Does the "Trickle Down" Method Trickle Enough?

One economic strategy is the "trickle down" method, in which when given vast amounts of money, big companies will spend and let the benefits trickle down to the common person. In theory, this method should work, right?

The proponents of the Bush-era tax cuts say that letting tax cuts for the highest earners lapse would be a serious setback for the economy because those taxpayers represent a big share of consumer spending. If they don't step up their spending, the argument goes, the recovery will stall, and the rest of us will suffer too.

However, when big businesses, such as banks, only use federal funds, such as those from TARP, to increase their own salaries, there is nothing to trickle down. The issue today is that capitalism has run rampant unregulated for too long. There are no rules to prevent companies from doing this, and so they continue to do it. In order for our economy to make a recovery, the amount of greed among big businesses needs to drastically decline.

Dangerous Loans Were Ignored by Raters

In 2008, the greatest economic crisis since the Great Depression began to unfold. People bought houses on loans and attempted to sell them before their loan debts skyrocketed but this idea only led to thousands of loans not being payed back. The New York Times reports that officials in charge of assessing the risk of these loans ignored proof that the loans were dangerous.

The commission, a bipartisan Congressional panel, has been holding hearings on the origins of the financial crisis. D. Keith Johnson, a former president of Clayton Holdings, a company that analyzed mortgage pools for the Wall Street firms that sold them, told the commission on Thursday that almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors.

Capitalism is undoubtedly a great system. Survival of the fittest is the most successful way to breed competitive, quality businesses, but when regulations are bypassed, it almost always results in chaos.

Chinese Impose Tariff on U.S. Poultry

China has one of the fastest growing economies, which is one reason why the U.S. is so dependent on China for loans. However, China recently imposed a tariff on U.S. poultry.

The tariffs are another example of China’s willingness to use its economic leverage when it feels it is being challenged. An official at one of Japan’s top traders in rare earth minerals said on Monday that there appeared to be no resumption in shipments to Japan, a result of a still-simmering dispute over Japan’s arrest of a Chinese fishing boat captain. The official, who spoke on condition of anonymity, said traders were watching closely to see whether Chinese customs would start letting shipments through again. “China’s rising assertiveness on the international economic stage reflects its growing economic might and the self-confidence of its leadership, but is tempered by the realization that it faces many challenges in terms of its own development,” said Eswar S. Prasad, an economics professor at Cornell.

China's economy is very powerful and many see this as an act of retaliation after the U.S. implemented a tariff on Chinese tires. Despite the fact that Chinese officials have denied this, it still shows that China is in a real position of power due to its economic leverage.

The World is Flat

Columbus was wrong, it seems that the world is indeed flat, although not in the physical manner. The world is flat in the way that Thomas L. Friedman argues. The birth of the internet along with other contributing factors has led the world to become flatter in terms of class. The middle class all over the world is growing, making the world a more even playing field. When people in the U.S. make calls to customer service from many big companies, these calls are directed to India. This is because many jobs have been outsourced to countries where labor is cheaper and without the hinderence of unions or minimum wage. This in turn causes the middle class of those countries, in this case India, to grow dramatically. A much larger number of people then have disposable income. The economy of India is now growing very quickly.

Indian leaders have said they would like to push the economy’s growth rate up to 9 percent — a pace it achieved a couple of years ago — and eventually to 10 percent. India needs faster growth to alleviate poverty and increase job opportunities for a young population; about half the Indian people are 25 or younger.

Despite India's impressive rate of economic growth, many experts wonder if India will be able to sustain it. India is classified as a developing country still and lacks a stable infrastructure. India wants to reach a growth rate of up to 10 percent, but this will be very difficult unless it invests more in its infrastructure. The Indian stock market is also at its highest point in two years. Whether India can maintain its rate of growth or not, the fact still remains that the world is flattening and the U.S. will not be able to keep its status as the ideal economy without making some changes.

Limited Resources are Becoming... Limited

Have you been planning on going on a diet? Pretty soon, you may not have a choice. One of the topics of Thomas L. Friedman's Hot, Flat, and Crowded  is the increasing population of the world. Just 50 years ago the entire population was around 3 billion people. Today, it is more than double that. Furthermore, scientists predict that in 2050 the world population will be roughly at 9.2 billion. What happens when a steadily increasing population meets a steadily dwindling supply of resources? Do we really want to find out? Mark Bittman of the New York Times has this to say about Julian Cribb's new book The Coming Famine:

Like many other experts, he argues that we have passed the peak of oil production, and it’s all downhill from now on. He then presents evidence that we have passed the peaks for water, fertilizer and land, and that we will all soon be made painfully aware that we have passed it for food, as wealthy nations experience shortages and rising prices, and poorer ones starve.

This is a truly scary concept that one day, there simply will not be enough resources in the world to support the growing population. It is crucial to the survival of the human race that we do not get to that point. The only way to achieve this goal is to change our habits. The main problem is not the rise in population, but the over consumption that has become daily life for many people. After WWII, a scientific revolution occurred in which many new farming technologies were discovered. Cribb concludes that with the proper funding, another such revolution could occur. Even more important however, is that people quit their bad habits of over consumption. Combining these two things could just be the answer to one of the world's most pressing problems.

A Breath of Fresh Air

Thomas Friedman calls for a green revolution in America. In Hong Kong, a comical ad promotes the same idea.

No wonder. Pollution is a perpetual bane in Hong Kong — because of both roadside pollution and fumes produced by factories across the border, in mainland Chinese cities like Shenzhen. The Clean Air Network estimates that the city’s air is three times more polluted than New York’s and more than twice as bad as London’s.

The commercial advertises "Fresh Air", a canister that allows citizens of Hong Kong to "breath as the rest of the world does". Airing just before Autumn, a season where pollution skyrockets, this ad came just in time. Most people don't even realize the repercussions of their pollution and how big of an impact they have on the environment. In Hot, Flat, and Crowded, Friedman provides a stat which saying that while driving a car, one throws a one pound bag of trash out the window every mile. People don't realize this occurs because it is not something people do consciously or even something we can see. Instead, the trash is in the form of carbon dioxide released to the air. This is a sobering thought, one that calls into question the American way of living without a thought to what will become of us in the future. Every action has its reaction and this ad makes people realize that.

Energy: Less is More

In Friedman's book, he calls for a "code green", a green revolution. In San Francisco, scientists propose a different strategy than conservation.

 SAN FRANCISCO — Energy efficiency is a way to meet the world’s growing energy needs, just like building more power plants — except that it costs less, emits no carbon dioxide or radiation, and does not rely on scarce resources in potentially hostile places.

Instead of asking people to make do with less, they are suggesting that cities become more efficient, for example, using already existing technologies such as LED lights in streetlamps. Scientists predict that in the year 2020, America could consume 30 percent less energy. By 2050, 88 percent less electricity could be used. This is exactly the revolution that Friedman calls for.