In quite a few circles, trickle-down economics has something of a bad rep - and deservedly so. The theory that cutting taxes on the wealthy is a sure-fire way to improve life for everyone has not fared particularly well in its confrontation with economic reality. They’re not new, but these two articles, from TPM and Robert Frank, do a pretty solid job of running through the empirical evidence that trickle-down theory is about as accurate as a two-buck psychic. Recent events, however, lead me to wonder whether its critics are being too harsh on trickle-down economics. My current visit to IHF partner site in Santiago Atitlan, Guatemala, has driven home that there is, indeed, at least one context in which trickle-down theory has something valuable to offer, namely, an economic crisis. A story from that visit will, I think, do the best job of clarifying what I mean.
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| Candelaria at Biblioteca Puerta Abierta |
Last night, I had dinner with Heidi, the Executive Director of the IHF; Jenica, a Spanish teacher who is volunteering with IHF’s scholarship program; and Candelaria, the 19-year-old tutor and teacher who supervises the scholarship program and provides study hours for the students. We sat at the corner table of the Posada de Santiago - a table with quite a bit of history for the IHF - and talked about the state of the scholarship program, Candelaria’s various educational jobs, and life in Santiago. After a while, the conversation turned to the subject of Candelaria’s family, specifically her five younger siblings. All but the youngest are in school, and the income from Candelaria, her mom, and her dad barely pays the bills, especially since one sister lost her scholarship due to lack of funding for the sponsoring organization. The entire program had folded because donors didn’t have as much to give as in the past. While the IHF’s program continues, we had to cut its size by 64 percent between 2008 and 2009 to keep it afloat. Here, it occurred to me, was a concrete example of trickle-down economics!
The current economic crisis started at the very top, with investment bankers and other financial professionals making egregiously irresponsible bets on the mortgages of people who, in great part, had been pressured or enticed into thinking they could afford to borrow hundreds of thousands of dollars that they, frankly, could not. When the bets started going bad, those i-bankers lost big. But the losses didn’t stop with them. Of course, they hit the people who’s money the professionals were managing. But then, the effects trickled-down. From i-bankers to IndyMac employees to factory workers and every tax-payer in the United States.
The trickle-down effect of the crisis did not, however, respect national borders. Money flows freely from country to country these days (not in itself a bad thing), so there is hardly a community in the world that doesn’t somehow feel the effects of a crisis originating in the rarefied atmosphere of the US financial system, whether in the form of lost jobs or, as in the case of Candelaria’s sister, lower budgets for development organizations. The end result is that when American investment bankers make bad moves, kids in Guatemala lose their scholarships, and more families get closer to the brink of having to decide between education and sufficient food. The trickle, it seems, only flows when things are falling apart.
P.S. Be on the lookout for a video profile of Candelaria and her incredible educational work soon. It’ll be posted here and on the IHF’s main site, internationalhf.org.
I want to share something that made my day. The mail a few days ago carried a letter and a donation (fairly standard for our growing non-profit) - what took all of us by surprise was the source of this very generous donation.
Two third grade classes, from Cresskil, New Jersey held a donation drive to support our partnership work in Ecuador. Ms. Regan and her classes held a penny donation drive as part of their community service work:
“One small penny can change the lives of many”
So 3rd graders, thank you for your generous donation - we know it will change the lives of many in Yambiro, Ecuador. Further, I’m sure your community service will change your own lives. We’re all proud of you and the global citizens you are becoming; we all have something to learn from your hard work….
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