“Trickle Down”

This morning Facebook prompted me to share a “memory” (one of my posts I had forgotten) from February 9, 2014. Because it gives a timeless lesson about how “trickle down” works, I thought it appropriate to post a slightly edited version of the post here.

“In 1991, the equipment and services to do what an iPhone today can do (not counting it camera, motion detectors, ease of use, brilliant display, or the endless array of available apps) would have cost over $3.5 million and it would have been bigger than a refrigerator.[i] Only the top 1% could afford such equipment in 1991. Today (2014), half of Americans own smartphones. [That percentage was 77% in 2017.][ii]

A consequence (unintended by some, intended by others, and opposed by too few) of many of today’s most popular economic policies is that they impede the pace of innovation.

“Innovation blindness . . . is a key obstacle to sound economic and policy thinking. And this is a perfect example. When we make policy based on today’s technology, we don’t just operate mildly sub-optimally. No, we often close off entire pathways to amazing innovation.” Brett Swanson[iii]

All things that impede innovation, entrepreneurship, free trade, and the profitability of doing business slow the speed with which more and better things become affordable by the vast majority of people.

Innovation creates new valuable things. Entrepreneurship produces and delivers the new things. Free trade ensures that the raw materials and component parts needed for the new things come from the lowest price source, and profitability is not the only reason, but is usually the sine qua non of why humans go to the trouble of doing all of the above. (Eliminate any of the parts of this process and process slows or comes to a halt.)

Even the poorest among us benefit from the cornucopia of benefits that are made possible by innovations, entrepreneurship, and wealth creation. A simple example is that the poorest Americans today can walk into an emergency room (or be hauled there in an ambulance) and receive world class medical treatment. The faster those processes proceed, the faster the rise in standards living of essentially everyone occurs. Note also that lower prices and higher quality also provides more bang for every welfare dollar.

The fostering or pursuit of innovations, entrepreneurship, free trade, and wealth creation should be limited when the sum of the “externalities” (negative consequences) of a business that would produce cheaper and better things exceed the sum of its benefits. It is impossible, however, to attempt such an analysis if the benefits are ignored or overstated or the negative consequences are ignored or overstated.

All too often in the U.S. today the benefits of innovations, entrepreneurship, free trade, and wealth creation are largely ignored, and their negative consequences are overblown. That sadly ubiquitous approach to policy proposals unnecessarily slows the rise in standards of living of all Americans, especially the poor who need such rise the most. It also slows the rise in standards of living of everyone else in the world (whose progress largely depends on American innovations, entrepreneurship, and wealth creation, whose defense is largely provided by the U.S., and who rely on U.S. foreign aid—which is possible only because of the vast wealth created in the U.S.).[iv]

[i] See “How much would an iPhone have cost in 1991?

[ii] See “10 facts about smartphones as the iPhone turns 10

[iii] See endnote i.

[iv] See “Wealth.”

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