Thursday, January 28, 2016

UPWARD BLOOM THEORY – An Alternative Economic Theory, replacing “Trickle Down”

Ah, yes, the Presidential election year is on like a light and I’ve been thinking about economics lately.

Decades in the past, the Republicans hoisted “trickle down” economics on us, and, instead, brought untold wealth to the already wealthy. Not a solution. The poorest of us became poorer, and the middle class is now in tatters.

Bernie Sanders has an alternate economic theory.  I earned a graduate degree in finance and economics at NYU’s prestigious Stern Business School, so I have a bit of academic credibility here. So, consider this approach as a new economic theory, replacing “trickle down.” With that in mind, here is my review of his approach:

Like a tree that needs food and water at its roots before it can bloom, the economy has to have people who are wealthy enough to buy the products manufacturers produce. Otherwise, businesses shrink and fail. Those with enough wealth must also believe the economy will at least offer them their current level of wealth, or better yet, more wealth, for their state of mind to be optimistic enough to spend what they earn. Poor attitudes shrink the economy.

 If those at the low end of the economy have more spent by government on education, this would spur their hopes for a better future. I believe there is enough statistical data to prove that better educated people spend more money, especially since they tend to grow higher incomes over time.

The most wealthy people add no additional economic boost when they are given even more money. They tend not to even spend the additional funds on their businesses. Delivering more wealth to them is simple misguided waste.

So, my policy change would be quite simple. Tax the richest Americans at a much higher level and make education past high school much cheaper at state run schools. Also use the additional tax revenue to artificially lower the interest rates charged for student loans to half the prime rate or lower. Finally, use some of the additional tax revenue to pay teachers in public schools (K through 12) 33% more in average salaries.

I’ve run these numbers through my own economic models and the result is a vibrant, growing economy.

If you have comments, please post them. If you think this is important, share it with others


  1. Hey could you show us your economic models

  2. Nouriel Rubini's writings offer most of the ideas I have come to believe and use in my own econometric models. My own models are run in an Excel spreadsheet with pages for each of the past years. Pages are arranged with sectors as rows (where each sector is an economic entity, such as "education" or "high tech B2B") and each column as sequential month of the year.

    The formulas are designed to follow a single economic unit across time and form the forecast perameters with the objective of minimizing the mean absolute percentage of errors. For a detailed set of formulas and examples, refer to David Spiselman article "Chapter 12, nternational Cash Management and Positioning of Funds (pages 291 - 313) in the book 'International Corporate Finance' edited by Harvey Ponichek, published by Hyman Unwin in 1989.