Trickle-down effect

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This article is about the economic phenomenon. For the political term, see trickle-down economics.


The trickle-down effect is an economic phenomenon whereby low-income groups benefit indirectly from the accumulation of wealth of those having higher incomes; that is, the income is said to "trickle down" from the rich to the poor. This phenomenon happens as a result of economic growth. For example, the rich make investments to enhance their wealth, and those investments can generate new jobs.[1] In sociology the trickle-down effect defines the process by which the lower class emulates the lifestyle of the upper class in an effort to elevate its status.[2]

Overview[edit]

Economic growth begets many hidden benefits to the people, such as lower mortality rates or increased literacy.[3] Virtually all countries that underwent economic growth also experienced a reduction in poverty in the general population. When this economic growth occurs some people get richer faster than others, and a class division between them and the poor might occur. However, the wealth of the rich gets dispersed to the poor indirectly, as the rich invest their money.[4] Thanks to the trickle-down effect, the wealthy can lend money to entrepreneurs to start new businesses and generate profits that would further benefit the poor.[5] Also, increased spending by the rich lowers the prices of expensive goods. Economic growth should, therefore, be desirable because the trickle-down effect cannot happen in its absence. Further, the trickle-down effect does not require any statist intervention and it is best for the economy when the state does not fiddle with it so as to manipulate the trickle-down effect. One way in which the state tries to manipulate the trickle-down effect is through taxation of the rich.[6]

Criticism[edit]

Economic growth in and of itself does not fully address the issue of poverty.[7] And the trickle-down effect can happen slowly and not bring proper benefits to the poor.[3] For example, the tax cuts that took place in the USA in the 1980s saw little wealth trickling down to the poor, despite bringing benefits to the rich.[8] Likewise, a decline in poverty and economic growth happened in the 1980s in India as a result of anti-poverty government policies and equitable credit distribution, not because of the trickle-down effect as would be expected.[9] This is why some statist intervention (i.e., government policies) would be required to disperse wealth from the rich, such as a tax system.[6] Further, the rich can invest their money in foreign countries, so very little of their wealth would trickle down locally or nationally.[10] In some countries the trickle-down effect is not a genuine feature of the economy, but an illusion maintained to make the poor believe that there is social mobility.[11]

Society[edit]

The trickle-down effect also exists in sociology. The lower class aspires to turn into the upper class and for that purpose it copies the distinguishable features that define the latter, such as status symbols. For instance, the lower class may wear the same clothing as the upper one does.[2][12]

The Australian government's sports policy following the 2000 Summer Olympics has also been shaped by the trickle-down effect. The Australian government has sought to encourage the public's participation in sports by means of prize winning at sports competitions in the belief that excellent performance would inspire the public to undertake sports.[13]

The trickle-down effect also pervades the cosmetics industry. For example, lead fragrances are said to trickle down in a line of perfumes.[14]

See also[edit]

References[edit]

  1. ^ Gedam R. Facets of economic development. Delhi: Ashish Pub. House; 1989.
  2. ^ a b Moerbeek H, Niehof A, Ophem J. Changing families and their lifestyles. Wageningen: Wageningen Academic Publishers; 2007.
  3. ^ a b Van Willigen J. Applied Anthropology: An Introduction. 3rd ed. Westport, Connecticut: Bergin & Garvey; 2002.
  4. ^ Norberg J, Tanner R, Sanchez J. In defense of global capitalism. Washington, D.C.: Cato Institute; 2003.
  5. ^ Matravers M, Meyer L. Democracy, equality, and justice. Abingdon: Routledge; 2011.
  6. ^ a b Fitzpatrick T, Kwon H, Manning N, Midgley J, Pascall G. International Encyclopedia of Social Policy. Abingdon: Routledge; 2006.
  7. ^ Gardner K, Lewis D. Anthropology, development, and the post-modern challenge. London: Pluto Press; 1996.
  8. ^ Rigney D. The Matthew effect. New York: Columbia University Press; 2010.
  9. ^ Arestis P, Baddeley M, McCombie J. Economic Growth: New Directions in Theory and Policy. Cheltenham, UK: Edward Elgar; 2007.
  10. ^ MacDonald T. Removing the barriers to global health equity. Oxford: Radcliffe; 2009.
  11. ^ Kassiola J. The Death of Industrial Civilization: The Limits to Economic Growth and the Repoliticization of Advanced Industrial Society. Albany: State University of New York Press; 1990.
  12. ^ Noel H. Basics Marketing 01: Consumer Behaviour. Lausanne, Switzerland: AVA Academia; 2009.
  13. ^ Richards G, Brito M, Wilks L. Exploring the social impacts of events. Abingdon: Routledge; 2013.
  14. ^ Muller P, Lamparsky D. Perfumes: Art, Science, and Technology. London: Elsevier Applied Science; 1991.