marginal-propensity-to-consume

Cut taxes at the top, the argument goes, and the benefits will flow down through investment, jobs, and higher wages. Everybody wins. But the economy does not run on promises. It runs on what people do with the next dollar. That is what “marginal propensity to consume” really means. When a family living close to the edge gets an extra thousand dollars, it tends to become tires, groceries, a dentist appointment – in other words, it becomes a paycheck for another person. When a household that is already comfortable gets that same thousand, it is more likely to become savings. The money does not vanish. It just takes a route that does not have to pass through a local cash register.