The End of the Trickle Down Era?

The super rich or “0,1%” have a problem. It is also a problem for firms who are sitting on a lot of cash. In a global economy of the sort that we have, where do you put the money?

Well, they could give it to me, but so far no one has taken that step.  But more seriously, most of these folks want a return when the invest.  That rules me out. And btw, it should rule out a lot of VC’s — though they won’t admit that. So what is the problem? Some economists — and these are some very top guys — argue that the amount of money available for investment exceeds the available amount of reasonable investment opportunities.

So we get some weird outcomes. Either these super investors sit on their cash, which is a huge drain on the economies of the world, or they invest in stupid stuff which offers short term returns but also creates bubbles. And it appears that we get both of these in different sectors these days. I think that Joe Weisenthal at BI lays this scenario out rather well.

Hmmm … this is interesting. Remember the old “trickle down” argument from Ronald Reagan? That argument was that it is good to make the rich richer because their wealth trickles down. So much for trickling, right?

And this is not the only story here. Consider this story about the consumption side of the economy from NYT

… about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income

As a result, retail outlets that cater to the middle class are facing a shrinking market while those addressed to the affluent are doing just fine.


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