Protectionism is Trickle Down Economics

The opponents of free markets often refer to the concept as “trickle-down economics,” that any change is designed to benefit the richest of the rich and then prosperity would then trickle down to the rest of us commoners.  Most of us in economics realize how ridiculous such a notion is, mainly because the free market works in exactly the opposite: it’s trickle-up economics.  The majority of benefits conferred by free market transactions are obtained by the consumer, the worker, and the average person.  According to a study by William Nordhaus, entrepreneurs capture about 2% of the surplus from their activities.  The remaining 98% goes to you and I.

Interestingly enough, what is trickle-down economics is the protectionist policies many of these same people propose.  The purpose of a protectionist tariff is to protect domestic firms from foreign competition.  This, in turn, protects the firms profits.  Protectionists hope that, by protecting the firms, the firms will, eventually, hire more domestic workers, increase wages, or some combination of the two.  In other words, the protectionists hope that the unnaturally high profits enjoyed by the protected firms will trickle down to workers or the rest of us.

 

 

One thought on “Protectionism is Trickle Down Economics

  1. I’ve had a similar thought. Ironically, the same people who oppose the mythical “trickle down economics” also believe in “trickle down” government stimulus programs, where government allegedly makes it rain down jobs and prosperity.

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