem like much of an argument when you can’t people to buy your products.

Hopefully, the Internet wasn’t the last great new industry….

 

 

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