The Real Trickle-Down Effect: Making “Luxuries” Affordable to Regular People
Most readers are familiar with the notion of the “trickle-down effect.” This caricature is usually employed by left-leaning economists to denounce tax cuts for the entrepreneurial class. Writing for the Washington Post, Christopher Ingraham tells readers that slashing tax rates for the wealthy fails to stimulate employment, though rich people become more affluent. Unfortunately, free market economists often respond by demonstrating that there is a positive link between low tax rates and economic growth.
Although their efforts are commendable, such writers are employing the wrong strategy. Instead of showing that tax cuts benefit ordinary people, they should highlight the well-documented trickle-down effect of capitalism. In general, capitalism reveals a trickle-down effect by making luxury goods affordable to the masses. Through intense competition, capitalism drives down costs, thereby allowing ordinary people to access luxuries. For instance, in 2011, 35 percent of Americans owned a smartphone, and today the figure is 85 percent.
Furthermore, the allure of profit motivates entrepreneurs to cannibalize the market with their products, and when the aim is to gain wealth, the social class of consumers becomes irrelevant. Economist Tim Worstall describes Henry Ford as one such entrepreneur: “Henry Ford didn’t
Article from Mises Wire