"Trickle-down economics" is a pejorative term that allegedly describes the workings of a free market or free market policies. The modern version of trickle down theory emerged as the Left's reaction to Reaganomics tax cutting.
The idea of "trickle-down" peddled by the Left is that if you leave "the rich" free or freer—cut taxes and regulations—some minimal benefits will trickle down to everyone else. Free markets thus leave everyone else with little more than crumbs of prosperity, while "the rich" hog more and more of the economy's benefits. Therefore, say the Leftists, the government must seize and redistribute a larger portion of the wealth and income of the rich through taxes, as well as shackle them with heavy regulations such as minimum wage laws, so that the average person can better "share" in the economy's riches.
This, of course, is not how a free economy works. Wealth is not a static quantity that must be divided up, with the big issue being how to do it. Nor is one person's productive success achieved at the expense of others. The basic economic activities are individual production followed by trade among productive individuals. Trade is mutually beneficial, so there are no losers in a free economy.
But, what does the Left's description of free market economics as "trickle-down" say about its view of average people? In essence, that the average person is a helpless incompetent who unable to take responsibility for his own life, must wait greedily for freebies to be handed down either as a trickle from the rich or as a larger, redistributed "slice of the pie" from "hand-me-down" government. Average people, as the Left portrays them, are like ducks on a pond, waiting for chunks of bread to be thrown to them. There is no room in the Left's vision for the self-supporting, productive individual. We are all essentially freeloaders, dependent for our economic well-being on handouts either from the rich or the government.
Nothing can be further from the truth or from reality. The rich make money by producing value and then trading value for value in the market—and so does every other person who works for money, on any economic level. From the corporate CEO who is paid millions to the lowest wage worker, the individual productively performs a service in exchange for money. The value-for-value transaction that is trade, in fact, enriches both traders and harms neither. To the extent that a person earns money through production and trade, he is not receiving something for nothing from anyone, nor gaining wealth at others' expense. He is being self-reliant and self-supporting, neither taking nor giving something for nothing. This is true whether a person's labor is primarily manual or primarily mental.
Of course, the amounts of money earned varies greatly, depending upon the individual's contribution to the productive process he is a part of. CEOs and successful entrepreneurs make vastly more money than the janitors or assembly-line workers, because they contribute that much more. This is only fair, so long as force isn't involved (such as government subsidies or bailouts). So long as all associations are voluntary, there is nothing inherently unfair about the income inequality between the CEO and the janitor. Both had to acquire the appropriate level of knowledge and skill their respective jobs required; both had to actually perform the work satisfactorily and competently, with all of the personal virtues that that implies; and both are paid accordingly.
Furthermore, in a genuine free market—which we are far from having today—the road to economic advancement is wide open for everyone willing to expend the effort. Every individual from the lowest paid worker on up is capable of learning and acquiring the knowledge, skills, and virtues of character that can make his labor more marketable, so he can climb the income ladder as far as his natural attributes and ambition will carry him. No one need wait for "trickles": Anyone willing to try has wide latitude to control his own economic destiny, so long as he is free to do so.
Of course, the leading producers—the highest types of workers; the intellectual laborers such as inventors, entrepreneurs, businessmen, CEOs—do shower vast benefits on everyone else, in the form of opportunities. These prime movers conceive of the products and services that enriches our lives, create and run the business enterprises that coordinate the factors of production that bring products and services into existence and to the market, and, in the process, generate the jobs that we all need to earn the money to buy them. To the extent that this entrepreneurial process isn't hampered by government taxes, regulations, and redistribution schemes, prosperity spreads to all levels of society, and to all people willing to learn skills and work. But those benefits must be earned by the average person, which he is perfectly capable of doing, to the extent of his ability, ambition, and personal choice.
The benefits that flow from "the 1%" to the "99%"—to use today's jargon—are not a trickle, but a flood; but also, importantly, not handouts emanating from altruistic motives, but opportunities for all industrious individuals to trade labor for money, in order to trade their earned money for goods, in order to pursue a flourishing personal life.
And it is not true, as the Left's "trickle-down" myth insinuates, that the rich hold all of the cards. The productive process spearheaded by those who rise to the top economic echelon requires talented individuals at all levels, where free market competition for labor fosters higher pay for higher productiveness. This allows workers to share in the rising productivity of their labor provided by entrepreneurs.
The Left is wrong. "Trickle-down economics" is actually a perfect description, not of free market economics, but of socialism and welfare statism. Leaving aside the relatively few people who are physically or mentally incapacitated and thus sometimes may have to rely on voluntary charity, average people are capable of taking care of themselves and/or their families, of moving ahead in life on their own efforts, without handouts from either "the rich" or from the regulatory welfare state. The evidence is all around us.
Free market capitalism is poison to power-lusting statists and their parasitical supporters, whose real goal is trickle-down government handouts for all. But economic freedom—lower taxes, less regulation, reduced government spending, less redistribution and economic cronyism—is the only path to a prosperous life for any honorable person willing to work for it.
It's Time to Bury the "Trickle-Down" Myth
Capitalism: The Unknown Ideal—Ayn Rand
Three Cheers for "Trickle-Down!"