ELI5: How does 'Trickle down economics' work and how could this benefit the poor?

If you give money to a poor person they will waste it and eventually be poor again

It's also been shown that the opposite of this is actually true. Poor are the ones who generate the best ROI on large sums of money. Being poor makes you resourceful and encourages you to develop the social and knowledge capital needed to deploy monetary capital for great returns.

If you gave a doctor $10,000. They might toss it into a stock fund and generate 7% a year on it, or they might lease a new car. Most likely, it will just sit idle in a bank account. The point is, they won't do anything with it that will generate massive ROI. In fact, if they lease a car, that's a negative ROI (turning $10k into like -$30k).

But if you give a poor person $10,000, that will change their life. They are going to get a car (allowing them to get a better job), go to school (better job), seed a business (job), move to a better neighborhood, or even just use it to feed their families a bit better (kids do better in school). These kinds of things all generate excellent returns.

To see where trickle down economics breaks down, you look at people as different types of businesses and imagine what they would do with a monetary windfall.

Doctor is like Google, if they get extra money, it will go into giving managers bonuses, get some cool new decorations for the office and maybe get some servers. But in general, the 10 year ROI from the windfall is minimal.

Poor person is like the scrappy startup, if they found some extra money, they will expand marketing, hire employees, maybe get a new office building that has running water. In this case, the 10 year ROI could potentially be 100,000% or more.

ROI is literally the driver of economic growth. So if we want the economy to grow, we need to deploy it where it will generate the best returns. As venture capitalists put their money into fledgling startups because they generate the best returns, the government should focus its social investments on the poor, because they will generate the best returns for the country.

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