US financial markets may have seen something of a recovery but, according to some analysts, it’s a false down. One investor, interviewed by the Financial Times, suspects that a sell off is incoming, as nervous investors continue to reflect the tumultuous nature of global markets. In times of short-term economic distress, it can be helpful to look to some of the most venerated voices in the history of economics, and see if what they preached can be applied to the modern market.
Trickle down reality?
There has been a top-level push back against the Reaganomics concept of ‘trickle down’ capitalism. Even President Biden has been seen, according to British news agency ITV, to push back against the system, in a swipe aimed at the British authorities for their tax policies. During times of volatility, it can be reasonable for investors to tighten their belt and contract investments, and look for cuts – resulting in lower worker wages, often. However, not all capitalists agree on this system – including the noted Thomas Sowell. Indeed, reading Thomas Sowell’s books shows wisdom as it concerns these macroeconomic factors. One highlight, published by the American Enterprise Institute, quotes Sowell in stating “In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a “trickle-down” theory. The workers must be paid first and then the profits flow upward later – if at all.” It may be wise, then, to ensure that businesses underpin their outgoings with well paid workers.
Investing in workers is a good proof of concept for the power of investment. Indeed, previous times where investment has been driven into otherwise recession-like scenarios has brought evidence of how this approach can be beneficial. Vox highlights the economic theories of John Maynard Keynes, and how alone can, in the modern era of surplus, achieve many projects, quoting – “Why should we not add in every substantial city the dignity of an ancient university or a European capital?” Keynes insisted. “Assuredly we can afford this and so much more. Anything we can actually do, we can afford.” Investment must continue – and private investors may find value in cheaper but high opportunity options.
Part of the problem with modern economics is the interpretation by governments and how they put that into practice. As one recent ResearchGate study highlights, it is becoming increasingly important to start dispelling economic myths and getting back to the absolute fundamentals of economic theory. This will help to drive a new, more sustainable economy, but one that investors can still get involved in and derive value from.
Looking to the oldest and most revered minds in economics will help to benefit this. Rather than looking at the publicly molded interpretation of economic theory that governments need to serve a mandate, it’s time to look at theory on paper and see where it can take planners, businesses, and the market as a whole.