David Toledo
Mr. Leedy
Macroeconomics
19 Oct 2015
Trickle-Down Economics (Reaganomics)
The Industrial Revolution happened because of a huge amount of demand for consumer
goods, and not a huge amount of supply of them. It doesn’t matter how many consumer goods are
out there; the economy is going to constrict if people are not buying them. This is how the Great
Depression got started. Wages were not keeping pace with productivity and demand was not
keeping pace with the supply. Economists were assuming that people would keep on buying
when in reality, they could not. The trickle-down theory of economics is just an idea of how the
economy can grow, but is not an absolute. All capitalistic economies experience natural ups and
downs. In times of prosperity, economic activity is high, and jobs are easy to find. In times of
recession, a country’s economy produces less, and people have trouble finding jobs. The
government intervenes to try to help balance out these fluctuations and lessen the pain of
economic decline when they feel that wealth is not trickling down like it should. Each theory has
worked in our country; however, our GDP appears to have more growth in our economy during
the periods when tax rates were lower thus supporting the trickle-down theory.
Adjusting the tax policy is one way to affect the economy, and the U.S. government has
been using tax policy this way almost since the inception of the national income tax in 1913
(How Trickle-Down economics works). Although economists agree that changing how a
government taxes its citizens can have some dramatic effects on an economy, they disagree on
which policy is best. Trickle-down theory is based on the premise that giving tax breaks to the
wealthy makes them more likely to earn more. Top earners invest their extra money in
productive economic activities or spend more of their time at the high-paying trade they do best.
Either way, these activities will be productive, strengthen economic growth, and generate more
tax revenue from these earners and the people they’ve helped. According to the theory, this boost
in growth will ultimately help those in lower income brackets as well. Trickle-down economics
is often associated with the policies of Ronald Reagan in the 1980s and dates back to the 1920s.
Furthermore, companies don’t build here because it is too expensive; they build in the US
because it is cheaper. This dynamic encourages people to come to this country and discourages
