Nov 25 2008

Robert Reich – the financial bailout represents “the worst type of trickle-down economics”

Robert Reich’s Blog: A Bottom-Up Bailout Rather Than Trickle-Down

Berkley professor and former Labor Secretary Robert Reich argues that the $300 billion or so of the Treasury’s $700 billion bailout of the financial markets has mostly been squandered, calling it “the worst type of trickle-down economics”. Reich hopes the Treasury will postpone further disbursements of the bailout funds until the new Administration takes office in the hope that it will go into the hands of consumers, not into the pockets of the big banks’ shareholders.

Click the “play” button to listen to Reich’s commentary on NPR’s “Marketplace”:

Discussion Questions:

  1. What is wrong with the way the banks have used the funds the Treasury has given them? Why hasn’t the bailout worked so far?
  2. What does Reich mean when he calls the bailout “the worst type of trickle-down economics”?
  3. Who does Reich think the remainder of the bailout should go towards helping? What does he mean by a “bottom-up bailout”?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

2 responses so far

2 Responses to “Robert Reich – the financial bailout represents “the worst type of trickle-down economics””

  1. Nicholas s.on 16 Dec 2008 at 11:41 pm

    After hunting down Mr. Hauet about a week ago, he helped to explain to me what is meant by a "trickle-down Economics". It simply refers to the policy of providing tax cuts or other benefits to businesses and rich individuals. The belief is that it will indirectly benefit the broad population. How can it do this you ask? It is hoped that by giving tax cuts to the rich savings will increase, leading to more money in banks that can be loaned out to invest into new capital, start new businesses ect. This idea is based off a model, which assumes that a certain proportion of each dollar of income will be saved. By giving tax cuts to the rich, who have a considerably higher marginal propensity to save, the money will indirectly trickle down from the rich and benefit consumers. Trickle-down Economics is also referred to as supply-side economics or Reaganomics

  2. Sean Isaacson 17 Dec 2008 at 6:46 pm

    The bailout could have been instead given on the condition that the extra money would be given by the banks to firms that employ poorer people – people who are less likely to put the money into their bank accounts for an extended period of time because they need it to spend. This would be the trickling down of the money, next a trickle up will occur, further stimulating the economy. The spending by these lower class workers would then cause a multiplier effect, quickening the pace at which the benefits trickle up into the whole economy, as the money they spend on their morning coffee for example, gets spent by the waiter of the coffee shop when it is transferred to him in his wages, which then is spent by whoever he gives the money to.

    With the current status of the bailout, big firms will be getting most of the loans, firms that employ people with an already large amount of money. This means that a lot of the money will end up in savings accounts or invested into stocks in other big firms, and the money may never actually be of much use to the economy itself.