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.