The revenge of Trickle-down economics

Trickle-down, meet trickle-up

By Morf Morford

Tacoma Daily Index

“Trickle-down” economics was a theory that flourished – or at least dominated economic discussions – in the 1980s.

The premise was simple, cut taxes on the wealthy and they, with all that “extra” money would invest it in the larger economy or would spend it and, either way, would spur the economy to ever-new heights.

To put it mildly, it did not quite work out that way.

Much of that “extra” money went to tax havens and corporate buy-backs of stocks.

The number of millionaires (and billionaires) grew dramatically – as did the number of homeless. (The word “homeless” did not exist in the public vocabulary before 1980. We had people without shelter, but that condition was seen as inherently temporary).

And, as we now know, our infrastructure – highways and bridges in particular – went unmaintained – for decades.

As our tax rates became increasingly unfair (with those who had the least were expected to pay the most) ever more extreme income inequity, increasingly visible, if not intrusive homeless populations and a disintegrating infrastructure, it became obvious, even to its proponents, that “trickle-down” economics does not work. At least in the ways some expected it to.

But now, in the 2020s, it does work

As one might expect, in the 2020s, when established rules of economics that have always held true suddenly make no sense and principles and decisions that once seemed preposterous now seem reasonable.

And, almost on schedule, we see the return of “trickle-down” economics. Except, of course, we see it in reverse. It’s not “trickle-down”; it’s “trickle-up”.

If you take a basic commodity, one on which everything else depends – either for production or transportation – and raise those prices, the direct and obvious impact will be that all prices associated with that product will be forced to rise.

This is what we are all seeing – and experiencing – with the cost of fossil fuels of all kinds – mostly gas and oil used for transportation.

The Russia-Ukraine crisis – and its multitude of expected and unexpected consequences – has driven crude oil to its highest level in 14 years – and with that, in the 2020s version of “trickle-down”, (AKA “trickle-up”) prices of everything made or transported by oil also rises – at least as much; in some cases far more.

While there are a multitude of questions about how proportional – or appropriate – some of the price hikes are, that is an issue time, and the well-known “invisible hand of the marketplace” will need to resolve.

It’s a global market

Some are eager to blame any given president (or political party) for gas prices at the pump. As always, the global fuel economy is a bit more complicated.

Oil is bought and sold on a global market – always susceptible to vagaries of nature – like hurricanes or human disruptions like wars, political upheavals or other threats.

As I write this, in the middle of March of 2022, the price of oil has been going up several dollars a day per barrel – and in many regions reaching the highest price ever. But it can also drop by just as much.

The irony of the oil market currently however, is that there is not a drop in supply. Russia, in fact, is discounting its production – but finding fewer and fewer buyers.

In other words, this is a constructed shortage – with shortages and surpluses in different corners of the market.

We in the United States are re-opening oil trade with Venezuela.

Oil prices and production – and demand – are shifting by the moment.

To say that this would destabilize an already healthy economy would be an understatement.

The impacts on an economy already under stress, with demographic shifts, the Great Resignation, persistent supply chain issues and increasingly wild and unpredictable weather, gyrating oil prices can only make a volatile Wall Street and Main Street even more volatile.

And that’s what we see – in the grocery store, at the gas pump and in the stock market.

Every aspect of the economy, from grocery shopper to investment broker, presumes some level of predictability if not stability. But stability is only one of the basics in short supply in the 2020s.

Supply and demand on crack

To describe something as being “on crack” was a common term several years ago – it simply meant behavior beyond expected bounds of possibility.

And that is our economy right now.

We might have the usual expectations and projections, but the rules in every arena – from labor to pay to hiring practices and material delivery (and costs) no longer apply.

You might see a building boom going on.

When, for example, have you seen more building cranes actively at work around Tacoma?

But, as we all know, they are rushing to make up for lost time because of the lull in the construction market since the Great Recession of 2008-09.

As the late-night informercials might put it, “but wait, there’s more”; there are hold-ups and price increases – and labor shortages almost every step of the way.

One contractor recently told me that he couldn’t get concrete delivered. When it comes to actual construction, concrete is almost always the first and most essential ingredient. Everything else follows.

The cost, availability and delivery of concrete impacts the cost, schedule and yes, even the final completion of any project.

With the inevitable and unstoppable force of gravity, the increased costs of a few basics – like gas, concrete and labor – drive up the final cost of everything.

The same contractor who told me he couldn’t get concrete said that, on a square footage basis, new construction was about the same cost as existing housing.

In an era when used cars sometimes cost more than new cars, the inversion of housing prices almost makes sense – which means that it makes sense now, even though it never did before and won’t make sense a year or two from now.

And speaking of headlines that won’t make sense a year from now

Thanks to the Russia-Ukraine crisis, more than 800 McDonald’s restaurants in Russia will be temporarily closing. But the workers in Russia and Ukraine will still be paid.

Wars used to involve weapons or threats, but in the 2020s, wars are all about online videos and Big Macs.

May the best burger, or video, win.

In short, welcome to the 2020s.