Trickle Down Delusion

Apr 13, 2020 by

Photo by Jordan Rowland on Unsplash

At a time when factual discourse is crucial, doublespeak continues to prevail. The popular progressive buzzword “trickle down economics” can be seen used by the likes of Nobel Prize winning economist Joseph Stiglitz, who stated,

the Trump proposal is another instance of trickle-down economics — give money to the corporations, and maybe, maybe, it will trickle down to ordinary citizens.

Likewise, former Roosevelt Institute Senior Fellow Richard Kirsch claimed in The Hill,

decades of trickle-down economics have made the U.S. poorly prepared for the economic catastrophe triggered by COVID-19.

While zingers such as “trickle down economics” may be useful for scoring political pop-shots, they are worthless for conveying accurate information. The fact of the matter is that there has never been an economic theory dedicated to having prosperity travel downward to low income people through gifting the wealthy as implied by the aforementioned phrase.

Furthermore, the economic activity occurring in the market resembles nothing like a downward trickle. Thomas Sowell clarifies the misconception in his monograph Trickle Down Economics and Tax Cuts for The Rich as such,

The very idea that profits “trickle down” to workers depicts the
economic sequence of events in the opposite order from that in the real
world.

Workers must first be hired, and commitments made to pay them, before there is any output produced to sell for a profit, and independently
of whether that output subsequently sells for a profit or at a loss.

With many investments, whether they lead to a profit or a loss can often be determined only years later, and workers have to be paid in the meantime, rather than waiting for profits to “trickle down” to them.

The real effect of tax rate reductions is to make the future prospects of profit look more favorable, leading to more current investments that generate more current economic activity and more jobs.

If the current stimulus measures taken by the President are to be critiqued in a way that conveys accurate information and provides useful analyses, the critique itself must be based on how economic activity actually occurs, not a politically viable bastardization.

No matter how many “prestigious” prizes an economist has or what institute a scholar is affiliated with, activity going on in the world has its own set of effects and consequences. Improperly representing this activity may help get rhetoric across to listeners but it will not undo nor hold relevance to what is actually happening in the world

Photo by Jordan Rowland on Unsplash

Source: Trickle Down Delusion – John A. Lancaster

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